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Can Investors Expect Momentum from Altria’s 3Q16 Earnings?

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Altria Group

Altria Group (MO) is all set to announce its 3Q16 earnings on October 27, 2016, before the market opens. Altria is a holding company that owns six wholly-owned subsidiaries:

  • Philip Morris USA, or PM USA
  • US Smokeless Tobacco Company, or USSTC
  • John Middleton Company, or Middleton
  • Michelle Wine Estates, or Ste. Michelle
  • Nu Mark LLC, or Nu Mark
  • Philip Morris Capital Corporation, or PMCC

Apart from these subsidiaries, Altria also holds 9.6% stake in Anheuser-Busch InBev (BUD).

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Stock performance

In 2Q16, analysts were expecting Altria to post adjusted EPS (earnings per share) of $0.8 on revenues of $5 billion. The company posted adjusted EPS of $0.81 on revenues of $4.8 billion. The fall in shipment volumes of all its brands led to the fall in revenue.

The company management sighted the buildup of inventory in 2Q15 in expectation of a rise in excise taxes to explain the decline in 2Q16 shipment. However, the rise in cigarette prices helped the company post higher-than-expected earnings. This could have prompted the company’s management to increase its EPS guidance for fiscal 2016 to $3.01–$3.07 from an earlier estimate of $3.0–$3.05.

The fall in cigarette shipments has made investors skeptical about future earnings and led to the fall in its share price. As of October 19, 2016, Altria was trading at $61.9—down 10.1% from $68.8 on July 25, 2016.

Year-to-date performance

Since the beginning of 2016, Altria’s share price has risen 7.8%. During the same period, peers Philip Morris (PM) and Reynolds American (RAI) have risen 9.9% and 4.4%, respectively.

By comparison, the broader comparative index, the First Trust Morningstar Dividend Leaders Index Fund (FDL) has risen 13% year-to-date. Notably, FDL has 10.6% of its holdings invested in tobacco and cigarette companies.

Series overview

With Altria’s 3Q16 results just around the corner, this pre-earnings series will focus on what you can expect from the company’s upcoming earnings release. We’ll cover analyst estimates for revenue, operating margins, and EPS. We’ll also look at the company’s valuation multiple and expected stock price over the next 12 months.

Let’s start by looking at why Altria’s revenue fell in 2Q16.

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