Altria Group recently announced its Q2 earnings that were marked with solid operating margins and retail share performance of the
company’s premium tobacco brands especially Marlboro. Its strong pricing power and product mix continue to be the key sources of value creation. Altria, previously named Philip Morris Companies Inc., is the parent company of Philip Morris U.S.A, John Middleton, Inc., United States Smokeless Tobacco, Inc., Philip Morris Capital Corporation and Chateau Ste. Michelle Wine Estates. It owns several leading cigarette and smokeless tobacco brands that include Marlboro, Copenhagen, Skoal and Black and Mild. Altria competes with Reynolds American and Lorillard, two of its biggest competitors in the U.S.
We have a $27 price estimate for Altria Group, Inc., which is just slightly ahead of the market price.
Although Altria’s earnings declined 60% due to one-time charges, the tobacco business performed well and delivered strong operating margins led by higher pricing and retail market share growth.
Marlboro, Copenhagen Support Growth
Higher pricing helped Altria boost its operating margins, partially offset by lower shipment volumes. The cigarettes division that contributes almost three-fourths of Altria’s stock value continued to lead the solid operating company income growth of 6% year-over-year (yoy), 3% on an adjusted basis.. The performance was led by the company’s flagship brand Marlboro, which saw sequential growth in its retail market share benefited by the recent new product launches and strengthening menthol business.
The smokeless tobacco division followed suit with strong OCI growth of 12% (yoy) led by its leading premium offerings of Copenhagen and Skoal both of which saw continued growth in their retail market shares. Better pricing helped expand OCI margins by 3.8 percentage points (pp). Copenhagen saw volume growth over the quarter with recent product introductions and strength of its core natural business.
Cigars Income Declines, Premium Wines Sell Well
In the cigars segment, Middleton continued to invest in new products, promotion and brand building to defend Black and Mild’s market position amid significant competition from imported, low-priced machine-made large cigars. While Black and Mild’s retail market share grew 1%, increased promotional investments led to a 16% decline in OCI.
In the wine segment, Ste. Michelle delivered strong financial results as it continued to improve its mix with more higher margin premium products. As a result, net revenues grew at 8-9% while OCI increased double digits in the second quarter and first half of 2011.