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NEW YORK (Trefis) -- Altria Group (MO) once again proved its profit generating ability as it announced strong earnings last week that corroborate our belief that fundamental value warrants a higher valuation at current levels.
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Revenue rose 5% to $4.34 billion while net income declined to $836 million, or 41 cents per share, compared with $919 million last year. However, excluding one-time special items, redefined adjusted earnings for the quarter increased 13.6% to 50 cents per share from 44 cents per share. Declining cigarette volumes could not prevent the company from posting higher operating profits for the segment. The cigarette division is the most important segment contributing 73% to the total stock price as per our estimates.
Besides cigarettes, smokeless tobacco products continue to perform strongly. Altria's main competitors are Reynolds American (RAI) and Lorillard (LO) in the U.S.
We have a $31 price estimate for Altria , which is about 10% above the market price. We are in the process of revising our estimates to incorporate fourth-quarter earnings.
Thank You for Smoking
Cigarette revenues for the full year were flat at $21.4 billion compared to $21.6 billion last year. In spite of the slightly lower revenues, the company posted a higher net operating profit for the segment equal to $5.7 billion. Altria raised the prices of its cigarettes twice last year, the second of which was in the latter half of December. Had the prices been raised earlier, the effect would have been more visible in this quarter's earnings.
Going forward, we anticipate that prices will keep on rising since cigarette companies have come to accept that volumes will likely decline in the future. Instead, companies are now focused on maximizing profits by increasing the prices periodically. For the entire year, total cigarette volumes decreased 4% for Altria.
Smokeless Tobacco Products Continue to Do Well
Altria operates in smokeless tobacco segment through its brands Skoal and Copenhagen. For the full year, revenues increased 4.8% to $1.6 billion whereas volumes surged by 13%. Moreover, the smokeless tobacco products are perceived to less harmful and enjoy lower excise duties and so enjoy much higher EBITDA margins than cigarettes.
For the full year, Altria posted a 13% decline in net earnings, which can be attributed to higher taxation and abysmal performance by the Financial Services segment in the first half of the year. Indeed, the segment has turnaround and posted positive net profit in the latter half of the year. Operating income declined only 2% to $6.07 billion. Excluding financial services, the operating income actually increased by 5%. So we do believe the earnings are an indicator of better things to come.
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