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Why Didn’t Altria’s 1Q17 Earnings Impress Investors?

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1Q17 performance

Altria Group (MO) announced its 1Q17 earnings before the market opened on May 2, 2017. The company posted an adjusted EPS (earnings per share) of $0.73 on net revenues of $4.59 billion. Compared to 1Q16, Altria’s 1Q17 EPS grew 1.4%, while its revenues posted year-over-year growth of 1.3%.

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Stock performance

Analysts expected Altria to post adjusted EPS of $0.74 on revenues of $4.63 billion. The recall of some smokeless products in January 2017 and a 2.7% decline in the cigarette shipment volume in the US could have caused Altria to post lower-than-expected sales. Lower-than-expected revenues and earnings made investors skeptical about Altria’s future earnings, which led to a fall in its stock price. As of May 3, 2017, Altria was trading at $70.22, which represents a fall of 0.8% since the announcement of its 1Q17 earnings.

Year-to-date performance

Since the beginning of 2017, the stock has risen 3.8%. Better-than-expected fiscal 4Q16 earnings led to a rise in Altria’s stock price. However, on March 23, 2017, RBC Capital downgraded the stock to “underperform” from “sector perform,” which led to a fall in its stock price.

During the same period, Altria’s peers Philip Morris International (PM) and Reynolds American (RAI) returned 20.9% and 15%, respectively.

Comparatively, the S&P 500 Index (SPX) and the First Trust Morningstar Dividend Leaders Index Fund (FDL) have returned 6.7%, and 2.3%, respectively, YTD (year-to-date). FDL has invested 11.5% of its holdings in cigarette and tobacco companies.

Outlook

In this series, we’ll look at Altria’s 1Q17 performance by comparing it with 1Q16. We’ll discuss analysts’ estimates for the next four quarters. We’ll also look at Altria’s valuation multiple and analysts’ recommendations.

In the next part, we’ll look at Altria’s 1Q17 revenues.

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