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Altria Missed Estimates Last Quarter—How Was Its 1Q16?



Revenue growth

As discussed earlier, Altria Group’s (MO) reported net revenue of excise taxes rose 6.0% to $4.5 billion in 1Q16 compared to $4.3 billion in 1Q15. The rise was primarily due to a rise in revenue in all of Altria’s business segments, including smokeable products, smokeless products, and wine.

After missing revenue expectations last quarter, Altria came in ahead of Wall Street analysts’ estimates in 1Q16. Analysts had projected revenue of $4.4 billion.

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Rise in sales compared to peers

MO’s net revenue rose 4.5% to $6.1 billion in 1Q16, reflecting higher net revenue in all of its reportable segments and a stronger focus on execution. In addition, higher pricing for its tobacco products impacted its revenue growth in the quarter. Reynolds American’s (RAI) 1Q16 net revenue rose 41.8% to $2.9 billion.

Other companies such as British American Tobacco (BTI) and Japan Tobacco (JAPAF) (JAPAY) release their results on a yearly basis.

Philip Morris’s (PM) 1Q16 revenue excluding excise taxes fell 8.1% to $6.1 billion. Excluding the adverse impact of foreign currency, its net revenue rose by 2.4% in 1Q16. Vector Group’s (VGR) 1Q16 proforma adjusted revenue also fell 11.7% to $0.3 billion.

Anheuser-Busch InBev transaction benefits

During Altria’s 1Q16 earnings call, its chairman, president, and CEO Martin J. Barrington announced that the Anheuser-Busch InBev (BUD) and SABMiller (SBMRY) transaction should be completed after necessary approvals in the second half of 2016.

This transaction would offer a significant premium on MO’s beer investment and continued participation in the global brewing profit pool. Altria is SABMiller’s largest shareholder, with a ~26.6% stake. Altria expects to receive an approximate 10.5% equity interest in the new, combined company and approximately $2.5 billion in pretax cash, each subject to proration.

Also, the transaction structure could provide tax efficiency to Altria. This would help in contributing long-term earnings growth and strengthening Altria’s top line.

In the coming parts, we’ll focus on Altria’s three reportable segments’ revenues and cost drivers.

MO makes up 1.2% of the iShares Select Dividend ETF (DVY).[1. Updated as of April 30, 2016]


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