Altria Group Inc.
) revised its full-year reported earnings per share guidance
upwards in order to reflect the reduced cost under the Master
Settlement Agreement (MSA).
Altria has revised its reported earnings estimate to a range
of $2.57 to $2.62 from the previously announced range of $2.51 to
$2.56 after the arbitration panel presiding over the long-running
dispute between the cigarette companies and the 46 U.S. states
ruled in the tobacco companies' favor.
Philip Morris USA Inc., (the subsidiary of Altria which
manufactures and sells cigarettes and certain smokeless products
in the United States) expects that its 2014 MSA payment
obligations will be lowered by $145 million. As a result, the
reported pre-tax earnings for the third quarter of 2013 are also
expected to be higher by $145 million.
However, Altria, which carries a Zacks Rank #4 (Sell),
reaffirmed its adjusted 2013 full-year earnings expectation in
the range of $2.36 to $2.41, up 7% to 9% from the adjusted
diluted earnings per share base of $2.21 in 2012.
The non-participating manufacturer adjustment (NPM Adjustment)
dispute was related to the NPM adjustment provisions of the MSA.
The agreement was inked between 46 states and major tobacco
players including Altria,
Reynolds American Inc.
Philip Morris International Inc.
). Under the agreement, the participating companies had agreed to
pay tobacco-related health-care costs to these states and also
abide by the restrictions on advertising, marketing and selling
cigarettes imposed by the states.
The dispute arose over the amount that these tobacco companies
had to pay to the state governments. The tobacco manufacturers
argued that they lost market share in these states to other local
cigarette makers who did not enter the agreement.
Moreover, the tobacco companies argued that at least 15 states
had failed to diligently collect escrow payments from
manufacturers that did not sign the 1998 agreement. This failure
entitled participating manufacturers to lower payments.
The cigarette makers won against six of the 15 states. The
panel ruled that those states who failed to enforce escrow
payments laws would not be entitled to collect the payments from
tobacco manufacturers either.
The lower MSA payment is expected to boost earnings in the
coming quarter for the tobacco giants.
LORILLARD CO (LO): Free Stock Analysis Report
ALTRIA GROUP (MO): Free Stock Analysis Report
PHILIP MORRIS (PM): Free Stock Analysis
REYNOLDS AMER (RAI): Free Stock Analysis
To read this article on Zacks.com click here.