Tobacco Stock Earnings Go Smokeless – PM, MO, RAI


Tobacco companies may get more than their share of bad press for some things, but when it comes to earnings the companies do much better. Three of the world’s largest tobacco companies — Phillip Morris (PM), Altria (MO) and Reynolds American (RAI) —  have recently announced first quarter results, and while those results are mixed, there are still plenty of tobacco users to go around.

Philip Morris International (PM), the largest tobacco company in the world, reported first quarter revenues were up 16% year-over-year to $6.5 billion. EPS totaled $0.90, up from $0.74 a year ago, but below average estimates of $0.93. Altria Group, Inc. (MO) beat revenue estimates of $3.84 billion, coming in at $3.9 billion; and beat EPS estimates of $0.40 with EPS of $0.42 excluding items. Reynolds American Inc. (RAI) beat revenue estimates of $1.91 billion, coming in at $1.99 billion, and blew past EPS estimates of $1.07, posting EPS of $1.11 excluding a litigation settlement in Canada.

Sales of cigarettes continue to fall at all three makers, but rising prices, especially in foreign markets, helps staunch the bleeding. Taxes have also played a role in the sales drop, driving the cost of cigarettes up practically everywhere.

Philip Morris shipped more than 200 billion cigarettes in the quarter, while Altria shipped 34 billion and Reynolds sold more than 18 billion. The totals, though huge, represent a decrease in sales for all three makers, ranging from -0.7% at Altria to -2.3% and -2.5% at Philip Morris and Reynolds, respectively.

Smokeless tobacco products are gaining ground though, and margins also grew for these products. Altria reported a jump of 49.2% on operating incomes from smokeless products and Reynolds noted a rise of more than 12% in sales volume for smokeless tobacco.

Reynolds reaffirmed EPS guidance for the full year at $4.80-$5.00. Altria also reaffirmed EPS guidance of $1.78-$1.82, as did Philip Morris, with EPS of $3.75-$3.85.

In the face of tax increases and marketing restrictions it’s a wonder these companies can make money at all. Litigation costs, write-downs for impairment of trademark values, and who knows what else are a significant anchor on share value. Still, tobacco users are addicted to the stuff, and that’s a powerful driver for this business.

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