- Altria’s 2017 second-quarter
reported diluted earnings per share (EPS) increased 22.6% to $1.03,
as comparisons were affected by special items.
- Altria’s 2017 second-quarter
adjusted diluted EPS, which excludes the impact of special items,
increased 4.9% to $0.85.
- Altria’s 2017 first-half reported
diluted EPS increased 19.0% to $1.75, as comparisons were affected
by special items.
- Altria’s 2017 first-half adjusted
diluted EPS, which excludes the impact of special items, increased
3.3% to $1.58.
- Altria announces the expansion of
its $3 billion share repurchase program to $4 billion, to be
completed by the end of the second quarter of 2018.
Altria Group, Inc. (Altria) (NYSE:MO) today announced its 2017
second-quarter and first-half business results and reaffirmed its
guidance for 2017 full-year adjusted diluted EPS.
“Based on strong tobacco operating company performance, Altria
delivered solid results in the second quarter and first half of
2017,” said Marty Barrington, Altria’s Chairman, Chief Executive
Officer and President. “The smokeable products segment generated
strong income growth despite a large cigarette excise tax increase
in California, and the smokeless products segment has largely
rebounded from its first-quarter voluntary product recall.”
“We continued to focus on rewarding shareholders, paying out
nearly $2.4 billion in dividends and repurchasing $1.6 billion in
shares in the first half of 2017. Today we also are announcing a $1
billion expansion of that program.”
“Our business fundamentals remain strong. We believe we are
well-positioned for the second half of the year and continue to
expect adjusted diluted EPS growth to be weighted to the second
half. Thus, we are reaffirming our 2017 full-year adjusted diluted
EPS growth guidance 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 July 27, 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 May 2017, Altria’s Board of Directors (Board) declared a
regular quarterly dividend of $0.61 per share. Altria’s current
annualized dividend rate is $2.44 per share. As of July 21, 2017,
Altria’s annualized dividend yield was 3.3%. Altria paid almost
$1.2 billion in dividends in the second quarter and nearly $2.4
billion for the first half 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 second quarter, Altria repurchased 14.4 million
shares under its existing share repurchase program at an average
price of $72.85, for a total cost of approximately $1.05 billion.
As of June 30, 2017, Altria had approximately $335 million
remaining in the share repurchase program. In July, Altria’s Board
authorized a $1 billion expansion to the program. Altria expects to
complete the expanded $4 billion share repurchase program by the
end of the second quarter of 2018. The timing of share repurchases
depends upon marketplace conditions and other factors. This program
remains subject to the discretion of the Board.
Since Altria resumed share repurchase activity six years ago,
the company has repurchased over 170 million shares at an average
share price of $41.59.
Product Innovation
In e-vapor, Nu Mark LLC (Nu Mark) continues to grow MarkTen
volume and retail share. MarkTen is now the number two e-vapor
brand nationally, with a second-quarter national retail market
share of approximately 13% in mainstream retail channels. MarkTen
is now present in stores representing approximately 65% of e-vapor
category volume in those channels.
In heated tobacco, the U.S. Food and Drug Administration (FDA)
began its substantive science review of Philip Morris International
Inc.’s (PMI) modified risk tobacco product application for IQOS in
May. PMI also submitted an IQOS premarket tobacco product
application 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 license to sell in the U.S. upon FDA
authorization.
Smokeless Recall
As previously disclosed, in January 2017 U.S. Smokeless Tobacco
Company LLC (USSTC) voluntarily recalled certain smokeless tobacco
products manufactured at its Franklin Park, Illinois facility due
to a product tampering incident (Recall). USSTC estimates that the
Recall-related costs and the share impact from the Recall reduced
smokeless products segment adjusted operating companies income
(OCI) by approximately $60 million (or $0.02 per share) in the
first quarter. USSTC has concluded the Recall and trade inventories
are substantially replenished.
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 $56 million for the first half of 2017
(including $29 million in the second quarter). Altria expects to
record a total of approximately $70 million in 2017 and the
remainder in 2018.
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 half of 2017 shown in Table 2.
