- Altria’s 2016 third-quarter reported
diluted earnings per share (EPS) decreased 28.2% to $0.56, as
comparisons were affected by special items.
- Altria’s 2016 third-quarter adjusted
diluted EPS, which excludes the impact of special items, increased
9.3% to $0.82.
- Altria’s 2016 nine-month reported
diluted EPS decreased 0.5% to $2.02, as comparisons were affected
by special items.
- Altria’s 2016 nine-month adjusted
diluted EPS, which excludes the impact of special items, increased
10.3% to $2.35.
Altria Group, Inc. (Altria) (NYSE: MO) today announced its 2016
third-quarter and nine-month business results and reaffirmed its
outlook for 2016 full-year adjusted diluted EPS.
“Altria delivered excellent performance in the third quarter and
for the first nine months.” said Marty Barrington, Altria’s
Chairman, Chief Executive Officer and President. “Our core tobacco
businesses delivered solid income growth on the strength of their
leading premium brands. We also continued to simplify business
processes, streamline infrastructure and invest in important growth
initiatives. And with the completion of Anheuser-Busch InBev’s
business combination with SABMiller, we maximized the value of our
SABMiller investment and expanded and extended our share repurchase
program. Going forward, we continue to have a position in the
global brewing profit pool as a significant shareholder in the new
combined company.”
Conference Call
As previously announced, a conference call with the investment
community and news media will be webcast on October 27, 2016 at
9:00 a.m. Eastern Time. Access to the webcast is available at
www.altria.com/webcasts and via the Altria Investor app.
Cash Returns to Shareholders -
Dividends and Share Repurchase Program
In August 2016, Altria’s Board of Directors (Board) increased
the regular quarterly dividend by 8.0% to $0.61 per share. The
current annualized dividend rate is $2.44 per share. As of October
21, 2016, Altria’s annualized dividend yield was 3.83%. Altria paid
more than $1.1 billion in dividends in the third quarter and $3.3
billion for the first nine months of 2016. Altria expects to
continue to return a large amount of cash to shareholders in the
form of dividends by maintaining a dividend payout ratio target of
approximately 80% of its adjusted diluted EPS. Future dividend
payments remain subject to the discretion of the Board.
During the third quarter, Altria repurchased 2.6 million shares
at an average price of $66.23, for a total of $171 million. As of
September 30, 2016, Altria had approximately $453 million remaining
in the previous $1 billion share repurchase program. On October 11,
2016, following the completion of Anheuser-Busch InBev SA/NV’s
business combination with SABMiller plc (SABMiller), Altria’s Board
expanded and extended the $1 billion share repurchase program to $3
billion. Altria expects to complete the share repurchase program by
the end of the second quarter of 2018. The timing of share
repurchases depends upon marketplace conditions and other factors.
This program remains subject to the discretion of the Board.
Product Innovation and
Regulation
In e-vapor, Nu Mark, LLC (Nu Mark) continued its disciplined
distribution of MarkTen XL while preparing for the U.S. Food and
Drug Administration’s (FDA) final deeming regulations, which came
into effect on August 8, 2016.
In heated tobacco, Altria continues to partner with Philip
Morris International Inc. (PMI) on its FDA applications for iQOS.
PMI plans to submit a modified risk tobacco product application to
the FDA by the end of 2016, and a pre-market tobacco product
application in the first quarter of 2017. Altria’s U.S.
commercialization and marketing plans for iQOS continue to
progress, and Altria is working closely with PMI to capitalize on
insights from current iQOS markets.
All the tobacco products that Altria’s operating companies
manufacture and market are now regulated by the FDA. Altria and its
companies continue to focus on compliance and constructively
engaging with FDA and others to advocate for science- and
evidence-based decisions that are consistent with the statute,
promote innovation, and create sound public policy.
Capital Markets
In September 2016, Altria purchased approximately $441 million
aggregate principal amount of its senior unsecured 9.95% Notes due
in 2038 and approximately $492 million aggregate principal amount
of its senior unsecured 10.20% Notes due in 2039 in a debt tender
offer. The transaction resulted in a one-time, pre-tax charge
against reported earnings in the third quarter of 2016 of $823
million.
Concurrent with the debt tender, Altria issued $2 billion in new
debt, comprising $500 million aggregate principal amount of senior
unsecured 2.625% Notes due in 2026 and $1.5 billion aggregate
principal amount of senior unsecured 3.875% Notes due in 2046.
As a result of these activities, Altria reduced its weighted
average coupon rate and extended its weighted average debt
maturity.
Pension Plans
Contributions
In the third quarter of 2016, Altria made voluntary
contributions totaling $500 million to its pension plans.
Productivity Initiative
In January 2016, Altria announced a productivity initiative
designed to maintain its operating companies’ leadership and cost
competitiveness (Productivity Initiative). Altria continues to
expect the Productivity Initiative, which reduces spending on
certain selling, general and administrative (SG&A)
infrastructure and implements a leaner organizational structure, to
deliver approximately $300 million in annualized productivity
savings by the end of 2017.
Altria estimates total pre-tax restructuring charges in
connection with the Productivity Initiative of approximately $140
million. These charges, substantially all of which will result in
cash expenditures, consist of employee separation costs of
approximately $120 million and other associated costs of
approximately $20 million. During the first nine months of 2016,
Altria recorded pre-tax charges of $130 million and expects the
remaining charges to be incurred during the balance of 2016.
Facilities Consolidation
Altria announced today the consolidation of certain operating
companies’ manufacturing facilities to streamline operations and
achieve greater efficiencies. John Middleton Co. (Middleton) will
transfer its Limerick, PA operations to the Manufacturing Center
site in Richmond, VA. U.S. Smokeless Tobacco Company LLC (USSTC)
will transfer its Franklin Park, IL operations to its Nashville, TN
facility and the Manufacturing Center site in Richmond, VA.
Employees affected by the consolidation will be offered the
opportunity to transfer into available positions; those who do not
do so will be offered separation benefits. The consolidation is
expected to be completed by the first quarter of 2018 and deliver
approximately $50 million in annualized cost savings by the end of
2018.
