- Altria’s 2017 first-quarter reported
diluted earnings per share (EPS) increased 16.1% to $0.72, as
comparisons were affected by special items.
- Altria’s 2017 first-quarter adjusted
diluted EPS, which excludes the impact of special items, increased
1.4% to $0.73.
Altria Group, Inc. (Altria) (NYSE:MO) today announced its 2017
first-quarter business results and reaffirmed its guidance for 2017
full-year adjusted diluted EPS.
“Altria is off to a solid start in 2017 despite some short-term
headwinds,” said Marty Barrington, Altria’s Chairman, Chief
Executive Officer and President. “We grew first-quarter adjusted
diluted earnings per share by 1.4% against a difficult comparison
in the year-ago quarter when we grew adjusted diluted EPS more than
14%. The smokeable products segment continued to generate strong
results, which offset lower equity earnings from our beer
investment and the effect of the voluntary product recall in the
smokeless products segment.
“Our business fundamentals remain strong and we believe we are
well-positioned for the rest of the year. Thus, we are reaffirming
our 2017 full-year adjusted diluted EPS growth guidance of 7.5% to
9.5%. We continue to expect adjusted diluted EPS growth to be
weighted to the second half.”
Conference Call
As previously announced, a conference call with the investment
community and news media will be webcast on May 2, 2017 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 March 2017, Altria’s Board of Directors (Board) declared a
regular quarterly dividend of $0.61 per share. Altria’s current
annualized dividend rate is $2.44 per share. As of April 28, 2017,
Altria’s annualized dividend yield was 3.4%. Altria paid nearly
$1.2 billion in dividends in the first quarter and 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 first quarter, Altria repurchased 7.7 million shares
at an average price of $71.77, for a total cost of approximately
$551 million. As of March 31, 2017, Altria had approximately $1.4
billion remaining in the share repurchase program, which it expects
to complete 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
In e-vapor, Nu Mark LLC (Nu Mark) continues to execute its
disciplined expansion of MarkTen with distribution to approximately
10,000 additional stores. MarkTen also now is available in three
additional flavors.
In heated tobacco, Altria continues to partner with Philip
Morris International Inc. (PMI) in seeking regulatory authorization
to commercialize the IQOS system in the U.S. In December 2016, PMI
submitted a modified risk tobacco product application for IQOS to
the U.S. Food and Drug Administration (FDA). In March 2017, PMI
submitted its pre-market tobacco product application. Philip Morris
USA Inc. (PM USA) continues to build its U.S. IQOS
commercialization plan.
Smokeless Recall
In January 2017, U.S. Smokeless Tobacco Company LLC (USSTC)
voluntarily recalled certain smokeless tobacco products
manufactured at its Franklin Park, Illinois facility due to a
product tampering incident (Recall). USSTC has concluded the Recall
and is completing its replenishment of trade inventories. USSTC
estimates that the Recall-related costs and the share impact from
the Recall reduced smokeless products segment adjusted operating
companies income (OCI) by approximately $60 million (or $0.02 per
share) in the quarter.
Facilities Consolidation
In October 2016, Altria announced the consolidation of certain
of its operating companies’ manufacturing facilities to streamline
operations and achieve greater efficiencies (Facilities
Consolidation). The Facilities 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 the Facilities Consolidation, Altria expects to
record total pre-tax charges of approximately $150 million, or
$0.05 per share. Of this amount, Altria recorded pre-tax charges of
$71 million in 2016 and expects to record total pre-tax charges of
approximately $70 million in 2017 and the remainder in 2018. In the
first quarter of 2017, Altria recorded pre-tax charges of $27
million.
2017 Full-Year Guidance
Altria reaffirms its guidance for 2017 full-year adjusted
diluted EPS to be in a range of $3.26 to $3.32. This range
represents a growth rate of 7.5% to 9.5% from an adjusted diluted
EPS base of $3.03 in 2016 as shown in Table 1. This range excludes
the 2017 special items shown in Table 2.
