Altria Group, Inc. — FY 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual filing; it does not provide a stand-alone Q4 summary. Altria’s core businesses are U.S. smokeable and oral tobacco products. It sold Ste. Michelle Wine Estates in October 2021 and continues to pursue its stated goal of transitioning adult smokers to smoke-free products.
Financial and operating results
| Metric | FY 2021 | FY 2020 | Change / context |
|---|---|---|---|
| Net revenues | $26.013 billion | $26.153 billion | Down 0.5%; includes excise taxes |
| Operating income | $11.560 billion | $10.873 billion | Up 6.3% |
| Net earnings attributable to Altria | $2.475 billion | $4.467 billion | Down 44.6% |
| Adjusted net earnings | $8.519 billion | $8.117 billion | Up 5.0% |
| Reported / adjusted diluted EPS | $1.34 / $4.61 | $2.40 / $4.36 | Reported down 44.2%; adjusted up 5.7% |
| Net cash from operating activities | $8.405 billion | $8.385 billion | Essentially unchanged |
| Cash and cash equivalents | $4.544 billion | $4.945 billion | At year-end |
| Total debt | $28.044 billion | $29.471 billion | Net debt was approximately $23.5 billion |
Reported earnings reflected substantial non-cash investment losses, particularly a $6.2 billion impairment of the ABI investment and a $205 million Cronos impairment, as well as a $649 million pre-tax loss on early debt extinguishment. Adjusted measures exclude items management considers outside underlying operations and are non-GAAP.
Segment results: Smokeable products revenue was $22.866 billion and adjusted operating companies income (OCI) was $10.424 billion, with a 57.6% adjusted OCI margin. Oral tobacco revenue was $2.608 billion and adjusted OCI was $1.696 billion, with a 68.5% adjusted OCI margin. Cigarette shipments fell 7.5% to 93.8 billion units; oral tobacco shipments were essentially flat at 820.3 million units. Wine revenue reflects operations only through September 30, before the sale.
Altria reported a $1.606 billion stockholders’ deficit at year-end, versus $2.925 billion of equity in 2020. Current assets of $6.083 billion were below current liabilities of $8.579 billion; management said cash generation and market access were sufficient to fund working capital and expected requirements. The $3.0 billion revolving credit facility was undrawn, and Altria reported a 10.3-to-1 covenant EBITDA-to-interest ratio against a 4.0-to-1 minimum.
Material changes and capital allocation
- Operating cash flow remained stable, while reported earnings fell sharply because of investment impairments and debt refinancing costs. Adjusted EPS increased, helped by higher smokeable OCI, ABI income, and fewer shares outstanding.
- Altria received approximately $1.2 billion net proceeds from the Ste. Michelle sale. Net cash from investing activities was $1.212 billion, compared with $143 million used in 2020.
- Financing activities used $10.029 billion, including $6.446 billion in dividends and $1.675 billion in share repurchases. The quarterly dividend was raised 4.7% to $0.90 per share; the stated annualized rate was $3.60. A $3.5 billion repurchase authorization was expected to be completed by December 31, 2022.
- Debt transactions included issuing $5.5 billion of notes and repurchasing or redeeming existing notes. Altria said these actions reduced near-term maturities, extended weighted-average maturity, and lowered the weighted-average coupon on long-term debt to approximately 4.0%.
Outlook, risks, and unusual items
Altria forecast FY 2022 adjusted diluted EPS of $4.79–$4.93, growth of 4%–7% over FY 2021 adjusted EPS, weighted toward the second half. It forecast an adjusted effective tax rate of 24.5%–25.5%. Guidance includes investment in smoke-free products and digital engagement, anticipated inflation-related cost increases, and the expectation that IQOS will not be available in the U.S. during 2022. Management cautioned that economic conditions, inflation, COVID-19 developments, consumer behavior, and regulation could affect results.
- Regulatory and product risks: The FDA had not decided on marketing applications for on! pouches or JUUL products as of February 22, 2022. Proposed restrictions on menthol cigarettes and flavored cigars, excise-tax changes, and other FDA actions could affect sales and product availability. The ITC import and sales orders for IQOS took effect November 29, 2021; Altria said it did not expect access to IQOS in 2022. The appeal was pending.
- Litigation: Tobacco and health, e-vapor, antitrust, shareholder, and patent matters remain significant uncertainties. Altria said it generally could not conclude that losses were probable and estimable for pending cases, and therefore had not accrued amounts for those matters except where disclosed. A $90 million shareholder class-action settlement was accrued in 2021, subject to final approval.
- Investments: JUUL’s estimated fair value was $1.7 billion at year-end, unchanged from 2020, but relies on Level 3 assumptions and remains exposed to litigation, regulation, competition, and market conditions. The FTC administrative law judge dismissed the FTC’s antitrust complaint in February 2022; FTC complaint counsel appealed. ABI’s fair value was above its reduced carrying value at year-end after the impairment; Cronos’s value declined further after year-end.
- Other risks: Cigarette industry volume declined an estimated 5.5% in 2021, and discount products regained share in the second half. Inflation, supply-chain and labor constraints, changing consumer preferences, tobacco settlement payments, and further litigation or impairment charges could pressure results. Altria expected PMCC’s finance-asset wind-down to be completed by the end of 2022.
Important facts for investors to verify
- Reconcile reported EPS of $1.34 with adjusted EPS of $4.61, including the ABI and Cronos impairments and debt-extinguishment loss.
- Track the pending IQOS appeal, the PMI agreement performance dispute, and the status of FDA applications and potential flavor restrictions.
- Review JUUL’s valuation assumptions and litigation exposure, along with the status of the FTC appeal and related private lawsuits.
- Assess whether cigarette pricing can continue to offset shipment declines, market-share pressure, and consumers’ movement to discount brands or smoke-free products.
- Monitor cash generation, settlement payments, leverage, dividends, repurchases, and the 2022 adjusted EPS outlook; remember guidance is non-GAAP and excludes potentially significant items.