10-QPeriod: Q1 FY2009

ALTRIA GROUP, INC. Quarterly Report for Q1 Ended Mar 31, 2009

Filed May 7, 2009For Securities:MO

Summary

Altria Group, Inc. reported its first quarter 2009 financial results, marked by the significant acquisition of UST Inc. for approximately $11.7 billion. This acquisition, completed in January 2009, has led to the integration of UST's smokeless tobacco and wine businesses into Altria's reporting segments. Despite the substantial debt incurred to finance this acquisition, including a $4.2 billion issuance of senior unsecured notes, the company managed its liquidity effectively. Net revenues saw a modest increase driven by the inclusion of UST's results and higher pricing in certain segments, though this was partially offset by declining cigarette volumes and increased interest expenses. Financially, the quarter presented a mixed picture. Earnings from continuing operations saw a slight decrease compared to the prior year, primarily due to higher interest expenses, acquisition-related costs, and lower equity earnings from SABMiller. However, the company's adjusted diluted EPS from continuing operations, which excludes certain charges, showed modest growth, indicating underlying operational strength. Altria also announced a 2009 full-year EPS forecast that includes significant charges but anticipates growth in adjusted EPS, signaling confidence in its core businesses despite ongoing challenges in the tobacco industry, such as increasing excise taxes and regulatory scrutiny.

Financial Highlights

23 data points
Beta

Revenue

$4.52B

45.1% Gross Margin

Net Income

$589.00M

13.0% Net Margin

EPS (Diluted)

$0.28

Cash & Equivalents

$3.86B

Free Cash Flow

$2.00B

Financial Statements
Beta
Revenue$4.52B
Cost of Revenue$1.77B
Gross Profit$2.04B
Operating Income$1.19B
Net Income$589.00M
EPS (Basic)$0.28
EPS (Diluted)$0.28

Key Highlights

  • 1Completed the acquisition of UST Inc. for approximately $11.7 billion, integrating its smokeless tobacco and wine businesses.
  • 2Issued $4.2 billion in senior unsecured long-term notes and $0.835 billion in commercial paper to fund the UST acquisition and manage liquidity.
  • 3Reported a slight decrease in earnings from continuing operations to $589 million ($0.28 per share) compared to $614 million ($0.29 per share) in the prior year's quarter, impacted by acquisition costs and higher interest expenses.
  • 4Cigarette segment net revenues decreased by 8.0% primarily due to lower shipment volumes, though operating companies income increased due to pricing actions and reduced promotional spending.
  • 5Smokeless products segment, now including UST, reported an operating loss of $2 million, impacted by acquisition-related charges and pricing strategies to enhance brand value.
  • 6Wine segment, also acquired with UST, showed a decline in shipment volume but improved retail volume, with net revenues of $75 million and an operating companies income of $1 million (after acquisition costs).
  • 7Announced a 2009 full-year EPS forecast between $1.47 and $1.52, including significant charges, with an anticipated adjusted diluted EPS growth of 3% to 6% over 2008.

Frequently Asked Questions

The primary driver was the acquisition of UST Inc. completed on January 6, 2009. This acquisition significantly increased Altria's total assets and liabilities, including a substantial increase in long-term debt to finance the transaction.

The UST acquisition led to acquisition-related costs, including transaction, integration, and inventory adjustment costs, which negatively impacted earnings from continuing operations. While the acquisition added new revenue streams, the associated costs and increased interest expense offset some of the positive impact on net earnings.

Altria forecasted full-year 2009 reported diluted EPS from continuing operations to be between $1.47 and $1.52. This forecast includes approximately $0.23 per share of estimated charges, such as exit, integration, and acquisition-related costs. The company also provides an 'adjusted diluted EPS' figure, excluding these charges, to offer a view of underlying operational performance and anticipated growth.

Altria faces several challenges including declining cigarette volumes due to excise tax increases and changing consumer preferences, and the ongoing threat of increased regulation from entities like the FDA. Excise tax increases on April 1, 2009, in particular, impacted first-quarter shipment volumes as wholesalers reduced inventory to minimize floor tax payments. The company also faces ongoing litigation and state settlement agreements that impose significant annual payments.