Altria Group, Inc. — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This filing reports full-year results; it does not provide a complete standalone fourth-quarter income statement. Altria’s U.S.-focused portfolio includes cigarettes, cigars, smokeless tobacco and oral nicotine pouches, with NJOY e-vapor results consolidated from June 1, 2023.
Financial performance
| Metric | 2023 | 2022 | Change / context |
|---|---|---|---|
| Net revenues | $24.483 billion | $25.096 billion | Down 2.4% |
| Gross profit | $14.284 billion | $14.246 billion | Up slightly; gross margin was approximately 58.3% versus 56.8% |
| Operating income | $11.547 billion | $11.919 billion | Down 3.1% |
| Net earnings / diluted EPS | $8.130 billion / $4.57 | $5.764 billion / $3.19 | Up 41.0% / 43.3%; prior-year results included substantial investment-related charges and tax items |
| Adjusted net earnings / diluted EPS | $8.822 billion / $4.95 | $8.742 billion / $4.84 | Up 0.9% / 2.3%; non-GAAP measures |
| Cash from operations | $9.287 billion | $8.256 billion | Increase primarily reflected lower income-tax and settlement payments |
| Cash and cash equivalents | $3.686 billion | $4.030 billion | At year-end |
| Total debt | $26.233 billion | $26.680 billion | Debt-to-Consolidated EBITDA was 2.2x |
Cash used in investing was $1.283 billion, including $2.751 billion for NJOY net of cash acquired and $1.700 billion of IQOS-rights proceeds. Cash used in financing was $8.374 billion, including $6.779 billion of dividends and $1.000 billion of repurchases. The company reported a working-capital deficit and stockholders’ deficit; management said available cash, operating flows and borrowing-market access were sufficient for projected needs.
Business trends and changes versus 2022
- Smokeable net revenues fell to $21.756 billion from $22.476 billion. Cigarette shipment volume declined 9.9%; higher pricing partly offset volume pressure. Marlboro’s full-year retail share decreased 0.4 percentage points to 42.1%, while the cigarette discount segment gained 1.4 points to 28.3%.
- Oral tobacco net revenues rose 3.4% to $2.667 billion and segment operating-company income increased 5.5% to $1.722 billion, primarily on pricing and lower costs. Segment shipment volume declined 2.2%; on! volume increased while Copenhagen and Skoal volumes fell.
- Smoke-free volume was approximately 806 million units, essentially flat year over year; smoke-free net revenues were $2.7 billion, including $165 million from innovative smoke-free products. NJOY ACE reached approximately 75,000 stores by year-end; reported fourth-quarter ACE shipments were approximately 10.4 million pods.
- Reported earnings improved sharply, but adjusted diluted EPS growth was 2.3%. The comparison was affected by 2022 ABI impairment and JUUL fair-value losses and tax benefits, as well as 2023 litigation charges, NJOY-related amortization and the JUUL disposition loss.
Outlook, capital allocation and notable items
- 2028 enterprise goals include mid-single-digit adjusted diluted EPS compound annual growth from a $4.84 2022 base, mid-single-digit annual dividend-per-share growth, debt-to-Consolidated EBITDA of approximately 2.0x, and adjusted OCI margin of at least 60% annually. Smoke-free goals include at least 35% volume growth from the 2022 base and approximately $5 billion in U.S. smoke-free net revenues by 2028.
- Management expects consumer discretionary-income pressures to continue influencing purchasing behavior in 2024. It estimated domestic cigarette industry volume declined 8% in the fourth quarter and over the latest 12 months, citing secular decline, illegal flavored disposable e-vapor products and macroeconomic pressures. Illegal flavored disposables represented over 50% of the e-vapor category, according to the filing.
- 2024 capital expenditures are estimated at $175 million to $225 million. The company’s annualized dividend rate was $3.92 per share at filing; a new $1.0 billion repurchase authorization was approved in January 2024.
- Altria paid approximately $2.9 billion total consideration for NJOY, including $2.75 billion cash net of acquired cash and contingent consideration. Up to $500 million of additional cash payments depend on FDA authorizations. NJOY acquisition accounting and valuations remained preliminary.
- Altria received approximately $1.8 billion, including interest, from PMI in July 2023 under the IQOS agreement. A $2.7 billion deferred gain was recorded and was expected to be recognized when U.S. commercialization rights transferred effective April 30, 2024. The filing also describes litigation and court-approval issues related to the rights assignment.
Principal risks and contingencies
- Regulatory uncertainty is significant: FDA decisions on product authorizations, enforcement against illegal products, and proposed menthol-cigarette, flavored-cigar and nicotine-level standards could affect products, volumes and asset values. NJOY ACE also faced a patent dispute at the ITC that could restrict imports or sales.
- Litigation spans tobacco health claims, JUUL-related matters and patent disputes. At year-end, accrued tobacco and other litigation liabilities were $346 million; management stated that for many pending cases it could not conclude a loss was probable or estimate a possible loss range. Potential outcomes remain uncertain and could be material.
- The $3.9 billion Skoal trademark carrying value had estimated fair value only about 6% above carrying value; a hypothetical 1% increase in the discount rate would have implied an approximately $150 million impairment charge. NJOY’s e-vapor reporting-unit fair value was approximately equal to carrying value.
- Other key exposures include continued cigarette and MST volume declines, down-trading to discount products, illicit trade, higher excise taxes and settlement payments, supply-chain disruption, investment risks related to ABI and Cronos, and refinancing or credit-rating risk. State Settlement Agreement and FDA-user-fee charges were estimated at an average of $3.4 billion annually for the next three years, subject to assumptions and adjustment.
Investor verification checklist
- Reconcile GAAP EPS growth with adjusted EPS and identify the effects of ABI, JUUL, tax and litigation items.
- Track cigarette and MST volume/share trends, pricing versus down-trading, and the effect of illegal e-vapor products on industry volumes.
- Verify NJOY FDA authorization milestones, contingent consideration, commercialization progress and impairment assumptions.
- Monitor the IQOS rights transfer, deferred-gain recognition and related court proceedings.
- Review litigation developments, including NJOY patent exposure, tobacco verdicts and the adequacy of recorded provisions.
- Assess dividend and repurchase commitments against cash generation, debt maturities, settlement obligations and progress toward the 2.0x leverage goal.