Altria Group, Inc. (Altria) (NYSE: MO) today announced its 2018
second-quarter and first-half business results and tightened its
guidance for 2018 full-year adjusted diluted earnings per share
(EPS).
“We continued our strong start to the year with adjusted diluted
earnings per share growth of 18.8% in the second quarter. Our core
tobacco businesses performed well as they continued to make
strategic investments in support of their long-term objectives. Of
course, our results benefited from a lower corporate tax rate,”
said Howard Willard, Altria’s Chairman and Chief Executive Officer.
“We continued to reward shareholders in the quarter by paying out
over $1.3 billion in dividends and repurchasing approximately $437
million in shares.”
“To reflect a strong first half and continued confidence in our
core tobacco businesses, we are raising the lower-end of our
guidance and now expect full-year adjusted diluted EPS growth of
16% to 19%.”
As previously announced, a conference call with the investment
community and news media will be webcast on July 26, 2018 at 9:00
a.m. Eastern Time. Access to the webcast is available at
www.altria.com/webcasts and via the Altria Investor app.
Altria Headline
Financials1
($ in millions, except
per share data)
Q2 2018 Change vs.
Q2 2017
First Half 2018 Change
vs.
First Half 2017
Net revenues $6,305
(5.4)%
$12,413
(2.6)% Revenues net of excise taxes
$4,879
(3.7)% $9,549
(1.1)% Tax rate: Reported tax rate 26.6%
(5.0) pp 24.9%
(7.3)
pp Adjusted tax rate 22.9%
(12.6) pp
23.1%
(12.5) pp Per share data:
Reported diluted EPS $0.99
(3.9)%
$1.99
13.7% Adjusted diluted EPS
$1.01
18.8% $1.96
24.1%
1 “Adjusted” financial measures presented in this release
exclude the impact of special items. See “Basis of Presentation”
for more information.
Cash Returns to Shareholders
Dividends:
- Altria paid over $1.3 billion in
dividends in the second quarter.
- Altria’s current annualized dividend
rate is $2.80 per share, representing an annualized dividend yield
of 4.9% as of July 20, 2018.
- Altria expects to maintain a dividend
payout ratio target of approximately 80% of adjusted diluted EPS.
Future dividend payments remain subject to the discretion of
Altria’s Board of Directors (Board).
Share Repurchase Program:
- Altria repurchased 7.6 million shares
in the second quarter at an average price of $57.65, for a cost of
approximately $437 million.
- In May 2018, the Board authorized
a $1 billion expansion to the previous $1
billion share repurchase program.
- As of June 30, 2018, Altria had
slightly more than $1 billion remaining in the current $2 billion
share repurchase program, which Altria expects to complete by the
end of the second quarter of 2019. The timing of share repurchases
depends upon marketplace conditions and other factors, and this
program remains subject to the discretion of the Board.
Innovation
In pursuit of Altria’s aspiration to be the U.S. leader in
authorized, non-combustible, reduced-risk products:
- In May, Altria announced a new
corporate structure to accelerate its innovation pipeline and
maximize its core tobacco businesses.
- USSTC submitted premarket tobacco
product applications to the U.S. Food and Drug Administration (FDA)
for VERVE Discs and VERVE Chews.
- Nu Mark grew e-vapor volume by
approximately 16% in the quarter, reflecting its expansion of
MarkTen Elite to over 23,000 retail stores.
- PM USA’s initial lead market plans for
IQOS are ready to deploy upon FDA authorization.
Other Notable Events
- In July, Altria submitted its comments
for the three advance notices of proposed rulemaking (ANPRM) that
were published by the FDA in the first quarter. The comments are
available at www.altria.com.
2018 Full-Year Guidance
Altria tightens its guidance for 2018 full-year adjusted diluted
EPS to be in a range of $3.94 to $4.03, representing a growth rate
of 16% to 19% from an adjusted diluted EPS base of $3.39 in 2017 as
shown in Schedule 10. This guidance range excludes the special
items for the first half of 2018 shown in Table 1 and an additional
$0.05 of tax expense resulting from the Tax Cuts and Jobs Act (Tax
Reform Act) expected in the second half of 2018. This tax expense
is related to a tax basis adjustment to Altria’s AB InBev
investment. Altria’s 2018 guidance reflects investments in focus
areas for long-term growth, including innovative product
development and launches, regulatory science, brand equity, retail
fixtures and future retail concepts.
Altria expects its 2018 full-year adjusted effective tax rate
will be in a range of approximately 23% to 24%.
Altria’s full-year adjusted diluted EPS guidance and full-year
forecast for its adjusted effective tax rate 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/loss on AB InBev/SABMiller business combination, AB
InBev special items, certain tax items, charges associated with
tobacco and health litigation items, and resolutions of certain
non-participating manufacturer (NPM) adjustment disputes under the
Master Settlement Agreement (such dispute resolutions are referred
to 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 adjusted effective tax rate forecast.
The factors described in the “Forward-Looking and Cautionary
Statements” section of this release represent continuing risks to
Altria’s forecast.
ALTRIA GROUP, INC.
See "Basis of Presentation" for an explanation of financial
measures and reporting segments discussed 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.
