10-QPeriod: Q2 FY2020

ALTRIA GROUP, INC. Quarterly Report for Q2 Ended Jun 30, 2020

Filed July 30, 2020For Securities:MO

Summary

Altria Group, Inc. reported solid financial performance for the six months ended June 30, 2020, with net revenues increasing to $12.73 billion and net earnings attributable to Altria rising to $3.50 billion, representing a 12.2% increase year-over-year. Diluted earnings per share also saw a significant increase of 13.3%. The company's cash provided by operating activities more than doubled to $4.95 billion, primarily driven by improved segment performance and timing of tax payments. Despite the positive financial results, Altria noted the ongoing uncertainty and potential impacts of the COVID-19 pandemic on its operations, supply chains, and consumer behavior. The company took precautionary measures by borrowing and then repaying under its credit facility and issuing new long-term debt to bolster liquidity. The significant charges related to the wine business's strategic reset and inventory write-offs impacted the overall reported earnings, but the core tobacco segments demonstrated resilience and delivered growth. Altria also declared a quarterly dividend of $0.86 per share, reflecting continued commitment to returning capital to shareholders.

Financial Highlights

49 data points
Beta

Revenue

$6.37B

51.6% Gross Margin

Net Income

$1.94B

30.5% Net Margin

EPS (Diluted)

$1.04

Total Assets

$50.20B

Cash & Equivalents

$4.89B

Free Cash Flow

$1.76B

Financial Statements
Beta
Revenue$6.37B
Cost of Revenue$1.77B
Gross Profit$3.29B
Operating Income$2.80B
Net Income$1.94B
EPS (Basic)$1.04
EPS (Diluted)$1.04
Shares Outstanding (Basic)1.86B
Shares Outstanding (Diluted)1.86B

Key Highlights

  • 1Net revenues increased by 3.9% to $12.73 billion for the first six months of 2020, driven by higher pricing across segments.
  • 2Net earnings attributable to Altria increased by 12.2% to $3.50 billion for the first six months of 2020.
  • 3Diluted EPS grew by 13.3% to $1.88 for the first six months of 2020.
  • 4Operating cash flow significantly increased to $4.95 billion for the first six months of 2020, more than double the previous year's figure.
  • 5The company experienced a substantial pre-tax charge of $394 million related to the wine business's strategic reset and inventory write-offs.
  • 6Altria's investment in ABI showed a significant fair value decline, approximately 42% below its carrying value, though management deemed the decline temporary.
  • 7The company declared a quarterly dividend of $0.86 per share, an increase from the previous quarter, demonstrating a commitment to shareholder returns.

Frequently Asked Questions

Altria reported that while its core tobacco businesses were not materially impacted by COVID-19 to date, the pandemic created economic uncertainty. The company took precautionary measures to enhance liquidity, including borrowing and repaying under its credit facility and issuing new debt. The wine business experienced negative impacts, and Altria noted its investments in ABI and Cronos were affected by market volatility due to the pandemic. Altria incurred $50 million in net pre-tax charges related to COVID-19 for safety measures and employee support.

Altria's investment in ABI saw a significant decline in fair value (approx. 42% below carrying value), attributed to market volatility and COVID-19 impacts, though management considered it temporary. The investment in JUUL ($4.2 billion carrying value) did not result in impairment charges for the quarter. Altria's investment in Cronos also experienced a fair value decline (approx. 7% below carrying value), deemed temporary by management. Earnings from equity investments decreased significantly, largely due to impacts on ABI and Cronos.

Altria's Board of Directors declared a quarterly dividend of $0.86 per share, representing a 2.4% increase. The company reaffirmed its long-term objective of a dividend payout ratio target of approximately 80% of its adjusted diluted EPS, indicating a continued commitment to returning capital to shareholders.

Yes, Altria recorded pre-tax charges of $394 million in the first six months of 2020 related to its wine business (Ste. Michelle Wine Estates). These charges included a $292 million inventory write-off and an estimated $100 million loss on future non-cancelable grape purchase commitments, driven by slowing wine category growth, increased inventory levels, and the impact of COVID-19 on sales.