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Why Analysts Expect Altria’s Net Margin to Rise in 3Q17

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Dec. 4 2020, Updated 10:42 a.m. ET

3Q17 expectations

For 3Q17, analysts expect Altria Group (MO) to report a gross margin, EBITDA (earnings before interest, tax, depreciation, and amortization) margin, and net margin of 62.3%, 51.8%, and 31.6%, respectively. In 3Q16, these same margins were 60.7%, 48.0%, and 31.0%, respectively.

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Expansion of net margins

Analysts expect Altria’s net margin in 3Q17 to expand due to the lower cost of sales, a decline in SG&A (selling, general, and advertising) expenses, and a lower effective tax rate. The increase in product prices are expected to lower the cost of sales from 39.3% in 3Q16 to 35.4% in 3Q17.

SG&A expenses are expected to fall from 14.8% to 11.3%. During the same quarter, MO’s effective tax rate is expected to be 35.7%, compared with 36.7% in 3Q16.

Peer comparisons and outlook

For 3Q17, Philip Morris International (PM) is expected to post a gross margin, EBITDA margin, and net margin of 64.7%, 45.4%, and 28.0%, respectively. In 3Q16, these margins were 65.2%, 45.3%, and 27.8%, respectively.

For the next four quarters, analysts are expecting Altria to post a gross margin, EBITDA margin, and net margin of 61.9%, 51.6%, and 33.1%, respectively. In the corresponding four quarters of the previous year, the company’s margins were 60.6%, 47.5%, and 30.5%, respectively. The increase in MO’s product prices could lead to an expansion in its net margin.

Next, we’ll look at the analysts’ earnings per share expectations for 3Q17.

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