Big Tobacco Leader Altria Holding Steady Despite Worries
Andrew Leckey

Altria Group (NYSE: MO)
Altria Jobs & Careers, Opinion, Profile, Chart

What does the company do? Cigarette manufacturer

2009 Financial report:

Net revenues: $23.5 billion

Net income: $3.2 billion

Q. The outlook for my shares of Altria Group Inc. always concerns me. What is the latest outlook? -- B.P., via the Internet

A. Much depends on the continued popularity of its famous Marlboro cigarette brand, which accounts for more than two-thirds of the company's operating income. Younger smokers in recent years have been attracted by some of the brands offered by competitors.

It is no secret that the U.S. cigarette industry, on which the firm is dependent, is in a long-term decline due to health-risk issues. More graphic health warnings on cigarette packs mandated by the U.S. Food and Drug Administration will take effect in October 2012.

Potential litigation and increased taxation are other concerns that could cut into profits.

Despite these ongoing worries, however, this remains a powerful company that retains its investment appeal based on its commanding industry position, cash flow, dividends and the unlikelihood that any new tobacco companies will emerge.

Altria (MO) shares are up 27 percent this year following last year's 30 percent increase. Third-quarter earnings were up 28 percent due to higher cigarette prices and increased smokeless tobacco sales.

Altria is comprised of Philip Morris USA, U.S. Smokeless Tobacco Co. that makes Skoal and Copenhagen brands, and John Middleton Co. in cigars and pipe tobacco. It also owns Ste. Michelle Wine Estates and 27 percent of SAB Miller, the world's second-largest brewer.

It holds the leading U.S. position in cigarettes and smokeless tobacco and is No. 2 in cigars. It holds more than 50 percent of the overall U.S. tobacco market, well ahead of No. 2 Reynolds American and No. 3 Lorillard.

The consensus analyst rating of Altria shares is a strong "hold," according to Thomson Reuters. That consists of two "strong buys," two "buys" and eight "holds."

The leader of the overall company since 2008 has been chairman and chief executive Michael Szymanczyk, who had been the CEO of Philip Morris USA since 1997. The company recently named David Beran and Martin Barrington to be its vice chairmen, which could clear the way for one of them to eventually succeed Szymanczyk. The 61-year-old Szymanczyk has announced no retirement plans.

Earnings are expected to be up 9 percent this year compared to the 14 percent increase expected for the tobacco industry, according to Thomson Reuters. Next year's forecast is for 6 percent growth versus 18 percent for its peers. The five-year annualized return is projected as 6 percent compared to 11 percent expected industrywide.

The company's finance leasing unit, Philip Morris Capital Corp., no longer accepts new investments.

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