- Altria’s 2017 third-quarter reported
diluted earnings per share (EPS) increased 73.2% to $0.97, as
comparisons were affected by special items.
- Altria’s 2017 third-quarter adjusted
diluted EPS, which excludes the impact of special items, increased
9.8% to $0.90.
- Altria’s 2017 nine-month reported
diluted EPS increased 34.7% to $2.72, as comparisons were affected
by special items.
- Altria’s 2017 nine-month adjusted
diluted EPS, which excludes the impact of special items, increased
5.5% to $2.48.
Altria Group, Inc. (Altria) (NYSE:MO) today announced its 2017
third-quarter and nine-month business results and reaffirmed its
guidance for 2017 full-year adjusted diluted EPS.
“Altria delivered outstanding performance in the third quarter
and for the first nine months of 2017 as our core tobacco operating
companies generated strong income growth,” said Marty Barrington,
Altria’s Chairman, Chief Executive Officer and President. “Our
financial performance continues to strengthen in the second half,
as we expected.”
“And we continued to focus on rewarding shareholders through the
first nine months, paying out more than $3.5 billion in dividends
and repurchasing nearly $2.4 billion in shares. In August, Altria’s
Board of Directors voted to increase our quarterly dividend per
share by 8.2%.”
“The business is performing well in a competitive environment,
and we continue to expect full-year adjusted diluted EPS growth of
7.5% to 9.5%.”
Conference Call
As previously announced, a conference call with the investment
community and news media will be webcast on October 26, 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 August 2017, Altria’s Board of Directors (Board) increased
the regular quarterly dividend by 8.2% to $0.66 per share. Altria’s
current annualized dividend rate is $2.64 per share. As of October
20, 2017, Altria’s annualized dividend yield was 4.1%. Altria paid
approximately $1.2 billion in dividends in the third quarter and
$3.5 billion for the first nine months of 2017. 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 11.1 million shares
under its share repurchase program at an average price of $67.99,
for a total cost of approximately $759 million. As of September 30,
2017, Altria had $576 million remaining in the $4 billion program,
which Altria 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) grew MarkTen’s third-quarter
volume by more than 50% primarily through expanded distribution and
category growth. MarkTen has a third-quarter national retail share
of approximately 13.5% in mainstream retail channels. MarkTen is
present in stores representing approximately 65% of e-vapor
category volume in those channels. Nu Mark has announced plans to
expand its distribution of MarkTen Bold to approximately 15,000
additional retail stores in the fourth quarter.
In heated tobacco, in August the U.S. Food and Drug
Administration (FDA) began its substantive science review of Philip
Morris International Inc.’s (PMI) IQOS premarket tobacco product
application (PMTA). PMI submitted its PMTA to the FDA in March
2017. Philip Morris USA Inc. (PM USA) continues to build its
commercialization plans for IQOS, which it will have the exclusive
right to sell in the U.S. upon FDA authorization.
FDA’s Comprehensive Regulatory Plan for
Tobacco and Nicotine Regulation
In July, the FDA announced a new comprehensive plan for tobacco
and nicotine regulation that will serve as the FDA’s multi-year
regulatory road map. The FDA has stated its belief that this
approach will strike an appropriate balance between regulation and
encouraging development of innovative tobacco products that may be
less risky than cigarettes.
Federal Government’s
Lawsuit
Earlier this month, Altria and PM USA announced that they and
other companies have agreed on the timing of court-ordered
communications about cigarettes and smoking on television and in
newspapers. The communications, which will begin on November 26,
2017, stem from a 1999 lawsuit the federal government brought
against the major domestic cigarette companies that focused on
industry conduct dating back to the 1950s.
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 $71 million for the first nine months of
2017 (including $15 million in the third quarter).
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 special items for the first nine months of 2017 shown in Table
2.
Altria expects that its 2017 full-year effective tax rate on
operations will be approximately 35.5%.
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 business combination, AB
InBev/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, 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 10.
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 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 U.S. Smokeless Tobacco
Company LLC (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 decreased 2.5% to $6.7 billion in the
third quarter primarily driven by lower net revenues in the
smokeable products segment. Altria’s revenues net of excise taxes
decreased 1.3% to $5.1 billion. For the first nine months of 2017,
net revenues decreased 0.1% to $19.5 billion, and revenues net of
excise taxes increased 1.2% to $14.8 billion.
