|
|
|
|
||
MO reports second quarter earningsMO reported adjusted EPS of $1.10, which was up 9% from last year's second quarter of $1.01, driven by higher pricing and some favorable inventory increases in cigarettes. MO held to their full year guidance of 4-7% EPS growth, or $4.15 to $4.27. On the key issue of cigarette volumes, MO now expects the overall US industry will decline by 6% in 2019, higher than the 5% forecast earlier. They also expect volume to decline by 5-6% annually through 2023, an extra 1% as well. They attribute the additional decline to more people switching to vapor and other new products, as well as the impact from increasing the nicotine purchase age to 21 years old, which is now in effect in over half the country. For the second quarter, trends remain very similar to previous quarters: Cigarettes: MO's actual shipment volume was slightly higher (up 0.3%), but that was driven by wholesaler inventory increases, which offset inventory declines seen in the first quarter. When adjusted for inventory change, MO's cigarette volumes at retail were estimated down by 7%, which matched the estimated total industry decline. That means MO's market share remained unchanged, with Marlboro at 43.2% and overall MO at 49.9%. Pricing was strong, driving revenues net of excise taxes up 7.4%. Cigars: While a small part of the overall business, cigar volumes have remained good, and were up 2.6% in the quarter. Moist snuff: Volumes here are also being negatively impacted by the switch to e-vapor and new categories. Adjusted volumes were down 3% in the quarter, and 1.5% through the first half of the year. MO's volumes were slightly worse than the industry total, resulting in a mild loss of market share, from 54.1% to 53.9%. However revenues and profits were still strongly up on higher pricing. Other: Wine still struggling with shift in consumer tastes. Profit from BUD was up to $302 million versus $228 last year. MO's shares of BUD are currently worth $20 billion. MO still assumes virtually no profit contribution from CRON or JUUL in their 2019 results. We'll see if MO gives an additional info on JUUL sales in the earnings call. MO will continue buying back a modest number of shares, authorizing an additional $1 billion by the end of 2020. MO will also pay off $1.114 billion of maturing debt in August which was originally issued with the UST purchase that carries an interest rate of 9.25%. Overall, I think the situation remains largely unchanged for now. MO clearly is having to manage through a faster decline in cigarette volumes. However, they continue to maintain strong pricing power to offset that decline, and it is not a double digit collapse that some analysts were fearing. The longer term uncertainty remains to what extent IQOS and JUUL are capturing that switch, and how profitable those products will be as compared to cigarettes, as well as regulatory and tax uncertainties on those products. At a $50 share price, and a $94 billion market cap, I think MO is still a good long term investment here, with more negativity priced into the stock than I believe is warranted. |
return to message board, top of board |