- Altria’s 2015 second-quarter
reported diluted earnings per share (EPS) increased 15.6% to $0.74,
as comparisons were affected by special items.
- Altria’s 2015 second-quarter
adjusted diluted EPS, which excludes the impact of special items,
increased 13.8% to $0.74.
- Altria’s 2015 first-half reported
diluted EPS increased 1.6% to $1.25, as comparisons were affected
by special items.
- Altria’s 2015 first-half adjusted
diluted EPS, which excludes the impact of special items, increased
13.1% to $1.38.
- Altria raises its guidance for 2015
full-year adjusted diluted EPS to a range of $2.76 to $2.81,
representing a growth rate of 7.5% to 9.5% from an adjusted diluted
EPS base of $2.57 in 2014.
- Altria announces a new $1 billion
share repurchase program to be completed by the end of 2016, having
completed the current $1 billion share repurchase program in
July
Altria Group, Inc. (Altria) (NYSE:MO) today announced its 2015
second-quarter and first-half business results and raised its
guidance for 2015 full-year adjusted diluted EPS.
“Altria delivered excellent second-quarter and first-half
results, growing adjusted diluted EPS more than 13% with a very
strong performance from the smokeable products segment and solid
contributions across our other businesses. Further, our tobacco
companies’ brands continued to strengthen their market leadership,
with record retail share on Marlboro and more than 51% combined
share on Copenhagen and Skoal year-to-date,” said Marty Barrington,
Altria’s Chairman, Chief Executive Officer and President. “Based on
this very strong first-half performance and our outlook for the
second half, we are raising our full-year adjusted EPS
guidance.”
Conference Call
As previously announced, a conference call with the investment
community and news media will be webcast on July 29, 2015 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 May 2015, Altria’s Board of Directors (Board) declared a
regular quarterly dividend of $0.52 per share. The current
annualized dividend rate is $2.08 per share. As of July 24, 2015,
Altria’s annualized dividend yield was 3.9%. Altria paid
approximately $1.0 billion in dividends in the second quarter and
$2.0 billion for the first half of 2015. 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 second quarter of 2015, Altria repurchased
approximately 5.2 million shares of its common stock at an average
price of $50.64 for a total cost of $263 million. As of June 30,
2015, Altria had approximately $63 million remaining in its $1
billion program, which it subsequently completed in July. Altria's
Board has authorized a new $1 billion share repurchase program,
which the company expects to complete by the end of 2016. The
timing of share repurchases depends upon marketplace conditions and
other factors. This program remains subject to the discretion of
the Board.
Innovative Tobacco
Products
As announced earlier this month, Altria expanded its strategic
framework with Philip Morris International Inc. (PMI) to include a
joint research, development and technology-sharing agreement. Under
this agreement, Altria and PMI will collaborate to develop e-vapor
products for commercialization in the United States by Altria and
in markets outside the United States by PMI. This agreement
supplements the innovative products agreement that Altria and PMI
announced in December 2013.
Nu Mark LLC (Nu Mark) continued to expand distribution of its
innovative tobacco products, shipping MarkTen XL e-vapor products
into several lead markets in April 2015 and expanding retail
distribution of Green Smoke e-vapor products into several lead
markets in June 2015.
2015 Full-Year Guidance
Altria raises its guidance for 2015 full-year adjusted diluted
EPS, which excludes the special items recorded for the first half
of 2015 as shown in Table 2, to be in a range of $2.76 to $2.81.
This range represents a growth rate of 7.5% to 9.5% from an
adjusted diluted EPS base of $2.57 in 2014, as shown in Table 1
below.
Altria expects its adjusted diluted EPS growth to moderate in
the second half of 2015 versus the first-half rate due to several
factors. These include lapping the effects of the 2014 improvements
in the economy for adult tobacco consumers and lower gasoline
prices, expected trade inventory movements and the effect of state
excise tax increases. In addition, the comparative benefit from the
expiration of the federal tobacco quota buy-out payments ends in
the fourth quarter and Altria now estimates its 2015 full-year
effective tax rate on operations will be 35.3%.
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 2014 Adjusted Results
Full Year 2014
Reported diluted EPS $ 2.56 NPM Adjustment
Items (0.03 ) Asset impairment, exit, integration and
acquisition-related costs 0.01 Tobacco and health litigation items
0.01 SABMiller special items 0.01 Loss on early extinguishment of
debt 0.02 Tax items (0.01 )
Adjusted diluted EPS
$ 2.57
ALTRIA GROUP,
INC.
