Today, Altria Group (MO) reported its second-quarter earnings results. In the quarter, the company had adjusted EPS of $1.10, in line with analysts’ expectations. Its net revenue excluding excise tax came in at $5.19 billion, beating analysts’ estimate of $5.09 billion. After Altria reported its second-quarter results, its management reaffirmed its EPS guidance for 2019.
However, management lowered its domestic cigarette industry volume estimate for 2019 due to smokers shifting to the vapor products category. Now, management expects the company’s domestic cigarette industry volumes to fall 5%–6% in 2019. The lowering of cigarette sales guidance appears to have led Altria stock to fall more than 1% in today’s premarket trading.
Altria’s revenue growth
YoY (year-over-year), Altria’s net revenue rose 6.4% from $4.88 billion in the second quarter of 2018. Growth in the Smokable and Smokeless product segments drove the company’s revenue. Its Wine segment’s revenue was marginally lower.
The Smokable segment reported net revenue of $4.46 billion. YoY, the segment’s revenue rose 7.7% from $4.16 billion in the second quarter of 2018. Favorable pricing drove the majority of the company’s revenue growth. Also, during the quarter, the shipment volumes of Altria’s cigarettes and cigars increased 0.3% and 2.6%, respectively. However, removing favorable trade inventory movements, the company’s cigarette shipment volumes fell 7.0%.
Revenue in the Smokeless segment rose 4.6% to $570 million in the quarter. Favorable pricing and a decline in promotional investments drove the segment’s revenue. However, a 3.6% decline in shipment volumes offset some of the rise. The Wine segment reported revenue of $165 million, which indicated a fall of 0.6% from $166 million. The increase in shipment volumes was more than offset by an unfavorable mix, lowering the segment’s revenue.
MO’s EPS growth
Altria reported diluted EPS of $1.07 in the quarter, but removing unusual items, its adjusted EPS stood at $1.10. The company’s adjusted EPS rose 8.9% from $1.01 in the second quarter of 2018. Revenue growth, an improving EBIT margin, a lower effective tax rate, and a decline in its weighted average number of shares outstanding drove the company’s EPS. However, an increase in interest expenses offset some of the gains in its EPS.
During the quarter, the company repurchased 3.7 million shares for $195 million, completing its previously announced $2 billion share repurchase program. On July 29, the company’s management authorized a new $1 billion share repurchase program. The new repurchase program is expected to be completed by the end of 2020.
Following its second-quarter earnings, Altria’s management reaffirmed its adjusted EPS guidance of $4.15–$4.27. This guidance represents an increase of 4%–7% from $3.99 in 2018. Management expects its effective tax rate to be 23.5%–24.5% in 2019.