Altria continues to expect higher adjusted diluted EPS growth in
the second half of the year compared to the first half driven by
various factors. These include the financial effects of the Recall
during the first quarter of 2017 and the benefit of reporting four
full quarters of equity income from Altria’s beer investment in
2017 versus three quarters in 2016.
Altria continues to expect that its 2017 full-year effective tax
rate on operations will be approximately 36%.
Altria’s full-year adjusted diluted EPS guidance and full-year
forecast for its effective tax rate on operations exclude 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, gain on AB InBev/SABMiller plc business combination, AB
InBev/SABMiller plc 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, may be infrequent, 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 2016 Adjusted Results
Full Year 2016 Reported diluted EPS $
7.28 NPM Adjustment Items 0.01 Tobacco and
health litigation items 0.04 SABMiller special items (0.03 ) Loss
on early extinguishment of debt 0.28 Asset impairment, exit and
implementation costs 0.07 Patent litigation settlement 0.01 Gain on
AB InBev/SABMiller business combination (4.61 ) Tax items
(0.02 )
Adjusted diluted EPS $
3.03
Note: For details of pre-tax, tax and after-tax amounts, see
Schedule 6.
ALTRIA GROUP,
INC.
Altria reports its financial results in accordance with GAAP.
Altria’s management reviews 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
“2017 Full-Year Guidance” above. Altria’s management does not view
any of these special items to be part of Altria’s underlying
results as they may be highly variable, may be infrequent, are
difficult to predict and can distort underlying business trends and
results. Altria’s management also reviews income tax rates on an
adjusted basis. Altria’s effective tax rate on operations may
exclude certain tax items from its reported effective tax rate.
Altria’s management believes that adjusted financial measures
provide useful additional 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 uses the equity method of accounting for its investment
in Anheuser-Busch InBev SA/NA (AB InBev) and reports its share of
AB InBev’s results using a one-quarter lag because AB InBev’s
results are not available in time to record them in the concurrent
period. The one-quarter reporting lag does not affect Altria’s cash
flows, but does impact the year-over-year comparability of Altria’s
equity earnings from its beer investment and reported and adjusted
diluted EPS in the short term.
Altria’s reportable segments are smokeable products,
manufactured and sold by PM USA, John Middleton Co. (Middleton) and
Sherman Group Holdings, LLC and its subsidiaries (Nat Sherman);
smokeless products, 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 were essentially unchanged at $6.1 billion
in the first quarter as higher net revenues in the smokeable
products segment were offset by lower net revenues in the smokeless
products and wine segments. Altria’s revenues net of excise taxes
increased 1.3% to $4.6 billion.
Altria’s 2017 first-quarter reported diluted EPS increased 16.1%
to $0.72, primarily driven by higher reported OCI in the smokeable
products segment, which included charges in 2016 related to the
productivity initiative announced in January 2016 (Productivity
Initiative) and the tax items discussed below. These factors were
partially offset by lower equity earnings from Altria’s beer
investment and lower reported OCI in the smokeless products
segment, resulting from the Recall. Altria’s first-quarter adjusted
diluted EPS, which excludes the special items shown in Table 2,
increased 1.4% to $0.73, primarily driven by higher adjusted OCI in
the smokeable products segment and fewer shares outstanding, mostly
offset by lower equity earnings from Altria’s beer investment and
lower adjusted OCI in the smokeless products segment, resulting
from the Recall.
Table 2 - Altria’s Adjusted Results First
Quarter 2017 2016 Change
Reported diluted EPS $ 0.72
$ 0.62 16.1 % NPM Adjustment
Items — 0.01 Tobacco and health litigation items — 0.01 AB
InBev/SABMiller special items 0.03 0.05 Asset impairment, exit and
implementation costs 0.01 0.04 Gain on AB InBev/SABMiller business
combination — (0.01 ) Tax items (0.03 ) —
Adjusted diluted EPS $ 0.73
$ 0.72 1.4
%
Note: For details of pre-tax, tax and after-tax amounts, see
Schedule 5.
