Today, Altria Group (NYSE:MO) reported its first-quarter earnings. For the quarter, the company reported an adjusted EPS of $1.09 on net revenues (after excise taxes) of $5.05 billion. The company beat analysts’ EPS expectation of $0.98 and revenue expectation of $4.61 billion. The strong performance from the smokeable and oral tobacco product segments drove the company’s sales during the quarter. Meanwhile, the company withdrew its guidance for 2020 and adjusted the diluted EPS growth objective for 2020–2022. There’s uncertainty about the economic impact of COVID-19 on the global economy. The impressive first-quarter performance appears to have increased investors’ confidence, which led a rise in the company’s stock price. The company was trading 1.8% higher in today’s pre-market trading hours. Let’s look at Altria’s first-quarter performance in more detail.
Altria reports double-digit revenue growth
Altria’s net revenue grew 15.0% from $4.39 billion in the first quarter of 2019 to $5.05 billion. The growth in the Smokeable Products segment and the Oral segment drove the company’s revenue. However, the decline in the revenue from the Wine segment offset some of the increases.
During the quarter, the revenue from Altria’s Smokable Product segment rose by 16.0% to $4.33 billion. Favorable pricing and a higher shipment volume drove the company’s revenue. During the quarter, the domestic cigarette shipment volume increased by 6.1% largely due to favorable trade inventory movements, calendar differences, and the accumulation of cigarettes before the COVID-19 related lockdown. Meanwhile, the industry rate of declines offset some of the increases in the cigarette shipment volume. The cigar shipment volume increased by 13.1% during the quarter driven by increased sales of Black & Mild cigars.
The revenue from the Oral Tobacco segment grew 12% from $509 million to $570 million during the quarter. The higher shipment volume and favorable pricing drove the segment’s revenue. During the quarter, the shipment volume increased by 2.8%. The industry rate of growth, calendar difference, and stocking of products ahead of the lockdown increased the company’s shipment volumes. However, the declines in the market share and wholesale trade inventory movements offset some of the increases in the shipment volume.
During the quarter, the Wine segment reported a 3.3% decline in its revenue. The lower shipment volume dragged the segment’s revenue down. However, the favorable pricing and mix offset some of the declines. Due to the outbreak, the company’s wine sales in restaurants and other hospitality venues were impacted negatively.
Altria’s adjusted EPS
Altria reported a diluted EPS of $0.83 for the quarter. However, removing special items, the company’s adjusted EPS was $1.09—growth of 18.5% from $0.92 in the first quarter of 2019. Higher sales and the increased OCI (operating companies income) margin in the smokeable and oral tobacco product segments and a decline in the number of shares outstanding drove the company’s EPS during the quarter. For the quarter, the Smokeable Products segment’s OCI margin increased by 2.0% to 55.3%. Meanwhile, the Oral Tobacco segment’s OCI margin increased by 0.9% to 73.0%.
As I stated earlier, Altria has withdrawn its guidance for 2020. The company also withdrew its EPS growth guidance for 2020–2022. However, the company’s management added that the COVID-19 outbreak had a minimal impact on its productivity. Currently, all of the company’s manufacturing facilities are operational. In March, Altria temporarily closed its iQOS stores located in Atlanta and Richmond. The company also stopped its in-person marketing efforts. Altria will consider the guidance from public health authorities to reopen the stores and resume its marketing efforts.
Moving to Altria’s investments, management doesn’t think that the outbreak will have a material impact on JUUL and Cronos Group’s operations. However, the company expects its investments in Anheuser-Busch InBev (NYSEARCA:ABI) to be impacted by the COVID-19 outbreak.