10-QPeriod: Q1 FY2010

ALTRIA GROUP, INC. Quarterly Report for Q1 Ended Mar 31, 2010

Filed April 28, 2010For Securities:MO

Summary

Altria Group, Inc. (MO) reported a strong first quarter for 2010, with net earnings increasing significantly to $813 million, or $0.39 per diluted share, up from $589 million, or $0.28 per diluted share, in the same period of 2009. This growth was primarily driven by higher operating income across its key segments, particularly cigarettes and smokeless products, as well as increased earnings from its equity investment in SABMiller. The company also benefited from lower interest expenses due to the elimination of certain acquisition-related financing fees and a lower effective tax rate. Despite a decline in net revenues for the financial services segment, the overall increase in profitability was robust. Altria reaffirmed its full-year 2010 EPS guidance, anticipating continued growth. The company's financial health appears stable, with adequate liquidity and access to credit lines to meet its obligations, although it continues to navigate significant regulatory and litigation risks inherent in the tobacco industry.

Financial Highlights

45 data points
Beta

Revenue

$5.76B

36.2% Gross Margin

Net Income

$813.00M

14.1% Net Margin

EPS (Diluted)

$0.39

Total Assets

$38.00B

Cash & Equivalents

$3.29B

Free Cash Flow

$2.00B

Financial Statements
Beta
Revenue$5.76B
Cost of Revenue$1.87B
Gross Profit$2.08B
Operating Income$1.43B
Net Income$813.00M
EPS (Basic)$0.39
EPS (Diluted)$0.39
Shares Outstanding (Basic)2.07B
Shares Outstanding (Diluted)2.08B

Key Highlights

  • 1Net earnings surged by 38.0% to $813 million compared to the prior year's $589 million.
  • 2Diluted EPS increased by 39.3% to $0.39 per share, reflecting improved operational performance.
  • 3The cigarette segment saw a substantial net revenue increase of 31.5% to $5.12 billion, driven by price increases following the April 1, 2009 federal excise tax hike.
  • 4Smokeless products segment net revenues grew by 27.9% to $381 million, aided by higher volumes and reduced promotional costs.
  • 5Operating companies income for the smokeless products segment experienced a significant turnaround, increasing by over 100% from a loss to $178 million.
  • 6Altria reaffirmed its full-year 2010 diluted EPS forecast of $1.78 to $1.82.
  • 7The company's cash flow from operations remained strong, at $2.0 billion for the quarter, consistent with the prior year.

Frequently Asked Questions

The primary driver for the significant increase in net earnings was higher operating income from the company's core tobacco segments (cigarettes and smokeless products), coupled with improved earnings from its equity investment in SABMiller. Lower interest expenses and a more favorable tax rate also contributed positively.

The UST acquisition, completed in January 2009, continued to influence results. While acquisition-related costs were lower in Q1 2010 compared to Q1 2009, the integration and restructuring charges associated with it were still present. However, the operational performance of UST's businesses, particularly in the smokeless products segment, showed significant improvement.

Altria reaffirmed its full-year 2010 diluted EPS guidance to be in the range of $1.78 to $1.82. This forecast indicates an expected growth rate of 6% to 8% over the 2009 adjusted diluted EPS, signaling management's confidence in continued operational performance despite ongoing industry challenges.

Altria faces significant risks including ongoing tobacco-related litigation with substantial potential damages, increasing excise taxes and government regulation (particularly from the FDA under the FSPTCA), intense competition, and potential changes in consumer preferences and economic conditions. The company also faces risks related to its financial services segment, including potential lease defaults and IRS challenges to tax treatments of certain leases.