AB InBev/SABMiller Special
Items
Altria’s earnings from its equity investment in AB InBev for the
first quarter of 2017 included net pre-tax charges of $73 million,
consisting primarily of Altria’s share of mark-to-market losses on
AB InBev’s derivative financial instruments used to hedge certain
share commitments. Altria’s earnings from its equity investment in
SABMiller plc (SABMiller) for the first quarter of 2016 included
net pre-tax charges of $166 million, consisting primarily of
Altria’s share of SABMiller’s asset impairment charges. The EPS
impact of these items is shown in Table 2 and Schedule 5.
Asset Impairment, Exit and
Implementation Costs
During the first quarter of 2017, Altria recorded pre-tax
charges of $27 million in connection with the Facilities
Consolidation. In the first quarter of 2016, Altria recorded a
pre-tax charge of $122 million in connection with the Productivity
Initiative. The EPS impact of these costs is shown in Table 2 and
Schedule 5.
Tax Items
During the first quarter of 2017, Altria recorded $58 million in
income tax benefits, including $42 million related to prior audit
years and $16 million related to tax benefits for share-based
awards that vested during the period. The EPS impact is shown in
Table 2 and Schedule 5.
SMOKEABLE
PRODUCTS
The smokeable products segment delivered strong income growth in
the first quarter despite a difficult year-ago comparison.
Smokeable products segment net revenues increased by 0.7% in the
quarter, primarily driven by higher pricing, partially offset by
lower volume and higher promotional investments. Revenues net of
excise taxes increased 1.9%.
First-quarter reported OCI increased 16.6%, primarily driven by
higher pricing, restructuring charges in 2016 for the Productivity
Initiative, lower resolution expenses, lower tobacco and health
litigation items and favorable NPM Adjustment Items, partially
offset by lower volume and higher promotional investments. Adjusted
OCI, which is calculated excluding the special items identified in
Table 3, grew 8.1%, and adjusted OCI margins expanded 2.9
percentage points to 51.0%.
Table 3 - Smokeable Products: Revenues and OCI ($ in
millions) First Quarter 2017
2016 Change Net revenues $
5,458 $ 5,422
0.7 % Excise taxes (1,460 ) (1,499 )
Revenues net of excise taxes $ 3,998
$ 3,923 1.9
% Reported OCI $ 2,041 $
1,751 16.6 % NPM Adjustment Items (8 ) 12
Asset impairment, exit and implementation costs 6 99 Tobacco and
health litigation items 1 26
Adjusted
OCI $ 2,040 $
1,888 8.1 % Adjusted OCI margins
1 51.0 % 48.1 %
2.9 pp
1 Adjusted OCI margins are calculated as adjusted OCI divided by
revenues net of excise taxes.
Reported domestic cigarettes shipment volume decreased 2.7% in
the quarter, primarily driven by the industry’s rate of decline,
partially offset by trade inventory movements. When adjusted for
trade inventory movements and other factors, PM USA estimates that
its domestic cigarettes shipment volume decreased by approximately
3%, in line with its estimate for total industry cigarette
volumes.
Middleton reported cigars shipment volume increased by 12.2%,
driven primarily by the strength of the cigar category and trade
inventory movements. Table 4 summarizes smokeable products segment
shipment volume performance.
Table 4 - Smokeable Products: Shipment Volume (sticks in
millions) First Quarter 2017
2016 Change Cigarettes:
Marlboro 24,695 25,361 (2.6 )%
Other premium 1,450
1,514 (4.2 )%
Discount 2,582 2,664 (3.1
)%
Total cigarettes 28,727
29,539 (2.7 )% Cigars:
Black & Mild 363 317 14.5 %
Other 4
10 (60.0 )%
Total cigars 367
327 12.2 %
Total smokeable products 29,094
29,866 (2.6 )%
Note:Cigarettes volume includes units sold as well as
promotional units, but excludes units sold for distribution to
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.
IRI restated its cigarette database in the first quarter of
2017, which affected previously released retail share results.
Restated share results are summarized in Tables 5 and 6 below.
Marlboro’s retail share declined by 0.2 share points in the
quarter to 43.6%. PM USA’s total retail share was 51.0%, down 0.1
share point for the quarter.
