Altria Reports 2013 Second-Quarter and First-Half Results; Revises 2013 Full-Year EPS Guidance

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Altria Reports 2013 Second-Quarter and First-Half Results; Revises 2013 Full-Year EPS Guidance

  • Altria's 2013 second-quarter reported diluted earnings per share (EPS) increased 5.0% to $0.63, as comparisons were impacted by special items
  • Altria's 2013 second-quarter adjusted diluted EPS, which excludes the impact of special items, increased 5.1% to $0.62
  • Altria's 2013 first-half reported diluted EPS increased 10.9% to $1.32, as comparisons were impacted by special items
  • Altria's 2013 first-half adjusted diluted EPS, which excludes the impact of special items, increased 7.4% to $1.16
  • Altria revises its 2013 full-year reported diluted EPS guidance from a range of $2.50 to $2.56 to a range of $2.51 to $2.56
  • Altria revises its 2013 full-year adjusted diluted EPS guidance from a range of $2.35 to $2.41 to a range of $2.36 to $2.41, representing a growth rate of 7% to 9% from an adjusted diluted EPS base of $2.21 in 2012

RICHMOND, Va.--(BUSINESS WIRE)-- Altria Group, Inc. (Altria) (NYS: MO) today announced its 2013 second-quarter and first-half business results, and revised its guidance for 2013 full-year reported and adjusted diluted EPS based on its performance for the first half of 2013 and expectations for the second half of the year.

"Altria delivered solid financial results for the second quarter and first six months of 2013," said Marty Barrington, Chairman and Chief Executive Officer of Altria. "The company's diverse business model delivered adjusted diluted earnings per share growth of 5.1% for the second quarter and 7.4% for the first half of the year."


"All three of our reportable segments delivered adjusted operating companies income and margin growth in the second quarter and first half," said Mr. Barrington. "Altria's companies also continue to innovate with new products for adult tobacco consumers. Nu Mark's plans for introducing MarkTen e-cigarettes into a lead market in August of this year are on-track."

Conference Call

As previously announced, a conference call with the investment community and news media will be webcast on July 23, 2013 at 9:00 a.m. Eastern Time. Access to the webcast is available at altria.com.

Cost Management

Altria's current cost reduction program for its tobacco and service company subsidiaries remains on-track and is expected to deliver $400 million in annualized savings versus previously planned spending by the end of 2013.

Cash Returns to Shareholders - Dividends

In May 2013, Altria's Board of Directors (the Board) declared a regular quarterly dividend of $0.44 per common share. The current annualized dividend rate is $1.76 per common share. As of July 17, 2013, Altria's annualized dividend yield was 4.8%.

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.

Cash Returns to Shareholders - Share Repurchase Program

During the second quarter of 2013, Altria repurchased 3.7 million shares of its common stock at an average price of $36.27 for a total cost of approximately $135 million, as part of its previously announced $300 million share repurchase program. As of the end of the second quarter of 2013, Altria had approximately $165 million remaining in this program, which it intends to complete by the end of the year. The timing of share repurchases depends upon marketplace conditions and other factors, and the program remains subject to the discretion of the Board.

Previously Announced Capital Markets Activities

In May 2013, Altria issued $1 billion of new senior unsecured notes, comprised of $350 million of 2.95% notes that mature in 2023 and $650 million of 4.5% notes that mature in 2043.

Revised 2013 Full-Year Guidance

Altria revises its 2013 full-year guidance for reported diluted EPS from a range of $2.50 to $2.56 to a range of $2.51 to $2.56.

Altria also revises its 2013 full-year guidance for adjusted diluted EPS, which excludes the special items shown in Table 1, from a range of $2.35 to $2.41 to a range of $2.36 to $2.41, representing a growth rate of 7% to 9% from an adjusted diluted EPS base of $2.21 per share in 2012.

The factors described in the Forward-Looking and Cautionary Statements section of this release represent continuing risks to this forecast. Reconciliations of full-year adjusted to reported diluted EPS are shown in Table 1.

 
Table 1 - Altria's Full-Year Earnings Per Share Guidance Excluding Special Items
     
 Full Year
 2013 Guidance    2012     Change
Reported diluted EPS

$  2.51  to  $  2.56 

    $2.06     

22%  to  24%

Loss on early extinguishment of debt

—  

0.28
NPM Adjustment Settlement(0.16)
Asset impairment, exit and implementation costs

—  

0.01
SABMiller special items

0.01 

(0.08)
PMCC leveraged lease benefit

—  

(0.03)
Tax items* 

—  

     (0.03)
Adjusted diluted EPS 

$  2.36  to  $  2.41 

    $2.21 

7%  to  9%

 

* Excludes the tax impact of the Philip Morris Capital Corporation (PMCC) leveraged lease benefit.

 

Altria anticipates that its 2013 full-year reported effective tax rate and effective tax rate on operations will be approximately 35.5%.

ALTRIA GROUP, INC.

