Seeking Alpha
What is your profession? ×
Hedge fund manager, long/short equity, value
Profile| Send Message|
( followers)
Altria Group (NYSE:MO) Earnings Highlights:

• Adjusted for items, diluted earnings per share from continuing operations up 5.1% to $1.03 versus $0.98 in 2006

• Altria raises forecast for 2007 full-year diluted earnings per share from continuing operations to a range of $4.20 to $4.25, up from its previous projection of $4.15 to $4.20

• Strong operating companies income growth of 9.5% at Philip Morris International

So, another great quarter for "Big Mo." Now, going forward, what do we expect? We would like to see the international operations spun off from the PMU (Phillip Morris USA).

In the earnings release, CEO Camilleri said:

Strategically, the key event of the first quarter was the successful spin-off of Kraft. We now are focused on growing our tobacco businesses, while continuing to take measures to further enhance shareholder value,"....."Philip Morris International had a strong first quarter with robust income growth, driven by higher pricing and aided by favorable currency, but faced challenges in certain markets, most notably Japan and Germany," Mr. Camilleri said. "Philip Morris USA had a relatively weak quarter, but its retail share and volume performance improved as the quarter unfolded.

Say what you want about tobacco and its evils, but as shareholders, MO has been wonderful stewards of our dollars. There is no doubt in my mind that "enhance shareholder value" means a couple of things: first, a dramatic increase in the dividend. Second, the international operations will be spun off. Third, MO will begin buying back shares on a large scale. Now, these may or may not be announced today at 9 am during the conference cal,l but I would be very surprised that if they are not "officially" announced, they are not at least alluded to.

What will we have then? In PMU, we will have a slow growing cash machine that will most likely end up crushing the yield of every other DJIA stock. Its cash position will allow it to buy back shares on a regular basis to enhance eps growth and reward shareholders.


In PMI, you will have a fast growing company that will begin to gobble up more tobacco companies around the world. It will also be free from U.S. regulation, since it will be headquartered abroad and have no U.S. operations. This is a point that cannot be overlooked. The regulations that currently hamper PMI operation and the U.S. litigation threat always present are a damper on the valuation of this segment. Once these are removed, in the word of Ralph Kramden, "to the moon, Alice."

In Q1 2007 PMI:

• PMI's market share in the first quarter of 2007 advanced in many countries, including gains in Austria, Argentina, Australia, Egypt, Finland, France, Greece, Hong Kong, Hungary, Indonesia, Italy, Korea, Mexico, Philippines, Poland, Portugal, Singapore, Serbia, Sweden, Ukraine and the United Kingdom.

• Operating companies income increased 9.5% to $2.2 billion, due primarily to higher pricing and favorable currency of $96 million.

• Cigarette shipment volume for Philip Morris International [PMI], Altria Group, Inc.'s international tobacco business, increased 1.5% to 213.3 billion units,

• During the first quarter of 2007, Philip Morris International [PMI] acquired control of Lakson Tobacco Company Limited, increasing its shareholding to over 97%. Lakson Tobacco is Pakistan's second-largest tobacco company, with cigarette volume of approximately 30 billion units in the fiscal year ending June 30, 2006.

This segment will be a gusher for shareholder once free from the U.S. No matter what MO shares do today, hold them. Let them drop today, I don't care , it will let me buy for cheaper. Altria is the single best performer in the history of the U.S. stock market. Just hold your shares, collect your 4% plus dividend (taxable at only 15% after a year, by the way). Wait for Altria to treat you like a true owner, and reward you for your loyalty.

MO 1-yr chart: