Altria Group Inc Lights Up Higher Profit

Tobacco giant Altria Group is a legendary dividend stock. It has richly rewarded its shareholders for several decades, increasing its dividend 48 times in the past 45 years. The stock currently offers a hefty 4% yield. Its amazing dividend track record is thanks to its steadily rising profit during this time. Altria operates the Marlboro brand, which is the strongest in the entire industry. Last quarter, Marlboro increased its market share by 0.3 percentage points, to 44%.

Altria's brand strength means pricing power, which helps Altria maintain growth, even when smoking as a whole is on the decline. In fact, from 2009-2014, Altria increased prices in its smokeable products group by 4.4% compounded annually. As a result, Altria enjoys tremendous scale. These factors help this tobacco company generate high free cash flow.

Altria released first-quarter earnings on April 23, and the company beat expectations on both the top and bottom lines. Here's how Altria managed it.

Steady as she goesOverall, Altria reported $0.63 per share in adjusted earnings, which strips out nonrecurring items such as litigation expense. That's a 10.5% year-over-year increase and beat expectations, which called for $0.62 per share in adjusted EPS. Revenue of $4.27 billion also beat estimates, by about $110 million.

Once again, the combination of price increases and cost cuts were the key reasons Altria beat earnings expectations when it reported first-quarter results. Revenue grew 5% for the quarter, thanks to higher prices and a 1% increase in volumes for Philip Morris USA. The average price per pack rose $0.15 in the first quarter, to $6.06, representing a 2.5% increase.

For 2015, Altria expects another good year. Full-year adjusted earnings per share are expected to fall between $2.75 per share and $2.80 per share. This would represent 7%-9% growth, year over year.

Update on the core growth initiativeLooking ahead, Altria's biggest future growth opportunity is e-cigarettes. Altria's venture into the e-cig category is through its Nu Mark subsidiary, which operates the MarkTen brand. Until recently, MarkTen was only available in two U.S. states, Indiana and Arizona, but after successful test results there, the company is broadening MarkTen's horizons. Altria CEO Marty Barrington said on the earnings conference call that the company will ship the next-generation e-vapor product, MarkTen XL, into select markets later this month.

Altria is hoping that e-cigs are a meaningful new opportunity for growth. Altria still generates approximately 90% of its profits from smokeable products like cigarettes and cigars, which is a concern given the tobacco industry is in decline in the United States.

Cash keeps flowingAltria is a cash machine thanks to the highly lucrative tobacco business model, which requires very little in capital expenditures and produces high returns on capital and free cash flow.

In turn, Altria returns the vast majority of its cash flow to investors through share buybacks and dividends. Altria bought back $192 million worth of its own stock in the first quarter, and paid $1 billion in dividends. Altria effectively buys back stock to boost EPS. Last quarter, Altria repurchased approximately 3.6 million of its own shares at an average price of $53.03.

Through its high dividend and share buybacks, Altria is an extremely shareholder-friendly company. These cash returns are the biggest reasons to own Altria stock. From that perspective, Altria did its job once again in the first quarter.

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Bob Ciura owns shares of Altria Group,. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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