Altria Delivers on Earnings, Again and Again (MO)

Altria Group, Inc. (NYSE: MO) has some mixed earnings data this morning that is driving shares.  America’s Big Tobacco reported earnings of $0.44 EPS versus $0.35 EPS a year ago, meeting the Thomson Reuters estimates this morning.  That net income figure was $919 million to show just how profitable it is selling tar, tobacco, and nicotine.  Price hikes helped to offset a 7% shipment decline as revenues were listed as Revenues were slightly above plan at $5.19 billion.  This figure was higher than what we had as $4.27 billion, but the difference may have been from smokeless tobacco being in the mix and those price hikes.

Altria also announced a new $1 billion share repurchase program after having put buybacks on hiatus. For guidance, the tobacco giant sees 2011 full year guidance of $2.00 to $2.06 EPS net and $2.01 to $2.07 EPS on an adjusted basis.  That would be 6% to 9% growth from an adjusted base of $1.90 per share in 2010.  Thomson Reuters has estimates of $2.02 EPS for 2011.

Analysts are often off when it comes to adding in new units (UST for smokeless tobacco, being accretive to earnings last year) and also in price hikes.  We would tend to discount that revenue numbers as there are far fewer analysts which even make revenue forecasts.

The cost cuts also played their part here.  Altria claimed cost savings of $65 million in the fourth quarter and $317 million for the full year of 2010.  The company sees $145 million in additional cost savings by the end of 2011 for total anticipated cost reductions of $1.5 billion versus 2006.

With prices rising and rising, you have to wonder just how inelastic the demand for cigarettes can remain.  That being said, the same argument has been made for over a decade now.

Altria shares are indicated up 0.25% at $24.33 versus a 52-week trading range of $19.14 to $26.22. The reason shares aren’t up much more is because they had gotten a bit too far ahead of themselves before the most recent pullback.

JON C. OGG