Altria continues to expect higher adjusted diluted EPS growth in
the second half of the year compared to the first half, driven by
various factors. These include the financial effects of the Recall
during the first quarter of 2017 and the benefit of reporting four
full quarters of equity income from Anheuser-Busch InBev SA/NV (AB
InBev) in 2017 versus three quarters in 2016 from SABMiller plc
(SABMiller).
Altria continues to expect that its 2017 full-year effective tax
rate on operations will be approximately 36%.
Altria’s full-year adjusted diluted EPS guidance and full-year
forecast for its effective tax rate on operations exclude the
impact of certain income and expense items that management believes
are not part of underlying operations. These items may include, for
example, loss on early extinguishment of debt, restructuring
charges, gain on AB InBev/SABMiller 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 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 2.2% to $6.7 billion in the
second quarter primarily driven by higher net revenues in the
smokeable and smokeless products segments. Altria’s revenues net of
excise taxes increased 3.8% to $5.1 billion. For the first half of
2017, net revenues increased 1.3% to $12.7 billion, and revenues
net of excise taxes increased 2.6% to $9.7 billion.
Altria’s 2017 second-quarter reported diluted EPS increased
22.6% to $1.03, primarily driven by a higher gain on the AB
InBev/SABMiller business combination, favorable tax items and
higher reported OCI in the smokeable products segment, partially
offset by lower equity earnings from Altria’s beer investment.
Altria’s second-quarter adjusted diluted EPS, which excludes the
special items shown in Table 2, grew 4.9% to $0.85, 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 first-half reported diluted EPS increased 19.0% to
$1.75, primarily driven by higher reported OCI in the smokeable
products segment, which included lower restructuring charges in
2017, a higher gain on the AB InBev/SABMiller business combination
and favorable tax items, partially offset by lower equity earnings
from Altria’s beer investment. Altria’s first-half adjusted diluted
EPS, which excludes the special items shown in Table 2, increased
3.3% to $1.58, primarily driven by higher adjusted OCI in the
smokeable products segment and fewer shares outstanding, partially
offset by lower equity earnings from Altria’s beer investment.
Table 2 - Altria’s Adjusted Results
Second Quarter Six Months Ended June
30, 2017 2016
Change 2017 2016
Change Reported diluted EPS $ 1.03
$ 0.84 22.6 % $
1.75 $ 1.47 19.0 % NPM
Adjustment Items — — — 0.01 Tobacco and health litigation items
0.01 — 0.01 0.01 AB InBev/SABMiller special items — 0.01 0.03 0.06
Asset impairment, exit
and implementation costs
0.01 — 0.02 0.04
Gain on AB InBev/SABMiller
business combination
(0.14 ) (0.03 ) (0.14 ) (0.05 ) Tax items
(0.06 ) (0.01 ) (0.09 ) (0.01 )
Adjusted diluted EPS $
0.85 $ 0.81
4.9 % $
1.58 $ 1.53
3.3 %
Note: For details of pre-tax, tax and after-tax amounts, see
Schedules 7 and 9.
AB InBev/SABMiller Special
Items
In the first half of 2017, earnings from Altria’s equity
investment in AB InBev included net pre-tax charges of $75 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 half of 2016, earnings from Altria’s equity
investment in SABMiller included pre-tax charges of $187 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.
Asset Impairment, Exit and
Implementation Costs
In the second quarter and first half of 2017, Altria recorded
pre-tax Facilities Consolidation charges of $29 million and $56
million, respectively.
In the first half of 2016, Altria recorded a pre-tax charge of
$124 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 second quarter and first half of 2017, Altria recorded a
pre-tax gain of $408 million 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 2016, Altria recorded
pre-tax, unrealized gains of $117 million and $157 million,
respectively, for the change in the fair value of the currency
derivative 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 second quarter and first half of 2017, Altria recorded
$108 million and $166 million, respectively, in income tax benefits
primarily related to its 2010-2013 Internal Revenue Service audit.
The EPS impact is shown in Table 2 and Schedules 7 and 9.
SMOKEABLE
PRODUCTS
The smokeable products segment delivered strong income growth in
the second quarter and for the first half of 2017 despite a large
cigarette excise tax increase in California, which negatively
impacted volume and retail share in the second quarter.
