10-QPeriod: Q2 FY2012

ALTRIA GROUP, INC. Quarterly Report for Q2 Ended Jun 30, 2012

Filed July 26, 2012For Securities:MO

Summary

Altria Group, Inc. (MO) reported a significant increase in net earnings attributable to Altria Group, Inc. for the six months ended June 30, 2012, rising to $2.42 billion from $1.38 billion in the same period of 2011. This substantial growth was driven by a combination of factors, including higher operating income across its segments, a significant boost from its equity investment in SABMiller, and a lower effective tax rate. Diluted EPS also saw a substantial increase, reflecting the improved profitability and a reduction in outstanding shares due to ongoing repurchase programs. The company's performance benefited from a one-time net earnings benefit related to the resolution of leveraged lease transactions with the IRS, which positively impacted results. While the smokeable products segment experienced a slight volume decline, improved pricing and cost management led to higher operating income. The smokeless products segment and wine segment also demonstrated growth in both revenues and operating income. The financial services segment reported a significant turnaround due to favorable adjustments related to leveraged lease charges.

Financial Highlights

48 data points
Beta

Revenue

$6.49B

38.4% Gross Margin

Net Income

$1.23B

18.9% Net Margin

EPS (Diluted)

$0.60

Total Assets

$34.55B

Cash & Equivalents

$1.53B

Free Cash Flow

-$1.95B

Financial Statements
Beta
Revenue$6.49B
Cost of Revenue$2.09B
Gross Profit$2.49B
Operating Income$1.88B
Net Income$1.23B
EPS (Basic)$0.60
EPS (Diluted)$0.60
Shares Outstanding (Basic)2.03B

Key Highlights

  • 1Net earnings attributable to Altria Group, Inc. increased by 75.2% to $2.42 billion for the first six months of 2012.
  • 2Diluted EPS rose by 80.3% to $1.19 for the first six months of 2012.
  • 3The company recorded a one-time net earnings benefit of $68 million related to the resolution of leveraged lease transactions with the IRS.
  • 4Equity earnings from SABMiller significantly increased, contributing to the overall profit growth.
  • 5The smokeable products segment showed resilience with higher operating income despite a slight volume decline, driven by pricing and cost management.
  • 6Smokeless products and wine segments reported growth in revenues and operating income.
  • 7Altria continued its share repurchase program, repurchasing approximately 11.9 million shares for $360 million in the second quarter of 2012.

Frequently Asked Questions

The primary drivers for the significant increase in net earnings were higher operating income across its business segments (smokeable products, smokeless products, and financial services), a substantial increase in equity earnings from its investment in SABMiller, and a lower effective tax rate. Additionally, a one-time net earnings benefit from resolving leveraged lease transactions with the IRS positively impacted the results.

Altria continued its share repurchase program, buying back shares at an average price of $29.01 per share in the second quarter of 2012. This reduction in outstanding shares contributed to the reported increase in diluted earnings per share (EPS) by positively impacting the per-share calculation.

The financial services segment reported a significant improvement in operating income, largely due to a favorable $68 million net earnings benefit recorded in the second quarter of 2012. This benefit stemmed from the resolution of federal income tax treatment for certain leveraged lease transactions entered into by PMCC through a closing agreement with the IRS. This resolution resolved past and future tax years for these transactions.

The smokeable products segment saw its operating income increase despite a slight decline in shipment volume (down 1.1% for the six months). This growth was primarily driven by higher pricing, effective cost management, and lower net tobacco and health judgments. Marlboro's retail share also saw a slight increase, supported by brand-building initiatives.