Tobacco products maker Altria Group Inc. (MO) on Thursday posted an increase in its fourth-quarter profit, led by the solid performance of the four premium brands of Altria's tobacco operating companies. On an adjusted basis, earnings rose 5.4% from last year, but missed the Street view. Further, the company issued earnings forecast for the full-year 2010.
The Richmond, Virginia-based company's net income attributable to Altria Group was up 6.8% at $725 million versus $679 million reported last year. On a per share basis, earnings advanced 6.1% to $0.35 from $0.33 in the same quarter of last year.
The company noted that the reported results reflect higher operating companies income or OCI from cigarettes, cigars and financial services, as well as the OCI contribution from the UST LLC acquisition, lower corporate asset impairment and exit costs, and higher earnings from Altria's equity investment in SABMiller Plc, partially offset by higher interest expense, higher income taxes, and higher general corporate expenses versus the prior-year period.
On an adjusted basis, net income advanced 4.8% to $802 million from $765 million a year earlier, and earnings improved 5.4% to $0.39 from $0.37 in the fourth quarter of 2008.
On average, 10 analysts polled by Thomson Reuters expected the company to post earnings of $0.40 per share. Analysts' estimates typically exclude special items.
Quarterly net revenues totaled $6.01 billion, an increase of 29.2%, compared to the previous year's revenue of $4.65 billion, reflecting 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 $4.14 billion for the quarter.
Michael Szymanczyk, chairman and chief executive officer of Altria, said, "Altria performed very well in last year's challenging environment as it delivered strong adjusted earnings per share growth, which met our increased earnings guidance."
Szymanczyk added, "Marlboro displayed resiliency in an intensely competitive promotional environment, and we are also pleased with the strong retail share and volume growth of Copenhagen in the fourth quarter of 2009, behind the successful launch of Copenhagen Long Cut Wintergreen."
During the latest quarter, operating companies income grew 15% to $1.30 billion from $1.13 billion reported a year ago. Operating income increased to 20.2% to $1.20 billion from the prior-year's income of $998 million, due primarily to higher OCI from cigarettes, cigars and financial services, as well as the OCI contribution from the UST acquisition, and lower corporate asset impairment and exit costs, partially offset by higher general corporate expenses, due to the timing of expenditures.
Segment wise, the company's cigarettes segment fetched fourth-quarter revenue of $5.37 billion, up 18.9% from $4.52 billion in the previous year, driven by higher pricing related to the FET increase. PM USA's domestic cigarette shipment volume was 11.4% lower than last year, but was estimated to be down about 12% when adjusted for changes in trade inventories.
Marlboro's retail share for the most recent quarter dropped 0.4 share points from the prior year, driven primarily by higher levels of competitive promotional spending.
Net revenues from the Smokeless Products division were $343 million, and revenues net of excise taxes were $317 million. During the latest quarter, USSTC and PM USA's combined smokeless products domestic shipment volume increased 3.6% from last year. Copenhagen and Skoal's combined fourth-quarter volume increased 7.8% over prior year, behind the strength of Copenhagen and its new Copenhagen Long Cut Wintergreen product, which was introduced in November of 2009.
Cigar's segment generated quarterly revenues of $134 million, an increase of 38.1%, compared to $97 million a year ago. Middleton's cigar volume in the latest quarter decreased 2.7% to 303 million units from the fourth quarter of 2008, due primarily to trade inventory reductions.
Fourth-quarter net revenues for Altria's Wine segment were $132 million. In the fourth quarter of 2009, Ste. Michelle's wine shipment volume of 1.9 million cases was 2.2% lower than the prior-year period, due primarily to the timing of shipments around year-end 2008.
Financial services segment posted quarterly net revenues of $10 million, up from 2008, helped by an increase to the allowance for losses in the fourth quarter of 2008. The company added that the allowance for losses at the end of 2009 was $266 million, which reflects a net decrease of $38 million for the year, largely due to a write-off of a lease related to Motors Liquidation Company, formerly known as General Motors Corporation, in the third quarter of 2009.
For the full year 2009, the company reported net income attributable to Altria Group of $3.21 billion or $1.54 per share, compared to $4.93 billion or $2.36 per share in 2008.
Adjusted net income grew 5.6% to $3.64 billion from $3.45 billion reported in the fiscal year 2008, and earnings rose 6.1% to $1.75 per share from $1.65 per share in the previous year. Analysts expected earnings of $1.77 per share for the full year.
Annual net revenues for fiscal 2009 were $23.6 billion, up 21.7% from $19.4 billion reported in the year ended December 31, 2008. Eight Wall Street analysts had a consensus revenue estimate of $16.84 billion for fiscal 2009.
Looking ahead, the company projects fiscal 2010 earnings in the range of $1.78 - $1.82 per share, including estimated charges of $0.07 per share related to exit, integration and implementation costs, UST-acquisition related costs and SABMiller special items. Adjusted earnings are expected to range between $1.85 and $1.89 per share, representing a growth rate of 6% - 8% from an adjusted base of $1.75 per share in 2009. Analysts are looking for earnings of $1.87 per share for fiscal 2010.
Further, the company noted that the business environment for 2010 is likely to remain challenging, as adult consumers remain under economic pressure and face high unemployment. Given the PM USA's profitable FET related pricing strategies last year, Altria expects the first and second quarters of 2010 to be more challenging for income growth comparison purposes than the back half of 2010. Altria also forecasts adjusted earnings per share growth to build in the second half of the year.
The company also announced that it is changing its dividend payout ratio target to about 80% from 75% of adjusted earnings per share beginning with its next declared dividend, reflecting the underlying financial strength of the company, which includes its strong balance sheet.
Altria shares, which have been trading between $14.50 and $20.64 in the past 52 weeks, closed Wednesday's trading session at $19.99. In the pre-market session, the stock is currently trading at $19.90, down 9 cents or 0.45%.
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