Smokeable products segment net revenues increased by 1.6% in the
second quarter and 1.1% for the first half of 2017, as higher
pricing was partially offset by lower volume and higher promotional
investments. Revenues net of excise taxes increased 3.2% in the
quarter and 2.6% for the first half.
In the second quarter, reported OCI increased 5.4%, primarily
driven by higher pricing, partially offset by lower volume and
higher promotional investments. Adjusted OCI, which is calculated
excluding the special items identified in Table 3, grew 6.4%, and
adjusted OCI margins expanded 1.6 percentage points to 51.7%.
For the first half of 2017, reported OCI increased 10.5%,
primarily driven by higher pricing and lower restructuring charges,
partially offset by lower volume. Adjusted OCI, which is calculated
excluding the special items identified in Table 3, grew 7.2%, and
adjusted OCI margins expanded 2.2 percentage points to 51.4%.
Table 3 - Smokeable Products: Revenues and OCI ($ in
millions)
Second Quarter Six
Months Ended June 30, 2017 2016
Change 2017 2016
Change Net revenues $
5,922 $ 5,829
1.6% $ 11,380 $ 11,251
1.1% Excise taxes (1,556 ) (1,599 ) (3,016 )
(3,098 )
Revenues net of excise taxes $
4,366 $ 4,230
3.2% $ 8,364 $
8,153 2.6% Reported OCI $
2,233 $ 2,118 5.4% $
4,274 $ 3,869 10.5% NPM Adjustment
Items — — (8 ) 12
Asset impairment, exit,
implementation and acquisition-related costs
9 2 15 101 Tobacco and health litigation items 15
1 16 27
Adjusted
OCI $ 2,257 $
2,121 6.4% $ 4,297
$ 4,009 7.2% Adjusted OCI
margins 1 51.7 %
50.1 %
1.6 pp
51.4 % 49.2
% 2.2 pp
1 Adjusted OCI margins are calculated as adjusted OCI divided by
revenues net of excise taxes.
In the second quarter, total cigarette industry volumes declined
by an estimated 4.5%, in part due to the large cigarette excise tax
increase in California. The smokeable products segment’s reported
domestic cigarettes shipment volume declined by 2.9% in the second
quarter, primarily driven by the industry’s rate of decline,
partially offset by trade inventory movements. After adjusting for
these trade inventory movements, PM USA’s domestic cigarettes
shipment volume decreased by an estimated 5%.
For the first half of 2017, total cigarette industry volumes
declined by an estimated 3.5%. The smokeable products segment’s
reported domestic cigarettes shipment volume decreased by 2.8%,
primarily driven by the industry’s rate of decline, partially
offset by trade inventory movements. When adjusted for trade
inventory movements, PM USA’s domestic cigarettes shipment volume
decreased by an estimated 4%.
The smokeable products segment’s reported cigars shipment volume
increased by 13.1% in the second quarter and 12.7% for the first
half of 2017, driven primarily by the strength of the cigar
category and trade inventory movements. Table 4 summarizes
smokeable products segment shipment volume performance.
Table 4 - Smokeable Products: Shipment Volume (sticks in
millions)
Second Quarter Six Months Ended June 30,
2017 2016 Change
2017 2016 Change
Cigarettes:
Marlboro 26,157 26,933 (2.9 )% 50,852 52,294 (2.8 )%
Other premium 1,550 1,660 (6.6 )% 3,000 3,174 (5.5 )%
Discount 2,862 2,877 (0.5 )% 5,444
5,541 (1.8 )%
Total cigarettes 30,569
31,470 (2.9 )% 59,296
61,009 (2.8 )% Cigars:
Black & Mild 402 354 13.6
%
765 671 14.0
%
Other 4 5 (20.0 )% 8 15 (46.7 )%
Total cigars 406 359 13.1
%
773 686 12.7
%
Total
smokeable products 30,975
31,829 (2.7 )%
60,069 61,695
(2.6 )%
Note:Cigarettes volume includes units sold as well as
promotional units, but excludes units sold for distribution to
Puerto Rico, and units sold in U.S. Territories, to overseas
military and by Philip Morris Duty Free Inc., none of which,
individually or in the aggregate, is material to the smokeable
products segment.
