uploads///Q Smokeable overview

Why Altria’s 1Q16 Smokeable Segment’s Shipment Volume Rose

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May. 13 2016, Updated 2:05 a.m. ET

Smokeable segment’s revenue

Altria Group’s (MO) smokeable product segment’s net revenue rose 3.8% to $5.4 billion in 1Q16 compared to $5.2 billion in 1Q15. The rise was primarily due to higher pricing and higher volumes, partially offset by higher promotional investments. Altria’s revenues net of excise taxes rose 5.3% in the quarter.

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Operating income

MO’s smokeable segment’s operating income rose 3.9% to $1.8 billion in 1Q16 compared to $1.7 billion in 1Q15. The rise was driven by higher pricing, higher volumes, and lower SG&A (selling, general, and administrative) expenses and manufacturing costs. This was partially offset by restructuring costs, higher resolution expenses, and higher promotional investments.

The segment’s adjusted operating income rose 9.2% excluding special items. Special items included NPM (non-participating manufacturer) adjustments, asset impairment, exit and implementation costs, and tobacco and other litigation charges.

Shipment volume of smokeable segment’s subsidiaries

PM USA’s reported domestic cigarettes shipment volume rose 1.2% in 1Q16. This rise was benefited by an extra shipping day, trade inventory movements, and retail share gains, which more than offset industry volume decline. The shipment volume of Middleton’s cigars also rose 8.3%, driven by Black & Mild in the tipped cigars segment.

Marlboro’s retail share remained unchanged at 44.0% in 1Q16 compared to 1Q15. This was larger than peer cigarette brands Camel (RAI), Eagle 20 (VGR), and Lucky Strike (BTI). PM USA’s total retail (XRT) share rose by 0.3 points, driven by L&M Discount. However, machine-made large cigars’ retail share fell by 0.7 points in 1Q16.

Focus on investments

Altria Group continues to focus on investments. For example, Altria’s subsidiary PM USA heavily invests in the vibrant Marlboro franchise and continues to maintain a long-term approach to the business.

Additionally, Altria continues to focus on Black & Mild’s strength in the more profitable tipped cigars segment. Black & Mild continued to deliver strong results in 1Q16.

MO makes up 5.4% of the PowerShares DWA Consumer Staples Momentum ETF (PSL).[1. Updated as of April 30, 2016]

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