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Big Tobacco, Brewers Want to Continue Consolidation; Altria to Benefit

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Altria (MO) is a holding in both the portfolio of the Best Ideas Newsletter and the portfolio of the Dividend Growth Newsletter. The company operates in one of the strongest industries in our coverage universe as it relates to structural composition (think Porter’s 5 forces). The oligopolistic tobacco industry is attractive in a number of ways. Firms in the industry sell an “addictive” product (cigarettes and/or smokeless tobacco), have significant pricing power, generate high margins, and have strong returns on invested capital. Though declining trends in smoking in the US, threats of tobacco-related litigation, new tobacco regulation (labeling) that discourages tobacco use, and excise tax price shocks that may impact demand will always be concerns, we tend to like the structural … Read more

Philip Morris’ Operating Income Growth Stalls in 3Q; Learn About Altria’s Hidden $21.6 Billion Potential Cash Load

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On Thursday, Philip Morris International (PM) reported third-quarter results that showed the continuation of a very challenging cigarette volume environment. Reported net revenues held the line thanks to significant pricing strength, but adjusted ‘operating companies income’ (OCI) still fell 1.9% (shown below). We’re growing skeptical of the firm’s ability to control costs, as there should have been better performance on the operating line given that pricing completely replaced volume losses in the period (price falls straight to the bottom line). Profit margin improvement was surprisingly absent, with the company’s adjusted OCI margin falling 0.9 percentage points from the year-ago period. Image Source: Philip Morris Adjusted diluted earnings per share of $1.44 was 4.3% higher than the same period a year ago, … Read more

Altria Posts Second Quarter Results; Earnings Outlook Raised But Volume Declines Evident

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On Tuesday, Best Ideas portfolio and Dividend Growth portfolio holding Altria (click ticker for report: ) reported solid second-quarter results. Though Altria’s revenue fell nearly 3% (down 1.2% net of excise taxes), the firm was able to drive operating earnings expansion of 6.6% thanks to a combination of strong pricing and cost-cutting initiatives. The cigarette maker’s second quarter adjusted diluted earnings per share advanced 5.1% to $0.62, as all three of the firms’ divisions drove ‘operating companies income’ and margin expansion during the period. Adjusted ‘operating companies income’ at its ‘Smokeable Products’ division nudged higher, but only because cigarette price increases stuck. Its total retail cigarette share grew during the quarter, but industrywide headwinds were massive as the firm’s domestic … Read more

Philip Morris’ Second Quarter Reveals Volume Pressures

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Philip Morris (click ticker for report: ) issued lower-than-expected revenue and earnings in its second quarter Thursday. Net revenues, excluding excise taxes and currency, rose modestly (0.5%) thanks to improvements in ‘Latin America and Canada,’ while operating income, excluding unfavorable currency movements, fell more than 3% (led by more than a 9% slide in operating income in its ‘Asia’ division). Adjusted diluted earnings per share nudged up a penny, to $1.37, and we note that such improvement was augmented by its share repurchase program. Philip Morris’ cigarette shipment volume of 228.9 billion units fell nearly 4%. Though the pace of the volume decline slowed from the first quarter of the year, performance was clearly subdued, and volumes in the ‘Eastern … Read more

Lorillard Boosts Dividend After Solid 2012

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Strength in the cigarette space continued Wednesday morning when Newport’s parent company Lorillard (click ticker for report: ) reported solid fourth quarter results. Revenue jumped 5% year-over-year to $1.7 billion, smashing consensus estimates. Earnings also easily exceeded consensus expectations, jumping 8% year-over-year to $0.79 per share on an adjusted basis. Unlike competitor Altria (click ticker for report: ), which has focused on smokeless tobacco but not yet leaped into e-cigarettes, Lorillard acquired blu eCigs and has capitalized on the segment’s strong growth. Sales of electronic cigarettes jumped nearly 3-fold quarter-on-quarter thanks to increased distribution (and perceived health benefits compared to traditional cigarettes). We believe Lorillard will continue to scale the business using its existing infrastructure, and 2012 could be the early … Read more

The Valuentum Dividend100 Publication; A Must-Have For Any Income Investor

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Dividend investors literally have thousands of income stocks to choose from. So what are they to do, and where can they go for the most trusted forward-looking opinions on dividend growth and safety? That’s the question we seek to answer with our ValuentumDividend100 publication. In this document, we showcase the top 100 high-quality, dividend growth gems within our coverage universe. Whether you’re looking to build a portfolio consisting of high-yielding, dividend-growers or simply seeking to augment it with a few income gems, the Valuentum Dividend100 is an essential resource for any income investor. We outline some of the key components of our Dividend100 publication below, and explain how you can get the most from each of one Sign Up for … Read more

A Dual Focus on Valuation and Yield Is the Best Way to Combat Changes in Future Dividend Tax Rates

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With a potential hike in the dividend tax rate just around the corner, there is no more important time than now for income investors to evaluate their existing portfolio holdings to determine whether they are well-positioned for a higher-tax environment. Assuming there are no changes to the current trajectory, the top dividend tax rate is expected to rise to 39.6% next year (up from 15% currently), and the highest-income earners will see a Medicare surtax on top of that. Evaluate All Aspects of a Dividend Investment First of all, we think those investing in high-yielders (firms) at any price (HYAAP) may be most affected by this change in tax rates. These high-yielders at any price (HYAAP) tend to be favorites of those at or near retirement, particularly given the paltry payouts on fixed … Read more

Altria Reports Second-Quarter Results

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Altria (MO) reported its second-quarter results Wednesday. Adjusted earnings advanced 6% from the prior-year quarter and are now on pace to increase 5.4% for the full year (its pace through the first half). Income from the firm’s cigarettes segment increased nearly 3% on an adjusted basis, with Marlboro delivering sequential retail share growth of 0.4 percentage points. Both Copenhagen and Skoal also showed improving market share in the period. Altria is not immune to economic malaise, as it indicated that the business environment for 2011 will likely remain challenging, as adult consumers face personal financial pressure and high unemployment. However, the firm reiterated its full-year guidance for adjusted earnings in the range of $2.01 and $2.07, which reflects growth of … Read more

Altria’s Dividend Yield is Quite Tempting

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Some readers may be surprised that (Altria) is a top performer for investors in the face of the onslaught of government restrictions and legal actions that have cost the firm tens of billions of dollars and threaten the cigarette manufacturer with bankruptcy. But in the capital markets, bad news for the firm often is transformed into good news for investors. Many shun the stock in the company and fear that its legal liability for producing a dangerous product–cigarettes–will eventually crush the firm. This aversion to the firm pushes down the price of (Altria’s) shares and raises the return to investors who stick with the stock. As long as the firm survives and continues to be very profitable, paying out a … Read more

Lorillard’s Valuation Leaves Something to Be Desired

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This article originally appeared on Seeking Alpha. Please view disclosures: https://seekingalpha.com/article/276520-lorillards-valuation-leaves-something-to-be-desired  The FDA recently ruled that beginning in the fall of next year, all cigarette packaging and advertisements in the U.S. must reveal prominent and perhaps gory health warning labels. These new and larger cigarette warnings, which include an image of a man smoking through a hole in his throat and an image of a parent holding a baby as smoke drifts toward them, represent a huge step by the current administration to curb new smokers from picking up the habit, while encouraging others to quit. But should investors of Lorillard (LO), Altria Group (MO) and Reynolds American (RAI) be concerned? Regulation has long been a part of the tobacco industry and while … Read more