In both the second quarter and first half of 2017, Marlboro’s
retail share declined by 0.3 share points to 43.5%, impacted by the
cigarette excise tax increase in California. PM USA expects the
California excise tax increase will continue to negatively impact
Marlboro’s retail share through the second half of the year. PM
USA’s total retail share was 50.8% in the quarter and 50.9% for the
first half, down 0.4 and 0.3 share points, respectively. Table 5
summarizes cigarettes retail share results.
Table 5 - Smokeable Products: Cigarettes Retail Share
(percent)
Second Quarter Six Months Ended June 30,
2017 2016
Percentagepoint change
2017 2016
Percentagepoint change
Cigarettes:
Marlboro 43.5 % 43.8 % (0.3 ) 43.5 % 43.8 % (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 50.8 %
51.2 % (0.4 )
50.9 % 51.2 %
(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
second quarter as it rebounded from the effects of the
first-quarter Recall. Smokeless products segment net revenues
increased 7.8% in the quarter, primarily driven by higher pricing
and volume, partially offset by unfavorable mix. For the first half
of 2017, smokeless product segment net revenues increased 2.8%,
primarily driven by higher pricing, partially offset by the Recall
impact and unfavorable mix. Revenues net of excise taxes increased
8.6% in the quarter and 3.3% for the first half of 2017.
In the second quarter, reported OCI increased 3.6%, primarily
driven by higher pricing and volume, partially offset by Facilities
Consolidation charges, higher selling, general and administrative
spending and unfavorable mix. Adjusted OCI, which is calculated
excluding the special items identified in Table 6, increased 9.8%
and adjusted OCI margins increased 0.7 percentage points to
70.0%.
For the first half of 2017, reported OCI decreased 3.1%,
primarily driven by the Recall and higher restructuring charges,
partially offset by higher pricing. Adjusted OCI, which is
calculated excluding the special items identified in Table 6,
increased 1.6% and adjusted OCI margins decreased 1.1 percentage
points to 66.4%.
Table 6 - Smokeless Products: Revenues and OCI ($ in
millions)
Second Quarter Six Months Ended June 30,
2017 2016 Change
2017 2016 Change
Net revenues $ 564 $
523 7.8% $ 1,030
$ 1,002 2.8% Excise taxes
(34 ) (35 ) (64 ) (67 )
Revenues net
of excise taxes $ 530
$ 488 8.6% $ 966
$ 935 3.3%
Reported OCI $ 350 $ 338
3.6% $ 599 $ 618 (3.1)%
Asset impairment, exit
and implementation costs
21 — 42 13
Adjusted OCI $ 371
$ 338 9.8% $ 641
$ 631 1.6% Adjusted
OCI margins 1 70.0 %
69.3 % 0.7 pp
66.4 % 67.5
% (1.1) pp
1 Adjusted OCI margins are calculated as adjusted OCI divided by
revenues net of excise taxes.
USSTC’s reported domestic shipment volume grew 1.4% in the
second quarter but declined 1.7% for the first half due to the
Recall. USSTC estimates that the smokeless products category volume
grew approximately 1% 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)
Second Quarter Six
Months Ended June 30, 2017 2016
Change 2017 2016
Change Copenhagen 137.5
134.0 2.6
%
262.0 258.8 1.2
%
Skoal 65.8 66.6 (1.2 )% 121.4
131.1 (7.4
)%
Copenhagen and Skoal 203.3 200.6
1.3
%
383.4 389.9 (1.7 )% Other 17.7
17.3 2.3
%
33.4 34.1 (2.1 )%
Total smokeless products
221.0 217.9
1.4
%
416.8 424.0
(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.
USSTC made significant progress in regaining retail share
following the Recall, gaining 0.6 retail share points versus the
first quarter of 2017.
Copenhagen grew 0.7 retail share points in the second quarter to
a record share of 34.1%. Copenhagen and Skoal’s combined retail
share decreased 0.7 share points in the quarter to 50.8% driven by
Skoal’s 1.4 retail share point decline.