Altria’s 2017 third-quarter reported diluted EPS increased 73.2%
to $0.97, primarily driven by the 2016 loss on early extinguishment
of debt, favorable tax items, higher reported OCI in the smokeable
products segment and fewer shares outstanding, partially offset by
lower equity earnings from Altria’s beer investment. Altria’s
third-quarter adjusted diluted EPS, which excludes the special
items shown in Table 2, grew 9.8% to $0.90, primarily driven by
higher adjusted OCI in the smokeable and smokeless products
segments and fewer shares outstanding, partially offset by lower
equity earnings from Altria’s beer investment.
Altria’s 2017 nine-months reported diluted EPS increased 34.7%
to $2.72, primarily driven by the 2016 loss on early extinguishment
of debt, higher reported OCI in the smokeable products segment,
which included lower restructuring charges in 2017, favorable tax
items, a higher gain on the AB InBev/SABMiller business combination
and fewer shares outstanding, partially offset by lower equity
earnings from Altria’s beer investment. Altria’s nine-months
adjusted diluted EPS, which excludes the special items shown in
Table 2, increased 5.5% to $2.48, primarily driven by higher
adjusted OCI in the smokeable and smokeless products segments and
fewer shares outstanding, partially offset by lower equity earnings
from Altria’s beer investment.
Table 2 - Altria’s Adjusted Results
Third Quarter Nine Months
Ended September 30, 2017 2016 Change
2017 2016 Change Reported diluted EPS
$ 0.97 $ 0.56 73.2% $
2.72 $ 2.02 34.7% NPM Adjustment Items
— — — 0.01 Tobacco and health litigation items — 0.01 0.01 0.03 AB
InBev/SABMiller special items 0.01 (0.01 ) 0.04 0.05 Loss on early
extinguishment of debt — 0.28 — 0.28 Asset impairment, exit and
implementation costs 0.01 — 0.02 0.04 Gain on AB InBev/SABMiller
business combination (0.01 ) (0.02 ) (0.15 ) (0.07 ) Tax items
(0.08 ) — (0.16 ) (0.01 )
Adjusted diluted EPS
$ 0.90 $ 0.82 9.8%
$ 2.48 $ 2.35
5.5%
Note: For details of pre-tax, tax and after-tax amounts, see
Schedules 7 and 9.
AB InBev/SABMiller Special
Items
In the first nine months of 2017, earnings from Altria’s equity
investment in AB InBev included net pre-tax charges of $109
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.
In the first nine months of 2016, earnings from Altria’s equity
investment in SABMiller included pre-tax charges of $147 million
consisting primarily of Altria’s share of SABMiller’s asset
impairment charges and costs related to its business combination
with AB InBev.
The EPS impact of these items is shown in Table 2 and Schedule
9.
Loss on Early Extinguishment of
Debt
In the third quarter of 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.
The EPS impact of this charge is shown in Table 2 and Schedules
7 and 9.
Asset Impairment, Exit and
Implementation Costs
In the third quarter and first nine months of 2017, Altria
recorded pre-tax Facilities Consolidation charges of $15 million
and $71 million, respectively.
In the first nine months of 2016, Altria recorded a pre-tax
charge of $130 million in connection with the productivity
initiative announced in January 2016.
The EPS impact of these costs is shown in Table 2 and Schedules
7 and 9.
Gain on AB InBev/SABMiller Business
Combination
In the third quarter and first nine months of 2017, Altria
recorded pre-tax gains of $37 million and $445 million,
respectively, related to AB InBev’s divestitures of certain
SABMiller assets and businesses in connection with the AB
InBev/SABMiller business combination.
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 that Altria entered into to hedge its British pound
exposure on the cash consideration received from the AB
InBev/SABMiller business combination.
The EPS impact of these items is shown in Table 2 and Schedules
7 and 9.
Tax Items
In the third quarter, Altria recorded $155 million in income tax
benefits primarily related to the release of a valuation allowance
for foreign tax credit carryforwards.
For the first nine months, Altria recorded $321 million in
income tax benefits primarily due to settlement of the 2010-2013
Internal Revenue Service audit and the valuation allowance release
described above.
The EPS impact of these items is shown in Table 2 and Schedules
7 and 9.
SMOKEABLE
PRODUCTS
The smokeable products segment delivered strong income growth in
the third quarter and for the first nine months of 2017.
Smokeable products segment net revenues declined by 2.8% in the
third quarter as lower volume was partially offset by higher
pricing. For the first nine months of 2017, smokeable products
segment net revenues were essentially unchanged as higher pricing
offset lower volume and higher promotional investments. Revenues
net of excise taxes declined 1.5% in the quarter and increased 1.1%
for the first nine months.
In the third quarter, reported OCI increased 9.8%, primarily
driven by higher pricing, lower costs (selling, general and
administrative (SG&A) and resolution) and lower tobacco and
health litigation items, partially offset by lower volume. Adjusted
OCI, which is calculated excluding the special items identified in
Table 3, grew 7.7%, and adjusted OCI margins expanded 4.5
percentage points to 52.2%.
For the first nine months of 2017, reported OCI increased 10.2%,
primarily driven by higher pricing, lower SG&A spending, lower
restructuring charges and lower tobacco and health litigation
items. These factors were partially offset by lower volume and
higher promotional investments. Adjusted OCI, which is calculated
excluding the special items identified in Table 3, grew 7.4%, and
adjusted OCI margins expanded 3.0 percentage points to 51.6%.
Table 3 - Smokeable Products: Revenues and OCI ($ in
millions)
Third Quarter Nine Months Ended September 30,
2017 2016 Change 2017 2016
Change Net revenues $ 5,975 $
6,147 (2.8)% $ 17,355 $
17,398 (0.2)% Excise taxes (1,565 ) (1,671 ) (4,581 )
(4,769 )
Revenues net of excise taxes $ 4,410
$ 4,476 (1.5)% $
12,774 $ 12,629 1.1%
Reported OCI $ 2,290 $
2,086 9.8% $ 6,564 $
5,955 10.2% NPM Adjustment Items 3 — (5 ) 12 Asset
impairment, exit, implementation and acquisition-related costs 7 4
22 105 Tobacco and health litigation items — 45 16
72
Adjusted OCI $ 2,300
$ 2,135 7.7% $ 6,597
$ 6,144 7.4% Adjusted OCI
margins 1 52.2 % 47.7 %
4.5 pp 51.6 % 48.6 %
3.0 pp
1 Adjusted OCI margins are calculated as adjusted OCI divided by
revenues net of excise taxes.
In the third quarter, total cigarette industry volumes declined
by an estimated 3.5%. The smokeable products segment’s reported
domestic cigarettes shipment volume declined by 6.2% in the third
quarter, primarily driven by the industry’s rate of decline, trade
inventory movements, retail share declines and one fewer shipping
day. After adjusting for trade inventory movements and calendar
differences, PM USA’s domestic cigarettes shipment volume decreased
by an estimated 4.5%.
For the first nine months of 2017, total cigarette industry
volumes declined by an estimated 3.5%. The smokeable products
segment’s reported domestic cigarettes shipment volume decreased by
4.0%, primarily driven by the industry’s rate of decline, retail
share declines and one fewer shipping day, partially offset by
trade inventory movements. When adjusted for trade inventory
movements and calendar differences, PM USA’s domestic cigarettes
shipment volume decreased by an estimated 4%.
The smokeable products segment’s reported cigars shipment volume
increased by 6.6% in the third quarter and 10.6% for the first nine
months of 2017. 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,
2017 2016 Change 2017 2016
Change Cigarettes: Marlboro 26,455 28,152
(6.0)% 77,307 80,446 (3.9)%
Other premium 1,567 1,684 (6.9)%
4,567 4,858 (6.0)%
Discount 2,806 3,028 (7.3)%
8,250 8,569 (3.7)%
Total cigarettes
30,828 32,864 (6.2)%
90,124 93,873 (4.0)%
Cigars: Black & Mild 381 357 6.7% 1,146 1,028
11.5%
Other 4 4 —% 12 19 (36.8)%
Total cigars 385 361 6.6%
1,158 1,047 10.6%
Total smokeable products 31,213
33,225 (6.1)% 91,282
94,920 (3.8)%
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.
In the third quarter of 2017, Marlboro’s retail share declined
by 0.5 share points to 43.2%, primarily driven by the cigarette
excise tax increase in California and increased competitive
activity. Marlboro’s retail share declined by 0.3 share points to
43.4% for the first nine months. PM USA’s total retail share was
50.5% in the quarter and 50.8% for the first nine months, down 0.6
and 0.3 share points, respectively. Table 5 summarizes cigarette
retail share results.
Table 5 - Smokeable Products: Cigarettes Retail Share
(percent)
Third Quarter Nine Months Ended September 30,
2017 2016
Percentagepoint change
2017 2016
Percentagepoint change
Cigarettes: Marlboro 43.2 % 43.7 % (0.5 ) 43.4 % 43.7
% (0.3 )
Other premium 2.7 2.8 (0.1 ) 2.7 2.8 (0.1 )
Discount 4.6 4.6 — 4.7 4.6
0.1
Total cigarettes 50.5 %
51.1 % (0.6 ) 50.8 %
51.1 % (0.3 )
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.
SMOKELESS
PRODUCTS
The smokeless products segment delivered strong results in the
third quarter. Smokeless products segment net revenues increased
4.2% in the quarter, primarily driven by higher pricing and lower
promotional investments, partially offset by lower volume and
unfavorable mix. For the first nine months of 2017, smokeless
product segment net revenues increased 3.3%, primarily driven by
higher pricing, partially offset by unfavorable mix and lower
volume. Revenues net of excise taxes increased 4.5% in the quarter
and 3.7% for the first nine months of 2017.
In the third quarter, reported OCI increased 12.8%, primarily
driven by higher pricing, lower costs and lower promotional
investments, partially offset by lower volume, unfavorable mix and
Facilities Consolidation charges. Adjusted OCI, which is calculated
excluding the special items identified in Table 6, increased 15.7%
and adjusted OCI margins increased 6.8 percentage points to
70.3%.
For the first nine months of 2017, reported OCI increased 2.3%,
primarily driven by higher pricing, partially offset by Facilities
Consolidation charges, unfavorable mix and lower volume. Adjusted
OCI, which is calculated excluding the special items identified in
Table 6, increased 6.3% and adjusted OCI margins increased 1.6
percentage points to 67.7%.
Table 6 - Smokeless Products: Revenues and OCI ($ in
millions)
Third Quarter Nine Months Ended September 30,
2017 2016 Change 2017 2016
Change Net revenues $ 550 $
528 4.2 % $ 1,580 $
1,530 3.3 % Excise taxes (35 ) (35 ) (99 )
(102 )
Revenues net of excise taxes $ 515
$ 493 4.5 % $
1,481 $ 1,428 3.7
% Reported OCI $ 352 $
312 12.8 % $ 951 $
930 2.3 % Asset impairment, exit and
implementation costs 10 1 52 14
Adjusted OCI $ 362 $ 313
15.7 % $ 1,003 $
944 6.3 % Adjusted OCI margins
1 70.3 % 63.5 % 6.8
pp 67.7 % 66.1 % 1.6
pp
1 Adjusted OCI margins are calculated as adjusted OCI divided by
revenues net of excise taxes.
USSTC’s reported domestic shipment volume declined 1.8% and 1.7%
in the third quarter and first nine months of 2017, respectively,
driven primarily by declines in Skoal.
After adjusting for trade inventory movements and other factors,
USSTC estimates that its domestic smokeless products shipment
volume declined approximately 3% in the third quarter and 1.5% for
the first nine months. USSTC estimates that the smokeless products
category volume grew approximately 0.5% 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, 2017
2016 Change 2017 2016 Change
Copenhagen 134.1 133.5 0.4% 396.1 392.3 1.0%
Skoal
61.6 66.2 (6.9)% 183.0 197.3 (7.2)%
Copenhagen and Skoal 195.7 199.7
(2.0)% 579.1 589.6 (1.8)% Other
16.9 16.7 1.2% 50.3 50.8 (1.0)%
Total smokeless products 212.6
216.4 (1.8)% 629.4
640.4 (1.7)%
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.
Copenhagen grew 0.2 retail share points in the third quarter to
33.9%. Copenhagen and Skoal’s combined retail share decreased 1.2
share points in the quarter to 50.4% driven by Skoal’s 1.4 retail
share point decline.
For the first nine months of 2017, Copenhagen grew 0.6 share
points offset by Skoal’s 1.5 share point loss, contributing to a
combined share decline of 0.9 share points. Table 8 summarizes
retail share results for the smokeless products segment.
Table 8 - Smokeless Products: Retail Share (percent)
Third Quarter Nine Months Ended September 30,
2017 2016
Percentagepoint change
2017 2016
Percentagepoint change
Copenhagen 33.9 % 33.7 % 0.2 33.6 % 33.0 % 0.6
Skoal 16.5 17.9 (1.4 ) 16.8
18.3 (1.5 )
Copenhagen and Skoal
50.4 51.6 (1.2 ) 50.4
51.3 (0.9 ) Other 3.4 3.3
0.1 3.4 3.4 —
Total
smokeless products 53.8 %
54.9 % (1.1 ) 53.8
% 54.7 % (0.9 )
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.
