Yahoo Finance Could Cost Savings Boost Altria’s 1Q16 Operational Margin?
Could Altria's 1Q16 Earnings Beat Wall Street Estimates?
Altria’s 4Q15 gross margin
Altria Group’s (MO) 4Q15 gross margin rose to 57.6% due to higher pricing. The company’s operating income also increased, by 2.8% to ~$2 billion in 4Q15 from $1.9 billion in 4Q14. This was due to an increase in operating income for all reportable segments. The smokeless tobacco segment’s operating income increased by 8.2% in 4Q15, the highest increase seen among all segments.
Operating margin: Peer comparison
The increase in operating income boosted the operating margin. The operating margin improved by ten basis points to 41.6% in 4Q15, compared with 41.5% in 4Q14. The increase was primarily due to higher pricing and the expiration of the federal tobacco quota buyout. It was partially offset by lower volumes.
Reynolds American’s (RAI) 4Q15 operating margin increased by 4.6 percentage points to 41.2%. The increase was primarily due to strong results delivered by R.J. Reynolds Tobacco Company’s addition of the Newport brand after the acquisition of Lorillard Tobacco Company and related divestitures to Imperial Tobacco (ITYBY).
Philip Morris International’s (PM) adjusted operating income, excluding the impact of unfavorable currency, fell by 7.2% in 4Q15. This resulted in a 4.5% decline in its adjusted operating margin, to 32.4%.
PM will announce its 1Q16 results on April 19, 2016. To learn more about its current position, please read How Big Is the FX Threat to Philip Morris’s Pending 1Q16 Results?
Innovations with cost savings
The company plans to focus on its core competencies in order to deliver robust growth. Marlboro strengthened in 2015, gaining two-tenths of retail (XRT) share in both the fourth quarter and the full year. Additionally, in 1Q16, Altria subsidiary U.S. Smokeless Tobacco plans to expand Copenhagen Mint nationally at a popular price. This will support Copenhagen’s expansion by building awareness and a trial generating plan.
MO plans to protect or enhance its margins through cost savings and price increases. However, higher prices could reduce volumes.
MO makes up 1.8% of the PowerShares Dividend Achievers Portfolio ETF (PFM). In the coming parts of this series, we’ll discuss Altria’s stock price movement and valuation multiple.
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