Altria Group Inc. ( MO ) is set to report second-quarter 2014 results on Jul 22. Last quarter, the company posted in-line results. Let us see how things are shaping up for this announcement.
Factors to Consider this Quarter
Altria has been seeing soft volume trends for several quarters now due to a general shift away from tobacco products amid accelerating prices of cigarettes and worldwide anti-tobacco campaigns. Moreover, higher fees associated with litigations and anti-smoking campaigns pose significant headwinds for margins. These headwinds are expected to continue in the second quarter as well.
Also, during the first quarter, the company began implementing its strategy to manage Skoal's pricing actions in select geographies. The strategy might negatively impact second quarter shipment volumes, but is expected to strengthen the Skoal brand over the long-term.
The company has nationally rolled out its flagship e-cigarette brand MarkTen in June. Earlier in April, Altria's subsidiary Nu Mark acquired the e-vapor business of Green Smoke, which has broadened Nu Mark's product offerings and strengthened its supply chain capabilities. These developments are expected to bear fruits in the e-cigarette category in the upcoming quarter.
However, last week, tobacco giants Reynolds American Inc. ( RAI ) and Lorillard Inc. (LO) entered into an agreement where Reynolds will take over Lorillard for $68.88 per share or a total consideration of $27.4 billion, including assumption of net debt. The combined entity might pose a threat to peer Altria Group, which commands more than 40% market share in tobacco industry in U.S. (Read: Reynolds' $27.4B Lorillard Buy Fails to Cheer Investors ).
Our proven model does not conclusively show that Altria is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here as you will see below.
Zacks ESP: ESP for Altria is 0.00% as both the Most Accurate Estimate and Zacks Consensus Estimate stand at 65 cents per share.
Zacks Rank #4 (Sell): We caution against stocks with Zacks Ranks #4 and #5 (Sell rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Other Stocks to Consider
Other stocks in the consumer staples sector that have both a positive earnings ESP and a favorable Zacks Rank are:
Dr Pepper Snapple Group, Inc. ( DPS ), with Earnings ESP of +3.30% and a Zacks Rank #3 (Hold).
The Coca-Cola Company ( KO ), with Earnings ESP of +4.76% and a Zacks Rank #3