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4-Traders Homepage  >  Equities  >  Nyse  >  Altria Group Inc    MO

Delayed Quote. Delayed  - 04/29 10:00:42 pm
62.71 USD   +0.84%
04/28 ALTRIA : profit up 20 percent on higher cigarette shipments
04/28 ALTRIA : beats 1Q profit forecasts
04/28DJAltria Profit, Revenue Grow as Cigarette Shipments Rise
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ALTRIA : Management's Discussion and Analysis of Financial Condition and Results of Operations. Description of the Company (form 10-Q)

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04/28/2016 | 04:09pm CEST

At March 31, 2016, Altria Group, Inc.'s wholly-owned subsidiaries included Philip Morris USA Inc. ("PM USA"), which is engaged predominantly in the manufacture and sale of cigarettes in the United States; John Middleton Co. ("Middleton"), which is engaged in the manufacture and sale of machine-made large cigars and pipe tobacco, and is a wholly-owned subsidiary of PM USA; and UST LLC ("UST"), which through its wholly-owned subsidiaries, including U.S. Smokeless Tobacco Company LLC ("USSTC") and Ste. Michelle Wine Estates Ltd. ("Ste. Michelle"), is engaged in the manufacture and sale of smokeless tobacco products and wine. Altria Group, Inc.'s other operating companies included Nu Mark LLC ("Nu Mark"), a wholly-owned subsidiary that is engaged in the manufacture and sale of innovative tobacco products, and Philip Morris Capital Corporation ("PMCC"), a wholly-owned subsidiary that maintains a portfolio of finance assets, substantially all of which are leveraged leases. Other Altria Group, Inc. wholly-owned subsidiaries included Altria Group Distribution Company, which provides sales, distribution and consumer engagement services to certain Altria Group, Inc. operating subsidiaries, and Altria Client Services LLC, which provides various support services in areas such as legal, regulatory, finance, human resources and external affairs, to Altria Group, Inc. and its subsidiaries. In addition, Nu Mark and Middleton use third-party contract manufacturing arrangements in the manufacture of their products. Altria Group, Inc.'s access to the operating cash flows of its wholly-owned subsidiaries consists of cash received from the payment of dividends and distributions, and the payment of interest on intercompany loans by its subsidiaries. At March 31, 2016, Altria Group, Inc.'s principal wholly-owned subsidiaries were not limited by long-term debt or other agreements in their ability to pay cash dividends or make other distributions with respect to their equity interests.

At March 31, 2016, Altria Group, Inc. also held approximately 27% of the economic and voting interest of SABMiller plc ("SABMiller"), which Altria Group, Inc. accounts for under the equity method of accounting. Altria Group, Inc. receives cash dividends on its interest in SABMiller if and when SABMiller pays such dividends. In November 2015, Anheuser-Busch InBev SA/NV ("AB InBev") announced its firm offer to effect a business combination with SABMiller in a cash and stock transaction. For further discussion, see Note 4. Investment in SABMiller to the condensed consolidated financial statements in Part I, Item 1. Financial Statements of this Quarterly Report on Form 10-Q ("Item 1").

Altria Group, Inc.'s reportable segments are smokeable products, smokeless products and wine. The financial services and the innovative tobacco products businesses are included in an all other category.


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Executive Summary

The following executive summary is intended to provide significant highlights of the Discussion and Analysis that follows. Consolidated Results of Operations for the Three Months Ended March 31, 2016: The changes in Altria Group, Inc.'s net earnings and diluted earnings per share ("EPS") attributable to Altria Group, Inc. for the three months ended March 31, 2016, from the three months ended March 31, 2015, were due primarily to the following:


                                                          Net Earnings              Diluted EPS
                                                          (in millions, except per share data)
For the three months ended March 31, 2015             $            1,018         $           0.52

2015 Tobacco and health litigation items                              27                     0.01
2015 SABMiller special items                                          56                     0.03
2015 Loss on early extinguishment of debt                            143                     0.07
2015 Tax items                                                         2                        -
Subtotal 2015 special items                                          228                     0.11

2016 NPM Adjustment Items                                            (11 )                  (0.01 )
2016 Asset impairment, exit and implementation costs                 (78 )                  (0.04 )
2016 Tobacco and health litigation items                             (24 )                  (0.01 )
2016 SABMiller special items                                        (108 )                  (0.05 )
2016 Gain on derivative financial instrument                          26                     0.01
2016 Tax items                                                        (1 )                      -
Subtotal 2016 special items                                         (196 )                  (0.10 )

Operations                                                           167                     0.09
For the three months ended March 31, 2016             $            1,217         $           0.62



See the discussion of events affecting the comparability of statement of earnings amounts in the Consolidated Operating Results section of the following Discussion and Analysis.