As a result of this consolidation, Altria expects to record
total pre-tax charges of approximately $150 million, or $0.05 per
share. Of this amount, Altria expects to record pre-tax charges of
approximately $60 million, or $0.02 per share, in the fourth
quarter of 2016, $75 million in 2017 and the remainder in 2018. The
estimated charges relate primarily to accelerated depreciation ($55
million), employee separation costs ($45 million) and other exit
and implementation costs ($50 million). Approximately $90 million
of the total pre-tax charges are expected to result in cash
expenditures. These estimated charges do not reflect the non-cash
impact that may result from pension settlement and curtailment
accounting.
Completion of Anheuser-Busch InBev’s
Business Combination with SABMiller
On October 10, 2016, Anheuser-Busch InBev completed its business
combination with SABMiller (the Transaction). As previously
announced, the combined group will retain the name Anheuser-Busch
InBev SA/NV (AB InBev). In connection with the closing, Altria
received 185,115,417 restricted shares of AB InBev, representing a
9.6% ownership of AB InBev, and approximately $5.3 billion in
pre-tax cash. These results reflect the terms of the partial share
alternative (PSA), including proration, and the proceeds from the
currency derivatives that Altria entered into to hedge its British
pound exposure (Currency Derivatives). Further, Marty Barrington,
Altria’s Chairman, CEO and President, and Billy Gifford, Altria’s
CFO, have been appointed to AB InBev’s Board of Directors.
As a result of the Transaction, Altria expects to record a total
estimated pre-tax gain in its reported earnings of approximately
$13.7 billion, or $4.55 per share, substantially all of which will
be recorded in the fourth quarter of 2016 (the Gain).
Subsequent to the Transaction and through October 24, 2016,
Altria purchased approximately 12 million ordinary shares of AB
InBev for a total cost of approximately $1.6 billion, thereby
increasing Altria’s ownership to approximately 10.2%. For ownership
levels at or above 10%, Altria is entitled to foreign tax credits
available in connection with dividends Altria receives from AB
InBev, as it was with its former SABMiller investment.
Altria will use the equity method of accounting for its
investment in AB InBev. As previously disclosed, Altria will report
its share of AB InBev’s results using a one-quarter lag because AB
InBev’s results will not be available in time to record them in the
concurrent period. For example, Altria’s share of AB InBev’s
results for the relevant, post-closing portion of the fourth
quarter of 2016 will be recorded in Altria’s 2017 first-quarter
statement of earnings. Previously, Altria recorded results from its
SABMiller investment concurrently with Altria’s reporting
calendar.
This timing lag will not affect Altria’s cash flows or quarterly
dividends per share, but will impact year-over-year comparability
of reported and adjusted diluted EPS in the short-term.
2016 Full-Year Guidance
Altria reaffirms its most recent guidance for 2016 full-year
adjusted diluted EPS, which reflects the reporting lag, to be in a
range of $2.98 to $3.04. This represents a growth rate of 6.5% to
8.5% from a 2015 adjusted diluted EPS base of $2.80, as shown in
Table 1 below. The guidance excludes the Gain, the gain on the
Currency Derivatives incurred from October 1, 2016 through October
14, 2016, charges associated with the facilities consolidation
discussed above, and the special items for the first nine months of
2016, as shown in Table 2.
Altria’s full-year adjusted diluted EPS guidance excludes the
impact of certain income and expense items that management believes
are not part of underlying operations. These items may include, for
example, loss on early extinguishment of debt, restructuring
charges, the Gain, SABMiller special items, certain tax items,
charges associated with tobacco and health litigation items, and
settlements of, and determinations made in connection with, certain
non-participating manufacturer (NPM) adjustment disputes under the
Master Settlement Agreement (such settlements and determinations
are referred to collectively as NPM Adjustment Items).
Altria’s management cannot estimate on a forward-looking basis
the impact of certain income and expense items, including those
items noted in the preceding paragraph, on its reported diluted EPS
and its reported effective tax rate because these items, which
could be significant, are difficult to predict and may be highly
variable. As a result, Altria does not provide a corresponding U.S.
generally accepted accounting principles (GAAP) measure for, or
reconciliation to, its adjusted diluted EPS guidance or its
effective tax rate on operations forecast.
The factors described in the Forward-Looking and Cautionary
Statements section of this release represent continuing risks to
Altria’s forecast.
Table 1 - Altria’s 2015 Adjusted Results
Full Year 2015 Reported diluted EPS
$ 2.67 NPM Adjustment Items (0.03 ) Tobacco and
health litigation items 0.05 SABMiller special items 0.04 Loss on
early extinguishment of debt 0.07
Adjusted diluted
EPS $ 2.80
ALTRIA GROUP,
INC.
Altria reports its financial results in accordance with GAAP.
Altria’s management reviews operating companies income (OCI), which
is defined as operating income before general corporate expenses
and amortization of intangibles, to evaluate the performance of,
and allocate resources to, the segments. Altria’s management also
reviews OCI, operating margins and diluted EPS on an adjusted
basis, which excludes certain income and expense items, including
those items noted under “2016 Full-Year Guidance” above. Altria’s
management does not view any of these special items to be part of
Altria’s sustainable results as they may be highly variable, are
difficult to predict and can distort underlying business trends and
results. Altria’s management believes that adjusted financial
measures provide useful insight into underlying business trends and
results and provide a more meaningful comparison of year-over-year
results. Altria’s management uses adjusted financial measures for
planning, forecasting and evaluating business and financial
performance, including allocating resources and evaluating results
relative to employee compensation targets. These adjusted financial
measures are not consistent with GAAP and may not be calculated the
same as similarly titled measures used by other companies. These
adjusted financial measures should thus be considered as
supplemental in nature and not considered in isolation or as a
substitute for the related financial information prepared in
accordance with GAAP. Reconciliations of historical adjusted
financial measures to corresponding GAAP measures are provided in
this release.
Altria’s reportable segments are smokeable products,
manufactured and sold by Philip Morris USA Inc. (PM USA) and
Middleton; smokeless products, substantially all of which are
manufactured and sold by USSTC; and wine, produced and/or
distributed by Ste. Michelle Wine Estates Ltd. (Ste. Michelle).
Comparisons are to the corresponding prior-year period unless
otherwise stated.
