10-KPeriod: FY2013

ALTRIA GROUP, INC. Annual Report, Year Ended Dec 31, 2013

Filed February 26, 2014For Securities:MO

Summary

Altria Group, Inc. reported solid financial performance for the fiscal year ending December 31, 2013, with net earnings of $4.535 billion, an increase of 8.5% compared to the previous year. Diluted EPS also saw a significant increase of 9.7% to $2.26. This growth was driven by higher operating income from its core smokeable and smokeless products segments, lower interest expenses, and a lower effective income tax rate. The company continued its disciplined approach to capital allocation, repurchasing shares under its authorized program and increasing its dividend payout. Despite the positive financial results, Altria Group faces ongoing challenges inherent in the tobacco industry, including regulatory scrutiny from the FDA under the FSPTCA, significant excise taxes, and the persistent threat of litigation. The company is actively engaged in developing "innovative tobacco products," notably expanding its e-vapor offerings with the planned acquisition of Green Smoke, Inc. While these new product categories represent future growth potential, the core cigarette business remains the primary revenue and profit driver.

Financial Highlights

53 data points
Beta

Revenue

$24.47B

42.7% Gross Margin

Net Income

$4.54B

18.5% Net Margin

EPS (Diluted)

$2.26

Total Assets

$34.86B

Cash & Equivalents

$3.17B

Free Cash Flow

$4.24B

Financial Statements
Beta
Revenue$24.47B
Cost of Revenue$7.21B
Gross Profit$10.46B
R&D Expenses$153.00M
Operating Income$8.08B
Interest Expense$1.05B
Net Income$4.54B
EPS (Basic)$2.26
Shares Outstanding (Basic)2.00B

Key Highlights

  • 1Net earnings increased by 8.5% to $4.535 billion, with diluted EPS growing by 9.7% to $2.26.
  • 2Operating companies income increased across key segments, particularly in smokeable products, driven by higher pricing and favorable "Non-Participating Manufacturer" (NPM) adjustment items.
  • 3Altria Group continued its commitment to returning capital to shareholders by increasing its quarterly dividend and actively repurchasing shares under its authorized programs.
  • 4The company is investing in and expanding its "alternative products" segment, with plans to acquire Green Smoke, Inc. to bolster its e-vapor offerings.
  • 5Net revenues saw a slight decrease of 0.6% to $24.466 billion, primarily due to lower volumes in the smokeable products segment, partially offset by gains in smokeless products and wine.
  • 6The company faces significant regulatory risks under the Family Smoking Prevention and Tobacco Control Act (FSPTCA) and ongoing tobacco-related litigation, which management believes it is handling successfully.

Frequently Asked Questions

Altria's earnings growth in 2013 was primarily driven by higher operating income from its smokeable and smokeless product segments, boosted by favorable pricing strategies and the impact of 'Non-Participating Manufacturer' (NPM) adjustment items. Additionally, lower interest expenses and a reduced effective income tax rate contributed positively to the bottom line.

Altria is actively pursuing growth in 'alternative products' and has plans to expand its e-vapor business through the acquisition of Green Smoke, Inc. The company also launched MarkTen electronic cigarettes in select markets, indicating a strategic focus on innovation and meeting evolving consumer preferences within the tobacco and nicotine product landscape.

Key risks and challenges for Altria Group include the stringent regulatory environment governed by the FDA under the Family Smoking Prevention and Tobacco Control Act (FSPTCA), which imposes various restrictions on tobacco product manufacturing, marketing, and sales. Additionally, the company continues to manage significant ongoing tobacco-related litigation, including 'Engle progeny' cases and other health and product liability claims, though management expresses confidence in its litigation management strategies.

Altria managed its debt by issuing new senior unsecured notes and repurchasing certain existing notes through tender offers. Despite a slight increase in total debt, the company maintained strong credit ratings and met its debt covenants, indicating a stable financial position and continued access to capital markets.