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Analyzing Altria Group's Results For Q3 2017 (Including 2018 Dividend And Adjusted Diluted EPS Projections)


  • This article assesses MO’s performance for Q3 2017 and compares year-over-year results via three analyses.
  • First, this article analyzes MO’s income statement for the three-months ended 9/30/2014, 9/30/2015, 9/30/2016, and 9/30/2017.
  • Second, along with an overview of MO’s main product segments, this article provides a year-over-year quarterly shipment volume performance analysis.
  • Third, this article provides a unique analysis of MO’s adjusted diluted EPS and target dividend distributions payout ratio (including 2018 projections).
  • My summarized thoughts on MO’s performance for Q3 2017, current price target, and buy, sell, or hold recommendation are stated in the “Conclusions Drawn” section of the article.

Focus Of Article:

The focus of this article is to analyze Altria Group Inc.’s (NYSE:MO) results for the third quarter of 2017 and compare the company’s performance to prior periods. First, this article analyzes MO’s income statement (technically speaking the company’s “consolidated statement of earnings”) for the three-months ended 9/30/2014, 9/30/2015, 9/30/2016, and 9/30/2017. Second, along with an overview of MO’s main product segments, this article provides a three-months ended shipment volume performance analysis for 2014-2017 (“year-over-year” comparison).

Third, this article provides a unique analysis of MO’s historical/projected adjusted diluted earnings per share (“EPS”), dividend per share rates, and target dividend distributions payout ratio for 2017-2018. I will also provide a brief discussion on the fairly recent announcement by the Food and Drug Administration (“FDA”) and its impact on MO. This includes MO’s recent response in regards to this event.

This assessment article will show past and projected data with supporting documentation within three tables. I am writing this article due to the continued requests to provide this type of analysis on MO after the company reports quarterly earnings. This assessment article alone is not the only data/information that should be examined to initiate a position within MO. However, I believe this analysis would be a good “starting-point” to begin a discussion on the topic. My BUY, SELL, or HOLD recommendation and current price target for MO are stated in the “Conclusions Drawn” section at the end of the article.

1) Assessing MO’s Quarterly Consolidated Statement Of Earnings:

To begin this analysis, Table 1 is provided below. Table 1 shows MO’s consolidated statement of earnings for the three-months ended 9/30/2014, 9/30/2015, 9/30/2016, and 9/30/2017. Due to the fact MO’s performance is “skewed” due to seasonal trends, I believe comparing the company’s performance on a year-over-year quarterly basis is the

This article was written by

Scott Kennedy profile picture
Note: I am currently "teaming up" with Colorado Wealth Management to provide weekly CURRENT BV and NAV per share projections on all 20 mREIT and 15 BDC stocks I currently cover. These very informative (and “premium”) projections are provided through Colorado's S.A. Investing Group, The REIT Forum. In addition, this includes additional data/analytics, continuous sector recommendations (including ranges), and exclusive mREIT and BDC "rapid fire" chat notes immediately after earnings (followed by subsequent earnings assessment articles).


I cannot cover ABR or STWD in the mREIT sector due to indirect conflicts of interest.

Note: So, readers have continued to reach out and ask what I provide within Colorado Wealth Management’s Marketplace Service, the REIT Forum. I provide the following benefits vs. what I provide to the public:

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I hope this provides some additional clarity on what I specifically provide to Colorado’s the REIT Forum Marketplace service.

I am a Certified Public Accountant (CPA) and Certified in Financial Forensics (CFF). I have also been a member of the American Institute of Certified Public Accountants (AICPA) for 24 years. My current title is partner at a national accounting firm. I have audit, tax, and consulting experience with entities in the following sectors: closed-end funds, energy, financials, healthcare, homebuilders, pharmaceuticals, private equity, REITs, and telecoms. I also have experience with C-corps., estates, high net worth individuals, LLCs, LLPs, S-corps., and trusts. I am an active investor. My investing fundamentals are based on both qualitative and quantitative information. By using my financial / analytical skills, I create specific investing ideas / strategies based on valuations and total returns. The two main sectors I currently provide articles on are mortgage real estate investment trusts (mREITs) and business development companies (BDCs).

Disclaimer: I cannot own and will not give an opinion on any investments my current employer has any direct or indirect professional services with (accounting, audit, tax, consulting, etc.). As such, most large-cap stocks are "off the table" regarding my articles. All accounting insight, analysis, and opinions stated within any articles I write (in regards to a specified stock) are entirely from my own personal research and analysis. I believe my articles are both informative and in some cases educational.

I appreciate my loyal readers and I’ll continue to try to provide high quality, in-depth articles.

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- I like to provide the “nuts and bolts” of a company. As such, I strive for my articles to have some sort of “hard to obtain” facts / figures. From this data, I like to fully discuss / analyze specific topics within a particular stock. This mainly consists of a quarterly projection article and a series of articles on a company’s dividend sustainability. In certain instances, I also write articles in regards to specific, material events that occur during a quarter.

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Analyst’s Disclosure: I am/we are long MO. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

I currently have no position in BTI, BUD, PM, or RAI.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (60)

arthur_bishop1972 profile picture

This IS GOOD TO SEE/KNOW, as that's one segment I was starting to get concerned about. At my work (19 year Trader Joe veteran, mgmt for 10), I watch the sales of the 4 wines mentioned in your article closely, Scott. Of the 4, CC far outsells the others, with CSM coming in 2nd, 14 Hands 3rd, and Stags Leap last, tho I should point out that the SL wines are much more expensive than the others and tend to rise significantly in sales during the holidays.

Great article as always, Scott-thank you.

FD: I'm long MO in my wife's Roth and my own, and added to my Roth's MO holdings @ $63.96 recently, and will likely add again should the pps stay below $64 (coincidence that it's the same buy point in Scott's article btw).
Scott Kennedy profile picture
Hi Arthur,

You're welcome. Thanks for the continued positive feedback.

Thanks for also sharing your observations / work history with us in relation to MO's wine segment (in particular the four brands).

Outstanding! Keep on buying via each and every dip. BTI is full of hype. For factual, re-read this article.
they gonna parallel bti price range in algorithm
Dividends#1 profile picture
Hi Scott,

Today was a very long Investor day Conference by Altria (see link below)!

I have only listened to the first 15 minutes so far, but if one believes Marty Barrington and his team, this is very encouraging for shareholders!

I think any of your readers who have the time to listen will like what they hear.

I am surprised MO dropped today. It's as if investors are questioning the honesty of this management team and doubtful of corporate tax cuts which you wrote an article on outlining the benefits to MO, IF a tax cut is passed into law.

Time will tell, but I believe Marty and his management team. I am also hopeful of a lower corporate tax rate for MO!!!

KMR holder profile picture
I think some the sell off was simply a continuation of the revaluing of the shares which have traded as high as $77 and as low as $60 recently. Maybe the quick move up $66 has given people the chance to get out a little higher than before.

Is the company worth $77, $66, $60 or what? There is a difference between what the shares are selling for and what they are worth.

If the shares get down to $57, I will replace the shares I sold back in March. I believe management as well, they are among the best around, but I don't believe the market when people were buying shares in the $70 range and above.
Scott Kennedy profile picture
Hi Dividends,

Thanks for the comment and for providing the link. As you know, I typically have a "full plate" between my professional career and time spent with family / researching stocks.

As such, I won't get a chance to read / view MO's Investor Day Conference until the weekend.

Gwyther1949 profile picture
Download the .pdf of the slides so you can follow along with the webcast. Fascinating stuff. Cync Acquisition, investment in Avail vapor business, Apex and Vim, Mesh from PMI, expansion of Verve in the market. Bunch of plans for PMTs and MRTPs. Good stuff.
somedata1 profile picture
Corp tax cut to 20% is a good news to MO???
you would think so but it sold off .. weird... :(
somedata1 profile picture
I was so excited when I saw the market crash of 2008. I didn't have much money to invest then. But I did with the little I had.

The other day was in nyc. Streets were filled with smoke. People are stress out. They need to smoke. They need more nicotine not less.

I would be buying at these prices if I had cash.

There is a reason vice exists. Vice will never go out of style.
Dividends#1 profile picture
Its good news IF passed!
Hi Scott,

Do you have some 3 year projection of MO's earning growth? What's your assumptions for the quarterly EPS numbers of 2018? BTW, very good article. Thx.
Scott Kennedy profile picture
Hi Oliverpei,

I appreciate the positive comment on the article.

Regarding your question, due to the pending tax legislation, I'm currently not going to provide MO's adjusted diluted EPS / dividends past 2018 at this point in time. If / When the tax proposal is closer to being passed, then I'll reassess / provide the figures.

Regarding assumptions, I'm expecting continued decline in cigarette volume which will continue to be offset by gradual margin increases, both from cost reductions and price increases.

Thanks for the question / request.

Your articles are so clear cut and concise. Thank you for presenting this for all of us!
Scott Kennedy profile picture
Hi Scenic Dr,

You're welcome. I'm glad you enjoyed the analysis.

Thanks for the quick, positive comment. I appreciate it.

Bruce Miller profile picture
MO is doing something unique to tobacco product companies....it is buying back stock at an increasing rate, $5.3B over past 17Q and $2.9B over TTM, paid for through asset sales totaling about $4B over past 17Q and $3.5B over TTM. MO has not been able to cover its dividend with net operational cash for the past 4 4Q periods, with actual payouts from most recent 4Q period as 106%, 102%, 127% and 126%, respectively.

As a result of share buybacks, Revenue per share has been pretty stable, running between $3.20 and $3.50 over the past 10Q with a slight up-trend. CFFO/share however has gone from the mid $.70 per share to $.58 per share over TTM. This kind of trending in CFFO does not bode well for future dividends. Trimming back on its investments and using the net proceeds to repurchase stock is definitely a responsible action by management, but the gradual decline in net operational cash suggests the cost of sales is not declining commensurate with asset sales.

With any 'normal' company, this kind of decline in operational cash would have led to a flat or cut dividend many quarters ago. But tobacco seems different. Here you have an addictive product that will have a stable consumer demand well into the future and the moat to a tobacco company is about as big a moat as you'll find anywhere else. This translates into highly predictable future cash flows such that assets sales and even increasing borrowed dollars can pay a growing % of the dividend. VGR is an extreme cash of this. But will MO follow suit?

MO is one of my oldest (early 90s) holdings from which I rely on its dividends for household income. I'm not too concerned about MO's cash flows, yet....but this is definitely a holding to watch.

arthur_bishop1972 profile picture
Appreciate your thoughts and analysis, Bruce.

MO mgmt is world class, but keeping an eye on it is always a good idea...on that we agree.

Their track record is incredible...a money making machine. They will need IQOS before too long tho, and MJ as well, whenever that finally happens.

They know their stuff, and I'm sticking with them b/c they've proven they can weather the harshest of storms.
Scott Kennedy profile picture
Hi BruceM,

Thanks for the detailed / informative comment.

Yes, MO has def. "upped" its share buybacks over the past year or so. This was in direct relation to the SBMRY / BUD business combination.

Currently, while I certainly expect MO will continue to buyback its shares over the foreseeable future, at some point in 2018 I do believe the amount of quarterly share buybacks will "normalize" to trends say over the five years or so (not as elevated as the second half of 2016-2017).

Good topic of discussion.

I don't disagree with you on mgmt, but Morningstar only show a stewardship of Standard, not Exemplary.
notaexpert profile picture
Thank you Scott,

As always I appreciate your articles and analysis.

Long MO...
Scott Kennedy profile picture
Hi notaexpert,

You're welcome.

Thanks for the continued positive feedback on my articles and for sharing your MO disclosure.

Scott, thanks much for a good article on MO. What do you see for PM? I am long MO, PM, BAT and a little VGR.
Scott Kennedy profile picture
Hi Sunshine123,

You're welcome. I appreciate the positive comment on the article.

Regarding your question about PM, I also have a HOLD on that stock right now. My PM price target is currently $110 per share. That's where my current HOLD recommendation would change to a SELL. My entry price for PM is currently $95 per share.

PM does have an advantage with IQOS which is a catalyst / positive factor. The foreign currency has been an issue with PM over the past several years. This has caused the company to stop repurchasing shares with I see as a negative. However, the foreign currency situation appears to be changing (and should continue this trend going into 2018) which is nice. However, PM's annual dividend increase, over the past several years, has been less attractive when compared to MO.

Thanks for the question.

@Scott_Kennedy -- "... PM's annual dividend increase, over the past several years, has been less attractive when compared to MO." So has PM's share price behavior been less attractive, IMO (in US dollars, at least). Thanks for your comprehensive analysis. I hope to be able to buy more MO shortly.
Scott Kennedy profile picture
Hi prfssr,

Even though PM doesn't have any current "direct" operations in the U.S. (potential licensing agreement with MO on IQOS in the future), the stock price was negatively impacted over the summer, along with the rest of the U.S. tobacco companies, by the FDA announcement.

Was this level of sell-off justified for PM? I don't believe so, not entirely. However, prior to the sell-off, when PM was around $120 per share, I do believe PM's valuation was less attractive vs. MO at $75 per share. Currently, I have PM as a HOLD. I would like to see PM reinstate their share buybacks as the foreign currency losses have "eased" over the past several quarters.

MO is currently hovering near my BUY range ($64.00 per share).

Thanks for the response / follow up question.

A formidable and comprehensive analysis. Thank you very much for sharing your work Scott, it is much appreciated. Long time, long-MO position. Good Luck all.
Scott Kennedy profile picture
Hi 12Aggie,

You're welcome. I'm glad you enjoyed the article.

Thanks for the positive comment and for sharing your MO disclosure.

Dividends#1 profile picture
Hi Scott,

Excellent article.

I will read again later in the week as it is so thorough!

Scott, I really like your price target of a BUY at $64 and a price target of $74!

I am pleased with your DIVIDEND projection of $0.715 in Q3 2018, that would be an INCREASE of 8.3%!!!

That would be an EXCELLENT increase!

"MO’s projected dividend for Q1 2018, Q2 2018, Q3 2018, and Q4 2018: $0.66, $0.66, $0.715, and $0.715 per share"
Scott Kennedy profile picture
Hi Dividends,

I always appreciate the feedback / discussions we have had other the years. Thanks for the positive comment.

I'm glad you appreciated the 2018 dividend projections. I hope they help when it comes to your investment strategies / decisions.

Dividends#1 profile picture
Hi Scott,

Yes, your analysis gives me added confidence in my Retirement plans.

I see someone has asked you for 3 year projections on MO's earnings growth.

I am also interested in this.

Do you see MO's dividend increasing at an 8% clip over the next 3-5 years? How far out can you estimate?
Scott Kennedy profile picture
Hi Dividends,

Due to the pending tax legislation, I'm currently not going to provide MO's adjusted diluted EPS / dividends past 2018 at this point in time. If / When the tax proposal is closer to becoming passed, then I'll reassess / provide the figures.

Calico Cat profile picture
Great article, good information. Long MO, PM, VGR, BTI. After all, a cat's gotta eat, you know.
Scott Kennedy profile picture
Hi Calico Cat,

I appreciate the positive comment regarding the analysis.

Thanks for also sharing your sector disclosures.

dundey profile picture
Added very recently at $64 / share. That is my target add and will add again if it goes down to that leve;l
arthur_bishop1972 profile picture
Same here
Scott Kennedy profile picture
Hi dundey and arthur,

It's good to hear from both of you (remember your usernames / icons).

Thanks for sharing your MO disclosure.

Great article. Wonder if Cannabis is on the horizon for MO. Anybody have thoughts on this, because it's happening.
Butch Stone profile picture
If it ever happens, I think it will be by a buy out of an existing Cannibus Company and kept as a separate entity or Division. I doubt Altria will taint the Marlboro Trademark by adding Marlboro labeled Cannibus. It's too big of a Target for the Snowflakes.
Scott Kennedy profile picture
Hi bigwhistle,

Thanks for the acknowledgement when it comes to the article.

Regarding your question, I def. believe this is something MO has considered (even though they really haven't talked about it b/c it's still illegal at the federal level).

If I'm not mistaken, Constellation Brands just make an investment in a medical marijuana company (through an equity investment). If that's the case, even a company like BUD may be eyeing a future acquisition. As most investors know, MO has a 10% equity ownership stake in BUD so they would have a "piece of that pie" as well.

Good topic of discussion.

Ice_Kold profile picture
@Scott Kennedy

You're right, Constellation bought 10% of Canopy. They are the biggest one in Canada, and they are located near my city.

May I interest you in my company, Aphria? ;) The only profitable mj producer in Canada. The management team is great, with the CEO previously running Jamieson Laboratories. That company went from $25M to $250M. We also have a show here called Dragon's Den, it's the Canadian predecessor to Shark Tank. One of the former "dragons" is on Aphria's board of directors - Arlene Dickinson.

Aphria also started a venture in Florida and I believe they are starting up some business in Ohio as well. It's a well run company.

Aphria and Altria have a similar name... it's destiny. I will VERY willingly do a 1 for 1 for MO stock :)
Barrie Abalard profile picture
Probably my best-performing stock, though I bought it many years ago, in the teens, I believe, before the split into MO and PM. Regulatory/governmental risk continues to worry me, but no stock is perfect. These guys seem to know how to roll with the punches. The dividends plus price appreciation have been excellent.

Thanks for the article.
Scott Kennedy profile picture
Hi Barrie,

You're welcome. Thanks for taking the time out to share you MO investing history with us.

Great article I agree with the Hold rating, although a better buy at present price than most stocks. Bottom line this is a well managed company, and they will likely continue to develop products that people will want. If anything, less addicting products will increase usage by consumers imo. Have held this for years it has been consistently one of my top holdings
Scott Kennedy profile picture
Hi Tigertracks,

I appreciate the positive comment in regards to the article.

Thanks for sharing your thoughts on MO's future prospects / business operations as well.

caperdory profile picture
Good recap...thanks
Scott Kennedy profile picture
Hi caperdory,

You're welcome.

Thanks for the quick, positive feedback.

Manatee Research profile picture
its IQOS not IQQs.
Scott Kennedy profile picture
Hi Greg,

That's one of those terms that "plays tricks" with you (O vs. Q). I appreciate you spotting this and it should be updated.

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