Altria Group (MO - Get Report) today posted slightly better than expected earnings for the final quarter of 2016, but shares eased from recent all time highs after the country's leading tobacco provider offered guidance for 2017 that fell short of forecasts.
Altria recorded earnings per share, excluding items, of 68 cents, slightly ahead of the 67 cents that analysts forecast. The company recorded overall profits of a whopping $10.22 billion, or $5.27 a share, factoring in the nearly $14 billion gain from the proceeds of its nearly 10% stake in SABMiller, newly united with Anheuser-Busch InBev (BUD) . Profits from its stake in Anheuser-Busch are expected to hit Altria's balance sheet beginning in the first quarter of the year.
Shares opened nearly 4% lower in the session, backing off the all time high of $71.44 notched Tuesday, but recouped most of the decline, and currently trade down 0.15% at $71.03. The stock has traded with the market over the last 12 months, having moved up 17% in that period.
Altria is a company with a remarkable host of moving parts for what was formerly seen as a staid consumer product company with a dwindling customer base and a deteriorating business outlook. Primary among them is the prospect of a reunion with its erstwhile international tobacco partner Philip Morris Int'l (PM - Get Report) .
The reconsolidation has been fostered by the two companies' cooperative endeavor in developing a new non-combustible tobacco system dubbed iQOS, a product that the makers are hoping gains labeling requirements that suggests the device isn't as harmful as conventional cigarettes that actually burn tobacco.
Among prominent analysts, Bonnie Herzog, who follows tobacco companies at Wells Fargo, has projected a 70% probability the two companies would reunite. Herzog did not respond to requests from TheStreet for how or whether the quarterly results affected her projections for the merger.
Meanwhile, Altria's fourth quarter showed a steeper decline in volume sales than has been the case recently. Shipping volume fell 4.7% in the quarter - the trend rate has been more on the order of 3% to 4% the last decade - amid a tougher competitive environment. That competition figures to only get more intense as British American Tobacco (BTI) ramps up efforts following its recent agreement to merge with Reynolds America (RAI) and reignites its U.S. sales efforts.
The cheaper gasoline prices that had been seen as having been helpful to Altria's cigarette sales - the assumption being that consumers had a little more cash to spend - has become less of a tailwind for the company's sales efforts. Altria had managed to continue to grow profits despite its shrinking sales base by continuing to lure customers to its full-priced tobacco products, such as Marlboro, and by steadily increasing prices at the consumer levels. But that tactic might have a natural ceiling.
There have been some concerns that investors could grow less enchanted with the high dividend payout that Altria afforded - the stock yields a robust 3.4% - in a rising interest rate environment. Some investors had pursued high yielding stocks as alternatives to the meager returns in the fixed income markets, but some of that impulse may be sapped by a new round of rate hikes this year.
On the plus side, the Trump administration is expected to impose less of a regulatory burden on the periodically beleaguered tobacco business, giving the industry less of a headwind in its business operations.
For the full year, Altria said it expected to record $3.26 to $3.32 a share in profits, versus Wall Street's consensus estimate of $3.33.