10-KPeriod: FY2016

ALTRIA GROUP, INC. Annual Report, Year Ended Dec 31, 2016

Filed February 27, 2017For Securities:MO

Summary

Altria Group, Inc. (MO) reported strong financial performance for the fiscal year ended December 31, 2016, primarily driven by a significant one-time gain from the AB InBev/SABMiller business combination. This transaction resulted in a substantial increase in net earnings and diluted EPS for the year. The core tobacco businesses, smokeable and smokeless products, demonstrated resilience with positive operating income growth, supported by higher pricing and, in the case of smokeless products, increased shipment volumes. The company continued its commitment to shareholder returns through robust dividend payments and share repurchases, reflecting confidence in its ongoing operational performance and cash flow generation. Despite the positive overall results, Altria continues to navigate a complex operating environment characterized by ongoing litigation, regulatory scrutiny, and evolving consumer preferences in the tobacco industry. The company is actively managing these challenges through strategic pricing, cost efficiencies, and investments in innovative tobacco products. The significant gain from the AB InBev investment provided a substantial boost to earnings, but underlying operational performance in the tobacco segments remains critical for long-term value creation.

Financial Highlights

53 data points
Beta

Revenue

$25.74B

45.0% Gross Margin

Net Income

$14.24B

55.3% Net Margin

EPS (Diluted)

$7.28

Total Assets

$45.93B

Cash & Equivalents

$4.57B

Free Cash Flow

$3.64B

Financial Statements
Beta
Revenue$25.74B
Cost of Revenue$7.75B
Gross Profit$11.57B
R&D Expenses$203.00M
Operating Income$8.76B
Interest Expense$754.00M
Net Income$14.24B
EPS (Basic)$7.28
EPS (Diluted)$7.28
Shares Outstanding (Basic)1.95B
Shares Outstanding (Diluted)1.95B

Key Highlights

  • 1Significant gain of $13.9 billion (pre-tax) recognized from the AB InBev/SABMiller business combination, substantially boosting 2016 net earnings and EPS.
  • 2Smokeable products segment operating companies income increased due to higher pricing, partially offset by lower shipment volumes.
  • 3Smokeless products segment saw growth in net revenues and operating companies income, driven by higher shipment volume and pricing.
  • 4Altria continued its capital return program, increasing quarterly dividends and executing share repurchases under a $3.0 billion program.
  • 5The company is actively managing regulatory challenges, including FDA regulations and ongoing litigation, as described in the 'Risk Factors' and 'Legal Proceedings' sections.
  • 6Acquisition of Nat Sherman in January 2017 further strengthens the smokeable products segment with super-premium cigarettes and premium cigars.

Frequently Asked Questions

The primary driver was a substantial pre-tax gain of approximately $13.9 billion from the business combination of SABMiller and Anheuser-Busch InBev (AB InBev). This one-time event significantly impacted net earnings and diluted earnings per share for the fiscal year 2016.

Altria's core tobacco businesses showed stable performance. The smokeable products segment's operating companies income increased due to higher pricing, despite a slight decline in shipment volume. The smokeless products segment also experienced growth in net revenues and operating companies income, driven by higher shipment volumes and pricing.

Altria maintains a strong commitment to returning capital to shareholders through dividends and share repurchases. In 2016, the company increased its quarterly dividend and continued to repurchase shares under its $3.0 billion share repurchase program, demonstrating confidence in its financial strength and cash flow generation.

Altria faces ongoing risks including litigation, evolving consumer preferences, increasing excise taxes, and a highly regulated operating environment. Regulatory actions by the FDA, potential litigation outcomes, and changes in tobacco product consumption are significant factors that management monitors closely.