10-QPeriod: Q2 FY2023

ALTRIA GROUP, INC. Quarterly Report for Q2 Ended Jun 30, 2023

Filed August 1, 2023For Securities:MO

Summary

Altria Group, Inc. (MO) reported its second-quarter 2023 financial results, showing a notable increase in net earnings driven by favorable investment results, particularly from its ABI and JUUL investments, alongside effective cost management. The company completed the significant acquisition of NJOY Holdings for $2.9 billion, expanding its presence in the e-vapor market, which is a key component of its "Moving Beyond Smoking" strategy. Despite a slight decrease in net revenues year-over-year, primarily due to lower volumes in its smokeable products segment, Altria demonstrated resilience through pricing strategies and cost control measures. The company's smokeable products segment saw a slight decrease in net revenues and shipment volume, though pricing actions helped offset some of this decline. The oral tobacco products segment experienced growth in net revenues, largely driven by pricing increases and strong performance in the "on!" oral nicotine pouch brand. Altria continues to navigate a challenging macroeconomic environment with persistent inflation, impacting consumer disposable income, but remains focused on its long-term vision of transitioning adult smokers to smoke-free alternatives.

Financial Highlights

50 data points
Beta

Revenue

$6.51B

57.7% Gross Margin

Net Income

$2.12B

32.5% Net Margin

EPS (Diluted)

$1.19

Total Assets

$37.15B

Cash & Equivalents

$923.00M

Free Cash Flow

$76.00M

Financial Statements
Beta
Revenue$6.51B
Cost of Revenue$1.68B
Gross Profit$3.76B
Operating Income$2.90B
Net Income$2.12B
EPS (Basic)$1.19
EPS (Diluted)$1.19
Shares Outstanding (Basic)1.78B
Shares Outstanding (Diluted)1.78B

Key Highlights

  • 1Net earnings increased significantly year-over-year for both the three and six-month periods, largely due to favorable equity investment results (including the disposition of JUUL and changes in ABI's valuation) and lower interest expenses.
  • 2The company completed the acquisition of NJOY Holdings for $2.9 billion on June 1, 2023, expanding its e-vapor product portfolio, which is a strategic move towards its smoke-free future vision.
  • 3Net revenues saw a slight decrease for the three and six months ended June 30, 2023, compared to the prior year, primarily driven by a decline in the smokeable products segment's shipment volume, though pricing actions partially offset this.
  • 4The oral tobacco products segment reported revenue growth, driven by higher pricing and strong performance in the "on!" oral nicotine pouch brand, which continued its market share momentum.
  • 5Diluted EPS showed a substantial increase for both periods, benefiting from higher net earnings and fewer outstanding shares due to ongoing share repurchases.
  • 6Marketing, administration, and research costs increased significantly, mainly due to acquisition-related costs for NJOY and expenses for resolving JUUL-related litigation and shareholder derivative lawsuits.
  • 7Altria maintained its commitment to returning capital to shareholders, paying $3.365 billion in dividends for the first six months of 2023 and continuing its share repurchase program.

Frequently Asked Questions

Altria completed the acquisition of NJOY Holdings for $2.9 billion on June 1, 2023. This acquisition led to increased Marketing, Administration, and Research costs due to associated acquisition expenses. While NJOY's financial results are now consolidated, the integration and its full impact on profitability will be seen in future reporting periods. The company incurred $49 million in acquisition-related costs for the six months ended June 30, 2023.

The substantial increase in Net Earnings and Diluted EPS for both the three and six-month periods compared to the prior year was primarily driven by significantly favorable "(Income) losses from investments in equity securities." This was largely due to the disposition of Altria's JUUL equity securities (resulting in a $250 million loss for the six months ended June 30, 2023, but a significant positive swing from the prior year's unrealized losses), as well as improved results from its investment in Anheuser-Busch InBev (ABI) and its Cronos Group investment. Lower interest and other debt expense also contributed positively.

The Smokeable Products segment experienced a slight year-over-year decline in net revenues and shipment volumes, attributed to macroeconomic pressures on consumer spending and competitive dynamics. However, pricing actions helped offset some of these declines, and Marlboro maintained its leading market share. The Oral Tobacco Products segment showed growth in net revenues, driven by higher pricing and strong performance from the "on!" oral nicotine pouch brand, which continues to gain market share and contributed to the overall growth in this segment despite declines in traditional MST brands like Copenhagen and Skoal.

Altria forecasts its full-year 2023 adjusted diluted EPS to be in the range of $4.89 to $5.03, representing a growth of 1% to 4% compared to 2022. This guidance includes planned investments in its smoke-free portfolio, digital engagement, and marketplace activities for NJOY. The company also expects its adjusted effective tax rate to be between 24.5% and 25.5%.