What's In Store For Altria Group (MO) This Earnings Season?

Altria Group Inc. (NYSE:MO) is set to report third-quarter 2016 results before the market opens on Oct 27.

Last quarter, the company posted a positive earnings surprise of 1.25%. In the trailing four quarters, Altria reported positive surprises twice and negative surprises on two other occasions, bringing the average positive surprise to 1.09%.

Let’s see how things are shaping up for this announcement.

ALTRIA GROUP Price and EPS Surprise

ALTRIA GROUP Price and EPS Surprise | ALTRIA GROUP Quote

Factors to Consider

Altria reported strong results for the first half of 2016, wherein both the top line and bottom line improved year over year on higher shipments and retail share gains by its flagship brand, Marlboro. As per analysts this trend is expected to continue in the third quarter as well.

Meanwhile, Altria has upgraded its shopping website – marlboro.com – which provides engaging content directly to adult smokers through mobile devices. Further, a subsidiary of the company, PM USA, expanded the distribution of Marlboro Midnight Menthol nationally in first-quarter 2016 to offer adult smokers a strong menthol flavor. These initiatives helped Marlboro gain a leadership position in the market. We expect this strategic move to have a favorable impact on the company’s financial numbers in the soon-to-be-reported quarter.

However, headwinds like increasing cigarette prices and rising worldwide anti-tobacco campaigns are likely to weigh on Altria’s second-quarter volumes. Further in May 2016, the U.S. Food and Drug Administration announced that its regulatory authority covers all kinds of tobacco products including e-vapors. This means that it will now be able to impose restrictions on the sale of e-vapors, which could hurt Altria’s top line, going forward.

Earnings Whispers

Our proven model does not conclusively show that Altria is likely to beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to be able to surpass earnings estimates. However, that is not the case here, as shown below:

Zacks ESP: The Earnings ESP for Altria is 0.00% as both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 81 cents.

Zacks Rank: Although Altria’s Zacks Rank #3 (Hold) increases the predictive power of ESP, its 0.00% ESP makes surprise prediction difficult.

Conversely, the Sell-rated stocks (Zacks Rank #4 or #5) should never be considered going into an earnings announcement, especially when the company is witnessing negative estimate revisions.

Stocks to Consider

Here are some stocks that investors may want to consider as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Sanderson Farms Inc. (NASDAQ:SAFM) has an Earnings ESP of +9.62% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Hormel Foods Corporation (NYSE:HRL) has an Earnings ESP of +4.55% and a Zacks Rank #1.

Avon Products Inc. (NYSE:AVP) has an Earnings ESP of +33.30% and a Zacks Rank #1.

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