01—Abstract
Summary
Summary of the 10-K filed February 25, 2011. Cited figures are marked; the original filing is the authoritative source.
Altria Group, Inc. (MO) reported its 2010 fiscal year results in this 10-K filing.
The company, a holding company with subsidiaries in tobacco (cigarettes, smokeless products, cigars), wine, and financial services, saw a continued decrease in cigarette shipment volumes, though its premium Marlboro brand maintained its leading market share. The acquisition of UST in 2009 significantly contributed to the growth of its smokeless products segment, which showed increased shipment volumes and market share. Financial performance was impacted by ongoing litigation, particularly tobacco-related lawsuits, which represent a significant ongoing risk.
The company also highlighted its commitment to shareholder returns through dividend increases and a new share repurchase program authorized in early 2011. Regulatory scrutiny, especially from the FDA regarding tobacco products, remains a key factor influencing the business environment and future strategies. Investors should note the company's strategic focus on its core tobacco and wine businesses, managing litigation risks, and maintaining its dividend policy.
02—Key points
Key Highlights
- Philip Morris USA (PM USA) remains the largest cigarette company in the U.S., with Marlboro as the top-selling brand, despite an overall decline in cigarette shipment volumes (down 5.3% from 2009).
- The smokeless products segment, bolstered by the 2009 UST acquisition, saw a significant increase in shipment volume (up 12.2% vs. 2009) and grew its share of operating companies income to 12.1% from 6.4% in 2009.
- Altria announced a new $1.0 billion share repurchase program in January 2011, following a period of suspension of its previous buyback program.
- The company continued its dividend growth strategy, with the Board approving an 8.6% increase in the quarterly dividend in August 2010, resulting in an annualized rate of $1.52 per share.
- The Family Smoking Prevention and Tobacco Control Act (FSPTCA) grants the FDA authority to regulate tobacco products, leading to quarterly user fees for PM USA and a subsidiary of USSTC, and increasing regulatory oversight.
- Tobacco-related litigation remains a significant risk, with numerous cases pending across various categories, including smoking and health, health care cost recovery, and "Lights/Ultra Lights" claims. The company has achieved substantial success in managing litigation but acknowledges the inherent uncertainties.
- The wine segment, primarily through Ste. Michelle Wine Estates, showed an 11.3% increase in case shipment volume in 2010 compared to 2009.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2010, Altria Group, Inc. kept $0.16.
- Revenue$24.36B100.0%
- Cost of revenue−$15.18B62.3%
- Gross profit$9.19B37.7%
- Operating costs−$2.96B12.1%
- Operating income$6.23B25.6%
- Interest, other & tax−$2.32B9.5%
- Net income$3.90B16.0%
Where FY2010 revenue went
$24.36B- Other operating costs: $10.29B, 42% of revenue
- Cost of revenue: $7.70B, 32% of revenue
- Net income: $3.90B, 16% of revenue
- R&D: $144.0M, 0.6% of revenue
- Interest, other & tax: $2.32B, 9.5% of revenue
Kept 16% as net incomeR&D $144.0M · 0.6%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2010filed February 25, 2011Financial Statements
FY2010 against FY2009
| Line item | FY2010FY2009 | Change |
|---|---|---|
| Revenue | $24.36B$23.56B | +3.4% |
| Cost of Revenue | $7.70B$7.99B | −3.6% |
| Gross Profit | $9.19B$8.83B | +4.0% |
| R&D Expenses | $144.00M$177.00M | −18.6% |
| Operating Income | $6.23B$5.46B | +14.0% |
| Interest Expense | $1.14B$1.19B | −4.5% |
| Net Income | $3.90B$3.21B | +21.8% |
| EPS (Basic) | $1.87$1.55 | +20.6% |
| EPS (Diluted) | $1.87$1.54 | +21.4% |
| Shares Outstanding (Basic) | 2.08B2.07B | +0.5% |
| Shares Outstanding (Diluted) | 2.08B2.07B | +0.4% |
05—Questions
Frequently Asked Questions
What is Altria's primary source of revenue and how is it performing?
Altria's primary revenue comes from its tobacco products, specifically cigarettes manufactured by Philip Morris USA (PM USA). While PM USA remains the market leader with its Marlboro brand, the company experienced a 5.3% decrease in cigarette shipment volumes for 2010 compared to 2009. However, its smokeless products segment, strengthened by the UST acquisition, showed robust growth with a 12.2% increase in shipment volume.
What are the major risks facing Altria Group?
The most significant risks highlighted in the filing include extensive tobacco-related litigation, ongoing and potential future government regulation (particularly from the FDA), excise tax increases, increased competition in tobacco categories, and risks associated with its wine business. Litigation is a constant concern, with numerous lawsuits posing potential financial and operational impacts.
How is Altria managing its shareholder return policies?
Altria demonstrated a commitment to shareholder returns by increasing its quarterly dividend four times since the spin-off of Philip Morris International and targeting a dividend payout ratio of approximately 80% of adjusted diluted earnings per share. Additionally, in January 2011, the company authorized a new $1.0 billion share repurchase program, signaling continued efforts to return capital to shareholders.
What impact does the FDA regulation have on Altria?
The Family Smoking Prevention and Tobacco Control Act (FSPTCA) has granted the FDA authority to regulate tobacco products. For Altria, this means facing increased regulatory oversight on manufacturing, packaging, advertising, and sales. The company's subsidiaries are subject to quarterly user fees imposed by the FDA and must navigate evolving regulations that could impact product development, marketing, and consumer choice.
06—Continue