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Altria’s Wine Segment Delivered Robust 1Q16 Results

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Nov. 20 2020, Updated 1:02 p.m. ET

Wine segment’s 1Q16 revenue

Altria Group’s (MO) wine segment’s 1Q16 net revenue rose 8.2% to $0.15 billion compared to $0.13 billion in 1Q15. Altria’s subsidiary Ste. Michelle is a leading producer of Washington State wine, which is another product segment of the company.

Ste. Michelle owns wineries and distributes wines in several other wine regions and foreign countries.

Unlike Altria’s tobacco segment, which is domestic in nature, Altria’s wines are distributed internationally. Chateau Ste. Michelle, Columbia Crest, and 14 Hands are some of the wine brands produced by Ste. Michelle.

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Operating income and shipment volume

Ste. Michelle’s operating income rose 3.7%, primarily driven by increased shipments and mostly offset by higher costs. However, despite an increase in shipments, Ste. Michelle’s operating margin fell by 0.9 points to 20.0% in 1Q16.

Ste. Michelle’s wine shipment volume rose 8.1% to 1,851 thousand cases in 1Q16, primarily due to strong performances among its core premium brands and the benefit of the early Easter holiday.

Significant competition

Ste. Michelle’s premium wines garnered more than 250 90-plus ratings in 2015, a rise of nearly 40% from last year, according to Martin J. Barrington, Altria’s CEO. However, Ste. Michelle’s wine is subject to significant competition from large, well-established domestic and international companies and many smaller wine producers.

However, Altria’s tobacco peers Reynolds American (RAI), Japan Tobacco (JAPAF), British American Tobacco (BTI), and Vector Group (VGR) do not have presences in the wine segment. This indicates that Altria’s portfolio diversification could provide it with a competitive advantage.

Domestic wine expansion

Ste. Michelle plans to expand the distribution of its domestic wines in restaurants, wholesale clubs, supermarkets, wine shops, and mass merchandisers. It also plans to focus on improving its product mix to favor higher-priced, premium products.

To learn more about Altria’s wine segment, you can read Understanding Altria’s Wine Business Segment.

MO makes up 1.8% of the PowerShares Dividend Achievers ETF (PFM).[1. Updated as of April 30, 2016]

In the next part, we’ll focus on Altria’s margins after its 1Q16 results.

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