For the first half of 2017, Copenhagen’s 0.9 share point growth
was more than offset by Skoal’s 1.5 share point loss, contributing
to a combined share decline of 0.6 share points, in part due to the
Recall. Table 8 summarizes retail share results for the smokeless
products segment.
Table 8 - Smokeless Products: Retail Share (percent)
Second
Quarter Six Months Ended June 30, 2017
2016
Percentagepoint change
2017 2016
Percentagepoint change
Copenhagen 34.1 % 33.4 % 0.7
33.5 % 32.6 % 0.9
Skoal 16.7
18.1 (1.4 ) 17.0
18.5 (1.5 )
Copenhagen
and Skoal 50.8 51.5 (0.7 )
50.5 51.1 (0.6 ) Other 3.3
3.4 (0.1 ) 3.3
3.5 (0.2 )
Total smokeless
products 54.1 %
54.9 % (0.8 )
53.8 % 54.6
% (0.8 )
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. 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 second-quarter and
first-half results were negatively impacted by trade inventory
reductions and increased competitive activity.
In the second quarter of 2017, Ste. Michelle’s net revenues
declined 12.3%. Reported OCI declined 26.5% and adjusted OCI
declined 32.4%, primarily due to lower volume. Reported wine
shipment volume for the second quarter declined 14.5% to
approximately 1.8 million cases.
For the first half of 2017, Ste. Michelle’s net revenues
declined 8.2%. Reported OCI declined 25.8% and adjusted OCI
declined 29.2%, primarily due to lower volume and higher costs.
Reported shipment volume for the first half declined 12.4% to
approximately 3.5 million cases.
Table 9 summarizes revenues, OCI and OCI margins for the wine
segment.
Table 9 - Wine: Revenues and OCI ($ in millions)
Second
Quarter Six Months Ended June 30, 2017
2016 Change 2017
2016 Change Net revenues
$ 150 $ 171
(12.3)% $ 290 $
316 (8.2)% Excise taxes (5 )
(6 ) (9 ) (11 )
Revenues net of excise
taxes $ 145 $
165 (12.1)% $ 281
$ 305 (7.9)% Reported
OCI $ 25 $ 34 (26.5)%
$ 46 $ 62 (25.8)%
Acquisition-related costs — 3 —
3
Adjusted OCI $ 25
$ 37 (32.4)%
$ 46 $ 65
(29.2)% Adjusted OCI margins 1
17.2 % 22.4 %
(5.2) pp 16.4
% 21.3 % (4.9)
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 March 31,
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; that Altria’s reported earnings from and carrying value of
its equity investment in AB InBev may be adversely affected by
unfavorable foreign currency exchange rates and other factors,
including the risks encountered by AB InBev in its business; the
risk that the tax treatment of Altria’s transaction consideration
from the AB InBev/SABMiller business combination and the accounting
treatment of its equity investment are not guaranteed; and the risk
that the tax treatment of the dividends Altria expects to receive
from AB InBev may not be as favorable as Altria anticipates.
Altria cautions that the foregoing list of important factors is
not complete and does not undertake to update any forward-looking
statements that it may make except as required by applicable law.
All subsequent written and oral forward-looking statements
attributable to Altria or any person acting on its behalf are
expressly qualified in their entirety by the cautionary statements
referenced above.
Schedule 1
ALTRIA GROUP, INC.
and Subsidiaries
Consolidated Statements of Earnings
For the Quarters Ended June 30,
(dollars in millions, except per share
data)
(Unaudited)
2017 2016
% Change
Net revenues
$ 6,663 $ 6,521 2.2
%
Cost of sales 1 1,949 1,924 Excise taxes on products 1 1,595
1,640 Gross profit 3,119 2,957
5.5
%
Marketing, administration and research costs 507 499 Asset
impairment and exit costs 12 1
Operating companies
income 2,600 2,457 5.8
%
Amortization of intangibles 5 5 General corporate expenses 56
42
Operating income 2,539 2,410
5.4
%
Interest and other debt expense, net 177 192 Earnings from equity
investment in AB InBev/SABMiller (140 ) (199 ) Gain on AB
InBev/SABMiller business combination (408 ) (117 ) Earnings before
income taxes 2,910 2,534 14.8
%
Provision for income taxes 920 880
Net
earnings 1,990 1,654 20.3
%
Net earnings attributable to noncontrolling interests (1 ) (1 )
Net earnings attributable to Altria Group, Inc. $
1,989 $ 1,653 20.3
%
Per share data:
Basic and diluted earnings per share
attributable to
Altria Group,
Inc.
