01—Abstract
Summary
Summary of the 10-Q filed October 27, 2011. Cited figures are marked; the original filing is the authoritative source.
Altria Group, Inc. (MO) reported its third-quarter 2011 financial results, showing a net revenue decrease of 4.1%a for the nine months ended September 30, 2011, compared to the same period in 2010.
This decline was primarily driven by lower net revenues in the financial services and cigarettes segments. Net earnings attributable to Altria Group, Inc. decreased by 14.5% year-over-year for the nine-month period. A significant factor impacting earnings was a one-time charge of $627 millionb related to the tax treatment of certain leveraged lease transactions by its subsidiary, PMCC.
Despite these headwinds, the company's consumer product segments, particularly smokeless products and wine, showed growth in operating companies income, driven by premium brand performance and new product introductions. In the third quarter, net revenues decreased by 4.6%c, primarily due to lower cigarette volumes. However, net earnings attributable to Altria Group, Inc. increased by 3.7% year-over-year, aided by strong performance in smokeless products, wine, and financial services, as well as higher equity earnings from SABMiller.
The company also announced a new $1.0 billiond share repurchase program and a cost reduction program aimed at improving efficiency. Altria reaffirmed its 2011 full-year guidance for adjusted diluted EPS, indicating confidence in underlying operational performance despite the reported charge.
02—Key points
Key Highlights
- Net revenues for the nine months ended September 30, 2011, decreased by 4.1% to $17.7 billion, primarily due to lower financial services and cigarette revenues.
- Net earnings attributable to Altria Group, Inc. for the nine months ended September 30, 2011, were $2.55 billion, a decrease of 14.5% from $2.99 billion in the prior year.
- A significant one-time charge of $627 million related to PMCC leveraged lease transactions negatively impacted earnings in the second quarter of 2011.
- Operating companies income from the smokeless products segment increased by 12.6% for the nine months, driven by strong performance of premium brands like Copenhagen and Skoal.
- The wine segment demonstrated double-digit growth in net revenues and operating companies income for the nine months, attributed to premium product focus and expanded distribution.
- Altria completed its $1.0 billion share repurchase program and announced a new $1.0 billion program, indicating a commitment to returning capital to shareholders.
- The company reaffirmed its 2011 full-year guidance for adjusted diluted EPS, projecting a 6% to 9% growth rate over 2010 adjusted diluted EPS.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q3 FY2011, Altria Group, Inc. kept $0.19.
- Revenue$6.11B100.0%
- Cost of revenue−$3.66B60.0%
- Gross profit$2.44B40.0%
- Operating costs−$567.0M9.3%
- Operating income$1.88B30.7%
- Interest, other & tax−$704.0M11.5%
- Net income$1.17B19.2%
04—Financials
Financial Highlights
Figures from 10-QQ3 FY2011filed October 27, 2011Financial Statements
Q3 FY2011 against Q3 FY2010
| Line item | Q3 FY2011Q3 FY2010 | Change |
|---|---|---|
| Revenue | $6.11B$6.40B | −4.6% |
| Cost of Revenue | $1.88B$1.99B | −5.1% |
| Gross Profit | $2.44B$2.48B | −1.3% |
| Operating Income | $1.88B$1.78B | +5.7% |
| Net Income | $1.17B$1.13B | +3.8% |
| EPS (Basic) | $0.57$0.54 | +5.6% |
| EPS (Diluted) | $0.57$0.54 | +5.6% |
| Shares Outstanding (Basic) | 2.05B2.08B | −1.2% |
| Shares Outstanding (Diluted) | 2.05B2.08B | −1.2% |
05—Questions
Frequently Asked Questions
What was the main reason for the decrease in net earnings for the nine months ended September 30, 2011?
The primary driver for the decrease in net earnings was a significant one-time charge of $627 million related to the tax treatment of leveraged lease transactions by its subsidiary, PMCC. This charge, along with lower operating income and higher interest expenses, contributed to the decline.
How did the different business segments perform in this quarter?
The smokeless products and wine segments showed strong performance with increased operating companies income and net revenues, driven by premium brands and market strategies. The cigarettes segment experienced a revenue decline due to lower volume and trade inventory dynamics, though pricing initiatives provided some offset. The financial services segment was significantly impacted by the PMCC charge.
What is the company's outlook and capital allocation strategy?
Altria reaffirmed its 2011 full-year adjusted diluted EPS guidance, indicating underlying operational strength. The company also demonstrated its commitment to shareholder returns by completing a $1.0 billion share repurchase program and announcing a new $1.0 billion program. Additionally, a new cost reduction program was approved to enhance efficiency.
What is the significance of the PMCC Leveraged Lease Charge?
The PMCC Leveraged Lease Charge of $627 million was recorded due to a re-evaluation of tax positions related to leveraged lease transactions. Approximately half of the charge represents a reduction in cumulative lease earnings that will be recaptured over time, while the remainder is a permanent charge for interest on tax underpayments. This charge significantly impacted reported earnings for the period.
06—Continue