Altria Group, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Altria is principally a U.S. tobacco company, with smokeable and oral tobacco businesses and equity investments in ABI, JUUL and Cronos. The wine business was sold in October 2021.
Financial performance and liquidity
- Revenue and operating results: Net revenues were $5.892 billion, down 2.4% year over year, primarily reflecting the wine divestiture. Gross profit was $3.373 billion, up 3.1%, and operating income was $2.884 billion, up 7.2%.
- Earnings: Net earnings attributable to Altria were $1.959 billion, or $1.08 per diluted share, versus $1.424 billion and $0.77 a year earlier. The reported increase substantially reflects the $649 million 2021 debt-extinguishment loss. Adjusted net earnings were $2.047 billion, up 3.2%; adjusted diluted EPS was $1.12, up 4.7%.
- Segment trends: Smokeable revenue was $5.265 billion, up 0.3%; adjusted operating companies income (OCI) rose 5.7% to $2.511 billion. Cigarette shipments fell 6.3%, and Marlboro retail share declined 0.4 percentage points to 42.6%. Oral tobacco revenue fell 2.1% to $613 million; adjusted OCI decreased 5.1% to $407 million. on! shipments nearly doubled, while Copenhagen and Skoal volumes declined.
- Cash flow: Operating cash flow was $3.075 billion, compared with $3.040 billion. Investing activities used $34 million, including $45 million of capital expenditures. Financing activities used $2.232 billion, including $1.645 billion in dividends and $576 million in share repurchases.
- Debt and liquidity: Total debt was $27.9 billion, compared with $28.0 billion at year-end 2021. Cash and cash equivalents were $5.353 billion; including restricted cash, cash totaled $5.403 billion. Altria had $3.0 billion available on its revolving credit agreement, no short-term borrowings, and reported compliance with its covenants. Current liabilities exceeded current assets. Stockholders’ equity was a deficit of $1.760 billion.
- Capital returns: The annualized dividend rate was $3.60 per share, with a stated long-term payout target of approximately 80% of adjusted diluted EPS. The company repurchased 11.3 million shares for $576 million during the quarter.
Changes, outlook and management commentary
- Management maintained 2022 adjusted diluted EPS guidance of $4.79–$4.93, implying 4%–7% growth over 2021’s $4.61. Growth is expected to be weighted to the second half. Guidance includes planned smoke-free investment, inflation-related cost increases and the expectation that PM USA will not have access to IQOS in 2022; it excludes specified potentially variable items and has no corresponding GAAP reconciliation.
- Management cited inflation, reduced consumer purchasing power, supply-chain disruption, COVID-19 effects and the Russia-Ukraine conflict as uncertainties. It observed increasing discount-cigarette share and estimated U.S. cigarette-industry volume declined 6.5% in the quarter, adjusted for specified factors.
- State settlement agreement and FDA user-fee charges were approximately $1.0 billion in the quarter. The company paid approximately $3.5 billion in April 2022 for amounts accrued in 2021 and estimated average charges of $4.3 billion annually over the next three years, excluding potential NPM adjustment items.
Risks, contingencies and unusual items
- Regulatory and product risks: The FDA had not decided on marketing applications for on! or JUUL products as of April 25, 2022. Proposed menthol-cigarette and flavored-cigar standards, other FDA actions, and tax or sales restrictions could affect products and investments. A patent-related ITC order had barred IQOS imports and U.S. sales, and PM USA removed the products from the market; appeals were pending.
- JUUL and investments: Altria recorded a $100 million noncash loss from the lower estimated fair value of its JUUL investment, which stood at $1.605 billion. The FTC appeal of an administrative judge’s dismissal of its challenge to Altria’s JUUL investment remained pending. Altria also cited substantial JUUL-related litigation and regulatory uncertainty.
- Litigation: The filing describes significant tobacco, e-vapor, antitrust and other proceedings. Management said it had not determined that an unfavorable outcome was probable and reasonably estimable for pending cases, except as otherwise disclosed; accordingly, it had not recorded provisions for those unestimable pending-case losses. Adverse outcomes could materially affect results or cash flows in a particular period.
- Other investment and unusual items: ABI’s Russia- and Ukraine-related impairment was expected to affect Altria’s results in Q2 through its one-quarter reporting lag; Altria did not expect its share of the impact to be material. Cronos-related instruments generated a $10 million loss in the quarter. Reported results also included NPM adjustment items and other investment-related special items.
Key facts for investors to verify
- Whether reported and adjusted earnings growth is sustained, given the large prior-year debt-extinguishment charge and differing special items.
- Whether cigarette volume and market-share declines, discount-brand shifts and inflation pressure pricing, margins and settlement costs.
- Progress toward the $4.79–$4.93 adjusted EPS guidance range and the expected second-half weighting.
- FDA decisions and litigation developments affecting JUUL, on!, menthol and flavored products, and IQOS availability.
- Future cash needs for settlement payments, dividends and debt maturities, alongside the company’s stated liquidity and credit access.