Altria reports its financial results in accordance with U.S.
generally accepted accounting principles (GAAP). Altria’s
management reviews operating companies income (OCI), which is
defined as operating income before general corporate expenses and
amortization of intangibles, to evaluate the performance of, and
allocate resources to, the segments. Altria’s management also
reviews OCI, operating margins and diluted EPS on an adjusted
basis, which excludes certain income and expense items that
management believes are not part of underlying operations. These
items may include, for example, loss on early extinguishment of
debt, restructuring charges, SABMiller plc (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 (such settlements and determinations are
referred to collectively as NPM Adjustment Items). Altria’s
management does not view any of these special items to be part of
Altria’s sustainable results as they may be highly variable, are
difficult to predict and can distort underlying business trends and
results. Altria’s management 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 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 should thus be considered as
supplemental in nature and not considered in isolation or as a
substitute for the related financial information prepared in
accordance with GAAP. Reconciliations of historical adjusted
financial measures to corresponding GAAP measures are provided in
this release.
Altria’s 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, including those items
noted in the preceding paragraph. Altria’s management cannot
estimate on a forward-looking basis the impact of these items on
its reported diluted EPS and its reported effective tax rate
because these items, which could be significant, are difficult to
predict and may be highly variable. As a result, Altria does not
provide a corresponding GAAP measure for, or reconciliation to, its
adjusted diluted EPS guidance or its forecast for its effective tax
rate on operations.
Altria’s reportable segments are smokeable products,
manufactured and sold by Philip Morris USA Inc. (PM USA) and John
Middleton Co. (Middleton); smokeless products, substantially all of
which are 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 increased 5.7% to $6.6 billion in the
second quarter and 5.5% to $12.4 billion for the first half of
2015, reflecting higher net revenues in all reportable segments.
Altria’s revenues net of excise taxes increased 6.7% to $4.9
billion in the second quarter and 6.6% to $9.1 billion for the
first half of 2015.
Altria’s 2015 second-quarter reported diluted EPS increased
15.6% to $0.74, primarily driven by higher reported OCI in the
smokeable products segment and lower interest and other debt
expense. Altria’s second-quarter adjusted diluted EPS, which
excludes the special items shown in Table 2, grew 13.8% to $0.74,
primarily driven by higher adjusted OCI in the smokeable products
segment and lower interest and other debt expense.
Altria’s 2015 first-half reported diluted EPS increased 1.6% to
$1.25, primarily driven by higher reported OCI in the smokeable
products segment and fewer shares outstanding. These factors were
mostly offset by the loss on early extinguishment of debt, lower
earnings from Altria’s equity investment in SABMiller and lower OCI
from Philip Morris Capital Corporation (PMCC). Altria’s first-half
adjusted diluted EPS, which excludes the special items shown in
Table 2, grew 13.1% to $1.38, primarily driven by higher adjusted
OCI in the smokeable products segment, fewer shares outstanding and
lower interest and other debt expense. These factors were partially
offset by lower OCI from PMCC.
Table 2 - Altria’s Adjusted Results
Second
Quarter Six Months Ended June 30, 2015
2014 Change 2015
2014 Change Reported diluted
EPS $ 0.74 $ 0.64
15.6% $ 1.25
$ 1.23 1.6% NPM Adjustment Items
— (0.01 ) — (0.03 ) Tobacco and health litigation items — 0.01 0.02
0.01 SABMiller special items — 0.01 0.03 0.01 Loss on early
extinguishment of debt — — 0.07 — Asset impairment, exit and
integration
costs, and tax items
— — 0.01 —
Adjusted diluted EPS $
0.74 $ 0.65
13.8% $ 1.38
$ 1.22
13.1%
NPM Adjustment Items
NPM Adjustment Items affected comparisons of Altria’s
second-quarter and first-half reported diluted EPS. During the
second quarter of 2014, as a result of two states settling their
NPM adjustment disputes for 2003-2012, PM USA recorded pre-tax
earnings of $26 million, comprised of a reduction to cost of sales
of $43 million, partially offset by a reduction to previously
recorded interest income of $17 million. During the first half of
2014, PM USA recorded pre-tax earnings of $90 million, comprised of
a reduction to cost of sales of $43 million and an increase to
interest income of $47 million.
The EPS impact of the NPM Adjustment Items is shown in Table 2
and Schedules 6 and 7.
Tobacco and Health Litigation
Items
Comparisons of Altria’s second-quarter and first-half reported
diluted EPS were also affected by tobacco and health litigation
items. During the first quarter of 2015, PM USA announced that it
and certain other manufacturers had reached a tentative agreement
to resolve approximately 415 Engle progeny lawsuits pending against
them in federal court. Under the terms of the tentative agreement,
PM USA paid approximately $43 million into escrow and recorded a
corresponding pre-tax charge against reported earnings. During the
second quarter of 2014, Altria and PM USA recorded pre-tax charges
totaling $31 million for the estimated costs of implementing the
corrective communications remedy in the federal government’s
lawsuit against them.
The EPS impact of these charges is shown in Table 2 and
Schedules 6 and 7.
