Altria Group Inc. (MO) is scheduled to release its second-quarter 2010 results on Wednesday, July 21. The current Zacks Consensus Estimate for the second quarter is 50 cents a share, which remains flat compared with the prior-year quarter.

First Quarter Performance

Altria, the manufacturer and seller of cigarettes, wine, and other tobacco products, reported strong first quarter 2010 results owing to the company’s growth in the cigarette and cigar businesses.

The quarterly adjusted earnings of 39 cents a share rose 39.3% compared with the year-earlier quarter but missed the Zacks Consensus Estimate by a penny.

Net revenue for the quarter increased 27.3% year over year to $5.7 billion, primarily driven by Cigar segment results that increased 17.4%. The Cigarette segment revenue increased 31.5% for the quarter. Altria’s Smokeless Products segment posted a revenue growth of $381 million during the quarter.


Altria reiterated its fiscal 2010 adjusted EPS guidance of $1.85 to $1.89, reflecting 6% to 8% annual growth, partially due to Philip Morris USA’s federal excise tax related pricing strategies in 2009 and different trade inventory dynamics for tobacco products in 2009 versus 2010. Altria anticipates adjusted earnings growth to build in second half of fiscal 2010.

Also, the company reaffirmed its fiscal 2010 GAAP earnings forecast of $1.78 to $1.82 per share.

Agreement of Analysts

In the last 30 days, out of 12 analysts, two increased the estimate and one lowered it for the second quarter of fiscal 2010, thus providing no directional movement. This implies that most of the analysts are neutral on the outlook and do not foresee any upward catalyst or downward pressure on the result.

For the third quarter 2010, no change of estimate has been noted in the last 30 days. For fiscal 2010, one analyst lifted while one lowered the estimate. For fiscal 2011, one analyst raised the estimate while two analysts pulled down their estimates.

Magnitude of Estimate Revisions

In the last 30 days, there has been no change in the earnings estimate for the second quarter, third quarter, fiscal 2010 and 2011 as seen from the magnitude of the Consensus Estimate trend. Therefore, the analysts expect the company to report in line with their estimates.

Earnings Surprise

Considering earnings surprises, the stock has been almost steady over the last four quarters, with positive surprises in three quarters ranging between a low of 2.13% and a high of 6.38% and a negative surprise in one quarter of 2.50%. The average remained positive at 2.75%. This implies that Altria has surpassed the Zacks Consensus Estimate by 2.75% over the said period.

The upside potential for the estimate in the second quarter, essentially a proxy for future earnings surprises, currently stands at 0.0%.
Zacks #3 Rank

Altria’s shares maintain a Zacks #3 Rank, which translates into a short-term Hold recommendation. Our long-term recommendation for the stock remains Neutral.

Altria Group is the leading player in the U.S. tobacco industry with approximately half of the total market share. Altria’s diversified geographical footprint, robust cash flow, under-leveraged balance sheet, and high dividend yield supports its long-term profitability outlook. The spin-off of Philip Morris International Inc. (PM) from the company improved Altria’s focus on market dynamics, competitive frameworks, and opportunities. In an effort to expand into adjacent categories, Altria acquired UST, the world’s leading moist smokeless tobacco manufacturer.

In the midst of a slow global recovery, the consumers may be less willing or able to pay a price differential for the company’s branded products and may increasingly purchase lower-priced offerings. However, declining cigarette consumption, secular headwinds and UST acquisition costs limit financial flexibility, ongoing suspension of share repurchases, and State excise tax limit Altria’s growth.

Furthermore, the company is plagued by several tobacco liability suits, which are likely to affect long-term profitability and create volatility in Altria’s stock. The company also faces intense price competition, changes in consumer preferences, and unfavorable currency movements.
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