WINE
In the wine segment, Ste. Michelle’s third-quarter and
first-nine-month results were negatively impacted by increased
competitive activity, continued trade inventory reductions and
slower premium wine category growth.
In the third quarter of 2017, Ste. Michelle’s net revenues were
essentially unchanged. Reported and adjusted OCI declined 5.3%,
primarily due to higher costs. Reported wine shipment volume for
the third quarter was essentially unchanged at approximately 2.2
million cases.
For the first nine months of 2017, Ste. Michelle’s net revenues
declined 5.4%. Reported OCI declined 18.0% and adjusted OCI
declined 20.4%, primarily due to lower volume and higher costs.
Reported shipment volume for the first nine months declined 8.1% to
approximately 5.7 million cases.
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, 2017
2016 Change 2017 2016 Change
Net revenues $ 181 $ 182
(0.5)% $ 471 $ 498 (5.4)%
Excise taxes (6 ) (6 ) (15 ) (17 )
Revenues net of excise
taxes $ 175 $ 176
(0.6)% $ 456 $ 481
(5.2)% Reported OCI $ 36
$ 38 (5.3)% $ 82 $
100 (18.0)% Acquisition-related costs — —
— 3
Adjusted OCI $ 36
$ 38 (5.3)% $ 82
$ 103 (20.4)% Adjusted OCI
margins 1 20.6 % 21.6
% (1.0) pp 18.0 % 21.4
% (3.4) pp
1 Adjusted OCI margins are calculated as adjusted OCI divided by
revenues net of excise taxes.
Altria’s Profile
Altria’s wholly-owned subsidiaries include Philip Morris USA
Inc., U.S. Smokeless Tobacco Company LLC, John Middleton Co.,
Sherman Group Holdings, LLC and its subsidiaries, Nu Mark LLC, Ste.
Michelle Wine Estates Ltd. and Philip Morris Capital Corporation.
Altria holds an equity investment in Anheuser-Busch InBev
SA/NV.
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 and its
Quarterly Report on Form 10-Q for the period ended June 30,
2017.
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; the risk 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
SubsidiariesConsolidated Statements of EarningsFor the Quarters
Ended September 30,(dollars in millions, except per share
data)(Unaudited)
2017 2016 % Change Net
revenues $ 6,729 $ 6,905
(2.5)% Cost of sales 1 1,940 2,043 Excise taxes on products
1 1,606 1,712 Gross profit 3,183 3,150 1.0%
Marketing, administration and research costs 507 704 Asset
impairment and exit costs 8 2
Operating companies
income 2,668 2,444 9.2% Amortization of
intangibles 5 5 General corporate expenses 56 57
Operating income 2,607 2,382 9.4%
Interest and other debt expense, net 169 179 Loss on early
extinguishment of debt — 823 Earnings from equity investment in AB
InBev/SABMiller (169 ) (299 ) Gain on AB InBev/SABMiller business
combination (37 ) (48 ) Earnings before income taxes 2,644 1,727
53.1% Provision for income taxes 777 633
Net
earnings 1,867 1,094 70.7% Net earnings
attributable to noncontrolling interests (1 ) (1 )
Net earnings
attributable to Altria Group, Inc. $ 1,866
$ 1,093 70.7% Per share
data: Basic and diluted earnings per share attributable
to
Altria Group, Inc.
$ 0.97 $ 0.56 73.2%
Weighted-average diluted shares outstanding 1,915 1,952 (1.9)%
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 5.
