Altria Group, Inc. (a Fair360, formerly DiversityInc Noteworthy Company) has announced its 2017 second-quarter and first-half business results and reaffirmed its guidance for 2017 full-year adjusted diluted EPS.
“Based on strong tobacco operating company performance, Altria delivered solid results in the second quarter and first half of 2017,” said Marty Barrington, Altria’s Chairman, Chief Executive Officer and President. “The smokeable products segment generated strong income growth despite a large cigarette excise tax increase in California, and the smokeless products segment has largely rebounded from its first-quarter voluntary product recall.”
“We continued to focus on rewarding shareholders, paying out nearly $2.4 billion in dividends and repurchasing $1.6 billion in shares in the first half of 2017. Today we also are announcing a $1 billion expansion of that program.”
“Our business fundamentals remain strong. We believe we are well-positioned for the second half of the year and continue to expect adjusted diluted EPS growth to be weighted to the second half. Thus, we are reaffirming our 2017 full-year adjusted diluted EPS growth guidance of 7.5% to 9.5%.”
Cash Returns to Shareholders – Dividends and Share Repurchase Program
In May 2017, Altria’s Board of Directors (Board) declared a regular quarterly dividend of $0.61 per share. Altria’s current annualized dividend rate is $2.44 per share. As of July 21, 2017, Altria’s annualized dividend yield was 3.3%. Altria paid almost $1.2 billion in dividends in the second quarter and nearly $2.4 billion for the first half of 2017. Altria expects to continue to return a large amount of cash to shareholders in the form of dividends by maintaining a dividend payout ratio target of approximately 80% of its adjusted diluted EPS. Future dividend payments remain subject to the discretion of the Board.
During the second quarter, Altria repurchased 14.4 million shares under its existing share repurchase program at an average price of $72.85, for a total cost of approximately $1.05 billion. As of June 30, 2017, Altria had approximately $335 million remaining in the share repurchase program. In July, Altria’s Board authorized a $1 billion expansion to the program. Altria expects to complete the expanded $4 billion share repurchase program by the end of the second quarter of 2018. The timing of share repurchases depends upon marketplace conditions and other factors. This program remains subject to the discretion of the Board.
Since Altria resumed share repurchase activity six years ago, the company has repurchased over 170 million shares at an average share price of $41.59.
Product Innovation
In e-vapor, Nu Mark LLC (Nu Mark) continues to grow MarkTen volume and retail share. MarkTen is now the number two e-vapor brand nationally, with a second-quarter national retail market share of approximately 13% in mainstream retail channels. MarkTen is now present in stores representing approximately 65% of e-vapor category volume in those channels.
In heated tobacco, the U.S. Food and Drug Administration (FDA) began its substantive science review of Philip Morris International Inc.’s (PMI) modified risk tobacco product application for IQOS in May. PMI also submitted an IQOS premarket tobacco product application to the FDA in March 2017. Philip Morris USA Inc. (PM USA) continues to build its commercialization plans for IQOS, which it will have the exclusive license to sell in the U.S. upon FDA authorization.
Smokeless Recall
As previously disclosed, in January 2017 U.S. Smokeless Tobacco Company LLC (USSTC) voluntarily recalled certain smokeless tobacco products manufactured at its Franklin Park, Illinois facility due to a product tampering incident (Recall). USSTC estimates that the Recall-related costs and the share impact from the Recall reduced smokeless products segment adjusted operating companies income (OCI) by approximately $60 million (or $0.02per share) in the first quarter. USSTC has concluded the Recall and trade inventories are substantially replenished.
Facilities Consolidation
In October 2016, Altria announced the consolidation of certain of its operating companies’ manufacturing facilities to streamline operations and achieve greater efficiencies (Facilities Consolidation). The Facilities Consolidation is expected to be completed by the first quarter of 2018 and deliver approximately $50 million in annualized cost savings by the end of 2018.
As a result of the Facilities Consolidation, Altria expects to record total pre-tax charges of approximately $150 million, or $0.05 per share. Of this amount, Altria recorded pre-tax charges of $71 million in 2016 and $56 million for the first half of 2017 (including $29 million in the second quarter). Altria expects to record a total of approximately $70 million in 2017 and the remainder in 2018.
2017 Full-Year Guidance
Altria reaffirms its guidance for 2017 full-year adjusted diluted EPS to be in a range of $3.26 to $3.32. This range represents a growth rate of 7.5% to 9.5% from an adjusted diluted EPS base of $3.03 in 2016 as shown in Table 1. This range excludes the special items for the first half of 2017 shown in Table 2.
Altria continues to expect higher adjusted diluted EPS growth in the second half of the year compared to the first half, driven by various factors. These include the financial effects of the Recall during the first quarter of 2017 and the benefit of reporting four full quarters of equity income from Anheuser-Busch InBev SA/NV (AB InBev) in 2017 versus three quarters in 2016 from SABMiller plc (SABMiller).
Altria continues to expect that its 2017 full-year effective tax rate on operations will be approximately 36%.
