How Altria Group, Inc. (MO) Earnings Could Keep Shares Smoking

Altria Group, Inc. (NYSE:MO) will release its quarterly report next Tuesday, and the stock has made its way higher to reach its best levels since the company spun off its interest in globally focused Philip Morris International Inc. (NYSE:PM). Even as usual concerns about the health impacts of tobacco, and regulatory pressure, continue to weigh on the industry, Altria earnings look poised to keep growing steadily.

Altria Group, Inc. (NYSE:MO)’s business is deceptively simple, obtaining tobacco and then imposing big markups in its well-marketed cigarettes and other tobacco products. Having largely avoided massive product lawsuit liability, Altria and its peers have rewarded long-term shareholders with huge dividend payouts throughout their history. Let’s take an early look at what’s been happening with Altria over the past quarter, and what we’re likely to see in its quarterly report.

Stats on Altria

Source: Yahoo! Finance.

How will Altria earnings fare this quarter?
Analysts have largely kept their views on Altria Group, Inc. (NYSE:MO) earnings stable recently, with no change to their June-quarter estimates, and a single $0.01 per-share rise for consensus figures for the 2013 and 2014 years. The stock has continued its slow but steady ascent, rising about 6% since mid-April.

The simple story of Altria’s success generally involves making the most of its opportunity for as long as it lasts. Even as revenue has been flat, and volumes of its premium Marlboro brand have dropped substantially in recent years, the company has nevertheless used a combination of cost-cutting and higher sales prices to keep its margins rising and ensure growth in profits.

Nevertheless, Altria Group, Inc. (NYSE:MO) has continued feeling the pinch of greater regulation and higher excise taxes. Proposals in the Obama administration’s budget to raise cigarette taxes by another $0.94 per pack would give Altria and its peers even greater headaches, and even though the budget seems unlikely to pass, regulatory threats, and anti-smoking campaigns, continue to weigh on Altria’s future prospects.

Another problem that could eventually hit Altria Group, Inc. (NYSE:MO) earnings is counterfeiting. So far, Altria, Lorillard Inc. (NYSE:LO), and Reynolds American haven’t seen a huge hit from counterfeiting within the U.S., as sophisticated packaging that makes counterfeiting more difficult has been an effective deterrent, and Philip Morris International Inc. (NYSE:PM) has had to deal with the much-more challenging European market in protecting its brands. Yet, as proposals for higher taxes at the state and federal level add to costs, the incentives for counterfeiting keep rising, and the problem could worsen for Altria Group, Inc. (NYSE:MO) looking forward.

In the Altria earnings report, watch to see how the tobacco giant responds to efforts from rival Lorillard Inc. (NYSE:LO) to bolster its e-cigarette business. With greater regulation making Americans seek alternative ways to get nicotine, e-cigarettes are gaining in popularity, and Altria Group, Inc. (NYSE:MO) has promised to come out with a product in August that will serve the market. Depending on how the FDA chooses to regulate e-cigarettes, the company’s success or failure with its product could make a huge difference to Altria Group, Inc. (NYSE:MO) earnings going forward.

Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool owns shares of Philip Morris International Inc. (NYSE:PM).

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