Wednesday, tobacco products maker Altria Group Inc. (MO) posted an increase in its third-quarter profit, helped by higher operating income, higher earnings from its equity investment in SABMiller, and lower income taxes. Adjusted per share earnings from continuing operations rose 4.3% from last year and topped the Street view. In addition, the company narrowed its earnings forecast for the full year.
Q3 Results
The Richmond, Virginia-based company's third-quarter net income attributable to Altria Group Inc. advanced 1.7% to $882 million from $867 million in the year-ago quarter. However, per share earnings were $0.42, flat with last year.
The company noted that reported results reflect higher operating companies income or OCI from financial services and cigars, as well as the OCI contribution from the UST LLC acquisition, lower income taxes, higher earnings from Altria's equity investment in SABMiller plc, and lower general corporate expenses, offset by higher interest expense, higher corporate exit costs, and lower OCI from cigarettes versus the prior-year period.
On an adjusted basis, earnings from continuing operations increased to $998 million or $0.48 per share from $951 million or $0.46 per share in the same quarter of last year.
On average, 11 analysts polled by Thomson Reuters expected the company to post earnings of $0.47 per share. Analysts' estimates typically exclude special items.
Quarterly net revenues totaled $6.30 billion, up 20.3% from the previous year's $5.24 billion, owing to higher pricing related primarily to the federal excise tax or FET increase on tobacco products, and the acquisition of UST. Six Wall Street analysts had a consensus revenue estimate of $4.66 billion for the quarter.
Michael Szymanczyk, Chairman and Chief Executive Officer of Altria, said, "The premium brands of Altria's tobacco operating companies, Marlboro, Copenhagen, Skoal and Black & Mild, continue to display great strength in a challenging operating environment. Altria remains focused on returning cash to shareholders in the form of dividends, as evidenced by our recent 6.3% dividend increase, reflecting the underlying financial strength of our businesses."
Operating income for the recent quarter grew 4.9% to $1.4 billion, due primarily to higher OCI from financial services and cigars, as well as the OCI contribution from the UST acquisition, and lower general corporate expenses.
Line of Business Segments
The company's Cigarettes segment recorded third-quarter net revenue growth of 10.7%, totaling $5.63 billion, compared with $5.08 billion a year ago, largely driven by higher pricing related to the FET increase.
PM USA's cigarette shipment volume in the third quarter of 2009 was negatively impacted by the FET increase. Marlboro's retail share for the quarter edged up 0.1 share point to 41.9% from last year's 41.8%.
Net revenues for the Smokeless Products segment, which includes UST's products and PM USA's Marlboro smokeless products, were $352 million and revenues, net of excise taxes, were $326 million. Reported OCI for the segment was negatively impacted by costs related primarily to the acquisition of UST, consisting of employee separation costs, integration costs and inventory adjustments, as well as costs associated with PM USA's smokeless products, and actions taken to enhance the value equation on USSTC's moist smokeless tobacco or MST brands.
Altria's Cigars division posted net revenue of $153 million for the latest quarter, a jump of 56.1% from $98 million reported in the prior-year quarter, reflecting higher pricing related to the FET increase, and higher volume. Reported OCI for the segment increased 32.4% to $49 million, due primarily to higher pricing and volume.
Third-quarter net revenue for the Wine segment totaled $102 million. Reported OCI for the segment in the third quarter of 2009 was $12 million, which included exit, integration and acquisition-related costs of $7 million.
Reported OCI for the financial services segment was $57 million, an increase of $64 million from last year, due primarily to higher gains on asset sales in the third quarter of 2009, and an increase in 2008 to the allowance for losses.
Year-To-Date Synopsis
For the nine-month period, the company reported net income attributable to Altria Group Inc. of $2.48 billion or $1.19 per share, compared to $4.25 billion or $2.03 per share in the prior-year period.
Adjusted earnings from continuing operations rose to $2.84 billion or $1.37 per share from $2.68 billion or $1.28 per share in the year-ago period.
Year-to-date, net revenues advanced 19.3% to $17.5 billion from $14.7 billion reported in the comparable period of the previous year.
Future In Focus
Looking ahead, the cigarette maker narrowed fiscal 2009 forecast for earnings from continuing operations to a range of $1.53 - $1.56 per share, versus the prior issued guidance range of $1.51 - $1.56 per share. Adjusted earnings from continuing operations is currently projected to range between $1.74 and $1.77 per share, compared to the previously communicated outlook range of $1.72 - $1.77 per share. Analysts are looking for earnings of $1.76 per share for the full year.
Peer Review
Among Altria's rivals, Reynolds American Inc. (RAI) is slated to issue third-quarter results on October 22, with analysts expecting earnings of $1.18 per share, on revenues of $2.19 billion. In mid-July, the company revised its fiscal 2009 outlook, currently expecting adjusted earnings in the range of $4.40 - $4.60 per share, compared to previous guidance of $4.15 - $4.45 per share.
Stock Quotes
Altria shares, which have been trading between $14.34 and $20.19 in the past 52 weeks, closed Tuesday's trading session at $18.66.
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