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Tobacco Stocks Queued Up for Q4 Earnings Release: RAI, TPB

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The fourth-quarter earnings season is in full swing with almost 55% of the total S&P 500 members already having reported their quarterly results. Per the Earnings Preview report, the quarter is on track to report the highest earnings growth in two years. Further, the fourth quarter is likely to be the second quarter in a row to report earnings growth after five consecutive quarters of earnings decline.

As per the report, out of the 275 S&P 500 companies that have come up with their quarterly numbers, approximately 68% posted positive earnings surprises, while 54.5% beat the top-line expectations. Total earnings for these index members were up 6.9% from the year-ago quarter, while revenues increased 4.2%.

At present, sectors including aerospace, technology, construction, finance and business services are expected to report double digit and high single digit earnings growth in the current quarter. However, the pace of growth is currently modest.

The Consumer Staples sector has always been a safe haven for investors. The sector is expected report 9.7% earnings growth and 4.1% revenue increase in the fourth quarter.

Particularly, the Tobacco industry which falls within the sector is of particular interest to the investors. Lower gas prices, an improving job scenario and increasing consumer spending power have provided a boost to the economy and did the trick for these stocks. Additionally, these companies will always benefit from the addictive nature of tobacco. However, of late increased competition in the vapor category, declining volumes, strict anti-smoking regulations by governments globally and currency headwinds are the main factors that are weighing upon the industry. The trend is expected to persist in the to-be-reported quarter as well.

The two tobacco giants, who have reported their Q4 earnings so far include Altria Group Inc. MO and Philip Morris International Inc. PM .

While Altria beat earnings estimates due to higher operating income and lower shares, Philip Morris missed expectations by a penny. However, both the companies reported lower volume in the smokeable category, in line with the industry trends.

Let's take a look at what's in store for the two tobacco majors scheduled to release their fourth-quarter 2016 numbers this week.

Reynolds American Inc.RAI is scheduled to report fourth-quarter 2016 results on Feb 9, before the opening bell. The Zacks Consensus Estimate is pegged at 60 cents for the fourth quarter. Our proven model does not conclusively show that Reynolds is likely to beat on earnings this quarter. It has an Earnings ESP of 0.00% and a Zacks Rank #4 (Sell). You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Last quarter, the cigarette company missed the earnings estimate by 4.7%. In the trailing four quarters, it has missed the Zacks Consensus Estimate in three quarters and posted in-line results in the remaining one quarter, with an average negative earnings surprise of 3.4%.

Notably, Reynolds has been experiencing lower-than-expected top-line and bottom-line results in the past few quarters, primarily due to general shift of consumption away from tobacco products. The company is losing share in Moist Snuff segment and the performance of Camel brand remains under pressure. Additionally, the cigarette maker is facing margin pressure owing to pricing power of other major tobacco players and rising cost of sales. The situation is not expected to improve in the fourth quarter. (Read: Reynolds American Q4 Earnings: Stock to Disappoint? )

Reynolds American Inc Price and EPS Surprise

Reynolds American Inc Price and EPS Surprise | Reynolds American Inc Quote

Another tobacco giant, Turning Point BrandTPB , is expected to report its fourth-quarter 2016 results around Feb 9. It has an Earnings ESP of 0.00% and carries a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks Rank #1 (Strong Buy) stocks here . The Zacks Consensus Estimate for the quarter is pegged at 32 cents.

Last quarter, Turnings Point reported a negative surprise of 12.8%. The company has an average surprise of negative 16.7% in the trailing four quarters.

Turning Point Brands, Inc. Price and EPS Surprise

Turning Point Brands, Inc. Price and EPS Surprise | Turning Point Brands, Inc. Quote

In the past one year, the shares of this tobacco giant have gained 19.3% outperforming the Zacks categorized Tobacco industry which has gained 8.4%.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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