Altria reports its financial results, including diluted EPS, 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 corporate expenses and amortization of intangibles, to evaluate segment performance and allocate resources.Altria's management also reviews OCI, operating margins and 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 PMCC leveraged lease items, certain tax items, tobacco and health judgments and settlements of certain NPM adjustment disputes.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 and 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 measures for OCI, operating margins and EPS, as well as the effective tax rate on operations, 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 measures internally for planning, forecasting and evaluating the performance of Altria's businesses, 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 adjusted measures to corresponding GAAP measures are provided in the release.Comparisons are to the same prior-year period unless otherwise stated.

Effective January 1, 2013, Altria's reportable segments are smokeable products, manufactured and sold by Philip Morris USA Inc. (PM USA) and John Middleton Co. (Middleton); smokeless products, manufactured and sold by or on behalf of U.S. Smokeless Tobacco Company LLC (USSTC) and PM USA; and wine, produced and/or distributed by Ste. Michelle Wine Estates Ltd. (Ste. Michelle).Prior-period segment data have been recast to conform with the current-period segment presentation.

Altria's net revenues decreased 2.8% to $6.3 billion for the second quarter of 2013 and decreased 2.5% to $11.8 billion for the first half of 2013 primarily due to lower net revenues from the smokeable products segment, partially offset by higher net revenues from the smokeless products and wine segments. Altria's revenues net of excise taxes decreased 1.2% to $4.5 billion for the second quarter of 2013 and decreased 0.9% to $8.5 billion for the first half of 2013.

Altria's 2013 second-quarter reported diluted EPS increased 5.0% to $0.63 primarily due to higher reported OCI in the smokeable and smokeless products segments, lower interest and other debt expense and fewer shares outstanding, partially offset by the PMCC leveraged lease benefit in the second quarter of 2012 discussed below. Altria's second-quarter adjusted diluted EPS, which excludes the impact of special items shown in Table 2, grew 5.1% to $0.62 primarily due to higher OCI in the smokeable and smokeless products segments, lower interest and other debt expense and fewer shares outstanding, partially offset by lower earnings from Altria's equity investment in SABMiller.

For the first half of 2013, Altria's reported diluted EPS increased 10.9% primarily due to higher reported OCI in the smokeable products segment resulting from PM USA's previously disclosed settlement with certain states of the non-participating manufacturer adjustment disputes for 2003-2012 (NPM Adjustment Settlement), higher reported OCI in the smokeless products segment, lower interest and other debt expense and fewer shares outstanding. These factors were partially offset by lower earnings from Altria's equity investment in SABMiller, primarily due to gains from SABMiller's strategic alliance transactions in the first quarter of 2012, and the PMCC leveraged lease benefit in the second quarter of 2012 discussed below. Altria's adjusted diluted EPS, which excludes the special items shown in Table 2, increased 7.4% for the first half of 2013 primarily due to higher OCI in the smokeable and smokeless products segments, lower interest and other debt expense, fewer shares outstanding and higher earnings from Altria's equity investment in SABMiller.

 
Table 2 - Altria's Adjusted Results Excluding Special Items
         
Second QuarterSix Months Ended June 30,
2013   2012   Change2013   2012   Change
Reported diluted EPS$ 0.63   $ 0.60   5.0%$ 1.32   $ 1.19   10.9%
NPM Adjustment Settlement(0.01)(0.16)
Asset impairment, exit and implementation costs0.010.01
SABMiller special items0.01(0.09)
PMCC leveraged lease benefit        (0.03)        (0.03)
Adjusted diluted EPS$ 0.62    $ 0.59 5.1%$ 1.16    $ 1.08 7.4%
 
 

NPM Adjustment Settlement

Comparisons of Altria's second-quarter and first-half reported diluted EPS were impacted by PM USA's NPM Adjustment Settlement. As a result of the settlement, PM USA recorded a $36 million reduction to cost of sales for the second quarter of 2013 and a $519 million reduction to cost of sales for the first half of 2013. The EPS impact of the settlement is shown in Table 2 and Schedules 6 and 7.

Restructuring Charges

Comparisons of Altria's second-quarter and first-half reported diluted EPS were also impacted by net pre-tax restructuring charges that Altria's operating companies recorded in 2012 for asset impairment, exit and implementation costs related to the current cost reduction program. These net pre-tax restructuring charges are reflected in Schedules 2 and 4 and the EPS impact is shown in Table 2.

SABMiller Special Items

Special items related to Altria's equity investment in SABMiller further impacted comparisons of Altria's second-quarter and first-half reported diluted EPS. For the second quarter and first half of 2013, SABMiller special items included gains related to divestitures as well as asset impairment charges, costs related to SABMiller's economic and social development program in South Africa and costs related to SABMiller's "business capability programme."

SABMiller special items for the first half of 2012 included gains resulting from its strategic alliance transactions with Anadolu Efes and Castel. For the second quarter and first half of 2012, SABMiller special items also included costs related to SABMiller's "business capability programme," its acquisition of Foster's Group Limited and its economic and social development program in South Africa. The EPS impact of these special items is shown in Table 2 and Schedules 6 and 7.