John Middleton’s strategy in the machine-made large cigar
category is to maximize income, principally from the profitable
tipped segment. Thus, to simplify reporting, Altria no longer
reports Middleton’s share of the overall retail market.
Table 5 - Smokeable Products: Retail Share (percent)
First Quarter
Percentage
2017 2016
point change
Cigarettes: Marlboro 43.6 % 43.8 % (0.2
)
Other premium 2.7 2.8 (0.1 )
Discount 4.7
4.5 0.2
Total
cigarettes 51.0 %
51.1 % (0.1 )
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. This service tracks sales in the food, drug, mass
merchandisers, 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). This
service is not designed to capture sales through other channels,
including the internet, direct mail and some illicitly
tax-advantaged outlets. It is IRI’s standard practice to
periodically refresh its services, which could restate retail share
results that were previously released in this service.
Table 6 - Smokeable Products: Restated Retail Share
For the Three Months Ended
12/31/16
9/30/16 6/30/16 3/31/16
Cigarettes: Marlboro
43.7
% 43.7 % 43.8 % 43.8 %
Other premium 2.7 2.8 2.8 2.8
Discount 4.7 4.6 4.6 4.5
Total cigarettes 51.1 %
51.1 % 51.2 % 51.1
%
SMOKELESS
PRODUCTS
The smokeless products segment first-quarter results were
significantly impacted by the Recall. Smokeless products segment
net revenues decreased 2.7% in the quarter primarily driven by the
Recall impact, partially offset by higher pricing. Revenues net of
excise taxes decreased 2.5%.
First-quarter reported OCI decreased 11.1%, primarily driven by
the Recall impact and Facilities Consolidation charges, partially
offset by higher pricing and restructuring charges in 2016 for the
Productivity Initiative. Adjusted OCI, which is calculated
excluding the special items identified in Table 7, decreased 7.8%
and adjusted OCI margins decreased 3.6 percentage points to
61.9%.
Table 7 - Smokeless Products: Revenues and OCI ($ in
millions) First Quarter 2017
2016 Change Net revenues $
466 $ 479
(2.7 )% Excise taxes (30 ) (32 )
Revenues
net of excise taxes $ 436
$ 447 (2.5 )%
Reported OCI $ 249 $ 280
(11.1 )% Asset impairment, exit and implementation
costs 21 13
Adjusted OCI $
270 $ 293
(7.8 )% Adjusted OCI margins 1
61.9 % 65.5 % (3.6)
pp
1 Adjusted OCI margins are calculated as adjusted OCI divided by
revenues net of excise taxes.
Reported domestic shipment volume decreased 5.0% in the quarter,
primarily due to the Recall. Copenhagen and Skoal’s combined
reported shipment volume decreased 4.9%.
USSTC estimates that the smokeless products category volume grew
approximately 2% over the past six months.
Table 8 summarizes shipment volume performance for the smokeless
products segment.
Table 8 - Smokeless Products: Shipment Volume (cans and packs in
millions) First Quarter
2017
2016
Change Copenhagen 124.5
124.8 (0.2 )%
Skoal 55.6
64.5 (13.8 )%
Copenhagen and Skoal
180.1 189.3 (4.9 )% Other
15.7 16.8 (6.5 )%
Total smokeless
products 195.8
206.1 (5.0 )%
Note: 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.
IRI restated its smokeless products database in the first
quarter of 2017, which affected previously released retail share
results. Restated share results are summarized in Tables 9 and 10
below.
Copenhagen and Skoal’s combined retail share decreased 0.4 share
points in the first quarter to 50.3%, primarily driven by the
Recall. Copenhagen’s retail share increased 1.2 share points in the
quarter, primarily due to a full quarter in 2017 of Copenhagen Mint
versus a partial quarter in 2016. Skoal’s retail share declined 1.6
share points.
Total smokeless products retail share decreased 0.7 share points
to 53.5% in the first quarter due to the Recall.
