Shares of Altria Group (NYSE:MO) increased little following the tobacco company’s Q2 earnings report nudged beyond expectations levels and reiterated full-year adj. EPS guidance of $4.79-$4.93 (consensus: $4.83).
Despite exceeding Wall Street forecasts with adj. EPS of $1.26 (+2.4%) and sales (excluding excise taxes) of $5.37B (-4.1% Y/Y), the company fell short of the average estimate of $5.42B. The corporation attributed the decrease in revenue to fewer sales of smokeable products, the sale of the wine business, and lower sales of oral tobacco products.
Without excise taxes, sales of smokeable products totaled $4.74 billion (-0.7% Y/Y), falling short of expectations of $5.02 billion. Sales of oral tobacco products, at $633 million (-3.8% Y/Y), similarly fell short of expectations of $683.6 million. Fewer shipments were the leading cause of the revenue reduction in both segments.
Altria (MO) also disclosed a writedown of its Juul investment. As a result of a decline in the assessed fair value of its Juul investment, Altria (MO) recorded a non-cash pre-tax unrealized loss of $1.2B in Q2. The projected fair value of Altria’s investment in Juul as of June 30, 2022, was $450M.
Callum Elliott, a Bernstein analyst, commented on the results, “While the Juul/IQOS/Philip Morris situation represents a significant long-term strategic threat, at the present time, the sky is not falling, in fact, business rolls on just fine.”
Jefferies, which rates it as a buy, despite the operational failure, said: “Despite the miss operationally, we still think positives to be taken. Headline combustible pressures aren’t as bad as they look, while exceptionally strong combustibles pricing trends, robust Marlboro market share, slightly reversed price-gaps between Marlboro and bottom-end of market were all encouraging.”
SA Quant’s stock rating is “hold.”
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