ALTRIA GROUP, INC. Quarterly Report for Q1 Ended Mar 31, 2015

Summary

Altria Group, Inc. reported its first-quarter 2015 results, with net earnings attributable to Altria Group, Inc. decreasing by 13.4% to $1,018 million, or $0.52 per diluted share, down from $1,175 million, or $0.59 per diluted share, in the prior year period. This decline was primarily driven by a significant loss on early debt extinguishment ($228 million pre-tax), lower earnings from its equity investment in SABMiller, and increased interest expenses. Despite these headwinds, the company's core operations, particularly the smokeable products segment, showed strength with a 5.3% increase in net revenues driven by higher pricing and shipment volumes, and a 10.1% increase in operating companies income. Despite the year-over-year earnings decline, driven by these special items, Altria's operational performance remained robust. The smokeable products segment saw a notable increase in net revenues and operating companies income, supported by strong pricing and market share gains for key brands like Marlboro. The smokeless products segment also demonstrated growth in both revenues and operating income, with Copenhagen and Skoal brands increasing their combined retail share. The company reaffirmed its full-year adjusted diluted EPS growth forecast of 7% to 9%, signaling confidence in its underlying business performance despite the reported one-time charges. Key financial activities during the quarter included the repurchase of common stock under its share repurchase program and the completion of a debt tender offer. The company's liquidity remains strong, supported by its credit facilities and operating cash flows. Investors should note the significant impact of the debt extinguishment loss and SABMiller-related items on the reported net earnings, while focusing on the underlying operational improvements and the reaffirmed earnings guidance for the full year.

Key Highlights

• 1Net earnings attributable to Altria Group, Inc. decreased by 13.4% year-over-year to $1,018 million ($0.52 per diluted share), primarily due to a $228 million pre-tax loss on early debt extinguishment.
• 2Smokeable products segment net revenues increased by 5.3% to $5,221 million, driven by higher pricing and a 1.6% increase in shipment volume.
• 3Smokeless products segment net revenues increased by 3.6% to $430 million, with shipment volume up 2.7%, supported by price increases.
• 4Operating companies income for the smokeable products segment grew 10.1% to $1,686 million, and for the smokeless products segment increased 4.1% to $251 million.
• 5Altria reaffirmed its 2015 full-year adjusted diluted EPS growth forecast of 7% to 9%, excluding special items.
• 6The company continued its share repurchase program, with approximately $326 million remaining under the July 2014 program as of March 31, 2015.
• 7Cash provided by operating activities increased to $2,498 million from $2,125 million in the prior year period.

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