This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Will Altria Group Resume Downward Earnings Trend?

NEW YORK (TheStreet) -- Shares of Altria (MO - Get Report) bounced back by the end of last week after sliding by more than 4% during the beginning of the week. The company's stock closed the week at $42.17. But Altria's recent recovery could change direction again if it doesn't impress its investors in the second-quarter earnings report that will come out on July 22. In anticipation for this report, let's examine several factors that could impede the company's progress.

1. Reaching market expectations

The current market expectations are for earnings of 66 cents per share, compared with earnings of 63 cents in the second quarter of last year. The company continues to see a drop in volume of cigarettes sold, which is likely to keep falling as long as fewer Americans are smoking. Despite the drop in sales, Altria continues to hold a sizable market share of close to 44%. Any fall in market share could also mean trouble for the tobacco giant.

2. Keeping the high profit margins

Altria is in the midst of repurchasing its shares, which helps improve its EPS. Therefore, a better way to examine its profit margin is to compare the operating profitability over time.

[Read: Nearly All Cigarette Companies Are Selling E-Cigs Now]

In the first quarter, its operating profitability dropped to 31% -- back in the same quarter last year, it was close to 39%. If the downward trend continues, it could steer investors away from its stock.

The company's profitability could also eventually affect its dividend payment. Most of its earnings are distributed as dividend: In the first quarter, the payout ratio (the ratio between the dividend per share and EPS) was 82%. Any drop in EPS could eventually impede the growth in Altria's dividend pay.

3. E-Cigarettes

Altria is arriving a bit late to the vapor business, which was led by Lorillard (LO - Get Report) and Reynolds American (RAI) brands -- with emphasis on "was." The recent merger between the two companies also included the divestment of Lorillard's vapor brand Blu to Imperial Tobacco Group. In any case, this still means Altria will have an uphill battle with other leading vapor brands. If the company reports any substantial progress on this front, this could be beneficial for its value.
[Read: Philip Morris Profit Slips as Cigarette Smoking Decline Takes Toll]

Shares of Lorillard and Reynolds American also haven't done well in the past few days: Lorillard's stock declined by 6.5% and reached $61.68; Reynolds American also slid by 5% and settled at $58.65 per share by the end of last week.

Altria is likely to face harsher competition now that Lorillard and Reynolds American have merged. But if the company shows a sharp fall in profit margins, this could further bring down its stock.

At the time of publication, the author held no positions in any of the stocks mentioned.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
LO $70.81 0.00%
MO $52.07 0.00%
AAPL $130.28 0.00%
FB $81.53 0.00%
GOOG $565.06 0.00%


DOW 18,080.14 +21.45 0.12%
S&P 500 2,117.69 +4.76 0.23%
NASDAQ 5,092.0850 +36.0220 0.71%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs