Resultados terribles de Altria hoy… se lleva a todo el sector abajo…
Volumenes en los USA -5% en el primer trimestre, teniendo en cuenta que el precio del petroleo se ha recuperado bastante rapido, pinta mal para el resto del año
1Q19 First Thoughts: –14% cigarette shipments result in top- and bottom-line misses; underlying vol decline was -7%
• Citi’s Take — Adjusted EPS (90¢) was below consensus (92¢) and Citi (93¢), driven by exceptionally weak cigarette volumes, which were partly due to shipping effects and partly due to worse-than-expected underlying demand. Sales missed consensus by 4%. On an underlying basis, industry volumes were -5%, despite favorable gas prices and easy comps. MO’s cigarette share was down 70bps YoY (but flat sequentially) and as a result MO’s underlying volumes were -7%, which is worse than we had expected (-6%). Shipment effects, which are extremely hard to predict quarter-to-quarter, took a further 7 percentage points off the volumes, whereas we had had forecasted -3 percentage points. Pricing was +7% in Smokeables. Our detailed variance tables are shown on page 2
• EPS guidance was left unchanged, but the volume outlook is trimmed — MO maintained its 2019 EPS guidance range ($4.15 to $4.27) which isn’t a surprise, as its pricing remains very strong and part of today’s miss is due to shipment effects. (We model $4.19, in line with consensus.) MO moved its guidance for industry volumes to -4% to -5%, from -3.5% to -5%, reflecting the recent rise in gas prices. We think there is a good chance industry volumes could turn out to be worse.
• As expected there was no detail on Juul’s performance in 1Q — It would have been a pleasant surprise if MO had given some details about Juul’s performance. However we expect MO to reveal some details about e-vapor trends in the call.
• Implications — We think investors should focus on the underlying volumes of -7%, not the shipments of -14%. Nonetheless this is a very weak number. Furthermore we see no reason to expect demand for cigarettes to improve in the coming quarters: we believe Juul is expecting its volumes to accelerate in 2H and MO’s $575MM cost cutting program will likely impact its market share. In addition the gas price is now unfavorable. If we are right, and volumes stay weak, we think this will hit MO’s multiple. Bulls will highlight the unchanged EPS guidance, the strong pricing, and the margin growth of 340bps, but we retain our Sell rating.
• In Smokeable, net sales fell –7% and adjusted EBIT fell -0.2% — Given the weak sales, we think it is quite impressive that adjusted operating income was almost flat, implying margins (adjusted EBIT/ net sales) rose 360bps to 53.3%, reflecting the cost saves. As we say this is impressive, and it shows MO’s strategy of emphasizing profit growth is working, but if volumes keep on falling at 7%, we doubt it is sustainable.
• In Smokeless, sales rose 3%, and EBIT rose 8% — Underlying volumes fell -1%, in line with recent trends. Pricing was strong, and the margin rose 310 bps to 72%.