SABMiller Special Items
Special items related to Altria’s equity investment in SABMiller
affected comparisons of Altria’s first-half reported diluted EPS.
For the first half of 2015, SABMiller pre-tax special items totaled
$88 million, primarily reflecting asset impairment charges.
The EPS impact of the SABMiller Special Items is shown in Table
2 and Schedule 7.
Loss on Early Extinguishment of
Debt
Special items related to early extinguishment of debt affected
comparisons of Altria’s first-half reported diluted EPS. In March
2015, Altria completed a cash tender offer for approximately $793
million aggregate principal amount of its senior unsecured 9.700%
notes due 2018. The transaction resulted in a one-time, pre-tax
charge against reported earnings of $228 million.
The EPS impact of this charge is shown in Table 2 and Schedule
7.
SMOKEABLE
PRODUCTS
The smokeable products segment delivered strong net revenues,
adjusted OCI and adjusted OCI margin growth in the second quarter
and first half of 2015, primarily through higher pricing and higher
volume. PM USA grew Marlboro’s and its total cigarette retail share
for both periods.
The smokeable products segment’s net revenues increased 6.5% in
the second quarter and 5.9% for the first half, primarily driven by
higher pricing and volume, partially offset by higher promotional
investments. Revenues net of excise taxes increased 7.8% in the
second quarter and 7.4% for the first six months of 2015.
The smokeable products segment’s 2015 second-quarter reported
OCI increased 13.1%, primarily due to higher pricing, higher volume
and lower resolution expenses (due principally to the end of the
federal tobacco quota buy-out payments). These factors were
partially offset by the impact of NPM Adjustment Items in the
second quarter of 2014 and higher costs (primarily pension and
benefit costs and higher selling, general and administrative
(SG&A) costs) and higher promotional investments in 2015.
Adjusted OCI, which is calculated excluding the special items
identified in Table 3, grew 15.8%, and adjusted OCI margins
expanded 3.3 percentage points to 47.5%.
For the first half of 2015, the smokeable products segment’s
reported OCI increased 11.7% primarily driven by higher pricing,
higher volume and lower resolution expenses. These factors were
partially offset by higher costs (primarily pension and benefit
costs and SG&A costs), higher promotional investments, the
impact of NPM Adjustment Items for the first half of 2014 and
higher tobacco and health litigation items in 2015. Adjusted OCI,
which excludes the special items detailed in Table 3, grew 14.3%,
and adjusted OCI margins expanded 2.9 percentage points to
47.0%.
Table 3 - Smokeable Products: Revenues and OCI ($ in
millions)
Second Quarter Six Months Ended June
30, 2015 2014
Change 2015 2014
Change Net revenues $ 5,974
$ 5,611 6.5% $
11,195 $ 10,569
5.9% Excise taxes (1,699 ) (1,644 ) (3,194 )
(3,118 )
Revenues net of excise taxes $
4,275 $ 3,967
7.8% $ 8,001 $
7,451 7.4% Reported OCI $
2,024 $ 1,789 13.1% $
3,710 $ 3,320 11.7% NPM Adjustment
Items — (43 ) — (43 ) Asset impairment and exit costs — (10 ) — (8
) Tobacco and health litigation items 5 16
48 19
Adjusted OCI
$ 2,029 $ 1,752
15.8% $ 3,758
$ 3,288 14.3% Adjusted OCI
margins 1 47.5
% 44.2 % 3.3
pp 47.0 %
44.1 % 2.9 pp
1 Adjusted OCI margins are calculated as adjusted OCI divided by
revenues net of excise taxes.
PM USA’s reported domestic cigarettes shipment volume increased
3.1% in the second quarter and 2.4% for the first half of 2015,
benefiting from industry volume improvement, trade inventory
movements and retail share gains. The benefits from these trade
inventory movements are expected to moderate going forward.
When adjusted for trade inventory movements and other factors,
PM USA estimates that its domestic cigarettes shipment volume
increased 1% in the second quarter and 0.5% for the first half. PM
USA estimates that total industry cigarette volumes were unchanged
in the second quarter and decreased 0.5% for the first half.
Middleton’s reported cigars shipment volume increased 0.9% in
the second quarter and 5.1% for the first half of 2015, driven
primarily by Black & Mild in the tipped cigars segment. Table 4
summarizes smokeable products segment volume performance.