$ 1.03 $ 0.84 22.6
%
Weighted-average diluted shares outstanding 1,928 1,954 (1.3
)%
1 Cost of sales includes charges for resolution expenses related
to state settlement agreements and FDA user fees. Supplemental
information concerning those items and excise taxes on products
sold is shown in Schedule 5.
Schedule 2 ALTRIA GROUP, INC. and Subsidiaries
Selected Financial Data For the Quarters Ended June 30, (dollars in
millions) (Unaudited)
Net
Revenues
SmokeableProducts
SmokelessProducts
Wine All Other
Total 2017 $ 5,922 $ 564 $ 150 $ 27 $ 6,663 2016
5,829 523 171 (2 ) 6,521 % Change 1.6 % 7.8 % (12.3 )% 100 %+ 2.2 %
Reconciliation:
For the quarter ended June 30, 2016 $ 5,829
$ 523 $ 171 $ (2 )
$ 6,521 Operations 93 41
(21 ) 29 142
For the quarter ended June 30, 2017 $
5,922 $ 564
$ 150 $ 27
$ 6,663
Operating Companies Income (Loss)
SmokeableProducts
SmokelessProducts
Wine All Other
Total 2017 $ 2,233 $ 350 $ 25 $ (8 ) $ 2,600 2016
2,118 338 34 (33 ) 2,457 % Change 5.4 % 3.6 % (26.5 )% 75.8 % 5.8 %
Reconciliation:
For the quarter ended June 30, 2016 $ 2,118
$ 338 $ 34 $ (33 )
$ 2,457
Asset impairment, exit, implementation
and
acquisition-related
costs - 2016
2 — 3 — 5 Tobacco and health litigation items - 2016 1
— — —
1 3 —
3 — 6
Asset impairment, exit, implementation
and acquisition-related costs - 2017
(9 ) (21 ) — — (30 ) Tobacco and health litigation items - 2017 (15
) — — —
(15 ) (24 ) (21 )
— — (45 ) Operations 136
33 (12 ) 25
182
For the quarter ended June 30,
2017 $ 2,233 $
350 $ 25
$ (8 ) $
2,600 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)
2017
2016 % Change Net
revenues $ 12,746 $ 12,587
1.3
%
Cost of sales 1 3,759 3,798 Excise taxes on products 1 3,089
3,176 Gross profit 5,898 5,613 5.1
%
Marketing, administration and research costs 984 1,002 Asset
impairment and exit costs 16 116
Operating
companies income 4,898 4,495 9.0
%
Amortization of intangibles 10 10 General corporate expenses 102 93
Corporate asset impairment and exit costs — 5
Operating income 4,786 4,387 9.1
%
Interest and other debt expense, net 356 392 Earnings from equity
investment in AB InBev/SABMiller (163 ) (265 ) Gain on AB
InBev/SABMiller business combination (408 ) (157 ) Earnings before
income taxes 5,001 4,417 13.2
%
Provision for income taxes 1,609 1,545
Net
earnings 3,392 2,872 18.1
%
Net earnings attributable to noncontrolling interests (2 ) (2 )
Net earnings attributable to Altria Group, Inc. $
3,390 $ 2,870 18.1
%
Per share data 2:
Basic and diluted earnings per share
attributable to Altria Group, Inc.
$ 1.75 $ 1.47 19.0
%
Weighted-average diluted shares outstanding 1,933 1,955 (1.1
)%
1 Cost of sales includes charges for resolution expenses related
to state settlement agreements and FDA user fees. Supplemental
information concerning those items and excise taxes on products
sold is shown in Schedule 5.
2 Basic and diluted earnings per share attributable to Altria
Group, Inc. are computed independently for each period.
Accordingly, the sum of the quarterly earnings per share amounts
may not agree to the year-to-date amounts.