Financial Performance
Second Quarter
- Net revenues declined 5.4% to $6.3
billion, primarily due to lower net revenues in the smokeable
products segment. Revenues net of excise taxes declined 3.7% to
approximately $4.9 billion.
- Reported diluted EPS decreased 3.9% to
$0.99, primarily driven by the 2017 gain on the AB InBev/SABMiller
business combination, higher investment spending in the innovative
tobacco products businesses and lower reported operating companies
income (OCI) in the smokeable products segment. These results were
partially offset by lower income taxes, higher reported equity
earnings from AB InBev (which included AB InBev special items),
fewer shares outstanding and higher reported OCI in the smokeless
products segment.
- Adjusted diluted EPS increased 18.8% to
$1.01, primarily driven by lower income taxes and fewer shares
outstanding, partially offset by lower adjusted OCI in the
smokeable products segment and higher investment spending in the
innovative tobacco products businesses.
First Half
- Net revenues declined 2.6% to $12.4
billion, as lower net revenues in the smokeable products segment
were partially offset by higher net revenues in the smokeless
products segment. Revenues net of excise taxes declined 1.1% to
approximately $9.5 billion.
- Reported diluted EPS increased 13.7% to
$1.99, primarily driven by lower income taxes, higher reported
equity earnings from AB InBev (which included AB InBev special
items), fewer shares outstanding and higher reported OCI in the
smokeless products segment. These results were partially offset by
the 2017 gain on the AB InBev/SABMiller business combination,
higher investment spending in the innovative tobacco products
businesses and lower reported OCI in the smokeable products
segment.
- Adjusted diluted EPS increased 24.1% to
$1.96, primarily driven by lower income taxes, higher adjusted
equity earnings from AB InBev, fewer shares outstanding and higher
adjusted OCI in the smokeless products segment, partially offset by
lower adjusted OCI in the smokeable products segment and higher
investment spending in the innovative tobacco products
businesses.
Table 1 - Altria’s Adjusted Results
Second
Quarter Six Months Ended June 30, 2018
2017 Change 2018 2017
Change Reported diluted EPS $ 0.99
$ 1.03 (3.9 )% $ 1.99
$ 1.75 13.7 % NPM Adjustment Items
(0.03 ) — (0.06 ) — Asset impairment, exit and
implementation costs
— 0.01 — 0.02 Tobacco and health litigation items 0.03 0.01 0.04
0.01 AB InBev special items (0.03 ) — (0.07 ) 0.03 (Gain) loss on
AB InBev/SABMiller business combination — (0.14 ) 0.01 (0.14 ) Tax
items 0.05 (0.06 ) 0.05 (0.09 )
Adjusted
diluted EPS $ 1.01 $
0.85 18.8
%
$ 1.96 $ 1.58
24.1 %
Note: For details of pre-tax, tax and after-tax amounts, see
Schedules 7 and 9.
Special Items
The EPS impact of the following special items is shown in Table
1 and Schedules 7 and 9.
NPM Adjustment Items
- In the second quarter of 2018, Altria
recorded pre-tax income of $77 million (or $0.03 per share) for an
NPM adjustment settlement with Pennsylvania.
- In the first half of 2018, Altria
recorded pre-tax income of $145 million (or $0.06 per share) for
NPM adjustment settlements with ten states.
Tobacco & Health Litigation Items
- In the second quarter and first half of
2018, Altria recorded pre-tax charges of $70 million (or $0.03 per
share) and $98 million (or $0.04 per share), respectively, for
tobacco and health litigation items and related interest
costs.
AB InBev Special Items
- In the second quarter of 2018, equity
earnings from AB InBev included net pre-tax income of $72 million
(or $0.03 per share), consisting primarily of gains related to AB
InBev’s merger and acquisition activities, partially offset by
Altria’s share of AB InBev’s mark-to-market losses on AB InBev’s
derivative financial instruments used to hedge certain share
commitments.
- In the first half of 2018, equity
earnings from AB InBev included net pre-tax income of $189 million
(or $0.07 per share), consisting primarily of Altria’s share of AB
InBev’s estimated effect of the Tax Reform Act, and gains related
to AB InBev’s merger and acquisition activities, partially offset
by Altria’s share of AB InBev’s mark-to-market losses on AB InBev’s
derivative financial instruments used to hedge certain share
commitments. In the first half of 2017, equity earnings from AB
InBev included net pre-tax charges of $75 million (or $0.03 per
share), consisting primarily of Altria’s share of AB InBev’s
mark-to-market losses on AB InBev’s derivative financial
instruments used to hedge certain share commitments.
Gain/(Loss) on AB InBev/SABMiller Business
Combination
- In the first half of 2018, Altria
recorded a pre-tax loss of $33 million (or $0.01 per share) related
to AB InBev’s divestitures of certain SABMiller assets and
businesses in connection with the AB InBev/SABMiller business
combination.
- In the second quarter and first half of
2017, Altria recorded a pre-tax gain of $408 million (or $0.14 per
share) related to AB InBev’s divestitures of certain SABMiller
assets and businesses in connection with the AB InBev/SABMiller
business combination.
Tax Items
- In the second quarter and first half of
2018, Altria recorded income tax charges of approximately $95
million (or $0.05 per share) primarily related to a tax basis
adjustment to Altria’s AB InBev investment and for a valuation
allowance on foreign tax credit carryforwards that are not
realizable.
