10-QPeriod: Q2 FY2014

ALTRIA GROUP, INC. Quarterly Report for Q2 Ended Jun 30, 2014

Filed July 22, 2014For Securities:MO

Summary

Altria Group, Inc. reported a decrease in net earnings for the first six months of 2014 to $2.437 billion from $2.651 billion in the same period of 2013, and diluted EPS also declined to $1.23 from $1.32. This decline was primarily attributed to lower operating income from the smokeable products segment, partially offset by lower interest expenses and a lower tax rate. The company repurchased shares, leading to fewer shares outstanding, which somewhat mitigated the EPS decline. For the three months ended June 30, 2014, net earnings remained relatively stable at $1.262 billion, with diluted EPS increasing slightly to $0.64 from $0.63 due to fewer shares outstanding. Despite facing ongoing litigation and regulatory challenges, Altria continued its share repurchase program and paid dividends, reflecting a commitment to returning capital to shareholders.

Financial Highlights

48 data points
Beta

Revenue

$6.26B

41.6% Gross Margin

Net Income

$1.26B

20.2% Net Margin

EPS (Diluted)

$0.64

Total Assets

$33.28B

Cash & Equivalents

$1.19B

Free Cash Flow

-$1.40B

Financial Statements
Beta
Revenue$6.26B
Cost of Revenue$1.97B
Gross Profit$2.60B
Operating Income$1.98B
Net Income$1.26B
EPS (Basic)$0.64
Shares Outstanding (Basic)1.98B

Key Highlights

  • 1Net earnings for the first six months of 2014 decreased by 8.1% to $2.437 billion compared to $2.651 billion in the prior year period.
  • 2Diluted EPS for the first six months of 2014 decreased by 6.8% to $1.23 from $1.32 in the prior year period.
  • 3Net revenues decreased by 0.5% to $11.773 billion for the first six months of 2014, primarily due to lower net revenues in the smokeable products segment.
  • 4Operating income for the first six months of 2014 decreased by 10.7% to $3.709 billion, impacted by lower operating results from the smokeable products segment and higher NPM Adjustment Items in 2013.
  • 5The company acquired Green Smoke, an e-vapor business, for up to $130 million to expand its presence in the alternative products category.
  • 6Altria continued its share repurchase program, repurchasing $404 million of its common stock in the first six months of 2014 and authorized a new $1 billion program.
  • 7Total dividends paid increased by 8.1% to $1.912 billion for the first six months of 2014, reflecting a higher dividend rate.

Frequently Asked Questions

For the first six months of 2014, Altria reported a decrease in net earnings to $2.437 billion from $2.651 billion in the first six months of 2013. Diluted EPS also declined to $1.23 from $1.32. This was largely due to lower operating income, particularly from the smokeable products segment, and a significant reduction in NPM Adjustment Items compared to the prior year. However, lower interest expenses, a lower effective tax rate, and fewer outstanding shares due to share repurchases partially offset the decline in EPS.

Altria's Nu Mark subsidiary acquired Green Smoke, an e-vapor business, for up to $130 million in April 2014. This acquisition was intended to enhance Nu Mark's capabilities in the growing e-vapor market. The filing states that Green Smoke's financial position and results of operations were not material to Altria's consolidated results of operations, and therefore, pro forma results were not presented.

Altria demonstrated a continued commitment to returning capital to shareholders. The company repurchased $404 million of its common stock during the first six months of 2014 under its existing share repurchase program and announced a new $1 billion share repurchase program. Dividends paid increased by 8.1% to $1.912 billion for the first six months of 2014, reflecting a higher dividend rate and a commitment to a target dividend payout ratio of approximately 80% of adjusted diluted EPS.

The primary drivers for the decline in net earnings and EPS were lower operating income from the smokeable products segment, which was negatively impacted by significantly lower NPM Adjustment Items in the prior year (2013), and a decline in earnings from the equity investment in SABMiller. Additionally, higher investment spending in alternative products and lower income from the financial services business also contributed to the decrease. These factors were partially offset by lower interest and other debt expense, net, and a lower income tax rate.