Altria Inc.’s (MO - Analyst Report) second-quarter 2016 adjusted earnings of 81 cents per share beat the Zacks Consensus Estimate of 80 cents by 1.25%. Earnings also increased 9.5% year over year on the back of strong performance of the core tobacco business and the leading premium brands.

Revenues and Margins

Net revenue dipped 1.4% to $6.5 billion backed by higher sales across all segments. Revenues net of excise taxes remained flat year over year at $4.9 billion. The top line also missed the Zacks Consensus Estimate of $5.03 billion by 2.58%.

Altria Group Inc. (MO - Analyst Report) Street EPS & Surprise Percent - Last 5 Quarters | FindTheCompany

Supported by lower excise tax levied on products, gross profit inched up 3% year over year to $2.95 billion. Operating income increased 8.4% to $2.41 billion.

Segment Details

Smokeable Products Segment: Net revenue was down 2.4% year over year to $5.82 billion due to lower shipment volumes. Revenues net of excise taxes slipped 1.1% to $4.23 billion.

Shipment volume decreased 4.9% year over year to 31.82 billion units.

Cigarettes retail market share remained flat year over year as higher gains in Discount brands were offset by lower shares in Marlboro and Other Premium brands. Marlboro’s retail share declined 0.1 pp to 44.1%.

Retail share for cigars dipped 1.1 pp due to lower shares at the Black and Mild brand.

Smokeless Products: Revenues jumped 8.7% to $523 million supported by higher pricing, partially offset by increased promotional investments. Revenues net of excise taxes increased 9.2% to $488 million.

Smokeless Products’ shipment volume increased 4.3% to 217.9 million units buoyed by a 5.2% rise in Copenhagen and Skoal shipment volumes.

Smokeless Product’s retail share grew 1.1% year over year. Copenhagen brand’s retail share increased 2.8 pp, whereas Skoal witnessed a 1.3 pp dip.

Wine: The segment’s revenues went up 6.2% year over year to $171 million due to higher shipments. Revenues net of excise taxes increased 5.8% year over year to $165 million.

Wine shipment volume rose 3.4% to 2.12 million units driven by higher shipments of Ste. Michelle brand.

Outlook

Altria raised its 2016 outlook. The company expects adjusted earnings per share in the range of $3.01–$3.07 compared with $3.00–$3.05 expected earlier. This range represents a growth of 7.5–9.5% from the adjusted diluted earnings per share of $2.80 posted in 2015.

Altria maintains its full-year effective tax rate expectation at around 35.3%.

Financial Updates

During the second quarter, Altria repurchased 2.7 million shares for a total of $173 million.

In May 2016, Altria declared a regular quarterly dividend of $0.565 per share, which amounted to an annualized dividend of $2.26 per share.

Anheuser-Busch InBev SA/NV (AB InBev) is making progress in securing regulatory clearances for its merger with SABMiller plc (SABMiller) where Altria holds a minority stake.

E-Vapor Category in Focus

Altria’s subsidiary Nu Mark LLC (Nu Mark) stepped up the distribution of MarkTen XL and Green Smoke e-vapor products across several markets.

Productivity Initiative

In Jan 2016, Altria announced the implementation of an initiative for approximately $300 million in annual productivity savings by the end of 2017. Part of the savings is to be realized through reduced spending on certain infrastructure and will be invested in brand building and regulatory capabilities. Such initiatives are expected to help the company reap higher profits over the long term.

Zacks Rank

Altria has a Zacks Rank #2 (Buy). In order to combat macro issues, the company, along with other tobacco majors like Philip Morris International Inc. (PM - Analyst Report) , British American Tobacco (BTI - Snapshot Report) and Reynolds American Inc. (RAI - Analyst Report) , is focusing on the growth of the alternative tobacco product category.