Altria Group, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; comparisons are primarily with FY2021. This is an annual filing, not a standalone fourth-quarter report. Altria’s principal businesses are U.S. smokeable and oral tobacco products, with equity investments and emerging smoke-free initiatives.
Financial performance
| Metric | FY2022 | FY2021 | Change / context |
|---|---|---|---|
| Net revenues | $25.10 billion | $26.01 billion | Down 3.5%; includes excise taxes billed to customers. The wine business sale and lower smokeable revenues were principal factors. |
| Operating income | $11.92 billion | $11.56 billion | Up 3.1%. |
| Net earnings attributable to Altria | $5.76 billion | $2.48 billion | More than doubled, largely reflecting lower investment-related losses and other special items versus 2021. |
| Diluted EPS | $3.19 | $1.34 | Reported GAAP EPS. |
| Adjusted net earnings | $8.74 billion | $8.52 billion | Up 2.6%; non-GAAP measure. |
| Adjusted diluted EPS | $4.84 | $4.61 | Up 5.0%; non-GAAP measure. |
| Net cash from operating activities | $8.26 billion | $8.41 billion | Down modestly, primarily reflecting the 2021 wine-business sale. |
| Capital expenditures | $205 million | $169 million | Up 21.3%, primarily from investment in on! manufacturing capacity. |
| Total debt | $26.7 billion | $28.0 billion | All long-term debt was fixed rate; weighted-average coupon was approximately 4.0%. |
At year-end, cash and cash equivalents were $4.03 billion, and the company had $3.0 billion available under its revolving credit agreement with no borrowings outstanding. Altria reported a working-capital deficit but said cash flows, credit availability and market access were sufficient for projected needs. Its credit-agreement leverage covenant ratio was 11.0x against a 4.0x minimum.
Segment and volume indicators
- Smokeable products: Net revenues were $22.48 billion; operating companies income (OCI) was $10.69 billion. Adjusted OCI margin rose to 59.0% from 57.6%, as pricing and lower promotional investment more than offset volume declines and higher costs. Cigarette shipments fell 9.7%; cigarette retail share declined to 47.9% from 48.7%. Marlboro share was 42.5%, down 0.4 percentage points.
- Oral tobacco products: Net revenues were $2.58 billion; OCI was $1.63 billion. Adjusted OCI declined 3.8%, and adjusted OCI margin fell to 66.3% from 68.5%. Shipment volume declined 2.4%. on! shipments grew to 82.5 million packs from 48.4 million, while Copenhagen and Skoal shipments declined.
Material changes and unusual items
- FY2022 investment-related results included a $2.54 billion pre-tax ABI-related loss, substantially from a non-cash impairment, and a $1.46 billion non-cash unrealized loss from revaluing JUUL. Cronos-related special items were $186 million, including a $107 million non-cash impairment. These items materially affected reported earnings; adjusted results exclude specified special items.
- JUUL’s estimated fair value fell to $250 million at year-end from $1.70 billion. The FDA’s marketing denial orders were temporarily stayed while the agency conducted additional review; JUUL products remained on the market at the filing date. Altria exercised an option to end its JUUL non-compete obligations, giving up certain governance and other rights.
- Altria received $1.0 billion in 2022 under its agreement to transfer U.S. IQOS commercialization rights to PMI; a further $1.7 billion plus interest was receivable, with payment expected by July 2023. The total consideration is approximately $2.7 billion plus interest. The rights transfer is effective April 30, 2024, and the gain was deferred pending transfer.
- Altria formed Horizon Innovations with Japan Tobacco for U.S. heated tobacco stick commercialization. Altria holds a 75% economic interest and expects to contribute up to $150 million initially as needed.
- The Ste. Michelle wine business was sold in October 2021 for approximately $1.2 billion net purchase price, affecting year-over-year comparability.
Cash returns, outlook and management commentary
Altria paid approximately $6.6 billion in dividends in 2022 and repurchased $1.83 billion of shares, completing its $3.5 billion repurchase program. The quarterly dividend increased 4.4% to $0.94 per share; the annualized rate was $3.76. In January 2023, the Board authorized a new $1.0 billion repurchase program. The company’s long-term dividend payout target is approximately 80% of adjusted diluted EPS.
Management forecast FY2023 adjusted diluted EPS of $4.98–$5.13, or 3%–6% growth over the FY2022 adjusted base of $4.84, and an adjusted effective tax rate of 24.5%–25.5%. The outlook includes planned smoke-free research, regulatory preparation, digital engagement and market investments. Management cited inflation, interest rates, supply-chain disruption, consumer purchasing patterns and regulatory developments as uncertainties. Expected 2023 capital expenditures were $175–$225 million.
Principal risks, contingencies and audit matters
- Structural declines in cigarette consumption, category competition and consumer down-trading could pressure shipment volumes, market share, brand values and margins. U.S. cigarette industry volume declined an estimated 8% in 2022.
- FDA actions and potential product standards—including proposed menthol-cigarette and flavored-cigar bans and a possible maximum nicotine standard for combustible products—could restrict products or sales. FDA authorization for on! pouches remained pending as of the filing date.
- Extensive tobacco and JUUL-related litigation, antitrust proceedings and government investigations remain risks. Management generally said losses in pending cases were not probable or could not be reasonably estimated; therefore, many potential losses were not accrued. The filing describes significant verdicts and claims, including a $1 billion punitive award in a Massachusetts case that Altria intended to challenge.
- State Settlement Agreement and FDA user-fee charges were approximately $4.2 billion in 2022; management estimated about $4.0 billion annually on average for the next three years, subject to volume, inflation, market share and other factors.
- The Skoal trademark, with a $3.9 billion carrying value, had estimated fair value only about 12% above carrying value at year-end. Further performance declines or higher discount rates could cause a material non-cash impairment.
- The auditor issued an unqualified opinion and concluded internal control over financial reporting was effective. Critical audit matters included tobacco litigation, JUUL fair value and the Skoal trademark impairment assessment.
Important facts for investors to verify
- Whether the $1.7 billion IQOS-related receivable plus interest was collected on the expected schedule, and the accounting impact when commercialization rights transfer in 2024.
- Developments in FDA review of JUUL and on! applications, and the resulting effect on JUUL’s valuation, Altria’s investment and smoke-free strategy.
- Reported versus adjusted earnings, including the large investment-related and tax items; adjusted measures are non-GAAP and exclude items management considers outside underlying operations.
- Trends in cigarette and oral tobacco volumes, discount-brand mix, pricing, and on! growth relative to declines in legacy oral products.
- Updates to material litigation, settlement payments, and the Skoal trademark’s valuation headroom.
- Debt maturities, cash returned to shareholders, and the ability to sustain the dividend and fund planned investments under the 2023 outlook.