10-QPeriod: Q2 FY2017

ALTRIA GROUP, INC. Quarterly Report for Q2 Ended Jun 30, 2017

Filed July 27, 2017For Securities:MO

Summary

Altria Group, Inc. reported strong financial performance for the six months ended June 30, 2017, with net earnings attributable to Altria Group, Inc. increasing by 18.1% to $3,390 million, and diluted EPS rising by 19.0% to $1.75. This growth was driven by higher operating income, a significant gain from the AB InBev/SABMiller business combination, and a lower effective tax rate, partially offset by reduced earnings from the AB InBev equity investment. The company also saw a notable increase in net cash provided by operating activities, largely due to dividends received from AB InBev and a decrease in litigation-related payments. The smokeable products segment experienced growth in net revenues and operating income, primarily due to higher pricing, despite a slight decrease in shipment volume. The smokeless products segment's performance was impacted by a product recall in Q1 2017, though pricing and volume recovered in the second quarter. The wine segment saw a decline in net revenues and operating income due to lower shipment volumes and increased competition. Altria continued its commitment to shareholder returns, increasing dividends paid and repurchasing shares under its authorized program.

Financial Highlights

45 data points
Beta

Revenue

$6.66B

46.7% Gross Margin

Net Income

$1.99B

29.9% Net Margin

EPS (Diluted)

$1.03

Total Assets

$43.73B

Cash & Equivalents

$2.25B

Free Cash Flow

-$788.00M

Financial Statements
Beta
Revenue$6.66B
Cost of Revenue$1.95B
Gross Profit$3.11B
Operating Income$2.53B
Net Income$1.99B
EPS (Basic)$1.03
Shares Outstanding (Basic)1.93B

Key Highlights

  • 1Net earnings attributable to Altria Group, Inc. increased by 18.1% to $3,390 million for the first six months of 2017 compared to the same period in 2016.
  • 2Diluted EPS grew by 19.0% to $1.75 for the first six months of 2017.
  • 3The company recorded a pre-tax gain of $408 million from AB InBev divestitures in the first six months of 2017.
  • 4Net cash provided by operating activities increased significantly to $1,948 million for the first six months of 2017.
  • 5The smokeable products segment saw net revenue and operating income growth driven by higher pricing, despite lower shipment volumes.
  • 6Altria repurchased $1.6 billion of its common stock during the first six months of 2017 and increased its share repurchase program authorization.
  • 7Dividends paid increased by 7.0% to $2,369 million for the first six months of 2017.

Frequently Asked Questions

The primary drivers for the increase in net earnings were higher operating income, a significant gain from the AB InBev/SABMiller business combination ($408 million pre-tax gain from AB InBev divestitures), and a lower effective tax rate, partially offset by lower earnings from the AB InBev equity investment.

The business combination resulted in a significant pre-tax gain of $408 million in the first six months of 2017 due to AB InBev divestitures. Altria also recognized pre-tax gains in the prior year related to a derivative financial instrument associated with the transaction. Altria holds a 10.2% ownership in the combined AB InBev entity and accounts for it using the equity method.

Altria has a $1.0 billion share repurchase program authorized in July 2015, expanded to $3.0 billion in October 2016, and further expanded to $4.0 billion in July 2017. The company expects to complete this program by the end of the second quarter of 2018. During the first six months of 2017, Altria repurchased $1.6 billion of its common stock.

The voluntary product recall initiated in the first quarter of 2017 negatively impacted the smokeless products segment's net revenues, shipment volume, and operating companies income for the first half of 2017. However, performance showed recovery in the second quarter with higher pricing and increased shipment volume.

Altria reaffirmed its expectation for a 2017 full-year adjusted diluted EPS growth rate to be in the range of 7.5% to 9.5% over 2016 full-year adjusted diluted EPS, excluding certain income and expense items. The company anticipates stronger growth in the second half of the year, partly due to the full-year inclusion of AB InBev equity income and the resolution of the smokeless product recall's financial impact.