Altria’s net revenues increased 3.1% to $6.9 billion in the
third quarter and increased 2.0% to $19.5 billion for the first
nine months of 2016. Altria’s revenues net of excise taxes grew
4.3% to $5.2 billion in the third quarter and grew 3.4% to $14.6
billion for the first nine months of 2016.
Altria’s 2016 third-quarter reported diluted EPS decreased 28.2%
to $0.56, primarily driven by a $0.28 per share loss on early
extinguishment of debt in 2016, partially offset by higher earnings
from Altria’s equity investment in SABMiller and the unrealized
gain on the Currency Derivatives. Altria’s third-quarter adjusted
diluted EPS, which excludes the special items shown in Table 2,
grew 9.3% to $0.82, primarily driven by higher adjusted OCI in the
smokeable and smokeless products segments and higher earnings from
Altria’s equity investment in SABMiller.
Altria’s 2016 nine-month reported diluted EPS decreased 0.5% to
$2.02, primarily driven by loss on early extinguishment of debt,
partially offset by higher reported OCI in the smokeable and
smokeless products segments, the unrealized gain on the Currency
Derivatives, higher operating results at Philip Morris Capital
Corporation (PMCC), lower investment spending in innovative tobacco
products, and lower interest and other debt expense. Altria’s
nine-month adjusted diluted EPS, which excludes the special items
shown in Table 2, grew 10.3% to $2.35, primarily driven by higher
adjusted OCI in the smokeable and smokeless products segments,
higher earnings from Altria’s equity investment in SABMiller,
higher operating results at PMCC, lower interest and other debt
expense and lower investment spending in innovative tobacco
products.
Table 2 - Altria’s Adjusted Results
Third Quarter Nine Months Ended September
30,
2016
2015
Change
2016 2015 Change Reported diluted EPS
$ 0.56 $ 0.78 (28.2 )%
$ 2.02 $ 2.03 (0.5 )% NPM
Adjustment Items — (0.04 ) 0.01 (0.04 ) Tobacco and health
litigation items 0.01 0.02 0.03 0.04 SABMiller special items (0.01
) — 0.05 0.03 Loss on early extinguishment of debt 0.28 — 0.28 0.07
Asset impairment, exit and implementation costs — — 0.04 — Gain on
derivative financial instruments (0.02 ) — (0.07 ) — Tax items
— (0.01 ) (0.01 ) —
Adjusted diluted
EPS $ 0.82 $ 0.75
9.3 % $ 2.35
$ 2.13 10.3 %
NPM Adjustment Items
In the first nine months of 2016, PM USA recorded a pre-tax
charge of $18 million related to a dispute with the State of
Maryland. In the third quarter of 2015, PM USA recorded pre-tax
earnings of $126 million as a reduction to cost of sales as a
result of PM USA settling NPM adjustment disputes from 2004-2014
with New York State. The EPS impact of the NPM Adjustment Items is
shown in Table 2 and Schedules 6 and 7.
Tobacco and Health Litigation
Items
In the third quarter of 2016, PM USA recorded pre-tax charges
for tobacco and health litigation items of $45 million related to a
resolution of the Miner case. During the third quarter of 2015, PM
USA recorded total pre-tax charges of $54 million related to
tobacco and health judgments in six state Engle progeny lawsuits
and $13 million of related interest costs. The EPS impact of these
charges, including interest costs, is shown in Table 2 and
Schedules 6 and 7.
SABMiller Special Items
In the third quarter of 2016, Altria’s share of SABMiller
pre-tax special items totaled $40 million, primarily reflecting
gains on asset disposals, partially offset by Transaction-related
costs. For the first nine months of 2016 and 2015, Altria’s share
of SABMiller pre-tax special items totaled $147 million and $96
million, respectively. The EPS impact of these items is shown in
Table 2 and Schedules 6 and 7.
Loss on Early Extinguishment of
Debt
As described above, in September 2016 Altria completed a cash
tender offer in which it purchased approximately $933 million
aggregate principal amount of its senior unsecured 9.95% and 10.20%
Notes due in 2038 and 2039, respectively. The transaction resulted
in a one-time, pre-tax charge against reported earnings in the
third quarter of 2016 of $823 million, reflecting the loss on early
extinguishment of debt.
In March 2015, Altria completed a cash tender offer in which it
purchased approximately $793 million aggregate principal amount of
its senior unsecured 9.700% notes due in 2018. The transaction
resulted in a one-time, pre-tax charge against reported earnings of
$228 million in the first quarter of 2015.
The EPS impact of these charges is shown in Table 2 and
Schedules 6 and 7.
Asset Impairment, Exit and
Implementation Costs
During the first nine months of 2016, Altria recorded pre-tax
charges of $130 million for asset impairment, exit and
implementation costs in connection with the Productivity
Initiative. The EPS impact of these costs is shown in Table 2 and
Schedule 7.
Gain on Derivative Financial
Instruments
In the third quarter and first nine months of 2016, Altria
recorded pre-tax, unrealized gains of $48 million and $205 million,
respectively, for the change in the fair value of the Currency
Derivatives. The EPS impact of these gains are shown in Table 2 and
Schedules 6 and 7. In October 2016, Altria exercised the Currency
Derivatives. Altria will record a pre-tax gain of approximately
$145 million, or $0.05 per share, in the fourth quarter of 2016 for
the change in the fair value of the Currency Derivatives.
SMOKEABLE
PRODUCTS
The smokeable products segment delivered solid income growth in
the third quarter and for the first nine months of 2016 despite
tough 2015 comparisons. PM USA grew total cigarettes retail share
by 0.1 percentage point in the quarter and for the first nine
months.
The smokeable products segment grew net revenues by 1.8% in the
third quarter and 0.9% for the first nine months, primarily driven
by higher pricing, partially offset by lower volume and higher
promotional investments. Revenues net of excise taxes increased
2.7% in the third quarter and 2.2% for the first nine months.
The smokeable products segment’s third-quarter reported OCI
decreased 1.7%, primarily driven by 2015 NPM Adjustment Items,
higher promotional investments, state excise tax (SET) ballot
initiative spending and higher resolution expenses, and lower
volume, partially offset by higher pricing and lower manufacturing
costs, due primarily to lower pension and benefits costs. Adjusted
OCI, which is calculated excluding the special items identified in
Table 3, grew 4.2%, and adjusted OCI margins expanded 0.7
percentage points to 47.7%.