Schedule 2 ALTRIA GROUP, INC.and
SubsidiariesSelected Financial DataFor the Quarters Ended September
30,(dollars in millions)(Unaudited)
Net Revenues
SmokeableProducts
SmokelessProducts
Wine All Other Total 2017
$ 5,975 $ 550 $ 181 $ 23 $ 6,729 2016 6,147 528 182 48 6,905 %
Change (2.8 )% 4.2 % (0.5 )% (52.1 )% (2.5 )%
Reconciliation:
For the quarter ended September 30, 2016 $
6,147 $ 528 $ 182 $
48 $ 6,905 Operations (172 ) 22
(1 ) (25 ) (176 )
For the quarter ended
September 30, 2017 $ 5,975 $
550 $ 181 $
23 $ 6,729
Operating Companies Income
(Loss)
SmokeableProducts
SmokelessProducts
Wine All Other Total 2017
$ 2,290 $ 352 $ 36 $ (10 ) $ 2,668 2016 2,086 312 38 8 2,444 %
Change 9.8 % 12.8 % (5.3 )%
(100.0%
)+
9.2 %
Reconciliation:
For the quarter ended September 30, 2016 $
2,086 $ 312 $ 38 $
8 $ 2,444 Asset impairment, exit and
implementation
costs - 2016
4 1 — 1 6 Tobacco and health litigation items - 2016 45
— — — 45 49
1 — 1 51
NPM Adjustment Items - 2017 (3 ) — — — (3 ) Asset
impairment, exit, implementation and acquisition-related costs -
2017 (7 ) (10 ) — — (17 )
(10 ) (10 ) — — (20 )
Operations 165 49 (2 ) (19 )
193
For the quarter ended September 30, 2017
$ 2,290 $ 352
$ 36 $ (10
) $ 2,668 Schedule
3 ALTRIA GROUP, INC.and SubsidiariesConsolidated Statements of
EarningsFor the Nine Months Ended September 30,(dollars in
millions, except per share data)(Unaudited)
2017
2016 % Change Net revenues $
19,475 $ 19,492 (0.1)% Cost of sales 1
5,699 5,841 Excise taxes on products 1 4,695 4,888
Gross profit 9,081 8,763 3.6% Marketing, administration and
research costs 1,491 1,706 Asset impairment and exit costs 24
118
Operating companies income 7,566
6,939 9.0% Amortization of intangibles 15 15 General
corporate expenses 158 150 Corporate asset impairment and exit
costs — 5
Operating income 7,393
6,769 9.2% Interest and other debt expense, net 525
571 Loss on early extinguishment of debt — 823 Earnings from equity
investment in AB InBev/SABMiller (332 ) (564 ) Gain on AB
InBev/SABMiller business combination (445 ) (205 ) Earnings before
income taxes 7,645 6,144 24.4% Provision for income taxes 2,386
2,178
Net earnings 5,259 3,966
32.6% Net earnings attributable to noncontrolling interests
(3 ) (3 )
Net earnings attributable to Altria Group, Inc.
$ 5,256 $ 3,963
32.6% Per share data: Basic and diluted
earnings per share attributable toAltria Group, Inc.
$ 2.72 $ 2.02 34.7%
Weighted-average diluted shares outstanding 1,927 1,954 (1.4)%
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.
Schedule 4 ALTRIA GROUP, INC.and
SubsidiariesSelected Financial DataFor the Nine Months Ended
September 30,(dollars in millions)(Unaudited)
Net Revenues
SmokeableProducts
SmokelessProducts
Wine All Other Total 2017 $ 17,355 $
1,580 $ 471 $ 69 $ 19,475 2016 17,398 1,530 498 66 19,492 % Change
(0.2 )% 3.3 % (5.4 )% 4.5 % (0.1)%
Reconciliation:
For the nine months ended September 30, 2016 $
17,398 $ 1,530 $ 498 $
66 $ 19,492 Operations (43 ) 50
(27 ) 3 (17)
For the nine months ended September
30, 2017 $ 17,355 $
1,580 $ 471 $
69 $ 19,475
Operating Companies Income (Loss)
SmokeableProducts
SmokelessProducts
Wine All Other Total 2017 $ 6,564 $ 951
$ 82 $ (31 ) $ 7,566 2016 5,955 930 100 (46 ) 6,939 % Change 10.2 %
2.3 % (18.0 )% 32.6 % 9.0%
Reconciliation:
For the nine months ended September 30, 2016 $
5,955 $ 930 $ 100 $
(46 ) $ 6,939 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
NPM Adjustment Items - 2017 5 — — — 5 Asset impairment,
exit, implementation and acquisition-related costs - 2017 (22 ) (52
) — — (74) Tobacco and health litigation items - 2017 (16 )
— — — (16) (33 ) (52 ) —
— (85) Operations 453 59
(21 ) 9 500
For the nine months ended September 30,
2017 $ 6,564 $ 951
$ 82 $ (31
) $ 7,566 Schedule 5
ALTRIA GROUP, INC.and SubsidiariesSupplemental Financial
Data(dollars in millions)(Unaudited)
For the QuartersEnded September
30,
For the Nine MonthsEnded
September 30,
2017 2016 2017 2016 The segment