- In the second quarter and first half of
2017, Altria recorded income tax benefits of $108 million (or $0.06
per share) and $166 million (or $0.09 per share), respectively,
primarily related to the effective settlement of the 2010-2013
Internal Revenue Service audit.
SMOKEABLE PRODUCTS
Revenues and OCI
Second Quarter
- Net revenues declined 6.3%, as lower
volume was partially offset by higher pricing and lower promotional
investments. Revenues net of excise taxes declined 4.8%.
- Reported OCI declined 1.0%, as lower
volume and higher tobacco and health litigation items were
partially offset by higher pricing, lower promotional investments
and NPM Adjustment Items.
- Adjusted OCI declined 2.8%, primarily
driven by lower volume, partially offset by higher pricing and
lower promotional investments. Adjusted OCI margins increased 1.1
percentage points to 52.6%.
First Half
- Net revenues declined 3.7%, as lower
volume was partially offset by higher pricing and lower promotional
investments. Revenues net of excise taxes declined 2.3%.
- Reported OCI declined 0.5%, as lower
volume, higher costs (including higher tobacco and health
litigation items and investments in strategic initiatives) and
higher resolution expenses were partially offset by higher pricing,
higher NPM Adjustment Items and lower promotional investments.
- Adjusted OCI declined 2.4%, primarily
driven by lower volume, higher costs (including investments in
strategic initiatives) and higher resolution expenses, partially
offset by higher pricing and lower promotional investments.
Adjusted OCI margins were unchanged at 51.2%.
Table 2 - Smokeable Products: Revenues and OCI ($ in
millions)
Second Quarter Six Months Ended June
30, 2018 2017 Change 2018
2017 Change Net revenues $ 5,546
$ 5,922 (6.3 )% $
10,960 $ 11,380 (3.7 )% Excise
taxes (1,388 ) (1,556 ) (2,789 ) (3,016 )
Revenues net of excise
taxes $ 4,158 $ 4,366
(4.8 )% $ 8,171 $
8,364 (2.3 )% Reported
OCI $ 2,201 $ 2,224 (1.0
)% $ 4,239 $ 4,260 (0.5
)% NPM Adjustment Items (77 ) — (145 ) (8 ) Asset
impairment, exit, implementation and acquisition-related costs 2 9
3 15 Tobacco and health litigation items 60 15 84
16
Adjusted OCI $ 2,186
$ 2,248 (2.8 )% $
4,181 $ 4,283 (2.4
)% Adjusted OCI margins 1 52.6
% 51.5 % 1.1 pp
51.2 % 51.2 % —
1 Adjusted OCI margins are calculated as adjusted OCI divided by
revenues net of excise taxes.
Shipment Volume
Second Quarter
- Smokeable products segment reported
domestic cigarette shipment volume declined 10.8%, primarily driven
by trade inventory movements, the industry’s rate of decline and
retail share losses.
- When adjusted for trade inventory
movements, smokeable products segment domestic cigarette shipment
volume decreased by an estimated 5%.
- Total domestic cigarette industry
volumes declined by an estimated 3.5%.
- Reported cigar shipment volume
increased 2.7%.
First Half
- Smokeable products segment reported
domestic cigarette shipment volume declined 7.6%, primarily driven
by the industry’s rate of decline, trade inventory movements and
retail share losses.
- When adjusted for trade inventory
movements, smokeable products segment domestic cigarette shipment
volume decreased by an estimated 5.5%.
- Total domestic cigarette industry
volumes declined by an estimated 4.5%.
- Reported cigar shipment volume
increased 2.8%.
Table 3 - Smokeable Products: Shipment Volume (sticks in
millions)
Second Quarter Six Months Ended June 30,
2018 2017 Change 2018 2017
Change Cigarettes: Marlboro 23,529 26,157
(10.0 )% 47,182 50,852 (7.2 )%
Other premium 1,404 1,550
(9.4 )% 2,813 3,000 (6.2 )%
Discount 2,333 2,862
(18.5 )% 4,793 5,444 (12.0 )%
Total
cigarettes 27,266 30,569
(10.8 )% 54,788 59,296
(7.6 )% Cigars: Black & Mild
414 402 3.0 % 789 765 3.1 %
Other 3 4 (25.0 )%
6 8 (25.0 )%
Total cigars 417
406 2.7 % 795 773
2.8 % Total
smokeable products 27,683 30,975
(10.6 )% 55,583
60,069 (7.5 )%
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.
Retail Share and Brand Activity
IRI refreshed its cigarette database in the first quarter of
2018, which affected previously released retail share results.
Second Quarter
- Marlboro retail share declined 0.3
share points to 43.2%. Marlboro retail share was stable
sequentially from the first quarter.
- Smokeable products segment total
cigarette retail share declined 0.7 share points to 50.2%, and
declined 0.1 share point sequentially.
- Nat Sherman expanded Nat’s into 13
additional states across the western U.S. in mid-June.
First Half
- Marlboro retail share declined 0.4
share points to 43.2%, driven in part by continued effects from the
April 2017 California state excise tax increase.
