10-QPeriod: Q3 FY2013

ALTRIA GROUP, INC. Quarterly Report for Q3 Ended Sep 30, 2013

Filed October 24, 2013For Securities:MO

Summary

Altria Group, Inc. (MO) reported a strong performance for the nine months ended September 30, 2013, with net earnings attributable to Altria Group, Inc. increasing significantly to $4,047 million, or $2.02 per diluted share, compared to $3,077 million, or $1.51 per diluted share, in the prior year period. This growth was driven by higher operating income in its smokeable and smokeless product segments, lower interest expenses, and a favorable resolution of certain tax matters. The company also continued its commitment to shareholder returns, increasing its quarterly dividend and repurchasing shares under its authorized programs. The company's smokeable products segment saw a rise in operating companies income due to favorable Non-Participating Manufacturer (NPM) adjustment items and increased pricing, offsetting a decline in shipment volume. The smokeless products segment also demonstrated growth in both net revenues and operating companies income, driven by volume increases for Copenhagen and Skoal. The wine segment also reported improved operating results. Despite ongoing litigation and regulatory challenges inherent in the tobacco industry, Altria demonstrated resilient operational performance and a continued focus on shareholder value.

Financial Highlights

48 data points
Beta

Revenue

$6.55B

43.0% Gross Margin

Net Income

$1.40B

21.3% Net Margin

EPS (Diluted)

$0.70

Total Assets

$35.95B

Cash & Equivalents

$4.21B

Free Cash Flow

$2.37B

Financial Statements
Beta
Revenue$6.55B
Cost of Revenue$1.94B
Gross Profit$2.82B
Operating Income$2.13B
Net Income$1.40B
EPS (Basic)$0.70
Shares Outstanding (Basic)2.00B

Key Highlights

  • 1Net earnings attributable to Altria Group, Inc. increased by 31.5% to $4,047 million for the first nine months of 2013, with diluted EPS rising to $2.02 from $1.51 in the prior year.
  • 2The company increased its quarterly dividend by 9.1% to $0.48 per common share, reflecting a commitment to returning capital to shareholders.
  • 3Smokeable products segment operating companies income increased by 16.0% due to favorable NPM adjustment items and higher pricing, despite a 3.6% decline in shipment volume.
  • 4Smokeless products segment net revenues grew 7.2% and operating companies income increased by 13.4%, driven by higher volume and pricing, particularly for Copenhagen and Skoal brands.
  • 5Altria repurchased approximately 9.9 million shares for $348 million during the first nine months of 2013, continuing its share buyback program.
  • 6The company reaffirmed its 2013 full-year reported diluted EPS forecast, anticipating growth of 7% to 9% over 2012 adjusted diluted EPS, excluding special items.
  • 7Finance assets, net, decreased from $2,581 million to $2,153 million, indicating a continued wind-down of PMCC's finance lease portfolio.

Frequently Asked Questions

The substantial increase in net earnings was primarily driven by a combination of factors: higher operating income from the smokeable and smokeless product segments, particularly benefiting from favorable Non-Participating Manufacturer (NPM) adjustment items and increased pricing in the smokeable segment; lower interest and other debt expenses due to debt refinancing activities; and a favorable resolution of certain tax matters. These positive drivers more than offset lower earnings from the equity investment in SABMiller.

Altria continues to prioritize shareholder returns. For the third quarter of 2013, the company's Board of Directors approved a 9.1% increase in the quarterly dividend to $0.48 per share. The company also actively engages in share repurchases, having completed its prior $1.5 billion program and initiated a new $1.0 billion program in April 2013, of which approximately $709 million remained at the end of the quarter. These actions reflect a commitment to returning capital to shareholders while maintaining financial flexibility.

For the smokeable products segment, operating companies income saw a significant increase due to favorable NPM adjustment items and higher pricing, which more than compensated for a decline in shipment volume. PM USA's cigarette shipment volume decreased slightly, but its retail share remained stable. In the smokeless products segment, both net revenues and operating companies income grew, driven by higher shipment volumes and pricing, with positive momentum for Copenhagen and Skoal brands, which also saw increased retail share.

The Non-Participating Manufacturer (NPM) Adjustment Items provided a significant boost to Altria's financial results, particularly for the smokeable products segment. For the nine months ended September 30, 2013, these items resulted in a pre-tax income of $664 million, recognized as a reduction to cost of sales. This positively impacted operating companies income and overall net earnings.