Table 4 - Smokeable Products: Shipment Volume (sticks in
millions)
Second Quarter Six Months Ended June
30, 2015 2014
Change 2015 2014
Change Cigarettes:
Marlboro 28,498 27,679 3.0% 53,615
52,495 2.1%
Other premium 1,767 1,829 (3.4)% 3,345 3,458
(3.3)%
Discount 2,859 2,626 8.9%
5,362 4,930 8.8%
Total
cigarettes 33,124 32,134
3.1% 62,322 60,883
2.4% Cigars: Black & Mild
325 320 1.6% 623 590 5.6%
Other 9 11
(18.2)% 13 15 (13.3)%
Total
cigars 334 331
0.9% 636 605
5.1%
Total smokeable products
33,458 32,465
3.1% 62,958
61,488 2.4%
Note: Cigarettes volume includes units sold as well as
promotional units, but excludes units sold in Puerto Rico and 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 both the second quarter and first half of 2015, Marlboro
gained 0.3 retail share points, and PM USA grew its total retail
share by 0.5 points due to gains by Marlboro and L&M in
Discount. These retail share gains were partially offset by share
losses on other portfolio brands. In the total machine-made large
cigars category, Black & Mild’s retail share declined 0.7
points in the second quarter and 0.9 points for the first half of
2015, as Middleton continued to concentrate on the more profitable
tipped cigars segment, where Black & Mild gained share.
Table 5 summarizes retail share performance by PM USA in
cigarettes and Middleton in machine-made large cigars.
Table 5 - Smokeable Products: Retail Share (percent)
Second Quarter Six Months Ended June 30,
2015 2014
Percentage
point change
2015 2014
Percentage
point change
Cigarettes:
Marlboro 44.2 % 43.9 % 0.3 44.1 % 43.8 % 0.3
Other
premium 2.8 2.9 (0.1) 2.8 2.9 (0.1)
Discount 4.4
4.1 0.3 4.4
4.1 0.3
Total cigarettes 51.4
% 50.9 %
0.5 51.3 % 50.8 %
0.5 Cigars: Black &
Mild 27.6 % 28.3 % (0.7) 27.1 % 28.0 % (0.9)
Other 0.3
0.4 (0.1) 0.4
0.3 0.1
Total cigars
27.9 %
28.7 % (0.8)
27.5 % 28.3
% (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. Retail share results for cigars are based on data
from IRI InfoScan, a tracking service that uses a sample of stores
to project market share and depict share trends. Both services
track sales in the food, drug and mass merchandisers (including
Wal-Mart), convenience, military, dollar store and club trade
classes. For other trade classes selling cigarettes, retail share
is based on shipments from wholesalers to retailers (STARS). These
services are not designed to capture sales through other channels,
including the Internet, direct mail and some illicitly
tax-advantaged outlets. Retail share results for cigars are based
on data for machine-made large cigars. Middleton defines
machine-made large cigars as cigars, made by machine, that weigh
greater than three pounds per thousand, except cigars sold at
retail in packages of 20 cigars. Because the cigars service
represents retail share performance only in key trade channels, it
should not be considered a precise measurement of actual retail
share. It is IRI’s standard practice to periodically refresh its
services, which could restate retail share results that were
previously released in these services.
SMOKELESS
PRODUCTS
During the second quarter and first half of 2015, the smokeless
products segment grew OCI, primarily through higher pricing, and
USSTC increased Copenhagen and Skoal’s combined retail share.
The smokeless products segment’s net revenues increased 3.7% in
the second quarter and 3.6% for the first half, primarily driven by
higher pricing, partially offset by higher promotional investments.
Revenues net of excise taxes increased 4.4% in the second quarter
and 3.9% for the first half of 2015.
The smokeless products segment’s reported OCI increased 2.8% in
the second quarter and 3.8% for the first half of 2015, primarily
due to higher pricing, partially offset by higher promotional
investments. Adjusted OCI, which is calculated excluding the
special items identified in Table 6, grew 4.2% in the second
quarter and 4.6% for the first half of 2015. Adjusted OCI margins
for the smokeless products segment declined 0.2 percentage points
to 66.4% in the second quarter and increased 0.4 percentage points
to 64.9% for the first half. Table 6 summarizes revenues and OCI
for the smokeless products segment.
Table 6 - Smokeless Products: Revenues and OCI ($ in
millions)
Second Quarter Six Months Ended June
30, 2015 2014
Change 2015 2014
Change Net revenues $ 481
$ 464 3.7% $ 911
$ 879 3.6% Excise
taxes (34 ) (36 ) (66 ) (66 )
Revenues net of excise taxes $ 447
$ 428 4.4% $
845 $ 813
3.9% Reported OCI $ 293 $
285 2.8% $ 544 $ 524
3.8% Asset impairment and exit costs 4
— 4 —
Adjusted OCI
$ 297 $ 285
4.2% $ 548 $
524 4.6% Adjusted OCI margins 1
66.4%
66.6% (0.2) pp
64.9% 64.5% 0.4 pp
1 Adjusted OCI margins are calculated as adjusted OCI divided by
revenues net of excise taxes.