- Smokeable products segment total
cigarette retail share declined 0.8 share points to 50.2%.
Table 4 - Smokeable Products: Cigarettes Retail Share
(percent)
Second Quarter Six Months Ended June 30,
2018 2017
Percentagepoint change
2018 2017
Percentagepoint change
Cigarettes: Marlboro 43.2 % 43.5 % (0.3 ) 43.2 % 43.6
% (0.4)
Other premium 2.6 2.7 (0.1 ) 2.6 2.7 (0.1)
Discount 4.4 4.7 (0.3 ) 4.4 4.7
(0.3)
Total cigarettes 50.2 %
50.9 % (0.7 ) 50.2
% 51.0 % (0.8)
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
Revenues and OCI
Second Quarter
- Net revenues increased 2.7%, primarily
driven by higher pricing partially offset by lower volume. Revenues
net of excise taxes increased 2.8%.
- Reported OCI increased 8.6%, primarily
driven by higher pricing and lower asset impairment, exit and
implementation costs, partially offset by lower volume.
- Adjusted OCI increased 3.5%, primarily
driven by higher pricing partially offset by lower volume. Adjusted
OCI margins increased 0.5 percentage points to 69.9%.
First Half
- Net revenues increased 7.2%, primarily
driven by higher pricing and the impact of the 2017 voluntary
recall, partially offset by lower volume. Revenues net of excise
taxes increased 7.5%.
- Reported OCI increased 20.6%, primarily
driven by higher pricing, the impact of the 2017 voluntary recall
and lower asset impairment, exit and implementation costs,
partially offset by lower volume.
- Adjusted OCI increased 13.5%, primarily
driven by higher pricing and the impact of the 2017 voluntary
recall, partially offset by lower volume. Adjusted OCI margins
increased 3.8 percentage points to 69.5%.
Table 5 - Smokeless Products: Revenues and OCI ($ in
millions)
Second Quarter Six Months Ended June
30, 2018 2017 Change 2018
2017 Change Net revenues $ 579
$ 564 2.7 % $ 1,104
$ 1,030 7.2 % Excise taxes (34 ) (34 )
(66 ) (64 )
Revenues net of excise taxes $ 545
$ 530 2.8 % $
1,038 $ 966 7.5 %
Reported OCI $ 377 $ 347
8.6 % $ 715 $ 593
20.6 % Asset impairment, exit and implementation
costs 4 21 6 42
Adjusted OCI
$ 381 $ 368 3.5
% $ 721 $ 635
13.5 % Adjusted OCI margins 1
69.9 % 69.4 % 0.5 pp
69.5 % 65.7 % 3.8 pp
1 Adjusted OCI margins are calculated as adjusted OCI divided by
revenues net of excise taxes.
Shipment Volume
Second Quarter
- Smokeless products segment reported
domestic shipment volume declined 2.4% primarily driven by the
industry’s rate of decline and retail share losses. Adjusted
shipment volume comparisons are not provided due to the unusual
effects of the 2017 recall.
First Half
- Smokeless products segment reported
domestic shipment volume declined 1.3% primarily driven by the
industry’s rate of decline. When adjusted for calendar differences,
the smokeless products segment shipment volume declined
approximately 1.5%.
- The smokeless industry volume declined
an estimated 1% over the past six months.
Table 6 - Smokeless Products: Shipment Volume (cans and packs in
millions)
Second Quarter
Six Months Ended June 30,
2018 2017 Change 2018 2017
Change Copenhagen 138.1 137.5 0.4 % 262.5 262.0 0.2 %
Skoal 59.8 65.8 (9.1 )% 114.8 121.4
(5.4 )%
Copenhagen and Skoal 197.9
203.3 (2.7 )% 377.3 383.4
(1.6 )% Other 17.8 17.7 0.6
%
34.1 33.4 2.1
%
Total smokeless products 215.7
221.0 (2.4 )% 411.4
416.8 (1.3 )%
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.
Retail Share and Brand Activity
IRI refreshed its smokeless products database in the first
quarter of 2018, which affected previously released retail share
results.
Second Quarter
- Copenhagen retail share was unchanged
at 34.3% and Skoal retail share declined 0.4 share points to
16.4%.
- Copenhagen and Skoal combined retail
share decreased 0.4 share points to 50.7%.
- Smokeless products segment total retail
share declined 0.2 share points to 54.1%.
First Half
- Copenhagen retail share grew 0.5 share
points to 34.3% and Skoal retail share declined 0.7 share points to
16.3%.
- Copenhagen and Skoal combined retail
share decreased 0.2 share points to 50.6%.
- Smokeless products segment total retail
share was unchanged at 54.0%.
Table 7 - Smokeless Products: Retail Share (percent)
Second
Quarter Six Months Ended June 30, 2018
2017
Percentagepoint change
2018 2017
Percentagepoint change
Copenhagen 34.3 % 34.3 % — 34.3
%
33.8 % 0.5
Skoal 16.4 16.8 (0.4 ) 16.3
17.0 (0.7 )
Copenhagen and Skoal 50.7
51.1 (0.4 ) 50.6 50.8
(0.2 ) Other 3.4 3.2 0.2
3.4 3.2 0.2
Total smokeless products
54.1 % 54.3 % (0.2
) 54.0 % 54.0 % —
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
Second Quarter
- Net revenues increased 10.7%, primarily
driven by favorable mix and higher shipment volume.