Table 9 - Smokeless Products: Retail Share (percent)
First Quarter
Percentage
2017 2016
point change
Copenhagen 33.0 % 31.8 % 1.2
Skoal 17.3
18.9 (1.6 )
Copenhagen and Skoal 50.3 50.7
(0.4 ) Other 3.2
3.5 (0.3 )
Total smokeless
products 53.5 %
54.2 % (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. This
service tracks sales in the food, drug, mass merchandisers,
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. 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.
Table 10 - Smokeless Products: Restated Retail Share
For the Three Months Ended 12/31/16
9/30/16 6/30/16 3/31/16
Copenhagen 33.8 % 33.7 % 33.4 % 31.8 %
Skoal 17.6 17.9
18.1 18.9
Copenhagen and Skoal 51.4 51.6
51.5 50.7 Other 3.3
3.3 3.4 3.5
Total smokeless products
54.7 % 54.9 %
54.9 %
54.2 %
WINE
In the wine segment, Ste. Michelle’s net revenues declined 3.4%
in the first quarter. Ste. Michelle’s OCI declined 25.0%, primarily
due to lower volume and higher costs. OCI margins decreased 4.6
percentage points to 15.4%. Table 11 summarizes revenues, OCI and
OCI margins for the wine segment.
Table 11 - Wine: Revenues and OCI ($ in millions)
First Quarter 2017 2016
Change Net revenues $ 140
$ 145 (3.4 )% Excise taxes (4 )
(5 )
Revenues net of excise taxes $
136 $ 140
(2.9 )% Reported and Adjusted OCI
$ 21 $ 28
(25.0 )% OCI margins 1
15.4 % 20.0 % (4.6)
pp
1 OCI margins are calculated as OCI divided by revenues net of
excise taxes.
Ste. Michelle’s reported wine shipment volume declined by 10.0%
in the first quarter to approximately 1.7 million cases, primarily
driven by wholesalers reducing year-end inventory and the timing of
the Easter holiday, which occurred in the first quarter of last
year.
Altria’s Profile
Altria’s wholly-owned subsidiaries include PM USA, USSTC,
Middleton, Nat Sherman, Nu Mark, Ste. Michelle and Philip Morris
Capital Corporation. 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, 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, 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 its business
combination with SABMiller; that Altria’s equity securities in AB
InBev are subject to restrictions on transfer until October 10,
2021; 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
from the AB InBev/SABMiller business combination and the accounting
treatment of its equity investment are not guaranteed and the risk
that the tax treatment of the dividends Altria expects to receive
from AB InBev may not be as favorable as Altria anticipates.
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 Subsidiaries
Consolidated Statements of Earnings
For the Quarters Ended March 31,
(dollars in millions, except per share
data)
(Unaudited)
2017 2016 % Change
Net revenues $ 6,083 $
6,066 0.3 % Cost of sales 1 1,810 1,874 Excise
taxes on products 1 1,494 1,536 Gross profit 2,779
2,656 4.6 % Marketing, administration and research costs 477 503
Asset impairment and exit costs 4 115
Operating
companies income 2,298 2,038 12.8 %
Amortization of intangibles 5 5 General corporate expenses 46 51
Corporate asset impairment and exit costs — 5
Operating income 2,247 1,977 13.7
% Interest and other debt expense, net 179 200 Earnings from
equity investment in AB InBev/SABMiller (23 ) (66 ) Gain on AB
InBev/SABMiller business combination — (40 ) Earnings before
income taxes 2,091 1,883 11.0 % Provision for income taxes 689
665
Net earnings 1,402 1,218
15.1 % Net earnings attributable to noncontrolling
interests (1 ) (1 )
Net earnings attributable to Altria Group,
Inc. $ 1,401 $
1,217 15.1 % Per share
data:
Basic and diluted earnings per share
attributable to Altria Group, Inc.