For the first nine months, the smokeable products segment’s
reported OCI increased 2.1% primarily driven by higher pricing and
lower benefits costs. These factors were partially offset by lower
volume, higher resolution expenses, higher promotional investments
and NPM Adjustment Items. Adjusted OCI grew 5.8% for the first nine
months, and adjusted OCI margins expanded 1.6 percentage points to
48.6%. Table 3 summarizes revenues, OCI and OCI margins and special
items for the smokeable products segment.
Table 3 - Smokeable Products: Revenues and OCI ($ in
millions) Third Quarter
Nine Months Ended September 30,
2016
2015
Change
2016 2015 Change Net revenues $
6,147 $ 6,040 1.8% $
17,398 $ 17,235 0.9% Excise taxes
(1,671 ) (1,682 ) (4,769 ) (4,876 )
Revenues net of excise
taxes $ 4,476 $ 4,358
2.7% $ 12,629 $ 12,359
2.2% Reported OCI $ 2,086
$ 2,121 (1.7)% $ 5,955 $
5,831 2.1% NPM Adjustment Items — (126 ) 12 (126 )
Asset impairment, exit and implementation costs 4 — 105 — Tobacco
and health litigation items 45 54 72 102
Adjusted OCI $ 2,135 $
2,049 4.2% $ 6,144
$ 5,807 5.8% Adjusted OCI
margins 1 47.7 % 47.0
%
0.7pp
48.6 % 47.0 %
1.6pp
1 Adjusted OCI margins are calculated as adjusted OCI divided by
revenues net of excise taxes.
PM USA’s reported domestic cigarettes shipment volume decreased
1.0% in the third quarter of 2016, primarily driven by the
industry’s rate of decline, partially offset by trade inventory
movements. When adjusted for trade inventory movements, PM USA
estimates that its third-quarter domestic cigarettes shipment
volume decreased by approximately 3%, in line with its estimate for
total industry cigarette volumes.
For the first nine months, PM USA’s reported domestic cigarettes
shipment volume decreased 1.7%, primarily driven by the industry’s
rate of decline, partially offset by calendar differences and trade
inventory movements. When adjusted for trade inventory movements
and calendar differences, PM USA estimates that its nine-month
domestic cigarettes shipment volume decreased by approximately 2%,
in line with the industry.
Middleton grew its third-quarter and nine-month 2016 reported
cigars shipment volume by 2.8% and 6.1%, respectively, driven
primarily by Black & Mild in the tipped cigars segment. Table 4
summarizes smokeable products segment shipment volume
performance.
Table 4 - Smokeable Products: Shipment Volume (sticks in
millions) Third Quarter
Nine Months Ended September 30,
2016
2015
Change
2016 2015 Change Cigarettes:
Marlboro 28,152 28,392 (0.8)% 80,446 82,007 (1.9)%
Other
premium 1,684 1,769 (4.8)% 4,858 5,114 (5.0)%
Discount
3,028 3,021 0.2% 8,569 8,383 2.2%
Total cigarettes 32,864 33,182
(1.0)% 93,873 95,504
(1.7)% Cigars: Black & Mild 357 340
5.0% 1,028 963 6.7%
Other 4 11 (63.6)% 19
24 (20.8)%
Total cigars 361
351 2.8% 1,047 987
6.1% Total smokeable
products 33,225 33,533
(0.9)% 94,920 96,491
(1.6)%
Note:Cigarettes volume includes units sold as well as
promotional units, but excludes units sold for distribution to and
in Puerto Rico, and units sold in U.S. Territories, to overseas
military and by Philip Morris Duty Free Inc., none of which,
individually or in the aggregate, is material to the smokeable
products segment.
Marlboro’s retail share was 44.0% for both periods, up 0.1
percentage point in the quarter and unchanged for the first nine
months. PM USA’s total retail share was 51.4% for both periods, up
0.1 percentage point in the quarter and for the first nine
months.
Black & Mild’s retail share in the machine-made large cigars
category declined by 1.1 points in the third quarter and for the
first nine months. Table 5 summarizes retail share performance by
PM USA in cigarettes and Middleton in machine-made large
cigars.
Table 5 - Smokeable Products: Retail Share (percent)
Third Quarter Nine Months
Ended September 30,
2016
2015
Percentagepoint change
2016 2015
Percentagepoint change
Cigarettes: Marlboro 44.0
% 43.9 % 0.1 44.0 % 44.0 % —
Other premium 2.7 2.8 (0.1) 2.7
2.9 (0.2)
Discount 4.7 4.6 0.1
4.7 4.4 0.3
Total cigarettes
51.4 % 51.3 % 0.1
51.4 % 51.3 % 0.1
Cigars: Black & Mild 26.8 % 27.9 % (1.1)
26.3 % 27.4 % (1.1)
Other 0.3 0.5
(0.2) 0.4 0.4 —
Total
cigars 27.1 % 28.4 %
(1.3) 26.7 % 27.8
% (1.1)
Note: Retail share results for cigarettes are based on data from
IRI/MSAi, a tracking service that uses a sample of stores and
certain wholesale shipments to project market share and depict
share trends. Retail share results for cigars are based on data
from IRI InfoScan, a tracking service that uses a sample of stores
to project market share and depict share trends. Both services
track sales in the food, drug and mass merchandisers (including
Wal-Mart), convenience, military, dollar store and club trade
classes. For other trade classes selling cigarettes, retail share
is based on shipments from wholesalers to retailers (STARS). These
services are not designed to capture sales through other channels,
including the Internet, direct mail and some illicitly
tax-advantaged outlets. Retail share results for cigars are based
on data for machine-made large cigars. Middleton defines
machine-made large cigars as cigars, made by machine, that weigh
greater than three pounds per thousand, except cigars sold at
retail in packages of 20 cigars. Because the cigars service
represents retail share performance only in key trade channels, it
should not be considered a precise measurement of actual retail
share. It is IRI’s standard practice to periodically refresh its
services, which could restate retail share results that were
previously released in these services.