- Reported and adjusted OCI increased
8.0%, primarily driven by higher volume and favorable mix,
partially offset by increased costs.
- Reported wine shipment volume grew 6.3%
to approximately 1.9 million cases.
First Half
- Net revenues increased 6.2%, primarily
driven by higher shipment volume.
- Reported and adjusted OCI declined
4.3%, primarily driven by higher costs, including one-time employee
bonuses, partially offset by higher shipment volume.
- Reported wine shipment volume grew 6.2%
to approximately 3.7 million cases.
Table 8 - Wine: Revenues and OCI ($ in millions)
Second
Quarter Six Months Ended June 30, 2018
2017 Change 2018 2017 Change
Net revenues $ 166 $ 150
10.7
%
$ 308 $ 290
6.2
%
Excise taxes (4 ) (5 ) (9 ) (9 )
Revenues net of excise
taxes $ 162 $ 145
11.7
%
$ 299 $ 281
6.4
%
Reported and Adjusted OCI
$ 27 $ 25
8.0
%
$ 44 $ 46
(4.3
)%
OCI margins 1 16.7 % 17.2
%
(0.5
) pp
14.7 % 16.4 %
(1.7
) pp
1 OCI margins are calculated as OCI divided by revenues net of
excise taxes.
Altria's Profile
Altria’s wholly-owned subsidiaries include Philip Morris USA
Inc. (PM USA), U.S. Smokeless Tobacco Company LLC (USSTC), John
Middleton Co. (Middleton), Sherman Group Holdings, LLC and its
subsidiaries (Nat Sherman), Nu Mark LLC (Nu Mark), Ste. Michelle
Wine Estates Ltd. (Ste. Michelle) and Philip Morris Capital
Corporation (PMCC). Altria holds an equity investment in
Anheuser-Busch InBev SA/NV (AB InBev).
The brand portfolios of Altria’s tobacco operating companies
include Marlboro®, Black & Mild®,
Copenhagen®, Skoal®, VERVE®, 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.
Basis of Presentation
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, OCI margins
and diluted EPS on an adjusted basis, which excludes certain income
and expense items, including those items noted under “2018
Full-Year Guidance.” 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 adjusted effective tax rate 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.
Altria’s reportable segments are smokeable products, including
combustible cigarettes and cigars manufactured and sold by PM USA,
Middleton and Nat Sherman; smokeless products, including moist
smokeless tobacco and snus products manufactured and sold by USSTC;
and wine, produced and/or distributed by Ste. Michelle. Results for
innovative tobacco products (including Nu Mark’s e-vapor products,
VERVE and IQOS) and PMCC are included in “All Other.”
Comparisons are to the corresponding prior-year period unless
otherwise stated.
Forward-Looking and Cautionary Statements
This 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, 2017 and its
Quarterly Report on Form 10-Q for the period ended March 31, 2018.
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: the risk 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 and
the dividends paid by AB InBev on shares owned by Altria 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 Altria’s
investment in 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 June 30,
(dollars in millions, except per share
data)
(Unaudited)
2018 2017 % Change
Net revenues $ 6,305 $
6,663 (5.4)% Cost of sales 1 1,738 1,954 Excise taxes
on products 1 1,426 1,595 Gross profit 3,141 3,114
0.9% Marketing, administration and research costs 591 514 Asset
impairment and exit costs 2 12
Operating companies
income 2,548 2,588 (1.5)% Amortization of
intangibles 5 5 General corporate expenses 45 55
Operating income 2,498 2,528 (1.2)%
Interest and other debt expense, net 178 177 Net periodic benefit
income, excluding service cost (9 ) (11 ) Earnings from equity
investment in AB InBev (228 ) (140 ) Gain on AB InBev/SABMiller
business combination — (408 ) Earnings before income taxes
2,557 2,910 (12.1)% Provision for income taxes 680 920
Net earnings 1,877 1,990 (5.7)%
Net earnings attributable to noncontrolling interests (1 ) (1 )
Net earnings attributable to Altria $ 1,876
$ 1,989 (5.7)% Per
share data: Basic and diluted earnings per share
attributable to Altria $ 0.99 $
1.03 (3.9)% Weighted-average diluted shares
outstanding 1,891 1,928 (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.
Note: As a result of the January 1, 2018 adoption of Accounting
Standards Update (“ASU”) No. 2017-07, Compensation-Retirement
Benefits (Topic 715): Improving the Presentation of Net Periodic
Pension Cost and Net Periodic Postretirement Benefit Cost (“ASU No.
2017-07”), certain immaterial prior-year amounts have been
reclassified to conform with the current period’s presentation.