The smokeless products segment’s reported domestic shipment
volume increased 2.6% in both the second quarter and the first half
of 2015, as volume growth in Copenhagen was partially offset by
declines in Other portfolio brands. Copenhagen and Skoal’s combined
reported shipment volume increased 3.4% in the second quarter and
3.5% for the first half of 2015.
After adjusting for trade inventory movements and other factors,
USSTC estimates that its domestic smokeless products shipment
volume grew approximately 2.5% in both the second quarter and the
first half of 2015. USSTC estimates that the smokeless products
category volume grew approximately 3% over the last 12 months.
Table 7 summarizes volume performance for the smokeless products
segment.
Table 7 - Smokeless Products: Shipment
Volume
(cans and packs in millions)
Second Quarter Six Months Ended June 30,
2015 2014 Change
2015 2014 Change
Copenhagen 121.2 115.0 5.4% 231.3 218.9 5.7%
Skoal
69.4 69.3 0.1% 133.4
133.3 0.1%
Copenhagen and Skoal
190.6 184.3 3.4% 364.7 352.2
3.5% Other 18.4 19.5
(5.6)% 35.4 37.7 (6.1)%
Total
smokeless products
209.0 203.8
2.6% 400.1
389.9 2.6%
Note: Other includes certain USSTC and PM USA smokeless
products. Volume includes cans and packs sold, as well as
promotional units, but excludes international volume, which is not
material to the smokeless products segment. New types of smokeless
products, as well as new packaging configurations of existing
smokeless products, may or may not be equivalent to existing moist
smokeless tobacco (MST) products on a can-for-can basis. To
calculate volumes of cans and packs shipped, one pack of snus,
irrespective of the number of pouches in the pack, is assumed to be
equivalent to one can of MST.
Copenhagen and Skoal’s combined retail share increased 0.1 share
point in the second quarter of 2015 and 0.3 share points for the
first half to 51.1%. In the second quarter, Copenhagen’s retail
share grew 0.8 share points, mostly offset by Skoal’s retail share
decline of 0.7 share points. For the first half of 2015,
Copenhagen’s retail share grew 0.9 share points and Skoal’s retail
share declined 0.6 share points.
Total smokeless products retail share declined 0.1 share point
to 54.8% in the second quarter of 2015 and was unchanged at 54.8%
for the first half. Table 8 summarizes smokeless products retail
share performance.
Table 8 - Smokeless Products: Retail Share (percent)
Second Quarter Six Months Ended June 30,
2015 2014
Percentage
point change
2015 2014
Percentage
point change
Copenhagen 31.3 % 30.5 % 0.8 31.3 % 30.4 % 0.9
Skoal
19.8 20.5 (0.7) 19.8
20.4 (0.6)
Copenhagen and Skoal 51.1 51.0
0.1 51.1 50.8 0.3 Other 3.7
3.9 (0.2) 3.7
4.0 (0.3)
Total smokeless
products 54.8
% 54.9 %
(0.1) 54.8 %
54.8 % —
Note: Retail share results for smokeless products are based on
data from IRI InfoScan, a tracking service that uses a sample of
stores to project market share and depict share trends. The service
tracks sales in the food, drug and mass merchandisers (including
Wal-Mart), convenience, military, dollar store and club trade
classes on the number of cans and packs sold. Smokeless products is
defined by IRI as moist smokeless and spit-free tobacco products.
Other includes certain USSTC and PM USA smokeless products. New
types of smokeless products, as well as new packaging
configurations of existing smokeless products, may or may not be
equivalent to existing MST products on a can-for-can basis. One
pack of snus, irrespective of the number of pouches in the pack, is
assumed to be equivalent to one can of MST. All other products are
considered to be equivalent on a can-for-can basis. Because this
service represents retail share performance only in key trade
channels, it should not be considered a precise measurement of
actual retail share. It is IRI’s standard practice to periodically
refresh its InfoScan services, which could restate retail share
results that were previously released in this service.
WINE
In the wine segment, Ste. Michelle grew net revenues in the
second quarter by 10.3% and for the first half of 2015 by 7.3%,
primarily due to increased shipments and improved premium mix. Ste.
Michelle grew OCI 25.0% in the second quarter and 24.0% for the
first half, primarily driven by increased shipments and improved
premium mix. OCI margins in the second quarter expanded 2.5
percentage points to 22.4% and increased 2.9 percentage points for
the first half to 21.8%. Table 9 summarizes revenues and OCI for
the wine segment.
Table 9 - Wine: Revenues and OCI ($ in millions)
Second Quarter Six Months Ended June 30,
2015 2014 Change
2015 2014 Change
Net revenues $ 161 $
146 10.3% $ 295
$ 275 7.3% Excise taxes
(5 ) (5 ) (10 ) (10 )
Revenues net
of excise taxes $ 156
$ 141 10.6% $ 285
$ 265 7.5%
Reported and Adjusted OCI $ 35
$ 28 25.0% $ 62
$ 50 24.0% OCI
margins 1
22.4% 19.9% 2.5 pp
21.8% 18.9%
2.9 pp
1 OCI margins are calculated as OCI divided by revenues net of
excise taxes.
