01—Abstract
Summary
Summary of the 10-Q filed May 7, 2009. Cited figures are marked; the original filing is the authoritative source.
Altria Group, Inc. reported its first quarter 2009 financial results, marked by the significant acquisition of UST Inc. for approximately $11.7 billiona.
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 billionb 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.
02—Key points
Key Highlights
- Completed the acquisition of UST Inc. for approximately $11.7 billion, integrating its smokeless tobacco and wine businesses.
- Issued $4.2 billion in senior unsecured long-term notes and $0.835 billion in commercial paper to fund the UST acquisition and manage liquidity.
- Reported 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.
- Cigarette 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.
- Smokeless products segment, now including UST, reported an operating loss of $2 million, impacted by acquisition-related charges and pricing strategies to enhance brand value.
- Wine 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).
- Announced 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.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q1 FY2009, Altria Group, Inc. kept $0.13.
- Revenue$4.52B100.0%
- Cost of revenue−$2.48B54.9%
- Gross profit$2.04B45.1%
- Operating costs−$851.0M18.8%
- Operating income$1.19B26.3%
- Interest, other & tax−$602.0M13.3%
- Net income$589.0M13.0%
04—Financials
Financial Highlights
Figures from 10-QQ1 FY2009filed May 7, 200905—Questions
Frequently Asked Questions
What was the primary driver of the significant increase in Altria's debt and assets during this quarter?
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.
How did the UST acquisition impact Altria's reported earnings?
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.
What is the company's outlook for earnings in 2009, and how does it account for charges?
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.
What challenges does Altria face in its tobacco segments, particularly regarding volume and regulation?
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.
06—Continue