$ 0.72 $ 0.62 16.1 %
Weighted-average diluted shares outstanding 1,939 1,956 (0.9
)% 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 3. Schedule 2 ALTRIA
GROUP, INC. and Subsidiaries Selected Financial Data For the
Quarters Ended March 31, (dollars in millions) (Unaudited)
Net Revenues
Smokeable
Smokeless
Products
Products
Wine All Other Total 2017
$ 5,458 $ 466 $ 140 $ 19 $ 6,083 2016 5,422 479 145 20 6,066 %
Change 0.7 % (2.7 )% (3.4 )% (5.0 )% 0.3 %
Reconciliation:
For the quarter ended March 31, 2016 $ 5,422
$ 479 $ 145 $ 20 $
6,066 Operations 36 (13 ) (5 )
(1 ) 17
For the quarter ended March 31, 2017
$ 5,458 $ 466
$ 140 $ 19
$ 6,083 Operating Companies
Income (Loss)
Smokeable
Smokeless
Products
Products
Wine All Other Total 2017
$ 2,041 $ 249 $ 21 $ (13 ) $ 2,298 2016 1,751 280 28 (21 ) 2,038 %
Change 16.6 % (11.1 )% (25.0 )% 38.1 % 12.8 %
Reconciliation:
For the quarter ended March 31, 2016 $ 1,751
$ 280 $ 28 $ (21 )
$ 2,038 NPM Adjustment Items - 2016 12 — — — 12
Asset impairment, exit and implementation
costs - 2016
99 13 — 5 117 Tobacco and health litigation items - 2016 26
— — — 26
137 13 — 5
155 NPM Adjustment Items - 2017 8 — — — 8
Asset impairment, exit and implementation
costs - 2017
(6 ) (21 ) — — (27 ) Tobacco and health litigation items - 2017 (1
) — — — (1 ) 1
(21 ) — — (20 )
Operations 152 (23 ) (7 ) 3
125
For the quarter ended March 31, 2017
$ 2,041 $ 249
$ 21 $ (13
) $ 2,298 Schedule 3
ALTRIA GROUP, INC. and Subsidiaries Supplemental Financial Data
(dollars in millions) (Unaudited)
For the Quarters Ended
March 31,
2017
2016
The segment detail of excise taxes on products sold is as
follows: Smokeable products $ 1,460 $
1,499 Smokeless products 30 32 Wine 4 5
$ 1,494 $ 1,536
The segment detail of charges for
resolution expenses related to state settlement agreements included
in cost of sales is as follows:
Smokeable products $ 1,080 $ 1,155 Smokeless products 2
2 $ 1,082 $ 1,157
The segment detail of FDA user fees
included in cost of sales is as follows:
Smokeable products $ 68 $ 68 Smokeless products 1 1
$ 69 $ 69
Schedule 4 ALTRIA GROUP, INC. and Subsidiaries Net Earnings and
Diluted Earnings Per Share - Attributable to Altria Group, Inc. For
the Quarters Ended March 31, (dollars in millions, except per share
data) (Unaudited)
Net
Earnings
Diluted
EPS
2017 Net Earnings $ 1,401 $ 0.72
2016 Net Earnings $ 1,217 $ 0.62
% Change 15.1 % 16.1 %
Reconciliation:
2016 Net Earnings $ 1,217 $ 0.62
2016 NPM Adjustment Items 11 0.01 2016 Tobacco and health
litigation items 24 0.01 2016 SABMiller special items 108 0.05 2016
Asset impairment, exit and implementation costs 78 0.04 2016 Gain
on AB InBev/SABMiller business combination (26 ) (0.01 ) 2016 Tax
items 1 — Subtotal 2016 special items 196 0.10
2017 NPM Adjustment Items 1 — 2017 Tobacco and health
litigation items (1 ) — 2017 AB InBev special items (48 ) (0.03 )
2017 Asset impairment, exit, implementation and acquisition-related
costs (19 ) (0.01 ) 2017 Tax items 58 0.03 Subtotal
2017 special items (9 ) (0.01 ) Fewer shares outstanding —
0.01 Change in tax rate (7 ) — Operations 4 —
2017
Net Earnings $ 1,401 $ 0.72
Schedule 5 ALTRIA GROUP, INC. and Subsidiaries
Reconciliation of GAAP and non-GAAP Measures (dollars in millions,
except per share data) (Unaudited)
Earnings
before
Provision
Net Earnings
Income
for Income
Net
Attributable to
Diluted
Taxes
Taxes
Earnings
Altria Group, Inc.