Ste. Michelle grew wine shipment volume 8.9% in the second
quarter and 4.9% for the first half of 2015, driven by higher
volume across all Ste. Michelle’s reported brands, led by Columbia
Crest. Table 10 summarizes Ste. Michelle’s shipment volume.
Table 10 - Wine: Shipment Volume (cases in thousands)
Second Quarter Six Months Ended June 30,
2015 2014 Change
2015 2014 Change
Chateau
Ste. Michelle 803 731 9.8% 1,354 1,304 3.8%
Columbia
Crest 227 186 22.0% 454 378 20.1%
14 Hands 389 371 4.9%
770 757 1.7%
Other 635 599 6.0%
1,188 1,151 3.2%
Total Wine
2,054
1,887 8.9%
3,766 3,590
4.9%
Altria’s Profile
Altria’s wholly-owned subsidiaries include PM USA, USSTC,
Middleton, Nu Mark, Ste. Michelle and PMCC. Altria holds a
continuing economic and voting interest in SABMiller.
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, 2014 and its
quarterly report on Form 10-Q for the period ended March 31,
2015.
These factors include the following: significant competition;
changes in adult consumer preferences and demand for Altria’s
operating companies’ products; fluctuations in raw material
availability, quality and price; reliance on key facilities and
suppliers; reliance on critical information systems, many of which
are managed by third-party service providers; fluctuations in
levels of customer inventories; the effects of global, national and
local economic and market conditions; changes to income tax laws;
federal, state and local legislative activity, including actual and
potential federal and state excise tax increases; increasing
marketing and regulatory restrictions; the effects of price
increases related to excise tax increases and concluded tobacco
litigation settlements on trade inventories, consumption rates and
consumer preferences within price segments; health concerns
relating to the use of tobacco products and exposure to
environmental tobacco smoke; privately imposed smoking
restrictions; and, from time to time, governmental
investigations.
Furthermore, the results of Altria’s tobacco businesses are
dependent upon their continued ability to promote brand equity
successfully; to anticipate and respond to evolving adult consumer
preferences; to develop, manufacture, market and distribute
products that appeal to adult tobacco consumers (including, where
appropriate, through arrangements with, and investments in, third
parties); to improve productivity; and to protect or enhance
margins through cost savings and price increases.
Altria and its tobacco businesses are also subject to federal,
state and local government regulation, including broad-based
regulation of PM USA and USSTC by the U.S. Food and Drug
Administration (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.
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)
2015 2014
% Change Net revenues $
6,613 $ 6,256 5.7% Cost of sales 1
2,004 1,968 Excise taxes on products 1 1,738 1,685
Gross profit 2,871 2,603 10.3% Marketing, administration and
research costs 578 564 Asset impairment and exit costs 4 (10
)
Operating companies income 2,289 2,049
11.7% Amortization of intangibles 5 5 General corporate
expenses 60 69
Operating income 2,224
1,975 12.6% Interest and other debt expense, net 195
230 Earnings from equity investment in SABMiller (225 ) (200 )
Earnings before income taxes 2,254 1,945 15.9% Provision for income
taxes 805 683
Net earnings 1,449
1,262 14.8% Net earnings attributable to
noncontrolling interests (1 ) —
Net earnings attributable
to Altria Group, Inc. $ 1,448 $
1,262 14.7% Per share data:
Basic and diluted earnings per share
attributable to
Altria Group,
Inc.
$ 0.74 $ 0.64 15.6%
Weighted-average diluted shares outstanding 1,962 1,980 (0.9)%
1 Cost of sales includes charges for resolution expenses related
to state settlement and other tobacco agreements, and FDA user
fees. Supplemental information concerning those items and excise
taxes on products sold is shown in Schedule 5.