SMOKELESS
PRODUCTS
The smokeless products segment recorded strong income growth in
the third quarter and for the first nine months of 2016. USSTC also
grew Copenhagen and Skoal’s combined retail share during both
periods.
The smokeless products segment’s net revenues increased 9.5% in
the third quarter and 9.8% for the first nine months, primarily
driven by higher pricing and volume, partially offset by higher
promotional investments and mix. Revenues net of excise taxes
increased 10.0% in the third quarter and 10.4% for the first nine
months of 2016.
The smokeless products segment’s third quarter reported OCI
increased 9.1%, primarily driven by higher pricing and volume,
partially offset by higher promotional investments, higher
manufacturing costs, mix and SET ballot initiative spending.
Adjusted OCI, which is calculated excluding the special items
identified in Table 6, grew 9.4% in the third quarter.
For the first nine months, the smokeless products segment’s
reported OCI increased 12.0%, primarily driven by higher pricing
and volume, partially offset by higher promotional investments, mix
and higher SG&A costs. Adjusted OCI increased 13.2% for the
first nine months. Table 6 summarizes revenues, OCI and OCI margins
and special items for the smokeless products segment.
Table 6 - Smokeless Products: Revenues and OCI ($ in
millions) Third Quarter
Nine Months Ended September 30,
2016
2015
Change
2016 2015 Change Net revenues
$ 528 $ 482 9.5% $
1,530 $ 1,393 9.8% Excise taxes
(35 ) (34 ) (102 ) (100 )
Revenues net of excise
taxes $ 493 $ 448
10.0% $ 1,428 $
1,293 10.4% Reported OCI
$ 312 $ 286 9.1% $
930 $ 830 12.0% Asset impairment, exit
and implementation costs 1 — 14
4
Adjusted OCI $ 313
$ 286 9.4% $ 944
$ 834 13.2% Adjusted OCI
margins 1 63.5 % 63.8
%
(0.3)pp
66.1 % 64.5 %
1.6pp
1 Adjusted OCI margins are calculated as adjusted OCI divided by
revenues net of excise taxes.
The smokeless products segment’s reported domestic shipment
volume increased 5.6% in the third quarter and 5.9% for the first
nine months, driven by Copenhagen, partially offset by declines in
Skoal and Other portfolio brands. Copenhagen and Skoal’s combined
reported shipment volume increased 6.6% in the third quarter and
6.8% for first nine months.
After adjusting for trade inventory movements and other factors,
USSTC estimates that its domestic smokeless products shipment
volume grew approximately 6% in the third quarter and 5.5% for the
first nine months. USSTC estimates that the smokeless products
category volume grew approximately 3% over the past six months.
Table 7 summarizes shipment volume performance for the smokeless
products segment.
Table 7 - Smokeless Products: Shipment Volume (cans and
packs in millions)
Third Quarter Nine Months Ended September
30,
2016
2015
Change
2016 2015 Change Copenhagen
133.5 120.2 11.1% 392.3 351.5 11.6%
Skoal 66.2 67.1 (1.3)%
197.3 200.5 (1.6)%
Copenhagen and Skoal 199.7
187.3 6.6% 589.6 552.0 6.8%
Other 16.7 17.6 (5.1)% 50.8 53.0 (4.2)%
Total smokeless
products 216.4 204.9 5.6%
640.4 605.0 5.9%
Note: Other includes certain USSTC and PM USA smokeless
products. Volume includes cans and packs sold, as well as
promotional units, but excludes international volume, which is not
material to the smokeless products segment. New types of smokeless
products, as well as new packaging configurations of existing
smokeless products, may or may not be equivalent to existing moist
smokeless tobacco (MST) products on a can-for-can basis. To
calculate volumes of cans and packs shipped, one pack of snus,
irrespective of the number of pouches in the pack, is assumed to be
equivalent to one can of MST.
Copenhagen and Skoal grew combined retail share 1.2 share points
in the third quarter to 52.6%. Copenhagen’s retail share increased
2.7 share points in the quarter, benefiting from Copenhagen Mint’s
national retail expansion earlier this year, while Skoal’s retail
share declined 1.5 share points. For the first nine months,
Copenhagen and Skoal’s combined retail share increased 1.0 share
point to 52.2%.
Total smokeless products retail share increased 0.9 share points
to 55.9% in the third quarter and 0.7 share points to 55.6% for the
first nine months. Table 8 summarizes smokeless products retail
share performance.
Table 8 - Smokeless Products: Retail Share (percent)
Third Quarter Nine Months
Ended September 30,
2016
2015
Percentagepoint change
2016 2015
Percentagepoint change
Copenhagen 34.4 % 31.7 % 2.7 33.6 % 31.4 % 2.2
Skoal 18.2 19.7 (1.5 ) 18.6
19.8 (1.2 )
Copenhagen and Skoal
52.6 51.4 1.2 52.2 51.2
1.0 Other 3.3 3.6 (0.3 )
3.4 3.7 (0.3 )
Total smokeless products
55.9 % 55.0 % 0.9
55.6 % 54.9 % 0.7
Note: Retail share results for smokeless products are based on
data from IRI InfoScan, a tracking service that uses a sample of
stores to project market share and depict share trends. The service
tracks sales in the food, drug and mass merchandisers (including
Wal-Mart), convenience, military, dollar store and club trade
classes on the number of cans and packs sold. Smokeless products is
defined by IRI as moist smokeless and spit-free tobacco products.
Other includes certain USSTC and PM USA smokeless products. New
types of smokeless products, as well as new packaging
configurations of existing smokeless products, may or may not be
equivalent to existing MST products on a can-for-can basis. For
example, one pack of snus, irrespective of the number of pouches in
the pack, is assumed to be equivalent to one can of MST. Because
this service represents retail share performance only in key trade
channels, it should not be considered a precise measurement of
actual retail share. It is IRI’s standard practice to periodically
refresh its InfoScan services, which could restate retail share
results that were previously released in this service.
WINE
In the wine segment, Ste. Michelle grew net revenues by 9.6% in
the third quarter and 8.0% for the first nine months of 2016. Ste.
Michelle’s reported OCI increased 8.6% in the third quarter,
primarily driven by higher volume. Ste. Michelle’s reported OCI
increased 3.1% for the first nine months, primarily driven by
higher volume, partially offset by higher costs. Adjusted OCI,
which is calculated excluding the special item identified in Table
9, grew 8.6% in the third quarter and 6.2% for the first nine
months.