PMCC Leveraged Lease Benefit

Comparisons of Altria's second-quarter and first-half reported diluted EPS were also impacted by a closing agreement (Closing Agreement) that Altria entered into with the Internal Revenue Service in the second quarter of 2012 that conclusively resolved the federal income tax treatment for all prior and future tax years of certain leveraged lease transactions entered into by PMCC. As a result of the Closing Agreement, Altria recorded a one-time net earnings benefit of $68 million during the second quarter of 2012 due primarily to lower than estimated interest on tax underpayments. The net benefit was recorded as a decrease of $75 million to the provision for income taxes and was partially offset by a reduction to cumulative lease earnings of $7 million against net revenues. The EPS impact of this one time benefit is shown in Table 2 and Schedules 6 and 7.

Tobacco and Health Judgments

Comparisons of Altria's second-quarter and first-half reported diluted EPS were also impacted by charges related to tobacco and health judgments. For the first half of 2013, PM USA incurred pre-tax charges of $5 million related to tobacco and health judgments and related interest cost of $1 million. For the second quarter and first half of 2012, PM USA incurred a pre-tax charge of $1 million for tobacco and health judgments. These charges, excluding related interest cost, are reflected in Schedules 2 and 4. The interest cost is included in Schedules 1 and 3, "Interest and other debt expense, net."

SMOKEABLE PRODUCTS

The smokeable products segment grew adjusted OCI and adjusted OCI margin for the second quarter and first half of 2013 primarily through higher pricing. PM USA grew its total cigarette retail share versus both prior year periods and Marlboro's retail share for the first half of 2013.

For the second quarter and first half of 2013, the smokeable products segment's net revenues decreased 3.8% and 3.2%, respectively, primarily due to lower reported shipment volume, partially offset by higher pricing. Revenues net of excise taxes decreased 2.3% for the second quarter of 2013 and 1.7% for the first half of 2013.

The smokeable products segment's 2013 second-quarter and first-half reported OCI increased 5.2% and 18.4%, respectively, primarily due to PM USA's NPM Adjustment Settlement, higher pricing and lower selling, general and administrative expenses, partially offset by lower reported shipment volume. Adjusted OCI, which is calculated excluding the special items identified in Table 3, grew 1.5% for the second quarter and 1.4% for first half of 2013.

Adjusted OCI margin for the smokeable products segment increased 1.6 percentage points to 43.0% for the second quarter of 2013 and 1.3 percentage points to 42.5% for the first half of 2013. Revenues and OCI for the smokeable products segment are summarized in Table 3.

 
Table 3 - Smokeable Products: Revenues and OCI ($ in millions)
         
Second QuarterSix Months Ended June 30,
2013   2012   Change2013   2012   Change
Net revenues$ 5,678   $ 5,903   (3.8)%$ 10,646   $ 11,003   (3.2)%
Excise taxes  (1,741)     (1,875)  (3,265)     (3,497)
Revenues net of excise taxes$ 3,937    $ 4,028 (2.3)%$ 7,381    $ 7,506 (1.7)%
 
Reported OCI$1,726$1,6405.2%$3,646$3,07918.4%
NPM Adjustment Settlement(36)(519)
Asset impairment, exit and implementation costs, net125211
Tobacco and health judgments        1   5      1 
Adjusted OCI$ 1,691    $ 1,666 1.5%$ 3,134    $ 3,091 1.4%
Adjusted OCI margins*  43.0%     41.4%1.6 pp  42.5%     41.2%1.3 pp
 


 *Adjusted OCI margins are calculated as adjusted OCI divided by revenues net of excise taxes.

 

PM USA's 2013 second-quarter reported domestic cigarettes shipment volume decreased 6.7% primarily due to the industry's rate of decline and changes in trade inventories, partially offset by retail share gains. PM USA believes that the trade built more inventory during the second quarter of 2012, which negatively impacted the comparison of PM USA's second-quarter 2013 reported domestic cigarettes shipment volume. After adjusting for changes in trade inventories, PM USA estimates that its second-quarter 2013 domestic cigarettes shipment volume was down approximately 3.5% and that total cigarette category volume was down approximately 4% for the same period. PM USA's cigarette volume performance for the second quarter of 2013 is summarized in Table 4.

PM USA's 2013 first-half reported domestic cigarettes shipment volume decreased 6.0% primarily due to the industry's rate of decline, one less shipping day and changes in trade inventories, partially offset by retail share gains. After adjusting for one less shipping day and changes in trade inventories, PM USA estimates that its 2013 first-half domestic cigarettes shipment volume was down approximately 4%, in line with the estimated decline rate for total cigarette category volume for the same period. PM USA's cigarette volume performance for the first half of 2013 is summarized in Table 4.

Middleton's 2013 second-quarter and first-half reported cigars shipment volume declined 8.0% and 12.4%, respectively, primarily due to changes in wholesale inventories and retail share losses. Middleton's volume performance for machine-made large cigars is summarized in Table 4.

 
Table 4 - Smokeable Products: Shipment Volume (sticks in millions)
           
Second QuarterSix Months Ended June 30,
2013   2012  
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