Stock of the Day
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Altria (MO)
Altria Profit Down 21%, EPS Guidance Increased
Shares of New York-based Altria fell nearly 2% in morning trading after the company announced a 21% decline in 1Q profit. The company, most often recognized for its Philip Morris brand, had recently completed its spinoff of Kraft Foods, and has been looking to a possible split of its international and domestic cigarette divisions into separate companies. Despite the decline in profit, Altria raised its EPS guidance for 2007 by more than 1% and expects domestic sales of cigarettes, which fell somewhat this year, to turn around. With one spinoff complete and another in the works, what can we expect from the company in the future?
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| Stock Analysis |
Altria is best known as the owner of Philip Morris USA, the world's largest tobacco company by sales, and tobacco products constitute a majority portion of the company's revenue. Other than tobacco, the company had (until March 30, 2007) a large stake in Kraft Foods (KFT: Charts, News, Offers), the second largest food and beverage company after Nestle. It still has a large holding in SABMiller, the world's second largest brewer by volume. Considering its size and concentration in tobacco, Altria is also one of the most prolific lobbying groups in Washington, DC. With the spinoff of Kraft now complete, many investors consider the company, which owns 100% of Philip Morris, a pure play in tobacco, something which has not happened since the company acquired Kraft in the late 1980s.
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Despite the bad press relating to its involvement with tobacco products, Altria has showed steady growth since late 2004. After rocky periods in 1999 and 2003, the company's shares have appreciated by 43% and seemed poised to continue the upward trend, but that changed in April. On March 30th, the company completed its spinoff of its Kraft Foods shares, which helped Altria post a big gain during the subsequent trading session (Note: the large drop in Altria share price in the beginning of April can be attributed to the Kraft shares spinoff). On April 19th, the company announced a 21% drop in 1Q profit, prompting investors to lower shares by 1.7%. The drop in profit had a more limited effect than it could have had because the news was coupled with an upgrade in full year EPS from $4.15-4.20 to $4.2-4.25.
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The decline in 1Q profit was attributed to a decline in domestic cigarette sales, which is a tough pill to swallow for investors expecting Altria to be a pure play in the tobacco industry. The stock's gain on April 2nd was partially attributed to this sentiment, since many believe that the addictive nature of cigarettes would provide more stable growth than the consumption of food and beverages. Louis Camilleri, the Chief Executive of Altria, said that the Philip Morris branch had a "relatively weak quarter", and that international sales kept profit levels from falling further. Additionally, some analysts have speculated that Altria will spin off its international cigarette division later in 2007. Philip Morris International, which maintains a 15% share of the international cigarette market (2005 figure). International shipments increased 1.5%, and demand in developing countries is expected to drive the division forward in upcoming quarters.
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Profile |
The Company's principal activities are to manufacture and market various consumer products, including cigarettes, grocery products, snacks, beverages, cheese and convenient meals. The activities are carried out through its subsidiaries: Philip Morris USA Inc, Philip Morris International Inc, Kraft Foods Inc and Philip Morris Capital Corporation. Philip Morris USA Inc manufactures and markets cigarettes in the United States. Philip Morris International Inc manufactures and markets cigarettes internationally. The major brands include Marlboro, Philip Morris, Parliament, Virginia Slims and others. Kraft Foods Inc manufactures and markets branded foods and beverages in the United States, Canada, Europe, the Middle East, Africa, Latin America and Asia Pacific. The products are marketed to distributors, wholesalers, retailers, state-owned enterprises and armed services. The Company discontinued its sugar confectionery business in 2005.
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