We recently reiterated our Neutral recommendation on
Altria Group Inc.
), the manufacturer and seller of cigarettes, smokeless products,
wine and provider of financial services in the US. The company
reported earnings of 49 cents per share in first quarter of fiscal
2012, which were in line with the Zacks Consensus Estimate, but
surpassed prior-year results by 11.4%.
The upswing in earnings came as a result of long-term premium
brand-building initiatives by Philip Morris USA as well as strong
performance and increased market share of the company's iconic
Marlboro brand. New products launched in the smokeless product
segment also boosted the company's top-line performance.
Altria has a strong brand portfolio of tobacco and wine. Its
portfolio is enriched with popular names like Marlboro, Virginia
Slims, Copenhagen, Skoal, Chateau Ste. Michelle and Columbia Crest.
Marlboro continues to provide the company a favorable edge over its
Marlboro commanded a dominating market share for several years
on the back of newer innovations to suit consumer taste and
preference. Marlboro Black and Mild and the newly launched Marlboro
Black in non-menthol and menthol varieties occupy a major portion
in the market. In addition, the Copenhagen and Skoal brands rule
the smokeless category. Copenhagen has ventured into newer segments
by launching Wintergreen extra-long-cut, natural varieties.
Moreover, the company's new collaboration with Okono A/S, a
pharma research company engaged in development and manufacture of
nicotine gum with additional capabilities in other products and
technologies, to develop innovative, non-combustible
nicotine-containing products for adult tobacco consumers marks the
company's ability to correctly gauge consumers' choice.
There has been a general shift of consumers to low risk and
smokeless tobacco products. The new venture will help the company
gain market share in the industry.
However, governments around the world are imposing restrictions
on tobacco companies to discourage smokers. This, in turn, is
further dragging cigarette consumption across the world.
The US Food and Drug Administration (FDA) has passed a ruling
that will compel tobacco companies to use strict warning labels on
their cigarette packets to turn customers away from smoking.
Governmental actions that outlaw the use of tobacco products, along
with the diminishing social acceptance of smoking, will adversely
impact the company's volume in many markets going ahead
Moreover, the FDA has also proposed a ban on menthol in tune
with the Tobacco Control Act, which essentially stated that menthol
cigarettes have an adverse impact on public health and the removal
of menthol would be a benefit.
The FDA is currently reviewing the recommendation, among many
other factors, including the unintended consequences of a menthol
ban. As a result of this regulation, costs for the company
increased in an effort to comply with the FDA's requirements.
Moreover, this type of a ban will lead to black marketing of the
products, which would be incredibly detrimental to all parties.
Currently, Altria carries a Zacks #3 Rank (short-term Hold
ALTRIA GROUP (MO): Free Stock Analysis Report
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