Table 9 summarizes revenues, OCI and OCI margins for the wine
segment.
Table 9 - Wine: Revenues and OCI ($ in millions)
Third Quarter Nine Months Ended September
30, 2016 2015 Change
2016 2015 Change Net revenues
$ 182 $ 166
9.6% $ 498 $ 461
8.0% Excise taxes (6 ) (5 ) (17 ) (15 )
Revenues net of excise taxes $ 176
$ 161 9.3% $
481 $ 446 7.8%
Reported OCI $ 38 $ 35
8.6% $ 100 $ 97 3.1%
Acquisition-related costs — — 3
—
Adjusted OCI $ 38
$ 35 8.6% $
103 $ 97 6.2%
Adjusted OCI margins 1 21.6 %
21.7 %
(0.1)pp
21.4 % 21.7 %
(0.3)pp
1 Adjusted OCI margins are calculated as adjusted OCI divided by
revenues net of excise taxes.
Ste. Michelle grew reported wine shipment volume by 6.3% in the
third quarter to approximately 2.3 million cases, primarily driven
by growth among its core premium brands. For the first nine months,
Ste. Michelle’s reported wine shipment volume increased 5.8% to
approximately 6.2 million cases.
Altria’s Profile
Altria’s wholly-owned subsidiaries include PM USA, USSTC,
Middleton, Nu Mark, Ste. Michelle and PMCC. Altria holds an equity
investment in AB InBev.
The brand portfolios of Altria’s tobacco operating companies
include Marlboro®, Black & Mild®,
Copenhagen®, Skoal®, MarkTen® and Green
Smoke®. Ste. Michelle produces and markets premium wines
sold under various labels, including Chateau Ste. Michelle®,
Columbia Crest®, 14 Hands® and Stag’s Leap Wine
Cellars™, and it imports and markets Antinori®,
Champagne Nicolas Feuillatte™, Torres® and Villa
Maria Estate™ products in the United States. Trademarks and
service marks related to Altria referenced in this release are the
property of Altria or its subsidiaries or are used with permission.
More information about Altria is available at altria.com and on the
Altria Investor app.
Forward-Looking and Cautionary
Statements
This press release contains projections of future results and
other forward-looking statements that involve a number of risks and
uncertainties and are made pursuant to the Safe Harbor Provisions
of the Private Securities Litigation Reform Act of 1995.
Important factors that may cause actual results and outcomes to
differ materially from those contained in the projections and
forward-looking statements included in this press release are
described in Altria’s publicly filed reports, including its Annual
Report on Form 10-K for the year ended December 31, 2015 and its
Quarterly Report on Form 10-Q for the period ended June 30,
2016.
These factors include the following: significant competition;
changes in adult consumer preferences and demand for Altria’s
operating companies’ products; fluctuations in raw material
availability, quality and price; reliance on key facilities and
suppliers; reliance on critical information systems, many of which
are managed by third-party service providers; fluctuations in
levels of customer inventories; the effects of global, national and
local economic and market conditions; changes to income tax laws;
federal, state and local legislative activity, including actual and
potential federal and state excise tax increases; increasing
marketing and regulatory restrictions; the effects of price
increases related to excise tax increases and concluded tobacco
litigation settlements on trade inventories, consumption rates and
consumer preferences within price segments; health concerns
relating to the use of tobacco products and exposure to
environmental tobacco smoke; privately imposed smoking
restrictions; and, from time to time, governmental
investigations.
Furthermore, the results of Altria’s tobacco businesses are
dependent upon their continued ability to promote brand equity
successfully; to anticipate and respond to evolving adult consumer
preferences; to develop, manufacture, market and distribute
products that appeal to adult tobacco consumers (including, where
appropriate, through arrangements with, and investments in, third
parties); to improve productivity; and to protect or enhance
margins through cost savings and price increases.
Altria and its tobacco businesses are also subject to federal,
state and local government regulation, including by the FDA. Altria
and its subsidiaries continue to be subject to litigation,
including risks associated with adverse jury and judicial
determinations, courts reaching conclusions at variance with the
companies’ understanding of applicable law, bonding requirements in
the limited number of jurisdictions that do not limit the dollar
amount of appeal bonds and certain challenges to bond cap
statutes.
In addition, the factors related to Altria’s investment in AB
InBev include the following: AB InBev’s inability to achieve the
contemplated synergies and value creation from the Transaction; the
fact that Altria’s equity securities in AB InBev are subject to
restrictions on transfer until October 10, 2021; the fact that
Altria’s reported earnings from and carrying value of its equity
investment in AB InBev may be adversely affected by unfavorable
foreign currency exchange rates and other factors, including the
risks encountered by AB InBev in its business; the risk that the
tax treatment of Altria’s Transaction consideration and the
accounting treatment of its equity investment are not guaranteed;
and the risk that the tax treatment of the dividends Altria
receives from AB InBev may not be as favorable as dividends from
SABMiller.
Altria cautions that the foregoing list of important factors is
not complete and does not undertake to update any forward-looking
statements that it may make except as required by applicable law.
All subsequent written and oral forward-looking statements
attributable to Altria or any person acting on its behalf are
expressly qualified in their entirety by the cautionary statements
referenced above.
Schedule 1
ALTRIA GROUP, INC.and
SubsidiariesConsolidated Statements of EarningsFor the Quarters
Ended September 30,(dollars in millions, except per share
data)(Unaudited)
2016 2015 % Change
Net revenues $ 6,905 $
6,699 3.1% Cost of sales 1 2,043 1,932 Excise taxes
on products 1 1,712 1,721 Gross profit 3,150 3,046
3.4% Marketing, administration and research costs 704 639 Asset
impairment and exit costs 2 —
Operating companies
income 2,444 2,407 1.5% Amortization of
intangibles 5 6 General corporate expenses 57 53 Reduction of PMI
tax-related receivable — 41
Operating income
2,382 2,307 3.3% Interest and other debt
expense, net 179 205 Loss on early extinguishment of debt 823 —
Earnings from equity investment in SABMiller (299 ) (187 ) Gain on
derivative financial instruments (48 ) — Earnings before
income taxes 1,727 2,289 (24.6)% Provision for income taxes 633
761
Net earnings 1,094 1,528
(28.4)% Net earnings attributable to noncontrolling
interests (1 ) —
Net earnings attributable to Altria
Group, Inc. $ 1,093 $ 1,528
(28.5)% Per share data:
Basic and diluted earnings per share
attributable to Altria Group, Inc.