Schedule 2 ALTRIA GROUP,
INC.and SubsidiariesSelected Financial DataFor the Quarters Ended
June 30,(dollars in millions)(Unaudited)
Net Revenues
SmokeableProducts
SmokelessProducts
Wine All Other
Total 2018 $ 5,546 $ 579 $ 166 $
14 $ 6,305 2017 5,922 564 150 27 6,663 % Change (6.3 )% 2.7
% 10.7 % (48.1
)%
(5.4 )%
Reconciliation:
For the quarter ended June 30, 2017 $ 5,922
$ 564 $ 150 $ 27 $
6,663 Operations (376 ) 15 16
(13
)
(358 )
For the quarter ended June 30,
2018 $ 5,546 $
579 $ 166
$ 14 $
6,305
Operating Companies
Income (Loss)
SmokeableProducts
SmokelessProducts
Wine All Other
Total 2018 $ 2,201 $ 377 $ 27 $ (57
)
$ 2,548 2017 2,224 347 25 (8
)
2,588 % Change (1.0 )% 8.6 % 8.0 % (100.0
)%+
(1.5 )%
Reconciliation:
For the quarter ended June 30, 2017 $ 2,224
$ 347 $ 25 $ (8
)
$ 2,588 Asset impairment, exit, implementation
and acquisition-related costs - 2017 9 21 — — 30 Tobacco and health
litigation items - 2017 15 — —
— 15 24 21
— — 45
NPM Adjustment Items - 2018 77 — — — 77 Asset
impairment, exit and implementation
costs - 2018
(2 ) (4 ) — — (6 ) Tobacco and health litigation items - 2018 (60 )
— — —
(60 ) 15 (4 ) — —
11 Operations (62 ) 13
2 (49
)
(96 )
For the quarter ended June 30,
2018 $ 2,201 $
377 $ 27
$ (57
)
$ 2,548
Note: As a result of the January 1, 2018 adoption of ASU No.
2017-07, certain immaterial prior-year operating companies income
(loss) amounts have been reclassified to conform with the current
period’s presentation.
Schedule 3 ALTRIA GROUP, INC.and
SubsidiariesConsolidated Statements of EarningsFor the Six Months
Ended June 30,(dollars in millions, except per share
data)(Unaudited)
2018 2017 % Change
Net revenues $ 12,413 $
12,746 (2.6)% Cost of sales 1 3,472 3,767 Excise
taxes on products 1 2,864 3,089 Gross profit 6,077
5,890 3.2% Marketing, administration and research costs 1,158 996
Asset impairment and exit costs 4 16
Operating
companies income 4,915 4,878 0.8%
Amortization of intangibles 10 10 General corporate expenses 91
101
Operating income 4,814 4,767
1.0% Interest and other debt expense, net 344 356 Net
periodic benefit income, excluding service cost (16 ) (19 )
Earnings from equity investment in AB InBev (570 ) (163 ) Loss
(gain) on AB InBev/SABMiller business combination 33 (408 )
Earnings before income taxes 5,023 5,001 0.4% Provision for income
taxes 1,251 1,609
Net earnings 3,772
3,392 11.2% Net earnings attributable to
noncontrolling interests (2 ) (2 )
Net earnings attributable to
Altria $ 3,770 $ 3,390
11.2% Per share data: Basic and
diluted earnings per share attributable to Altria $
1.99 $ 1.75 13.7%
Weighted-average diluted shares outstanding 1,895 1,933 (2.0)%
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.
Note: As a result of the January 1, 2018 adoption of ASU No.
2017-07, certain immaterial prior-year amounts have been
reclassified to conform with the current period’s presentation.
Schedule 4 ALTRIA GROUP, INC.and
SubsidiariesSelected Financial DataFor the Six Months Ended June
30,(dollars in millions)(Unaudited)
Net Revenues
SmokeableProducts
SmokelessProducts
Wine All Other Total 2018
$ 10,960 $ 1,104 $ 308 $ 41 $ 12,413 2017 11,380 1,030 290 46
12,746 % Change (3.7 )% 7.2 % 6.2 % (10.9 )% (2.6 )%
Reconciliation:
For the six months ended June 30, 2017 $
11,380 $ 1,030 $ 290 $
46 $ 12,746 Operations (420 ) 74
18 (5 ) (333 )
For the six
months ended June 30, 2018 $ 10,960
$ 1,104 $ 308
$ 41 $ 12,413
Operating Companies Income (Loss)
SmokeableProducts
SmokelessProducts
Wine All Other
Total 2018 $ 4,239 $ 715 $ 44 $ (83 ) $ 4,915 2017 4,260 593
46 (21 ) 4,878 % Change (0.5 )% 20.6 % (4.3 )% (100.0
)%+
0.8 %
Reconciliation:
For the six months ended June 30, 2017 $ 4,260
$ 593 $ 46 $ (21 )
$ 4,878 NPM Adjustment Items - 2017 (8 ) — — —
(8 ) Asset impairment, exit, implementation and acquisition-related
costs - 2017 15 42 — — 57 Tobacco and health litigation items -
2017 16 — — —
16 23 42 —
— 65 NPM Adjustment Items - 2018 145 —
— — 145 Asset impairment, exit and implementation costs - 2018 (3 )
(6 ) — — (9 ) Tobacco and health litigation items - 2018 (84 )
— — — (84 ) 58
(6 ) — — 52
Operations (102 ) 86 (2 ) (62 )
(80 )
For the six months ended June 30, 2018 $
4,239 $ 715
$ 44 $ (83 )
$ 4,915
Note: As a result of the January 1, 2018 adoption of ASU No.
