Altria Group Inc. (MO), the manufacturer and seller of cigarettes, wine and other tobacco products, registered robust third quarter results of 2010 for the three-month period ending September 30, 2010.
Virginia-based Altria posted earnings of 54 cents a share in the quarter, which was up 12.5% compared with the prior-year quarter and above the Zacks Consensus Estimate of 52 cents a share. The quarter benefited from strong income across its tobacco businesses, lower asset impairment and exit costs, and gains from a reversal of tax reserves and associated interest.
Following the quarter’s result, Altria reaffirmed its fiscal 2010 adjusted earning range to $1.87 – $1.91 per share, reflecting year-on-year growth of 7% – 9% from adjusted earnings of $1.75 per share delivered in fiscal 2009. The current Zacks Consensus Estimate of $1.89 remains at the low-end of the guidance range.
However, the company raised its fiscal 2010 GAAP earnings range to $1.83 to $1.87 a share from $1.81 – $1.85 per share.
Compared to the prior-year period, the quarterly total revenue grew 1.6% to $6.4 billion. Excluding excise taxes revenues grew 3.3% to $4.4 billion. The results were driven by higher pricing which were partially offset by lower volumes and lower financial services revenue. Revenues were also above the Zacks Consensus Estimate of $4.3 billion.
For the quarter under review, operating income increased 27.4% year over year to $1.8 billion reflecting higher 2010 operating income from cigarettes and smokeless products and reduction of Kraft Foods Inc.‘s (KFT) receivables for tax liabilities, fully offset by a tax benefit associated with Kraft and coprate exit costs incurred in 2009.
Segment Details
Net revenue for the Cigarettes segment increased 1.8% year over year to $5,729 million, indicating higher pricing. However, adjusted operating income for the Cigarettes segment grew 9.0% to $1,557 million, certifying higher list prices and lower promotional spending, partially offset by lower volume and higher Food and Drug Administration (FDA) user fees.
On the basis of the year-ago quarter, net revenue for the Smokeless Products advanced 10.5% to $389 million in the reported quarter. However, adjusted operating income for the segment grew a robust 65.4% year over year to $210 million.
Attributing to higher volume and pricing, Cigars’ net revenues and adjusted operating income plunged 3.9% and 12.2% to $147 million and $43 million, respectively, in the quarter compared to a year earlier.
Based on higher volume, the Wine segment’s net revenues surged 4.9% to $107 million in the quarter. However, the adjusted operating income was flat year-over-year.
Revenue from the Financial Services plunged 55.2% year over year to $30 million in the quarter. Reported operating income decreased 52.6% year over year to $27 million, reflecting lower gains on asset sales in 2010.
Cost Savings, Dividend Increase and Financial Update
During the quarter, Altria achieved cost savings of $80 million. The company is set to accomplish an additional cost saving of $210 million by fiscal 2011 for total anticipated cost reductions of $1.5 billion versus 2006.
In August 2010, the Board of Directors raised the quarterly dividend by 8.6% to 38 cents per share compared to the earlier dividend of 35 cents. This was the second dividend increase in fiscal 2010, representing an overall increase of 11.8% year-to-date.
In the quarter, Altria issued $800 million of notes with a coupon of 4.125% maturing in September 2015. Altria also repaid $775 million of notes with a coupon of 7.125% that matured in June 2010.
Zacks Rank
Altria Group’s shares maintain a Zacks #4 Rank, which translates into a short-term Sell recommendation.
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