EPS
For the quarter ended March 31, 2017 2017 Reported
$ 2,091 $ 689 $ 1,402
$ 1,401 $ 0.72 NPM Adjustment Items (1
) — (1 ) (1 ) — Tobacco and health litigation items 1 — 1 1 — AB
InBev special items 73 25 48 48 0.03
Asset impairment, exit, implementation and
acquisition-related costs
30 11 19 19 0.01 Tax items — 58 (58 )
(58 ) (0.03 )
2017 Adjusted for Special Items
$ 2,194 $ 783
$ 1,411 $ 1,410
$ 0.73 For the quarter
ended March 31, 2016 2016 Reported $ 1,883
$ 665 $ 1,218 $ 1,217
$ 0.62 NPM Adjustment Items 18 7 11 11 0.01 Tobacco
and health litigation items 38 14 24 24 0.01 SABMiller special
items 166 58 108 108 0.05
Asset impairment, exit and implementation
costs
122 44 78 78 0.04
Gain on AB InBev/SABMiller business
combination
(40 ) (14 ) (26 ) (26 ) (0.01 ) Tax items — (1 )
1 1 —
2016 Adjusted
for Special Items $ 2,187 $
773 $ 1,414
$ 1,413 $ 0.72
2017 Reported Net Earnings $ 1,401
$ 0.72 2016 Reported Net Earnings $
1,217 $ 0.62 % Change 15.1
% 16.1 % 2017 Net Earnings Adjusted
for Special Items $ 1,410 $ 0.73
2016 Net Earnings Adjusted for Special Items $
1,413 $ 0.72 % Change (0.2
)% 1.4 % Schedule 6 ALTRIA GROUP, INC.
and Subsidiaries Reconciliation of GAAP and non-GAAP Measures
(dollars in millions, except per share data) (Unaudited)
Earnings
before
Provision
Net Earnings
Income
for Income
Net
Attributable to
Diluted
Taxes
Taxes
Earnings
Altria Group, Inc.
EPS
For the year ended December 31, 2016 2016 Reported
$ 21,852 $ 7,608 $ 14,244
$ 14,239 $ 7.28 NPM Adjustment Items 18
7 11 11 0.01 Tobacco and health litigation items 105 34 71 71 0.04
SABMiller special items (89 ) (32 ) (57 ) (57 ) (0.03 ) Loss on
early extinguishment of debt 823 282 541 541 0.28
Asset impairment, exit, implementation and
acquisition-related costs
206 71 135 135 0.07 Patent litigation settlement 21 8 13 13 0.01
Gain on AB InBev/SABMiller business
combination
(13,865 ) (4,864 ) (9,001 ) (9,001 ) (4.61 ) Tax items —
30 (30 ) (30 ) (0.02 )
2016
Adjusted for Special Items $ 9,071
$ 3,144 $ 5,927
$ 5,922 $ 3.03
Schedule 7 ALTRIA GROUP, INC. and Subsidiaries
Condensed Consolidated Balance Sheets (dollars in millions)
(Unaudited)
March 31, 2017 December 31,
2016
Assets
Cash and cash equivalents $ 5,228 $
4,569
Inventories 2,122 2,051 Other current assets 276 640 Property,
plant and equipment, net 1,923 1,958 Goodwill and other intangible
assets, net 17,508 17,321 Investment in AB InBev 17,579 17,852
Finance assets, net 1,019 1,028 Other long-term assets 520
513
Total assets $ 46,175
$ 45,932
Liabilities and
Stockholders’ Equity
Accrued settlement charges 4,790 3,701 Other current liabilities
3,510 3,674 Long-term debt 13,884 13,881 Deferred income taxes
8,309 8,416 Accrued postretirement health care costs 2,212 2,217
Accrued pension costs 738 805 Other long-term liabilities 431
427 Total liabilities 33,874 33,121 Redeemable
noncontrolling interest 38 38 Total stockholders’ equity 12,263
12,773
Total liabilities and stockholders’
equity $ 46,175 $ 45,932
Total debt $ 13,884 $ 13,881
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