2017-07, certain immaterial prior-year operating companies income
(loss) amounts have been reclassified to conform with the current
period’s presentation.
Schedule 5 ALTRIA GROUP, INC.and
SubsidiariesSupplemental Financial Data(dollars in
millions)(Unaudited)
For the QuartersEnded June
30,
For the Six MonthsEnded June
30,
2018 2017 2018 2017 The segment
detail of excise taxes on products sold is as follows:
Smokeable products $ 1,388 $ 1,556 $ 2,789 $ 3,016 Smokeless
products 34 34 66 64 Wine 4 5 9 9 $ 1,426
$ 1,595 $ 2,864 $ 3,089
The
segment detail of charges for resolution expenses related to state
settlement agreements included in cost of sales is as follows:
Smokeable products $ 961 $ 1,184 $ 1,978 $ 2,264 Smokeless
products 2 2 4 4 $ 963 $ 1,186 $
1,982 $ 2,268
The segment detail of FDA
user fees included in cost of sales is
as follows:
Smokeable products $ 72 $ 68 $ 141 $ 136 Smokeless products
1 1 2 2 $ 73 $ 69 $ 143 $
138 Schedule 6 ALTRIA GROUP, INC.and SubsidiariesNet
Earnings and Diluted Earnings Per Share - Attributable to Altria
Group, Inc.For the Quarters Ended June 30,(dollars in millions,
except per share data)(Unaudited)
Net
Earnings Diluted EPS 2018 Net
Earnings $ 1,876 $ 0.99 2017 Net
Earnings $ 1,989 $ 1.03 %
Change (5.7 )% (3.9 )%
Reconciliation:
2017 Net Earnings $ 1,989 $ 1.03
2017 Tobacco and health litigation items 11 0.01 2017 AB
InBev special items 1 — 2017 Asset impairment, exit, implementation
and acquisition-related costs 17 0.01 2017 Gain on AB
InBev/SABMiller business combination (265 ) (0.14 ) 2017 Tax items
(108 ) (0.06 ) Subtotal 2017 special items (344 ) (0.18 )
2018 NPM Adjustment Items 58 0.03 2018 AB InBev special items 57
0.03 2018 Asset impairment, exit and implementation costs (5 ) —
2018 Tobacco and health litigation items (53 ) (0.03 ) 2018 Tax
items (94 ) (0.05 ) Subtotal 2018 special items (37 ) (0.02 )
Fewer shares outstanding — 0.02 Change in tax rate 311 0.16
Operations (43 ) (0.02 )
2018 Net Earnings $
1,876 $ 0.99
Schedule 7 ALTRIA GROUP, INC.and
SubsidiariesReconciliation of GAAP and non-GAAP MeasuresFor the
Quarters Ended June 30,(dollars in millions, except per share
data)(Unaudited)
EarningsbeforeIncomeTaxes
Provisionfor
IncomeTaxes
NetEarnings
Net EarningsAttributable
toAltria
DilutedEPS
2018 Reported $ 2,557 $ 680
$ 1,877 $ 1,876 $
0.99 NPM Adjustment Items (77 ) (19 ) (58 ) (58 ) (0.03 ) AB
InBev special items (72 ) (15 ) (57 ) (57 ) (0.03 ) Asset
impairment, exit and implementation costs 6 1 5 5 — Tobacco and
health litigation items 70 17 53 53 0.03 Tax items —
(94 ) 94 94 0.05
2018
Adjusted for Special Items $ 2,484
$ 570 $ 1,914
$ 1,913 $ 1.01
2017 Reported $ 2,910 $
920 $ 1,990 $ 1,989 $
1.03 Tobacco and health litigation items 17 6 11 11 0.01 AB
InBev special items 2 1 1 1 — Asset impairment, exit,
implementation and acquisition-related costs 30 13 17 17 0.01 Gain
on AB InBev/SABMiller business
combination
(408 ) (143 ) (265 ) (265 ) (0.14 ) Tax items — 108
(108 ) (108 ) (0.06 )
2017 Adjusted
for Special Items $ 2,551 $
905 $ 1,646
$ 1,645 $ 0.85
2018 Reported Net Earnings $ 1,876
$ 0.99 2017 Reported Net Earnings $
1,989 $ 1.03 % Change (5.7
)% (3.9 )% 2018 Net Earnings
Adjusted for Special Items $ 1,913 $
1.01 2017 Net Earnings Adjusted for Special Items
$ 1,645 $ 0.85 % Change
16.3 % 18.8 % Schedule 8
ALTRIA GROUP, INC.and SubsidiariesNet Earnings and Diluted Earnings
Per Share - Attributable to Altria Group, Inc.For the Six Months
Ended June 30,(dollars in millions, except per share
data)(Unaudited)
Net Earnings
Diluted EPS 2018 Net Earnings $
3,770 $ 1.99 2017 Net Earnings $
3,390 $ 1.75 % Change 11.2
% 13.7 %
Reconciliation:
2017 Net Earnings $ 3,390 $ 1.75
2017 NPM Adjustment Items (1 ) — 2017 Tobacco and health
litigation items 12 0.01 2017 AB InBev special items 49 0.03 2017
Asset impairment, exit, implementation and acquisition-related
