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Why Was Altria’s 4Q16 Revenue Lower than Analyst Estimates?

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Aug. 18 2020, Updated 9:29 a.m. ET

Revenue sources

Altria Group (MO) has classified its business into the following segments: Smokeable Products, Smokeless Products, Wine, and Others. In 4Q16, Altria’s Smokeable Products segment contributed 84% to the company’s total revenue, while the Smokeless Products, Wine, and Others segments contributed 10.3%, 5.1%, and 0.6%, respectively.

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4Q16 revenue

Altria posted a net revenue, excluding excise taxes, of $4.73 billion, which represents year-over-year growth of 0.1%. Analysts were expecting the company to post net revenue of $4.8 billion. The decline in Marlboro shipments of cigarettes and other premium products led to lower-than-expected 4Q16 revenue.

Year-over-year, revenue from the Smokeable Products segment fell 0.9% to $4.0 billion. The decline in revenue was due to the 4.8% decline of cigarette shipments by PM USA. Marlboro and other premium products reported a decline of 4.8% and 7%, respectively. However, some of the revenue declines were offset by a price rise in all smokeable products and a rise in Middleton shipments by 5.3%. Middleton’s shipment growth was driven by a strong performance from the Black & Mild brand, which posted year-over-year growth of 5.7%.

Revenue from the smokeless product segment rose 7.7% due to a rise in shipments of Copenhagen by 7.8% and a rise in all product prices. Copenhagen was benefited by the nationwide expansion of its Copenhagen Mint product. However, during the quarter, the shipment of Skoal products fell 5.6%, offsetting some revenue growth from this segment.

The Wine segment posted year-over-year revenue growth of 8.1% due to a strong performance from its premium brands. However, revenue from the Others segment fell 31.8% during the quarter.

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Peer comparisons

During the same period, analysts are expecting Altria’s peers Philip Morris International (PM) and Reynolds American (RAI) to post revenue growth of 4.4% and 3.3%, respectively.

Outlook

Analysts are expecting Altria’s revenue to rise 2.4% in 2017 to $19.8 billion. Despite the decline in cigarette shipments, analysts are expecting product innovations and price to drive Altria’s revenue in 2017. In January 2017, Altria acquired Nat Sherman, which is known for its handmade cigars and luxury cigarettes. The acquisition is also expected to boost the company’s revenue in 2017.

Next, we’ll look at Altria’s 4Q16 margins.

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