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Why Altria Stock Fell after Its Q2 Release

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Altria Group (MO) reported its second-quarter results yesterday. In the quarter, the company’s adjusted EPS of $1.10 fell short of analysts’ estimate of $1.11. However, its net revenue of $5.19 billion beat their estimate of $5.09 billion.

Following its second-quarter report, Altria lowered its 2019 cigarette sales guidance. Due to more adult smokers shifting to e-vaping, the company expects its domestic cigarette volumes to fall 5%–6% this year, updated from its previous guidance of 4%–5%. The company’s lower sales guidance has made investors wary of Altria’s growth prospects, dragging down its stock. Altria stock fell to a low of $47.35 yesterday before closing at $48.50, 3.6% lower than on Monday.

Although broader equity markets have strengthened, Altria stock continues to struggle. This year, the stock has fallen 1.8% while the S&P 500 has risen 20.2%. Meanwhile, peers Philip Morris International and British American Tobacco have returned 29.3% and 13.0%, respectively.

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What drove Altria stock

During the second quarter, Altria’s revenue grew 6.4% YoY (year-over-year) to $4.88 billion. This growth was driven by the smokable and smokeless product segments, favorable pricing, and effective promotions. Smokable product revenue grew 7.4% YoY to $4.47 billion, with cigarette and cigar shipment volumes growing 0.3% and 2.6% YoY, respectively. However, adjusting for trade inventories and other factors, cigarette volumes fell 7.0% YoY.

Altria’s smokeless product net revenue rose 4.6% YoY to $570 million during the quarter, boosted by higher product prices and lower promotional investments. However, this growth was offset by shipment volumes falling 3.6% YoY due to industry decline, trade inventory movements, and losses in retail share.

During the second quarter, Altria’s wine revenue fell slightly YoY to $160 million from $162 million. This decline was due to an unfavorable product mix offset by higher shipment volumes.

Altria’s EPS growth

During the second quarter, Altria’s diluted EPS came in at $1.07. However, excluding unusual items, the company’s adjusted EPS rose 8.9% YoY to $1.10 from $1.01. Higher revenue, net margin improvement, and share repurchases boosted the company’s EPS during the quarter. Higher interest expenses offset some of those gains.

Altria’s net margin improved YoY to 39.6% from 39.2%, thanks to favorable pricing, cost-saving initiatives, and lower effective tax. In the second quarter, Altria completed its previously announced repurchase program of $2 billion by buying back 3.7 million shares for $195 million. In the last four quarters, the company has repurchased 18.8 million shares for $1.07 billion. These share repurchases have lowered Altria’s weighted average number of shares outstanding, driving its EPS.

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