detail of excise taxes on products sold is as follows:
Smokeable products $ 1,565 $ 1,671 $ 4,581 $ 4,769 Smokeless
products 35 35 99 102 Wine 6 6 15 17 $ 1,606
$ 1,712 $ 4,695 $ 4,888
The
segment detail of charges for resolution expenses related to state
settlement agreements included in cost of sales is as follows:
Smokeable products $ 1,152 $ 1,237 $ 3,416 $ 3,565 Smokeless
products 2 2 6 6 $ 1,154 $ 1,239
$ 3,422 $ 3,571
The segment detail of FDA
user fees included in cost of sales is
as follows:
Smokeable products $ 70 $ 72 $ 206 $ 211 Smokeless products
1 1 3 3 $ 71 $ 73 $ 209 $
214 Schedule 6 ALTRIA GROUP, INC.and SubsidiariesNet
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
2017 Net Earnings $ 1,866 $ 0.97
2016 Net Earnings $ 1,093 $ 0.56
% Change 70.7 % 73.2 %
Reconciliation:
2016 Net Earnings $ 1,093 $ 0.56
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 AB InBev/SABMiller business
combination (29 ) (0.02 ) 2016 Tax items (1 ) — Subtotal
2016 special items 516 0.26 2017 NPM
Adjustment Items (3 ) — 2017 AB InBev special items (22 ) (0.01 )
2017 Asset impairment, exit, implementation and acquisition-related
costs (11 ) (0.01 ) 2017 Gain on AB InBev/SABMiller business
combination 24 0.01 2017 Tax items 155 0.08 Subtotal
2017 special items 143 0.07 Fewer shares
outstanding — 0.02 Change in tax rate 17 0.01 Operations 97
0.05
2017 Net Earnings $ 1,866
$ 0.97
Schedule 7 ALTRIA GROUP, INC.and
SubsidiariesReconciliation of GAAP and non-GAAP MeasuresFor the
Quarters Ended September 30,(dollars in millions, except per share
data)(Unaudited)
Earnings
beforeIncomeTaxes
Provisionfor
IncomeTaxes
NetEarnings
Net EarningsAttributable
toAltria Group, Inc.
DilutedEPS
2017 Reported $ 2,644 $
777 $ 1,867 $
1,866 $ 0.97 NPM Adjustment
Items 5 2 3 3 — AB InBev special items 34 12 22 22 0.01 Asset
impairment, exit, implementation and
acquisition-related costs
17 6 11 11 0.01 Gain on AB InBev/SABMiller business
combination
(37 ) (13 ) (24 ) (24 ) (0.01 ) Tax items — 155
(155 ) (155 )
(0.08 )
2017 Adjusted for Special Items $
2,663 $ 939
$ 1,724
$ 1,723 $
0.90 2016 Reported $
1,727 $ 633 $ 1,094 $
1,093 $ 0.56 Tobacco and health litigation
items 45 16 29 29 0.01 SABMiller special items (40 ) (14 ) (26 )
(26 ) (0.01 ) Loss on early extinguishment of debt 823 282 541 541
0.28 Asset impairment, exit and implementation costs 6 4 2 2 — Gain
on AB InBev/SABMiller business
combination
(48 ) (19 ) (29 ) (29 ) (0.02 ) Tax items — 1
(1 ) (1 ) —
2016 Adjusted for Special Items $ 2,513
$ 903 $
1,610 $
1,609 $ 0.82
2017 Reported Net Earnings $
1,866 $ 0.97 2016 Reported Net Earnings
$ 1,093 $ 0.56 % Change
70.7 % 73.2 % 2017 Net
Earnings Adjusted for Special Items $ 1,723
$ 0.90 2016 Net Earnings Adjusted for Special
Items $ 1,609 $ 0.82 %
Change 7.1 % 9.8 % Schedule
8 ALTRIA GROUP, INC.and SubsidiariesNet 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 2017 Net Earnings $
5,256 $ 2.72 2016 Net Earnings $
3,963 $ 2.02 % Change 32.6
% 34.7 %
Reconciliation:
2016 Net Earnings $ 3,963 $ 2.02
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 AB InBev/SABMiller business combination (129 )
(0.07 ) 2016 Tax items (17 ) (0.01 ) Subtotal 2016 special items
642 0.33 2017 NPM Adjustment Items (2 ) — 2017
Tobacco and health litigation items (12 ) (0.01 ) 2017 AB InBev
special items (71 ) (0.04 ) 2017 Asset impairment, exit,
implementation and acquisition-related costs (47 ) (0.02 ) 2017
Gain on AB InBev/SABMiller business combination 289 0.15 2017 Tax
items 321 0.16 Subtotal 2017 special items 478
0.24 Fewer shares outstanding — 0.04 Change in tax
rate 5 — Operations 168 0.09
2017 Net Earnings
$ 5,256 $ 2.72
Schedule 9 ALTRIA GROUP,
INC.and SubsidiariesReconciliation of GAAP and non-GAAP MeasuresFor
the Nine Months Ended September 30,(dollars in millions, except per
share data)(Unaudited)
EarningsbeforeIncomeTaxes
Provisionfor
IncomeTaxes
NetEarnings
Net EarningsAttributable to
Altria Group, Inc.