Schedule 2 ALTRIA GROUP, INC. and Subsidiaries Selected
Financial Data For the Quarters Ended June 30, (dollars in
millions) (Unaudited)
Net
Revenues
Smokeable
Products
Smokeless
Products
Wine All Other
Total 2015 $ 5,974 $ 481
$ 161 $ (3 ) $ 6,613 2014 5,611 464 146
35 6,256 % Change 6.5 % 3.7 % 10.3 % (100)%+ 5.7 %
Reconciliation:
For the quarter ended June 30, 2014 $ 5,611
$ 464 $ 146 $ 35 $
6,256 Operations 363 17
15 (38 ) 357
For the quarter ended June 30, 2015 $ 5,974
$ 481
$ 161 $ (3
) $ 6,613
Operating Companies Income (Loss)
Smokeable
Products
Smokeless
Products
Wine All Other
Total 2015 $ 2,024 $ 293 $ 35 $ (63 ) $ 2,289 2014
1,789 285 28 (53 ) 2,049 % Change 13.1 % 2.8 % 25.0 % (18.9 )% 11.7
%
Reconciliation:
For the quarter ended June 30, 2014 $ 1,789
$ 285 $ 28 $ (53 )
$ 2,049 NPM Adjustment Items - 2014 (43 ) — — — (43 )
Asset impairment, exit, integration
and
acquisition-related costs - 2014
(10 ) — — 9 (1 ) Tobacco and health litigation items - 2014 16
— —
— 16 (37 ) —
— 9 (28 )
Asset impairment, exit, and integration costs - 2015 — (4 )
— (3 ) (7 ) Tobacco and health litigation items - 2015 (5 )
— — —
(5 ) (5 ) (4 ) —
(3 ) (12 ) Operations 277
12 7 (16 )
280
For the quarter ended June 30, 2015
$ 2,024 $ 293
$ 35
$ (63 ) $ 2,289
Schedule 3 ALTRIA GROUP, INC. and Subsidiaries
Consolidated Statements of Earnings For the Six Months Ended June
30, (dollars in millions, except per share data) (Unaudited)
2015 2014 % Change Net revenues
$ 12,417 $ 11,773 5.5% Cost of
sales 1 3,801 3,720 Excise taxes on products 1 3,270 3,194
Gross profit 5,346 4,859 10.0% Marketing, administration and
research costs 1,130 1,027 Asset impairment and exit costs 4
(8 )
Operating companies income 4,212 3,840
9.7% Amortization of intangibles 10 10 General corporate
expenses 113 121
Operating income 4,089
3,709 10.2% Interest and other debt expense, net 404
383 Loss on early extinguishment of debt 228 — Earnings from equity
investment in SABMiller (359 ) (425 ) Earnings before income taxes
3,816 3,751 1.7% Provision for income taxes 1,349 1,314
Net earnings 2,467 2,437 1.2%
Net earnings attributable to noncontrolling interests (1 ) —
Net earnings attributable to Altria Group, Inc. $
2,466 $ 2,437 1.2%
Per share data 2:
Basic and diluted earnings per share
attributable to
Altria Group,
Inc.
$ 1.25 $ 1.23 1.6%
Weighted-average diluted shares outstanding 1,964 1,983 (1.0)%
1Cost of sales includes charges for resolution expenses related
to state settlement and other tobacco agreements, and FDA user
fees. Supplemental information concerning those items and excise
taxes on products sold is shown in Schedule 5.
2Basic and diluted earnings per share attributable to Altria
Group, Inc. are computed independently for each period.
Accordingly, the sum of the quarterly earnings per share amounts
may not agree to the year-to-date amounts.
Schedule 4 ALTRIA GROUP, INC. and Subsidiaries Selected
Financial Data For the Six Months Ended June 30, (dollars in
millions) (Unaudited)
Net
Revenues Smokeable Products Smokeless
Products Wine All
Other Total 2015 $ 11,195 $
911 $ 295 $ 16 $ 12,417
2014 10,569 879 275 50 11,773 % Change 5.9 % 3.6 % 7.3 % (68.0 )%
5.5 %
Reconciliation:
For the six months ended June 30, 2014 $
10,569 $ 879 $ 275 $
50 $ 11,773 Operations 626
32 20 (34 )
644
For the six months ended June 30, 2015
$ 11,195 $ 911
$ 295
$ 16 $ 12,417
Operating Companies Income (Loss) Smokeable
Products Smokeless Products
Wine All Other
Total 2015 $ 3,710 $ 544 $ 62 $ (104 ) $ 4,212 2014 3,320
524 50 (54 ) 3,840 % Change 11.7 % 3.8 % 24.0 % (92.6 )% 9.7 %
Reconciliation:
For the six months ended June 30, 2014 $ 3,320
$ 524 $ 50 $ (54 )
$ 3,840 NPM Adjustment Items - 2014 (43 ) — — — (43 )
Asset impairment, exit, integration
and
acquisition-related costs - 2014
(8 ) — — 9 1 Tobacco and health litigation items - 2014 19
— — —
19 (32 ) —
— 9 (23 )
Asset impairment, exit and integration costs - 2015 — (4 ) — (3 )
(7 ) Tobacco and health litigation items - 2015 (48 )
— — —
(48 ) (48 ) (4 ) —
(3 ) (55 ) Operations 470
24 12 (56 )
450
