10-KPeriod: FY2009

ALTRIA GROUP, INC. Annual Report, Year Ended Dec 31, 2009

Filed February 24, 2010For Securities:MO

Summary

Altria Group, Inc.'s 2009 Form 10-K highlights a year marked by significant strategic acquisitions and ongoing challenges within the tobacco industry. The company completed the acquisition of UST LLC for approximately $11.7 billion, integrating its smokeless tobacco and wine businesses, which significantly diversified Altria's revenue streams and contributed to the newly formed smokeless products and wine segments. Despite a decline in cigarette shipment volumes, the core Marlboro brand maintained its leading market share in the U.S. premium cigarette segment. Altria also experienced a shift in its business segments' profitability contribution, with cigarettes decreasing and smokeless products and wine gaining importance. The company continued its commitment to shareholder returns by increasing its quarterly dividend. However, Altria faces persistent risks from ongoing tobacco-related litigation, increasing excise taxes, and evolving regulatory landscapes, including the new Family Smoking Prevention and Tobacco Control Act granting the FDA broad regulatory authority over tobacco products.

Financial Highlights

54 data points
Beta

Revenue

$23.56B

37.5% Gross Margin

Net Income

$3.21B

13.6% Net Margin

EPS (Diluted)

$1.54

Total Assets

$36.68B

Cash & Equivalents

$1.87B

Free Cash Flow

$3.17B

Financial Statements
Beta
Revenue$23.56B
Cost of Revenue$7.99B
Gross Profit$8.83B
R&D Expenses$177.00M
Operating Income$5.46B
Interest Expense$1.19B
Net Income$3.21B
EPS (Basic)$1.55
EPS (Diluted)$1.54
Shares Outstanding (Basic)2.07B
Shares Outstanding (Diluted)2.07B

Key Highlights

  • 1Acquisition of UST LLC for $11.7 billion significantly expanded Altria's portfolio into smokeless products and wine.
  • 2Cigarette shipment volumes declined by 12.2% in 2009, with the Marlboro brand volume decreasing by 10.6%.
  • 3The cigarette segment's share of operating companies income decreased from 95.4% in 2008 to 85.3% in 2009, reflecting diversification.
  • 4Smokeless products and wine segments, bolstered by the UST acquisition, became more significant contributors to operating income.
  • 5Altria increased its quarterly dividend by 6.3% in Q3 2009 and announced a target to increase its dividend payout ratio to approximately 80% of adjusted diluted EPS.
  • 6The company suspended its $4.0 billion share repurchase program in September 2009 to preserve financial flexibility.
  • 7Altria faces ongoing risks related to tobacco litigation, increasing excise taxes, and new FDA regulations under the Family Smoking Prevention and Tobacco Control Act.

Frequently Asked Questions

The most significant strategic move was the acquisition of UST LLC for approximately $11.7 billion in January 2009. This acquisition integrated UST's smokeless tobacco (U.S. Smokeless Tobacco Company) and wine (Ste. Michelle Wine Estates) businesses into Altria's operations, diversifying its product portfolio beyond cigarettes.

The contribution of the cigarette segment to operating companies income decreased significantly, from 95.4% in 2008 to 85.3% in 2009. Conversely, the smokeless products segment, new to Altria's reporting due to the UST acquisition, accounted for 6.4% of operating companies income in 2009, and the wine segment contributed 0.7%. The financial services segment's contribution also decreased.

Altria demonstrated a commitment to shareholder returns by increasing its quarterly dividend in the third quarter of 2009 and subsequently announcing an increase in its target dividend payout ratio to approximately 80% of adjusted diluted EPS. However, it suspended its share repurchase program in September 2009 to maintain financial flexibility.

Altria faces significant risks including ongoing tobacco-related litigation, which has led to substantial jury awards and settlements. Additionally, the company is subject to increasing excise taxes on tobacco products and new regulatory oversight from the FDA under the Family Smoking Prevention and Tobacco Control Act, which grants broad authority to regulate tobacco product design, manufacturing, marketing, and sales.