Tobacco Industry Preview
Q1 2012 Tobacco Industry Preview
Hi,
· PM - Remains A Standout Among Its Peers - Increasing Price Target to $96- We expect another strong quarter for PM, with a continuation of FY11's momentum into 1Q12, driven by robust growth in the Asia and EMEA regions. We reiterate our Outperform rating and increase the mid-point of our valuation range by $8 to $96. PM remains our top tobacco stock pick.We are projecting 1Q12 EPS to be $1.18 (11.7% growth), and net sales up 6.2% with a ~1% unfavorable currency impact. Overall, we expect total volume to increase 0.9% and OCI margins to be roughly flattish. PM reports Q1 results on Thursday, April 19th with a call at 9:00 a.m.
· MO - Expecting Marlboro Share to be on Solid Footing - Altria Group reports Q1 results on Thursday, April 26th with a call at 9:00 a.m. Our EPS estimate of $0.49 (11.2% growth) is in line with consensus. We estimate net sales will increase 3.1% with a cigarette volume decline of 2%. We project operating margins will expand 140 bps. Based on results from our "Tobacco Talk" survey (dated 4/17/12), we have increased conviction that Marlboro share will stabilize and therefore we continue to recommend the stock heading into the quarter.
· RAI- Concerns About Pall Mall As it Fights to Defend Its Turf - Reynolds reports Q1 on Tuesday, April 24th with a call at 9:00 a.m. Our EPS estimate of $0.64 (1.1% growth) is a penny below consensus. We estimate net sales will be flat with a cigarette volume decline of 7.3%. We expect RAI's operating margin to expand by only 10 bps due to our expectations for increased promotional spending behind Pall Mall as it fights to defend its turf in the 2nd tier " Battle of the Brands". Therefore, we expect Pall Mall volume and margins to be pressured and we remain cautious on the stock heading into the quarter.
· LO - Expecting An Inline Quarter After Stellar Finish to FY11- Lorillard reports Q1 results on Wednesday, April 25th with a call at 9:00 a.m. Our Q1 EPS estimate of $1.93 (12.7% growth) is below consensus of $1.99. We expect net revenue growth of 5.6% to be driven by 3.8% cigarette volume growth with operating margins down 70 bps. Based on our "Tobacco Talk" survey, we expect Newport Menthol volume to continue to be strong with minimal promotional support. Newport Red volume trends have been robust but LO has been heavily discounting the brand and this has continued into Q2 with an incremental buydown taking effect in April.
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Thanks!
Bonnie
Bonnie Herzog
Managing Director
Beverage, Tobacco & Consumer ResearchWells Fargo Securities, LLC375 Park Ave
New York, NY 10152Phone: (212) 214-5051Additional information available upon request. This information is for your use only and may not be forwarded or distributed. The person transmitting this e-mail is a licensed person of Wells Fargo Securities, LLC. I certify that: (1) All views expressed in this research report accurately reflect my personal views about any and all of the subject securities or issuers discussed, and (2) No part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by me in this research report.
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