For the six months ended June 30, 2015 $
3,710 $ 544
$ 62 $ (104
) $ 4,212
Schedule 5 ALTRIA GROUP, INC. and Subsidiaries Supplemental
Financial Data (dollars in millions) (Unaudited)
For the
For the Quarters Ended Six Months Ended
June 30, June 30, 2015
2014 2015 2014 The
segment detail of excise taxes on products sold is as follows:
Smokeable products $ 1,699 $ 1,644 $ 3,194 $ 3,118 Smokeless
products 34 36 66 66 Wine 5 5 10 10 $ 1,738
$ 1,685 $ 3,270 $ 3,194
The segment detail of charges for
resolution expenses related to state
settlement and
other tobacco agreements included in cost of sales
is as
follows:
Smokeable products $ 1,205 $ 1,180 $ 2,254 $ 2,255 Smokeless
products 2 4 4 7 $ 1,207 $ 1,184
$ 2,258 $ 2,262
The segment detail of FDA user fees
included in cost of sales is
as
follows:
Smokeable products $ 67 $ 61 $ 134 $ 123 Smokeless products
1 1 2 2 $ 68 $ 62 $ 136 $
125 Schedule 6 ALTRIA GROUP, INC. and Subsidiaries Net
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 2015 Net Earnings $
1,448 $ 0.74 2014 Net Earnings $
1,262 $ 0.64 % Change 14.7
% 15.6 %
Reconciliation:
2014 Net Earnings $ 1,262 $ 0.64
2014 NPM Adjustment Items (15 ) (0.01 ) 2014 Tobacco and
health litigation items 20 0.01 2014 SABMiller special items 15
0.01 Subtotal 2014 special items 20 0.01
2015 Tobacco and health litigation items (3 ) — 2015
SABMiller special items (2 ) — 2015 Asset impairment, exit and
integration costs (5 ) — 2015 Tax items (2 ) — Subtotal 2015
special items (12 ) — Change in tax rate (14 ) (0.01
) Operations 192 0.10
2015 Net Earnings
$ 1,448 $ 0.74
2015 Net Earnings Adjusted For Special Items $
1,460 $ 0.74 2014 Net Earnings Adjusted For
Special Items $ 1,282 $ 0.65 %
Change 13.9 % 13.8 %
Schedule 7 ALTRIA GROUP, INC. and Subsidiaries Net 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 1 2015 Net Earnings $
2,466 $ 1.25 2014 Net Earnings $
2,437 $ 1.23 % Change 1.2
% 1.6 %
Reconciliation:
2014 Net Earnings $ 2,437 $ 1.23
2014 NPM Adjustment Items (56 ) (0.03 ) 2014 Tobacco and
health litigation items 23 0.01 2014 SABMiller special items 21
0.01 2014 Asset impairment, exit, integration and
acquisition-related costs 1 — Subtotal 2014 special
items (11 ) (0.01 ) 2015 Tobacco and health litigation items
(30 ) (0.02 ) 2015 SABMiller special items (58 ) (0.03 ) 2015 Loss
on early extinguishment of debt (143 ) (0.07 ) 2015 Asset
impairment, exit and integration costs, and tax items (9 ) (0.01 )
Subtotal 2015 special items (240 ) (0.13 ) Fewer shares
outstanding — 0.01 Change in tax rate (17 ) (0.01 ) Operations 297
0.16
2015 Net Earnings $
2,466 $ 1.25
2015 Net Earnings Adjusted For Special Items $
2,706 $ 1.38 2014 Net Earnings Adjusted For
Special Items $ 2,426 $ 1.22 %
Change 11.5 % 13.1 %
1 Diluted earnings per share attributable to Altria Group, Inc.
is computed independently for each period. Accordingly, the sum of
the quarterly earnings per share amounts may not agree to the
year-to-date amounts.
Schedule 8 ALTRIA GROUP, INC. and Subsidiaries Condensed
Consolidated Balance Sheets (dollars in millions) (Unaudited)
June 30,
2015 December 31, 2014
Assets
Cash and cash equivalents $ 1,123 $ 3,321 Inventories 1,914 2,040
Deferred income taxes 1,143 1,143 Other current assets 453 374
Property, plant and equipment, net 1,991 1,983 Goodwill and other
intangible assets, net 17,324 17,334 Investment in SABMiller 6,117
6,183 Finance assets, net 1,339 1,614 Other long-term assets 465
483
Total assets $ 31,869
$ 34,475
Liabilities and
Stockholders’ Equity
Current portion of long-term debt $ 1,003 $ 1,000 Accrued
settlement charges 2,206 3,500 Other current liabilities 3,052
3,173 Long-term debt 12,917 13,693 Deferred income taxes 6,011
6,088 Accrued postretirement health care costs 2,451 2,461 Accrued
pension costs 945 1,012 Other long-term liabilities 475 503
Total liabilities 29,060 31,430 Redeemable noncontrolling interest
36 35 Total stockholders’ equity 2,773 3,010
Total
liabilities and stockholders’ equity $ 31,869
$ 34,475 Total debt $ 13,920 $ 14,693
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