Altria Group, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparisons are with Q1 2023 unless otherwise noted. Amounts are U.S. dollars. Altria’s U.S. business spans smokeable products, oral tobacco and e-vapor, alongside equity investments in ABI and Cronos.
Financial results and liquidity
| Metric | Q1 2024 | Q1 2023 / prior date | Change |
|---|---|---|---|
| Net revenues | $5.576 billion | $5.719 billion | Down 2.5% |
| Gross profit | $3.280 billion | $3.329 billion | Down 1.5% |
| Operating income | $2.674 billion | $2.757 billion | Down 3.0% |
| Net earnings | $2.129 billion | $1.787 billion | Up 19.1% |
| Diluted EPS | $1.21 | $1.00 | Up 21.0% |
| Adjusted net earnings | $2.022 billion | $2.118 billion | Down 4.5% |
| Adjusted diluted EPS | $1.15 | $1.18 | Down 2.5% |
| Operating cash flow | $2.877 billion | $2.984 billion | Down $107 million |
Reported earnings benefited from equity investment results and tax items, while adjusted results declined, primarily due to lower operating companies income. The ABI share sale generated a pre-tax gain of $165 million and incurred $62 million of transaction costs; the transaction also drove a $94 million tax valuation-allowance release. Q1 GAAP net earnings therefore should not be read as an equivalent improvement in underlying operating performance.
Cash and cash equivalents were $3.608 billion at March 31, 2024, versus $3.686 billion at year-end 2023. Long-term debt was $25.042 billion, down from $26.233 billion; Altria repaid $1.121 billion of notes at maturity. Debt-to-Consolidated EBITDA was 2.1x, compared with the company’s approximately 2.0x long-term target. The $3.0 billion revolving credit facility was fully available, with no short-term borrowings, and the company reported covenant compliance. Current liabilities exceeded current assets by approximately $5.7 billion; management said liquidity sources were adequate for the next 12 months and foreseeable future.
Financing cash outflow was $5.268 billion, including $2.4 billion for accelerated share repurchases and $1.733 billion of dividends paid. Capital expenditures were $35 million. The annualized dividend rate was $3.92 per share. Altria paid approximately $2.9 billion in April 2024 for 2023 State Settlement Agreement amounts.
Business performance and changes versus prior year
- Smokeable products: Revenue was $4.906 billion, down 3.6%; segment operating companies income (OCI) was $2.439 billion, down 2.6%. Cigarette shipment volume fell 10.0%, and total smokeable volume fell 9.9%. Marlboro retail share was 42.0%, unchanged year over year; total cigarette share declined 0.6 percentage points to 46.4%.
- Oral tobacco: Revenue was $651 million, up 3.7%; OCI rose 4.6% to $435 million. Shipment volume fell 3.1%, as on! pouch volume growth was outweighed by declines in traditional smokeless products. on! shipments increased 32.1%; its category share was 7.1%, while Copenhagen share fell 5.2 percentage points to 20.1%.
- All other: Included NJOY, Horizon, Helix International and other activities. OCI loss widened to $61 million from $9 million. NJOY shipments were approximately 10.9 million consumables and 1.0 million devices; distribution exceeded 80,000 stores, and e-vapor retail share reached 4.3%.
- Margins: Adjusted total OCI margin was 59.9%, below the company’s stated goal of at least 60% in each year through 2028. Adjusted smokeable and oral tobacco OCI margins were 60.2% and 69.5%, respectively.
Q1 2024 operating performance faced lower cigarette and smokeless volumes, partially offset by pricing and growth in oral nicotine pouches. Net revenues include excise taxes; excise taxes declined 10.1% to $859 million, primarily because of lower smokeable shipments.
Outlook, commentary, risks and unusual items
- Goals, not near-term guidance: The filing reiterates 2028 goals: mid-single-digit adjusted diluted EPS compound annual growth from the 2022 base; mid-single-digit annual dividend-per-share growth; debt-to-Consolidated EBITDA of approximately 2.0x; at least 60% total adjusted OCI margin annually; and growth in U.S. smoke-free volumes and revenues. It does not provide a specific 2024 earnings or EPS forecast in the supplied filing text.
- Market conditions: Management estimated domestic cigarette industry volume declined 9% in Q1 and attributed pressure to secular declines, consumer budget constraints and illegal disposable e-vapor products. It expects these forces, cross-category switching and regulatory developments to influence 2024 trends. Management said inflation, supply-chain and geopolitical developments had not materially adversely affected results to date, but will continue to be monitored.
- ABI sale and repurchase: Altria received approximately $2.4 billion from selling ABI shares, reducing its ownership interest to approximately 8.1%. Proceeds funded a $2.4 billion accelerated share repurchase; 46.5 million shares were initially delivered, with final settlement expected by June 30, 2024. The company reported $1.0 billion remaining under its expanded $3.4 billion 2024 repurchase program.
- Litigation and settlements: Accrued tobacco and other litigation liabilities, including related interest, were $364 million at quarter-end. The company generally said it could not estimate possible losses for pending cases where an unfavorable outcome was reasonably possible but not considered probable. A $235 million settlement covering most JUUL-related multidistrict and consolidated California cases received final court approval in March 2024, subject to participation conditions and exclusions. The filing also describes extensive tobacco, e-vapor, antitrust and patent litigation.
- Regulation and impairment: Potential FDA standards for menthol cigarettes, flavored cigars and nicotine levels, product authorization decisions, and enforcement against illegal e-vapor products could affect markets and operations. The Skoal trademark had approximately 6% fair-value headroom at year-end 2023; management said Q1 conditions did not indicate impairment was more likely than not, but further volume or outlook deterioration could lead to a material non-cash charge.
- Other items: NJOY acquisition purchase accounting remains preliminary, including contingent liabilities and intangible-asset valuation. The company recorded a $15 million Q1 provision for costs of court-ordered corrective statements at point of sale. The 2023 comparable period included a $250 million loss on disposition of JUUL securities and higher litigation charges, contributing to the increase in reported year-over-year earnings.
Important facts for investors to verify
- Whether ongoing cigarette and MST volume declines, discount trading, and illegal disposable e-vapor products continue to pressure segment earnings and market share.
- Whether oral nicotine pouch and NJOY growth can offset legacy product declines, including NJOY’s regulatory and patent-litigation outcomes.
- How the ABI investment’s value, equity earnings, dividends and board representation evolve after the partial sale and lockup period.
- Final settlement of the $2.4 billion accelerated share repurchase, remaining repurchase authorization, dividend capacity and progress toward the 2.0x leverage goal.
- Actual State Settlement Agreement and FDA user-fee payments: Altria estimated charges averaging $3.5 billion annually over the next three years, subject to volume, market share, inflation and other adjustments.
- Developments in tobacco and e-vapor litigation, including settlement participation, appeals, patent proceedings and any resulting cash or earnings exposure; management stated that many potential losses cannot currently be estimated.
- FDA actions and the outlook for the Skoal trademark impairment headroom and NJOY’s preliminary acquisition valuations.