Schedule 4 ALTRIA GROUP, INC. and Subsidiaries Selected
Financial Data For the Six Months Ended June 30, (dollars in
millions) (Unaudited)
Net
Revenues
SmokeableProducts
SmokelessProducts
Wine All Other
Total 2017 $ 11,380 $ 1,030
$ 290 $ 46 $ 12,746 2016 11,251
1,002 316 18 12,587 % Change 1.1 % 2.8
%
(8.2 )% 100 %+ 1.3 %
Reconciliation:
For the six months ended June 30, 2016 $
11,251 $ 1,002 $ 316 $
18 $ 12,587 Operations 129
28 (26 ) 28
159
For the six months ended June 30, 2017
$ 11,380 $ 1,030
$ 290
$ 46 $ 12,746
Operating Companies Income
(Loss)
SmokeableProducts
SmokelessProducts
Wine All Other
Total 2017 $ 4,274 $ 599 $ 46 $ (21 ) $ 4,898 2016
3,869 618 62 (54 ) 4,495 % Change 10.5 % (3.1 )% (25.8 )% 61.1 %
9.0 %
Reconciliation:
For the six months ended June 30, 2016 $ 3,869
$ 618 $ 62 $ (54 )
$ 4,495 NPM Adjustment Items - 2016 12 — — —
12
Asset impairment, exit, implementation
and acquisition-related costs - 2016
101 13 3 5 122 Tobacco and health litigation items - 2016 27
— — —
27 140 13
3 5 161
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 ) Operations 288
10 (19 ) 28
307
For the six months ended June
30, 2017 $ 4,274 $
599 $ 46
$ (21 ) $
4,898 Schedule 5 ALTRIA GROUP, INC. and
Subsidiaries Supplemental Financial Data (dollars in millions)
(Unaudited)
For the QuartersEnded June
30,
For the Six Months Ended June
30,
2017 2016 2017 2016 The segment
detail of excise taxes on products sold is as follows:
Smokeable products $ 1,556 $ 1,599 $ 3,016 $ 3,098 Smokeless
products 34 35 64 67 Wine 5 6 9 11 $ 1,595 $ 1,640 $ 3,089 $ 3,176
The segment detail of charges for
resolution expenses related to state
settlement agreements included in cost of
sales is as follows:
Smokeable products $ 1,184 $ 1,173 $ 2,264 $ 2,328 Smokeless
products 2 2 4 4 $ 1,186 $ 1,175 $ 2,268 $ 2,332
The segment detail of FDA user fees
included in cost of sales is as
follows:
Smokeable products $ 68 $ 71 $ 136 $ 139 Smokeless products
1 1 2 2 $ 69 $ 72 $ 138 $ 141 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 2017 Net Earnings
$ 1,989 $ 1.03 2016 Net Earnings
$ 1,653 $ 0.84 % Change
20.3 % 22.6 %
Reconciliation:
2016 Net Earnings $ 1,653 $ 0.84
2016 Tobacco and health litigation items 3 — 2016 SABMiller
special items 14 0.01 2016 Asset impairment, exit, implementation
and acquisition-related costs 4 — 2016 Gain on AB InBev/SABMiller
business combination (74 ) (0.03 ) 2016 Tax items (17 ) (0.01 )
Subtotal 2016 special items (70 ) (0.03 ) 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
Fewer shares outstanding — 0.01 Change in tax rate (5
) — Operations 67 0.03
2017 Net Earnings
$ 1,989 $ 1.03
Schedule 7
ALTRIA GROUP, INC. and Subsidiaries Reconciliation of GAAP and
non-GAAP Measures For the Quarters Ended June 30, (dollars in
millions, except per share data) (Unaudited)
EarningsbeforeIncomeTaxes
Provisionfor
IncomeTaxes
NetEarnings
Net EarningsAttributable
toAltria Group, Inc.
