Altria Group Inc. (MO - Free Report) came out with fourth-quarter 2017 results, wherein it continued its robust trend of year-over-year bottom-line growth. Further, the company issued a favorable earnings outlook for 2018.

If we look into Altria’s stock performance in the past three months, we note that this Zacks Rank #3 (Hold) stock has rallied 11.1%, in comparison with the industry’s growth of 7.8%.

Quarter in detail

Adjusted earnings of 91 cents per share surpassed the Zacks Consensus Estimate of 80 cents. Also, earnings surged 33.8% year over year, on the back of greater equity earnings from the company’s beer investments related to AB InBev (BUD -Free Report) , higher adjusted operating companies income (“OCI”) in the smokeable and smokeless segments, lower outstanding shares and reduced adjusted tax rate.

Altria Group Price, Consensus and EPS Surprise
 

Altria Group Price, Consensus and EPS Surprise | Altria Group Quote

However, net revenues fell more than 2% to $6,083 million in the quarter, owing to soft net revenues in the smokeable products segments. Revenues net of excise taxes remained almost flat at $4,696 million. The Zacks Consensus Estimate was $4,793 million.

Management stated that Altria remains focused on enhancing its non-combustible product portfolio for authorization by the FDA.

In e-vapor, Altria’s subsidiary Nu Mark LLC continues to boost MarkTen volume, which expanded 60% in full-year 2017, courtesy of greater distribution and category growth. MarkTen’s full-year 2017 national retail market share was approximately 12.5% in mainstream retail channels. Further, it forms nearly 70% of e-vapor volumes in those channels.

The company also made considerable progress in smokeless and other oral nicotine-containing products. Also, in heated tobacco, Phillip Morris (PM - Free Report) remains committed toward making plans to commercialize IQOS, which it will exclusively sell in the U.S. upon FDA’s approval.

Segment Details

Smokeable Products Segment: Revenues net of excise taxes dipped 1% year over year to $3,935 million, due to soft volumes that was somewhat compensated by better pricing and lower promotions. Domestic cigarette shipment volumes fell 8.9% year over year, stemming from lower cigarette industry volumes, unfavorable trade inventory movements and decline in retail share. On the other hand, shipment volumes for cigars rose 7.9% in the quarter.

Total cigarette retail share declined to 50.3%, representing a 0.8 percentage point slip. This was largely due to a 0.7 share point drop in Marlboro’s retail share stemming from intense competition and increase in cigarette excise tax in California.

Adjusted OCI increased 5.7% to $1,964 million, while margins jumped 3.2 percentage points to 49.9%. This could be attributable to lower SG&A, better pricing and reduced promotions.

Smokeless Products: Revenues net of excise taxes advanced 11.1% to $542 million in the quarter. This was driven by better pricing and reduced promotions, partly countered by soft volumes. Domestic shipment volumes dipped 0.6% to 211.9 million units, mainly accountable to a decline in Skoal volumes, partly compensated by improved Copenhagen volumes. Total smokeless products retail share contracted 1.1 percentage points to 53.6% in the quarter, due to lower share of Skoal.

Adjusted OCI surged 27.2% to $369 million and margins expanded 8.7 percentage points to 68.1%. This was backed by the same factors that drove OCI at the smokeable unit.

Wine: The segment’s revenues, net of excise taxes, tumbled 8.8% year over year at $219 million. Results were impacted by trade inventory reductions, heightened competition and sluggish growth of premium wine. Wine shipment volume also decreased 9.75 to 2.8 million cases.

Ste. Michelle’s adjusted OCI improved 1.6% to $65 million, mainly accountable to better pricing, reduced expenses and favorable mix partly countered by lower volumes. Adjusted OCI margin expanded 3 percentage point to 29.7%.

A Glimpse of 2017

Altria’s adjusted earnings for full-year 2017 came in at $3.39 per share, which advanced 11.9% year over year and also surpassed the consensus mark of $3.28. Notably, Altria’s reported and adjusted tax rate for the full year 2017 was impacted by the recently enacted Tax Cuts and Jobs Act (Tax Reform Act).

2017 revenues slipped 0.7% to $25.6 billion, while revenues (net of excise taxes) climbed 0.8% to $19.5 billion, almost meeting the Zacks Consensus Estimate of $19.57 billion.

Financial Updates

In December 2017, Altria declared a quarterly cash dividend of 66 cents per share. During the fourth quarter and 2017, Altria paid dividends worth $1.3 billion and $4.8 billion, respectively. Further, management remains on track to maintain a payout ratio of 80% of its bottom line. Further, the company repurchased 8.4 million shares for approximately $558 million during the fourth quarter. As of Dec 31, 2017, Altria had approximately $18 million remaining under its share repurchase program of $4 billion, which was, however, concluded in January 2018.

Consequently, management announced a new buyback authorization of about $1 billion, which is expected to be completed by the end of 2018.

Consolidation of Manufacturing Facilities & Management Change

In October 2016, Altria announced the consolidation of several of its manufacturing facilities to streamline operations and achieve greater efficiencies. The consolidation, scheduled to be completed by first-quarter 2018 is expected to deliver approximately $50 million in cost savings.

Concurrently, Altria announced the retirement of Chairman and CEO — Marty Barrington, which is expected to take place later this year. Management also announced Howard Willard as the new Chairman and CEO, who will assume the role on May 17, 2018.

Outlook

Management expects adjusted earnings for 2018 in a range of $3.90-$4.03, up 15% to 19% year over year. This excludes an expected charge of about 9 cents related to tax adjustments.

Altria expects full-year 2018 adjusted effective tax rate to range 23-24%.

Further, capital expenditures in 2018 are estimated in a band of $200 million to $250 million, while depreciation and amortization costs are anticipated to be roughly $210 million.

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