Operations: The increase of $167 million in operations shown in the table above was due primarily to higher income from the smokeable products and smokeless products segments, and lower interest and other debt expense, net.

For further details, see the Consolidated Operating Results and Operating Results by Business Segment sections of the following Discussion and Analysis.

2016 Forecasted Results: In April 2016, Altria Group, Inc. reaffirmed that its 2016 full-year adjusted diluted EPS growth rate is expected to be in the range of 7% to 9% over 2015 full-year adjusted diluted EPS. This forecasted growth rate excludes the net expenses in the table below. Altria Group, Inc. continues to expect that its 2016 full-year effective tax rate on operations will be approximately 35.3%. This forecast does not include any impact from the anticipated AB InBev and SABMiller business combination, as the transaction remains subject to certain approvals and the closing date has not yet been determined.



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In addition, the factors described in the Cautionary Factors That May Affect Future Results section of the following Discussion and Analysis represent continuing risks to this forecast and to the other forward-looking statements made in this Quarterly Report on Form 10-Q ("Form 10-Q").

Expense (Income), Net Excluded from Adjusted Diluted EPS

                                                  2016       2015
NPM Adjustment Items                            $ 0.01     $ (0.03 )
Asset impairment, exit and implementation costs   0.05           -
Tobacco and health litigation items               0.01        0.05
SABMiller special items                           0.05        0.04
Loss on early extinguishment of debt                 -        0.07

Gain on derivative financial instrument (0.01 ) -

                                                $ 0.11     $  0.13


Altria Group, Inc. reports its financial results in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). Altria Group, Inc.'s management reviews certain financial results, including diluted EPS, on an adjusted basis, which excludes certain income and expense items that management believes are not part of underlying operations. These items may include, for example, loss on early extinguishment of debt, restructuring charges, SABMiller special items, certain tax items, charges associated with tobacco and health litigation items, and settlements of, and determinations made in connection with, disputes with certain states and territories related to the non-participating manufacturer ("NPM") adjustment provision under the 1998 Master Settlement Agreement (such settlements and determinations are referred to collectively as "NPM Adjustment Items" and are more fully described in Health Care Cost Recovery Litigation - NPM Adjustment Disputes in Note 10. Contingencies to the condensed consolidated financial statements in Item 1 ("Note 10")). Altria Group, Inc.'s management does not view any of these special items to be part of Altria Group, Inc.'s sustainable results as they may be highly variable, are difficult to predict and can distort underlying business trends and results. Altria Group, Inc.'s management also reviews income tax rates on an adjusted basis. Altria Group, Inc.'s effective tax rate on operations may exclude certain tax items from its reported effective tax rate. Altria Group, Inc.'s management believes that adjusted financial measures provide useful insight into underlying business trends and results and provide a more meaningful comparison of year-over-year results. Adjusted financial measures are used by management and regularly provided to Altria Group, Inc.'s chief operating decision maker for planning, forecasting and evaluating business and financial performance, including allocating resources and evaluating results relative to employee compensation targets. These adjusted financial measures are not consistent with U.S. GAAP and may not be calculated the same as similarly titled measures used by other companies. These adjusted financial measures should thus be considered as supplemental in nature and not considered in isolation or as a substitute for the related financial information prepared in accordance with U.S. GAAP. Altria Group, Inc.'s full-year adjusted diluted EPS guidance and full-year forecast for its effective tax rate on operations exclude the impact of certain income and expense items, including those items noted in the preceding paragraph. Altria Group, Inc.'s management cannot estimate on a forward-looking basis the impact of these items on Altria Group, Inc.'s reported diluted EPS and reported effective tax rate because these items, which could be significant, are difficult to predict and may be highly variable. As a result, Altria Group, Inc. does not provide a corresponding U.S. GAAP measure for, or reconciliation to, its adjusted diluted EPS guidance or its effective tax rate on operations forecast.


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