costs 36 0.02 2017 Gain on AB InBev/SABMiller business combination
(265 ) (0.14 ) 2017 Tax items (166 ) (0.09 ) Subtotal 2017 special
items (335 ) (0.17 ) 2018 NPM Adjustment Items 109 0.06 2018
Tobacco and health litigation items (73 ) (0.04 ) 2018 AB InBev
special items 149 0.07 2018 Asset impairment, exit and
implementation costs (7 ) — 2018 Loss on AB InBev/SABMiller
business combination (26 ) (0.01 ) 2018 Tax items (95 ) (0.05 )
Subtotal 2018 special items 57 0.03 Fewer
shares outstanding — 0.04 Change in tax rate 604 0.31 Operations 54
0.03
2018 Net Earnings $ 3,770
$ 1.99
Schedule 9 ALTRIA GROUP, INC.and SubsidiariesReconciliation of GAAP
and non-GAAP MeasuresFor the Six Months Ended June 30,(dollars in
millions, except per share data)(Unaudited)
EarningsbeforeIncomeTaxes
Provisionfor
IncomeTaxes
NetEarnings
Net EarningsAttributable
toAltria
DilutedEPS
2018 Reported $ 5,023 $ 1,251
$ 3,772 $ 3,770 $
1.99 NPM Adjustment Items (145 ) (36 ) (109 ) (109 ) (0.06 )
Tobacco and health litigation items 98 25 73 73 0.04 AB InBev
special items (189 ) (40 ) (149 ) (149 ) (0.07 ) Asset impairment,
exit and
implementation costs
9 2 7 7 — Loss on AB InBev/SABMiller
business combination
33 7 26 26 0.01 Tax items — (95 )
95 95 0.05
2018 Adjusted for Special Items $ 4,829
$ 1,114 $
3,715 $ 3,713
$ 1.96 2017 Reported $
5,001 $ 1,609 $ 3,392 $
3,390 $ 1.75 NPM Adjustment Items (1 ) — (1 )
(1 ) — Tobacco and health litigation items 18 6 12 12 0.01 AB InBev
special items 75 26 49 49 0.03 Asset impairment, exit,
implementation and
acquisition-related costs
60 24 36 36 0.02 Gain on AB InBev/SABMiller business
combination
(408 ) (143 ) (265 ) (265 ) (0.14 ) Tax items —
166 (166 ) (166 )
(0.09 )
2017 Adjusted for Special Items
$ 4,745 $ 1,688
$ 3,057 $ 3,055
$ 1.58 2018 Reported
Net Earnings $ 3,770
$
1.99
2017 Reported Net Earnings $ 3,390 $
1.75 % Change 11.2 % 13.7
% 2018 Net Earnings Adjusted for Special Items
$ 3,713
$
1.96
2017 Net Earnings Adjusted for Special Items $
3,055 $ 1.58 % Change 21.5
% 24.1 % Schedule
10 ALTRIA GROUP, INC.and SubsidiariesReconciliation of GAAP and
non-GAAP MeasuresFor the Year Ended December 31, 2017(dollars in
millions, except per share data)(Unaudited)
EarningsbeforeIncomeTaxes
(Benefit)Provisionfor
IncomeTaxes
NetEarnings
Net EarningsAttributable
toAltria
DilutedEPS
2017 Reported $ 9,828 $ (399
) $ 10,227 $ 10,222
$ 5.31 NPM Adjustment Items 4 2 2 2 — Tobacco and
health litigation items 80 30 50 50 0.03 AB InBev special items 160
55 105 105 0.05 Asset impairment, exit, implementation and
acquisition-related costs
89 34 55 55 0.03 Gain on AB InBev/SABMiller business
combination
(445 ) (156 ) (289 ) (289 ) (0.15 ) Settlement charge for lump sum
pension payments 81 32 49 49 0.03 Tax items — 3,674
(3,674 ) (3,674 ) (1.91 )
2017
Adjusted for Special Items $ 9,797
$ 3,272 $ 6,525
$ 6,520 $ 3.39
Schedule 11 ALTRIA GROUP, INC.and
SubsidiariesCondensed Consolidated Balance Sheets(dollars in
millions)(Unaudited)
June 30, 2018 December 31,
2017
Assets
Cash and cash equivalents $ 1,430 $ 1,253 Inventories 2,123 2,225
Other current assets 578 866 Property, plant and equipment, net
1,878 1,914 Goodwill and other intangible assets, net 17,712 17,707
Investment in AB InBev 18,178 17,952 Finance assets, net 856 899
Other long-term assets 422 386
Total assets $
43,177 $ 43,202
Liabilities and
Stockholders’ Equity
Current portion of long-term debt $ 864 $ 864 Accrued settlement
charges 2,105 2,442 Other current liabilities 3,419 3,486 Long-term
debt 13,036 13,030 Deferred income taxes 5,376 5,247 Accrued
postretirement health care costs 1,989 1,987 Accrued pension costs
323 445 Other long-term liabilities 230 283 Total
liabilities 27,342 27,784 Redeemable noncontrolling interest 37 38
Total stockholders’ equity 15,798 15,380
Total
liabilities and stockholders’ equity $ 43,177
$ 43,202 Total debt $ 13,900 $ 13,894
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