Altria Group, Inc. (MO-Free Report) is slated to report fourth-quarter 2019 results on Jan 30. This tobacco giant delivered a negative earnings surprise of 5.3% in the last reported quarter. Further, its earnings have underperformed the Zacks Consensus Estimate by 1.6%, on average, in the trailing four quarters.

The Zacks Consensus Estimate for fourth-quarter earnings has been stable at $1.01 per share over the past 30 days. This suggests an increase of 6.3% from the year-ago period’s reported figure. The consensus mark for revenues stands at $4,897 million, indicating a rise of 2.3% from the figure reported in the year-ago period.

The Zacks Consensus Estimate for 2019 earnings per share stands at $4.21, suggesting a rise of 5.5% from the year-ago period’s reported figure. The consensus mark for revenues stands at $19.9 billion.

Altria Group, Inc. Price, Consensus and EPS Surprise

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Stern Regulations Dent Cigarette Volumes

Altria has been battling declining cigarette volumes for a while owing to stern government regulations and rising health consciousness. Notably, the tobacco industry has been facing many challenges as governments around the world are imposing restrictions on tobacco companies, which in turn are lowering cigarette consumption. The U.S. Food and Drug Administration (FDA) has made it mandatory for tobacco companies to use precautionary labels on cigarette packets to dissuade customers from smoking. In fact, per court’s orders, Altria along with other cigarette makers has been directed to put up self-critical advertisements on television and newspapers to discourage smoking.

To add to the woes, the FDA is bent on drastically reducing nicotine in cigarettes to minimally addictive levels. Apart from these, the FDA had earlier announced that tobacco makers must seek marketing authorization for any tobacco product introduced after Feb 15, 2007. The law was extended by the agency to include e-cigarettes, pipe tobacco, cigars and hookah. Battered by such factors, Altria’s total smokeable product shipment volumes declined 6.5% year over year in the third quarter of 2019. Further, reported domestic cigarette shipment volumes dropped 6.6% due to adverse trade inventory movements, the cigarette industry’s rate of decline and retail share losses.

The Zacks Consensus Estimate for fourth-quarter smokeable product shipment volumes growth is pegged at a decline of 6.3%. Further, the consensus mark for cigarette shipment volumes growth stands at a 6.4% drop. The consensus mark for total smokeable product revenues is $5,249 million compared with $5,302 million recorded in the same period last year.

Pricing & RRPs: Key Drivers

Nevertheless, Altria has been responding to the changing market scenario by offering reduced risk products or RRPs. In this respect, the marketing and technology sharing agreement between Altria and Philip Morris (-) , pertaining to the sale of IQOS in the United States, has been approved by the FDA. Additionally, Altria, through its subsidiary Helix Innovations, acquired an 80% stake in certain companies of Burger Group, which is engaged in the commercialization of the oral tobacco-derived nicotine (TDN) pouch product — on! Altria is also making efforts to expand in the cannabis industry. Backed by such upsides, revenues from the smokeless product category have been rising.

The Zacks Consensus Estimate for fourth-quarter smokeless product revenues is pegged at $601 million, up from $572 million reported in the year-ago period.

Apart from this, Altria’s strong pricing has helped it stay afloat in the industry, even in the face of declining cigarette volumes. Though higher pricing might lead to a decline in cigarette consumption, it is seen that smokers tend to absorb price increases owing to the addictive quality of cigarettes. In third-quarter 2019, higher pricing aided performance of the smokeable and smokeless segments. In fact, higher pricing was a prime catalyst for top-line and adjusted OCI growth in the quarter. Solid pricing and strength in RRPs bode well. In its last earnings call, management guided adjusted earnings per share of $4.19-$4.27 for 2019, which suggests 5-7% year-over-year growth.

What the Zacks Model Unveils

Our proven model doesn’t conclusively predict an earnings beat for Altria this time around. The combination of a positive and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here.

Although Altria has an Earnings ESP of +0.29 %, it carries a Zacks Rank #4 (Sell). You can uncover the best stocks to buy or sell before they’re reported with our .

Stocks With Favorable Combinations

Here are some companies you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat:

Darling Ingredients (-) presently has an Earnings ESP of +6.38% and a Zacks Rank #1. You can see

Hostess Brands (-) currently has an Earnings ESP of +4.62% and a Zacks Rank #1.

e.l.f. Beauty Inc. (-) currently has an Earnings ESP of +2.85% and a Zacks Rank #3.

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