Altria Demonstrated Positive Results for 2011
Published on February 2nd, 2012 00:00
According to recent estimates, Altria had a profitable 2011, as the stock gained more than 20%. It was a great year for the tobacco industry with Lorillard, Reynolds American and Altria, the three giant companies by enterprise value, greatly exceeding the indices.
Altria which plans to present its fourth-quarter profits these days has a diversified portfolio of smoking products with a potential for further increases. The Altria’s main division apart from tobacco products is the smokeless cigarettes segment. Usually these products are considered to be less harmful than regular ones and can be used even in non-smoking areas. The company does its best to grow its market share in this quickly developing segment, and we forecast that the number of smokeless products to increase at an annual rate of about 7% within the following years.
The most popular Altria’s smokeless cigarettes are Copenhagen, Skoal and Red Seal. According to estimates, smokeless tobacco products account for about 15% of the stock price. Also it should be noted that this segment attracts much lower excise taxes than regular cigarettes. Besides smokeless tobacco products, cigars have also demonstrated positive results for the 2011, mainly in 3Q, showing higher profits and earnings. Their endowment to the gross stock price is not evident, however a raised attention on these segments could see them affecting greater.
The company also owns about 28% stake in SABMiller Plc, one of the world’s leading breweries. A positive performance over the years adds a particular degree of stability to the SABMiller has performed well and income recorded on Altria's income books due to this stake adds a certain degree of stability to the gross revenue. Altria raised prices of its cigarette brands by 5% in the second half of December. Smoking rate is decreasing in USA due to tough regulations that impose high taxes on tobacco products. That is why tobacco companies are left with no choice but to raise the prices in order to withstand declining volumes.
Tobacco giants have now paid their attention on increasing profits, rather than raising client base. Despite a belief that it is a disappearing industry, cigarettes still continue to demonstrate great potential to produce profits. Probably tobacco is the only one industry that has loyal customers that blame the government rather than cigarette companies for increasing prices. Since the prices were increased in December, its effect won’t be perceived in the upcoming 4 Q profits. However, if the things go without problems, higher cigarette profits are expected for the first quarter of 2012.