$ 0.56 $ 0.78 (28.2)%
Weighted-average diluted shares outstanding 1,952 1,958 (0.3)%
1 Cost of sales includes charges for resolution expenses related
to state settlement agreements and FDA user fees. Supplemental
information concerning those items and excise taxes on products
sold is shown in Schedule 5.
Schedule 2 ALTRIA GROUP, INC. and Subsidiaries Selected
Financial Data For the Quarters Ended September 30, (dollars in
millions) (Unaudited)
Net Revenues
SmokeableProducts
SmokelessProducts
Wine All Other Total 2016 $
6,147 $ 528 $ 182 $ 48 $ 6,905 2015 6,040 482
166 11 6,699 % Change 1.8 % 9.5 % 9.6 % 100 %+ 3.1 %
Reconciliation:
For the quarter ended September 30, 2015 $
6,040 $ 482 $ 166 $
11 $ 6,699 Operations 107 46
16 37 206
For the
quarter ended September 30, 2016 $ 6,147
$ 528 $ 182
$ 48 $ 6,905
Operating Companies Income (Loss)
SmokeableProducts
SmokelessProducts
Wine All Other Total 2016 $
2,086 $ 312 $ 38 $ 8 $ 2,444 2015 2,121 286 35 (35 ) 2,407 % Change
(1.7 )% 9.1 % 8.6 % 100 %+ 1.5 %
Reconciliation:
For the quarter ended September 30, 2015 $
2,121 $ 286 $ 35 $
(35 ) $ 2,407 NPM Adjustment Items -
2015 (126 ) — — — (126 ) Integration costs - 2015 — — — 1 1 Tobacco
and health litigation items - 2015 54 —
— — 54 (72 ) — —
1 (71 )
Asset impairment, exit and implementation
costs - 2016
(4 ) (1 ) — (1 ) (6 ) Tobacco and health litigation items - 2016
(45 ) — — — (45 ) (49 )
(1 ) — (1 ) (51 ) Operations 86
27 3 43 159
For the quarter ended September 30, 2016 $
2,086 $ 312
$ 38 $ 8 $
2,444 Schedule 3 ALTRIA GROUP, INC. and
Subsidiaries Consolidated Statements of Earnings For the Nine
Months Ended September 30, (dollars in millions, except per share
data) (Unaudited)
2016
2015 % Change Net revenues $
19,492 $ 19,116 2.0 % Cost of
sales 1 5,841 5,733 Excise taxes on products 1 4,888 4,991
Gross profit 8,763 8,392 4.4 % Marketing, administration and
research costs 1,706 1,769 Asset impairment and exit costs 118
4
Operating companies income 6,939
6,619 4.8 % Amortization of intangibles 15 16
General corporate expenses 150 166 Reduction of PMI tax-related
receivable — 41 Corporate asset impairment and exit costs 5
—
Operating income 6,769 6,396
5.8 % Interest and other debt expense, net 571 609
Loss on early extinguishment of debt 823 228 Earnings from equity
investment in SABMiller (564 ) (546 ) Gain on derivative financial
instruments (205 ) — Earnings before income taxes 6,144
6,105 0.6 % Provision for income taxes 2,178 2,110
Net earnings 3,966 3,995 (0.7 )%
Net earnings attributable to noncontrolling interests (3 ) (1 )
Net earnings attributable to Altria Group, Inc. $
3,963 $ 3,994 (0.8
)% Per share data 2:
Basic and diluted earnings per share
attributable to Altria Group, Inc.
$ 2.02 $ 2.03 (0.5 )%
Weighted-average diluted shares outstanding 1,954 1,962 (0.4
)%
1 Cost of sales includes charges for resolution expenses related
to state settlement agreements and FDA user fees. Supplemental
information concerning those items and excise taxes on products
sold is shown in Schedule 5.
2 Basic and diluted earnings per share attributable to Altria
Group, Inc. are computed independently for each period.
Accordingly, the sum of the quarterly earnings per share amounts
may not agree to the year-to-date amounts.
Schedule 4 ALTRIA GROUP, INC. and Subsidiaries Selected
Financial Data For the Nine Months Ended September 30, (dollars in
millions) (Unaudited)
Net Revenues
SmokeableProducts
SmokelessProducts
Wine All Other Total 2016 $
17,398 $ 1,530 $ 498 $ 66 $ 19,492 2015 17,235
1,393 461 27 19,116 % Change 0.9 % 9.8 % 8.0 % 100 %+ 2.0 %
Reconciliation:
For the nine months ended September 30, 2015 $
17,235 $ 1,393 $ 461 $
27 $ 19,116 Operations 163 137
37 39 376
For the nine
months ended September 30, 2016 $ 17,398
$ 1,530 $ 498
$ 66 $ 19,492
Operating Companies Income (Loss)
SmokeableProducts
SmokelessProducts
Wine All Other Total 2016 $
5,955 $ 930 $ 100 $ (46 ) $ 6,939 2015 5,831 830 97 (139 ) 6,619 %
Change 2.1 % 12.0 % 3.1 % 66.9 % 4.8 %
Reconciliation:
For the nine months ended September 30, 2015 $
5,831 $ 830 $ 97 $
(139 ) $ 6,619 NPM Adjustment Items -
2015 (126 ) — — — (126 ) Asset impairment, exit and integration
costs - 2015 — 4 — 4 8 Tobacco and health litigation items - 2015
102 — — — 102
(24 ) 4 — 4 (16 )
NPM Adjustment Items - 2016 (12 ) — — — (12 )
Asset impairment, exit, implementation
and acquisition-related costs - 2016
(105 ) (14 ) (3 ) (6 ) (128 ) Tobacco and health litigation items -
2016 (72 ) — — — (72 )
(189 ) (14 ) (3 ) (6 ) (212 )
Operations 337 110 6 95
548
For the nine months ended September 30,
2016 $ 5,955 $ 930
$ 100 $ (46
) $ 6,939 Schedule 5
ALTRIA GROUP, INC. and Subsidiaries Supplemental Financial Data
(dollars in millions) (Unaudited)
For the QuartersEnded September
30,
For the Nine Months
Ended September 30,
2016 2015 2016 2015 The segment
detail of excise taxes on products sold is as follows:
Smokeable products $ 1,671 $ 1,682 $ 4,769 $ 4,876 Smokeless
products 35 34 102 100 Wine 6 5 17 15 $ 1,712
$ 1,721 $ 4,888 $ 4,991
The segment detail of charges for
resolution expenses related to state settlement
agreements included in cost of sales is as
follows:
Smokeable products 1 $ 1,237 $ 1,079 $ 3,565 $ 3,333
Smokeless products 2 2 6 6 $ 1,239 $
1,081 $ 3,571 $ 3,339
The segment detail of FDA user fees
included in cost of sales is as follows:
Smokeable products $ 72 $ 67 $ 211 $ 201 Smokeless products
1 1 3 3 $ 73 $ 68 $ 214 $
204
1 Amounts include an increase to cost of sales of $12 million
for the nine months ended September 30, 2016 and a reduction to
cost of sales of $126 million for the three months and nine months
ended September 30, 2015 related to the NPM Adjustment Items.
