Altria's (MO) Q4 Earnings To Gain From Prudent Pricing & RRPs

Altria Group, Inc. (NYSE:MO) is slated to release fourth-quarter 2018 results on Jan 31, before the opening bell. The company’s earnings surpassed the Zacks Consensus Estimate in the trailing four quarters, the average being 4.5%. In fact, the company’s bottom line has been impressive for almost a year now. Let’s delve into how things are shaping up for the upcoming quarterly release and see if this tobacco giant can maintain positive earnings surprise streak.

Smokeless Products & Pricing to Continue Aiding

Rising health consciousnesses is driving consumers to shift to low risk or smokeless tobacco alternatives. Altria is making impressive strides in this realm and has introduced several reduced risk products (RRPs) that are included in the company’s smokeless category. In fact, its flagship MarkTen and Green Smoke e-vapor products are performing well. Such efforts have been boosting the company’s revenues for a while. Further, we note that Altria recently acquired 35% stake in JUUL, a company renowned for advanced and highly differentiated e-vapor products. Also, Altria is undertaking efforts to expand presence in the cannabis-infused products space, evident from its recent announcement to acquire stakes of the Canadian cannabis company — Cronos Group (NASDAQ:CRON) .

Going ahead, the company expects to continue gaining from the rising popularity of RRPs as well as efforts to bolster the segment’s offerings. In fact, the Zacks Consensus Estimate for revenues in the smokeless category for the impending quarter is currently pegged at $588 million. The estimate depicts a rise of almost 2.2% from the prior-year quarter’s tally.

In addition to benefits from RRPs, Altria’s performance is also gaining from higher pricing for products under the smokeable and smokeless segments. Going ahead, the company continues to envision product pricing to be a vital catalyst in revenue expansion.

Altria Group, Inc. Price, Consensus and EPS Surprise

Low Cigarette Volumes

Altria’s smokeable category depicts gloominess thanks to anti-tobacco campaigns and regulatory hurdles, which are limiting the marketing of cigarettes and affecting sales volumes. Consequently, shipment volumes in the segment have been deteriorating for a while. Also, Marlboro, one of the most prominent cigarette brands of the company, is witnessing consistent decline in market share. Such headwinds are likely to persist in the fourth quarter as well. Apart from Altria, declining cigarette sales volumes are hurting other tobacco players like Philip Morris (NYSE:PM) and British American Tobacco (NYSE:BTI) .

Nevertheless, we expect Altria to tide over such challenges on the back of well-chalked pricing strategies and strength in smokeless alternatives. These factors are likely to aid the company in delivering an impressive performance in the fourth quarter. Let’s now take a look at the picture unveiled by the Zacks Consensus Estimate and the Zacks Model for the upcoming results announcement.

Estimates Unveil a Bright Picture

Altria has been delivering year-over-year bottom-line growth for quite some time. In fact, driven by strong results up until the third quarter of 2018, management has provided a favorable bottom-line picture for 2018. Such aspects boost our expectations for the upcoming quarterly results.

Incidentally, the Zacks Consensus Estimate for fourth-quarter earnings is currently pegged at 95 cents, reflecting an improvement of almost 4.4% from the year ago quarter’s earnings of 91 cents. This estimate improved by a penny in the past 30 days. Moreover, the consensus mark for net revenues of $4,806 million for the impending quarter reflects a rise of almost 22.1% from the year-ago quarter’s tally.

Zacks Model

Our proven model does not show that Altria will beat earnings estimates this quarter. A stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. You can see the complete list of today’s Zacks #1 Rank stocks here.

Although Altria’s Zacks Rank #3 increases the predictive power of ESP, its Earnings ESP of -1.37% makes us less confident about an earnings surprise. You may uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

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