01—Abstract
Summary
Summary of the 10-K filed February 27, 2017. Cited figures are marked; the original filing is the authoritative source.
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.
02—Key points
Key Highlights
- Significant gain of $13.9 billion (pre-tax) recognized from the AB InBev/SABMiller business combination, substantially boosting 2016 net earnings and EPS.
- Smokeable products segment operating companies income increased due to higher pricing, partially offset by lower shipment volumes.
- Smokeless products segment saw growth in net revenues and operating companies income, driven by higher shipment volume and pricing.
- Altria continued its capital return program, increasing quarterly dividends and executing share repurchases under a $3.0 billion program.
- The company is actively managing regulatory challenges, including FDA regulations and ongoing litigation, as described in the 'Risk Factors' and 'Legal Proceedings' sections.
- Acquisition of Nat Sherman in January 2017 further strengthens the smokeable products segment with super-premium cigarettes and premium cigars.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2016, Altria Group, Inc. kept $0.55.
- Revenue$25.74B100.0%
- Cost of revenue−$14.17B55.0%
- Gross profit$11.57B45.0%
- Operating costs−$2.81B10.9%
- Operating income$8.76B34.0%
- Interest, other & tax$5.48B21.3%
- Net income$14.24B55.3%
Where FY2016 revenue went
$25.74B- Other operating costs: $9.03B, 35% of revenue
- Operating income: $8.76B, 34% of revenue
- Cost of revenue: $7.75B, 30% of revenue
- R&D: $203.0M, 0.8% of revenue
Kept 34% as operating income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2016filed February 27, 2017Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $25.74B$25.43B | +1.2% |
| Cost of Revenue | $7.75B$7.74B | +0.1% |
| Gross Profit | $11.57B$11.11B | +4.1% |
| R&D Expenses | $203.00M$186.00M | +9.1% |
| Operating Income | $8.76B$8.36B | +4.8% |
| Interest Expense | $754.00M$808.00M | −6.7% |
| Net Income | $14.24B$5.24B | +171.7% |
| EPS (Basic) | $7.28$2.67 | +172.7% |
| EPS (Diluted) | $7.28— | — |
| Shares Outstanding (Basic) | 1.95B1.96B | −0.5% |
| Shares Outstanding (Diluted) | 1.95B— | — |
05—Questions
Frequently Asked Questions
What was the primary driver of Altria's significantly higher net earnings in 2016 compared to 2015?
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.
How did Altria's core tobacco businesses perform in 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.
What is Altria's approach to returning capital to shareholders?
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.
What are the key risks and challenges facing Altria?
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.
06—Continue