DilutedEPS
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
2016 Reported $ 2,534 $
880 $ 1,654 $ 1,653 $
0.84 Tobacco and health litigation items 5 2 3 3 — SABMiller
special items 21 7 14 14 0.01
Asset impairment, exit, implementation
and
acquisition-related
costs
5 1 4 4 —
Gain on AB InBev/SABMiller business
combination
(117 ) (43 ) (74 ) (74 ) (0.03 ) Tax items —
17 (17 ) (17 )
(0.01 )
2016 Adjusted for Special Items $
2,448 $ 864
$ 1,584 $
1,583 $ 0.81
2017 Reported Net Earnings $ 1,989
$ 1.03 2016 Reported Net Earnings $
1,653 $ 0.84 % Change 20.3
% 22.6 % 2017 Net Earnings Adjusted
for Special Items $ 1,645 $ 0.85
2016 Net Earnings Adjusted for Special Items $
1,583 $ 0.81 % Change 3.9
% 4.9 % Schedule 8 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
2017 Net Earnings $ 3,390 $ 1.75
2016 Net Earnings $ 2,870 $ 1.47
% Change 18.1 % 19.0 %
Reconciliation:
2016 Net Earnings $ 2,870 $ 1.47
2016 NPM Adjustment Items 11 0.01 2016 Tobacco and health
litigation items 27 0.01 2016 SABMiller special items 122 0.06 2016
Asset impairment, exit, implementation and acquisition-related
costs 82 0.04 2016 Gain on AB InBev/SABMiller business combination
(100 ) (0.05 ) 2016 Tax items (16 ) (0.01 ) Subtotal 2016 special
items 126 0.06 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 Fewer shares outstanding — 0.02 Change in tax
rate (12 ) (0.01 ) Operations 71 0.04
2017 Net
Earnings $ 3,390 $ 1.75
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 9 ALTRIA GROUP, INC. and Subsidiaries
Reconciliation of GAAP and non-GAAP Measures For the Six Months
Ended June 30, (dollars in millions, except per share data)
(Unaudited)
EarningsbeforeIncomeTaxes
Provisionfor
IncomeTaxes
NetEarnings
Net EarningsAttributable
toAltria Group, Inc.
DilutedEPS
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
2016 Reported $ 4,417 $
1,545 $ 2,872 $ 2,870 $
1.47 NPM Adjustment Items 18 7 11 11 0.01 Tobacco and health
litigation items 43 16 27 27 0.01 SABMiller special items 187 65
122 122 0.06
Asset impairment, exit, implementation
and
acquisition-related
costs
127 45 82 82 0.04
Gain on AB InBev/SABMiller business
combination
(157 ) (57 ) (100 ) (100 ) (0.05 ) Tax items —
16 (16 ) (16 )
(0.01 )
2016 Adjusted for Special Items $
4,635 $ 1,637
$ 2,998 $
2,996 $ 1.53
2017 Reported Net Earnings $ 3,390
$ 1.75 2016 Reported Net Earnings $
2,870 $ 1.47 % Change 18.1
%
19.0
%
2017 Net Earnings Adjusted for Special Items $
3,055 $ 1.58 2016 Net Earnings Adjusted for
Special Items $ 2,996 $ 1.53
% Change
2.0
%
3.3
%
Schedule 10 ALTRIA GROUP, INC. and Subsidiaries
Reconciliation of GAAP and non-GAAP Measures For 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
Subsidiaries Condensed Consolidated Balance Sheets (dollars in
millions) (Unaudited)
June
30, 2017 December 31, 2016
Assets
Cash and cash equivalents $ 2,255 $ 4,569 Inventories 1,999 2,051
Other current assets 357 640 Property, plant and equipment, net
1,900 1,958 Goodwill and other intangible assets, net 17,503 17,321
Investment in AB InBev 18,219 17,852 Finance assets, net 988 1,028
Other long-term assets 505 513
Total assets $
43,726 $ 45,932
Liabilities and
Stockholders’ Equity
Accrued settlement charges 2,223 3,701 Other current liabilities
3,359 3,674 Long-term debt 13,887 13,881 Deferred income taxes
8,527 8,416 Accrued postretirement health care costs 2,203 2,217
Accrued pension costs 676 805 Other long-term liabilities 394 427
Total liabilities 31,269 33,121 Redeemable noncontrolling interest
36 38 Total stockholders’ equity 12,421 12,773
Total liabilities
and stockholders’ equity $ 43,726 $
45,932 Total debt $ 13,887 $ 13,881
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