Schedule 6 ALTRIA GROUP, INC. and Subsidiaries Net Earnings
and Diluted Earnings Per Share - Attributable to Altria Group, Inc.
For the Quarters Ended September 30, (dollars in millions, except
per share data) (Unaudited)
Net
Earnings Diluted EPS 2016 Net
Earnings $ 1,093 $ 0.56 2015 Net
Earnings $ 1,528 $ 0.78 %
Change (28.5 )% (28.2 )%
Reconciliation:
2015 Net Earnings $ 1,528 $ 0.78
2015 NPM Adjustment Items (80 ) (0.04 ) 2015 Tobacco and
health litigation items 43 0.02 2015 SABMiller special items 4 —
2015 Integration costs 1 — 2015 Tax items (21 ) (0.01 ) Subtotal
2015 special items (53 ) (0.03 ) 2016 Tobacco and health
litigation items (29 ) (0.01 ) 2016 SABMiller special items 26 0.01
2016 Loss on early extinguishment of debt (541 ) (0.28 ) 2016 Asset
impairment, exit and implementation costs (2 ) — 2016 Gain on
derivative financial instruments 29 0.02 2016 Tax items 1 —
Subtotal 2016 special items (516 ) (0.26 ) Change in
tax rate (15 ) (0.01 ) Operations 149 0.08
2016
Net Earnings $ 1,093 $ 0.56
2016 Net Earnings Adjusted For Special Items
$ 1,609 $ 0.82 2015 Net Earnings
Adjusted For Special Items $ 1,475 $
0.75 % Change 9.1 % 9.3 %
Schedule 7 ALTRIA GROUP, INC. and Subsidiaries Net Earnings
and Diluted Earnings Per Share - Attributable to Altria Group, Inc.
For the Nine Months Ended September 30, (dollars in millions,
except per share data) (Unaudited)
Net Earnings Diluted EPS
1 2016 Net Earnings $ 3,963 $
2.02 2015 Net Earnings $ 3,994 $
2.03 % Change (0.8 )% (0.5
)%
Reconciliation:
2015 Net Earnings $ 3,994 $ 2.03
2015 NPM Adjustment Items (80 ) (0.04 ) 2015 Tobacco and
health litigation items 73 0.04 2015 SABMiller special items 62
0.03 2015 Loss on early extinguishment of debt 143 0.07 2015 Asset
impairment, exit and integration costs 6 — 2015 Tax items (17 ) —
Subtotal 2015 special items 187 0.10
2016 NPM Adjustment Items (11 ) (0.01 ) 2016 Tobacco and health
litigation items (56 ) (0.03 ) 2016 SABMiller special items (96 )
(0.05 ) 2016 Loss on early extinguishment of debt (541 ) (0.28 )
2016 Asset impairment, exit, implementation and acquisition-related
costs (84 ) (0.04 ) 2016 Gain on derivative financial instruments
129 0.07 2016 Tax items 17 0.01 Subtotal 2016 special
items (642 ) (0.33 ) Fewer shares outstanding — 0.01 Change
in tax rate (14 ) (0.01 ) Operations 438 0.22
2016 Net Earnings $ 3,963
$ 2.02 2016 Net Earnings Adjusted
For Special Items $ 4,605 $ 2.35
2015 Net Earnings Adjusted For Special Items $
4,181 $ 2.13 % Change 10.1
% 10.3 %
1 Diluted earnings per share attributable to Altria Group, Inc.
is computed independently for each period. Accordingly, the sum of
the quarterly earnings per share amounts may not agree to the
year-to-date amounts.
Schedule 8 ALTRIA GROUP, INC. and Subsidiaries Condensed
Consolidated Balance Sheets (dollars in millions) (Unaudited)
September 30, 2016 December 31, 2015
Assets
Cash and cash equivalents $ 2,298 $ 2,369 Inventories 1,980 2,031
Deferred income taxes 1,188 1,175 Other current assets 937 511
Property, plant and equipment, net 1,969 1,982 Goodwill and other
intangible assets, net 17,327 17,313 Investment in SABMiller 5,826
5,483 Finance assets, net 1,046 1,239 Other long-term assets 363
360
Total assets $ 32,934
$ 32,463
Liabilities and
Stockholders’ Equity
Current portion of long-term debt $ — $ 4 Accrued settlement
charges 3,429 3,590 Other current liabilities 3,466 3,484 Long-term
debt 13,878 12,843 Deferred income taxes 5,607 5,663 Accrued
postretirement health care costs 2,296 2,245 Accrued pension costs
863 1,277 Other long-term liabilities 412 447 Total
liabilities 29,951 29,553 Redeemable noncontrolling interest 36 37
Total stockholders’ equity 2,947 2,873
Total liabilities
and stockholders’ equity $ 32,934 $
32,463 Total debt $ 13,878 $ 12,847
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