Altria (MO) posted fourth-quarter results Friday that showed strength in its smokeless product volume and higher pricing in its cigarette segment. We continue to like the firm’s exceptional dividend yield at today’s prices and think Altria remains a key component of both our Best Ideas and Dividend Growth portfolios. Our fair value estimate for Altria remains unchanged.
Altria’s total fourth-quarter net revenues advanced 3.4% due to increased performance across all of its reportable segments. The company’s cigarette segment’s net revenue advanced about 3% thanks to higher list prices, offset in part by lower volume. Revenue in the company’s smokeless products’ segment increased 6.6% thanks to both higher volume and pricing. Total combined shipment volume for its
Total operating companies income (OCI) at Altria, adjusted for asset impairment and exit costs, increased 5.8% in the fourth-quarter. The firm’s adjusted diluted earnings-per-share in the fourth quarter jumped 13.6%, to $0.50 per share, up from $0.44 per share in the same period a year ago. Adjusted cigarette segment income grew 13.7% in the fourth quarter primarily due to higher list prices, partially offset by lower volume in its ‘premium’ cigarette category, which fell over 7% in the quarter (volume for Marlboro cigarettes, however, dropped 0.6%). Adjusted cigarette segment margins increased 3.2 percentage points, to 38.8% in the fourth quarter. We continue to expect margin expansion in the cigarette segment as pricing initiatives continue to drive higher profitability. Adjusted segment income for its smokeless products increased 3.6% in the fourth quarter from the same period a year ago, though margins did decline a bit (1.9 percentage points) due to higher promotional activity. The cigar segment showed a nice improvement in adjusted income, and its wine segment revealed nearly 23% income expansion. On a full-year adjusted basis, earnings-per-share increased 7.9% to $2.05 per share in 2011, up from $1.90 per share last year.
Looking ahead, Altria expects 2012 full-year adjusted diluted earnings per share to be in the range of $2.17 to $2.23, representing a growth rate of about 6% to 9% from 2011 levels. The firm noted that it expects to continue to return a large amount of cash to shareholders in the form of dividends and maintained its target dividend payout ratio of 80% of its adjusted diluted earnings per share. By extension, we conservatively expect a dividend increase of 5% in 2012 to an annual payout of at least $1.72 per share for an annual dividend yield of 6.1%+ (based on Friday’s closing price of $28.14 per share).