DilutedEPS
2017 Reported $ 7,645 $
2,386 $ 5,259 $
5,256 $ 2.72 NPM Adjustment
Items 4 2 2 2 — Tobacco and health litigation items 18 6 12 12 0.01
AB InBev special items 109 38 71 71 0.04 Asset impairment, exit,
implementation and
acquisition-related costs
77 30 47 47 0.02 Gain on AB InBev/SABMiller business
combination
(445 ) (156 ) (289 ) (289 ) (0.15 ) Tax items — 321
(321 ) (321 )
(0.16 )
2017 Adjusted for Special Items $
7,408 $ 2,627
$ 4,781
$ 4,778 $
2.48 2016 Reported $
6,144 $ 2,178 $ 3,966 $
3,963 $ 2.02 NPM Adjustment Items 18 7 11 11
0.01 Tobacco and health litigation items 88 32 56 56 0.03 SABMiller
special items 147 51 96 96 0.05 Loss on early extinguishment of
debt 823 282 541 541 0.28 Asset impairment, exit, implementation
and
acquisition-related costs
133 49 84 84 0.04 Gain on AB InBev/SABMiller business
combination
(205 ) (76 ) (129 ) (129 ) (0.07 ) Tax items — 17
(17 ) (17 ) (0.01
)
2016 Adjusted for Special Items $
7,148 $ 2,540
$ 4,608
$ 4,605 $
2.35 2017 Reported Net Earnings
$ 5,256 $ 2.72 2016 Reported Net
Earnings $ 3,963 $ 2.02 %
Change 32.6 % 34.7 % 2017
Net Earnings Adjusted for Special Items $ 4,778
$ 2.48 2016 Net Earnings Adjusted for Special
Items $ 4,605 $ 2.35 %
Change 3.8 % 5.5 %
Schedule 10 ALTRIA GROUP, INC.and
SubsidiariesReconciliation of GAAP and non-GAAP MeasuresFor the
Year Ended December 31,(dollars in millions, except per share
data)(Unaudited)
EarningsbeforeIncomeTaxes
Provisionfor
IncomeTaxes
NetEarnings
Net EarningsAttributable
toAltria Group, Inc.
DilutedEPS
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 11 ALTRIA GROUP, INC.and SubsidiariesCondensed
Consolidated Balance Sheets(dollars in millions)(Unaudited)
September 30, 2017 December 31, 2016
Assets
Cash and cash equivalents $ 2,582 $ 4,569 Inventories 1,987 2,051
Other current assets 587 640 Property, plant and equipment, net
1,907 1,958 Goodwill and other intangible assets, net 17,503 17,321
Investment in AB InBev 18,213 17,852 Finance assets, net 901 1,028
Other long-term assets 480 513
Total assets $
44,160 $ 45,932
Liabilities and
Stockholders’ Equity
Accrued settlement charges 3,383 3,701 Other current liabilities
3,279 3,674 Long-term debt 13,890 13,881 Deferred income taxes
8,234 8,416 Accrued postretirement health care costs 2,185 2,217
Accrued pension costs 611 805 Other long-term liabilities 372
427 Total liabilities 31,954 33,121 Redeemable
noncontrolling interest 37 38 Total stockholders’ equity 12,169
12,773
Total liabilities and stockholders’ equity
$ 44,160 $ 45,932 Total
debt $ 13,890 $ 13,881
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