Altria(MO) - 2024 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION This part presents Altria Group, Inc.'s unaudited condensed consolidated financial statements and management's discussion and analysis Item 1. Financial Statements (Unaudited) This section presents Altria Group, Inc.'s unaudited condensed consolidated financial statements and related notes for the reported periods Condensed Consolidated Balance Sheets Presents the company's financial position at specific dates, detailing assets, liabilities, and equity Condensed Consolidated Balance Sheets (in millions of dollars) | Metric | Dec 31, 2023 | Sep 30, 2024 | Change | | :----- | :----------- | :----------- | :----- | | Cash and cash equivalents | $3,686 | $1,897 | $(1,789) | | Total current assets | $5,585 | $3,499 | $(2,086) | | Investments in equity securities | $10,011 | $8,153 | $(1,858) | | Total Assets | $38,570 | $34,167 | $(4,403) | | Current portion of long-term debt | $1,121 | $1,585 | $464 | | Deferred gain from IQOS sale | $2,700 | $0 | $(2,700) | | Total current liabilities | $11,319 | $7,996 | $(3,323) | | Long-term debt | $25,112 | $23,570 | $(1,542) | | Total Liabilities | $42,060 | $37,585 | $(4,475) | | Total Stockholders' Equity (Deficit) | $(3,490) | $(3,418) | $72 | Condensed Consolidated Statements of Earnings Details the company's revenues, expenses, and net earnings over specific periods Condensed Consolidated Statements of Earnings (in millions of dollars, except per share data) | Metric | 9 Months Ended Sep 30, 2024 | 9 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2024 | 3 Months Ended Sep 30, 2023 | | :----- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net revenues | $18,044 | $18,508 | $6,259 | $6,281 | | Cost of sales | $4,575 | $4,693 | $1,536 | $1,578 | | Excise taxes on products | $2,706 | $3,030 | $915 | $1,004 | | Gross profit | $10,763 | $10,785 | $3,808 | $3,699 | | Marketing, administration and research costs | $2,050 | $2,034 | $656 | $610 | | Asset impairment | $354 | $0 | $0 | $0 | | Operating income | $8,359 | $8,751 | $3,152 | $3,089 | | Interest and other debt expense, net | $782 | $758 | $267 | $272 | | Net periodic benefit income, excluding service cost | $(74) | $(95) | $(25) | $(33) | | (Income) losses from investments in equity securities | $(530) | $(105) | $(116) | $(58) | | Gain on the sale of IQOS System commercialization rights | $(2,700) | $0 | $0 | $0 | | Earnings before income taxes | $10,881 | $8,193 | $3,026 | $2,908 | | Provision for income taxes | $2,656 | $2,123 | $733 | $742 | | Net earnings | $8,225 | $6,070 | $2,293 | $2,166 | | Basic and diluted earnings per share | $4.75 | $3.40 | $1.34 | $1.22 | Condensed Consolidated Statements of Comprehensive Earnings Reports net earnings and other comprehensive earnings (losses) for the reported periods Condensed Consolidated Statements of Comprehensive Earnings (in millions of dollars) | Metric | 9 Months Ended Sep 30, 2024 | 9 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2024 | 3 Months Ended Sep 30, 2023 | | :----- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net earnings | $8,225 | $6,070 | $2,293 | $2,166 | | Other comprehensive earnings (losses), net of deferred income taxes | $56 | $300 | $(334) | $238 | | Comprehensive earnings | $8,281 | $6,370 | $1,959 | $2,404 | Condensed Consolidated Statements of Stockholders' Equity (Deficit) Shows changes in stockholders' equity (deficit) over the reported periods Changes in Stockholders' Equity (Deficit) (in millions of dollars) | Metric | Dec 31, 2023 Balance | Net Earnings | Other Comprehensive Earnings (Losses) | Cash Dividends Declared | Repurchases of Common Stock | Sep 30, 2024 Balance | | :----- | :------------------- | :----------- | :------------------------------------ | :---------------------- | :-------------------------- | :------------------- | | Total Stockholders' Equity (Deficit) attributable to Altria | $(3,490) | $8,225 | $56 | $(5,113) | $(3,090) | $(3,418) | Condensed Consolidated Statements of Cash Flows Summarizes cash flows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (in millions of dollars) | Metric | 9 Months Ended Sep 30, 2024 | 9 Months Ended Sep 30, 2023 | | :----- | :-------------------------- | :-------------------------- | | Net cash provided by operating activities | $5,413 | $6,060 | | Net cash provided by (used in) investing activities | $2,238 | $(1,217) | | Net cash provided by (used in) financing activities | $(9,444) | $(7,353) | | Increase (decrease) in cash, cash equivalents and restricted cash | $(1,793) | $(2,510) | | Balance at end of period | $1,928 | $1,581 | Notes to Condensed Consolidated Financial Statements Provides detailed explanations of accounting policies, significant transactions, and financial positions supporting the consolidated financial statements Note 1. Background and Basis of Presentation Outlines Altria's corporate structure, dividend policy, and share repurchase programs - Altria's wholly-owned subsidiaries include PM USA (cigarettes), Middleton (cigars), USSTC (moist smokeless tobacco, snus), Helix (oral nicotine pouches), and NJOY (e-vapor products)[28] - The Board of Directors approved a 4.1% increase in the quarterly dividend rate to $1.02 per share, resulting in an annualized dividend rate of $4.08 per share[28] - A new $3.4 billion share repurchase program was authorized in January 2024 (increased in March 2024), with $2.4 billion executed through Accelerated Share Repurchase (ASR) transactions, funded by proceeds from the ABI Transaction[28] Share Repurchase Activity (in millions, except per share data) | Metric | 9 Months Ended Sep 30, 2024 | 9 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2024 | 3 Months Ended Sep 30, 2023 | | :----- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total number of shares repurchased | 67.6 | 16.3 | 13.5 | 5.9 | | Aggregate cost of shares repurchased | $3,090 | $732 | $680 | $260 | | Average price per share | $45.68 | $44.97 | $50.37 | $44.26 | Note 2. Acquisition of NJOY Details the acquisition of NJOY, including purchase price, contingent payments, and goodwill allocation - Altria acquired NJOY Holdings for approximately $2.9 billion, comprising $2.75 billion in cash and up to $500 million in contingent payments tied to FDA authorizations[31] - FDA marketing granted orders for four NJOY menthol e-vapor products in Q2 2024 triggered a $250 million cash payment, and a pre-tax charge of approximately $140 million was recorded for the change in fair value of contingent payments[31] NJOY Transaction Costs (in millions) | Metric | 9 Months Ended Sep 30, 2024 | 9 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2024 | 3 Months Ended Sep 30, 2023 | | :----- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Change in fair value of contingent payments | $140 | $0 | $0 | $0 | | Other costs (primarily acquisition-related patent infringement lawsuits) | $47 | $54 | $44 | $13 | | Financing fees | $0 | $9 | $0 | $1 | | Total NJOY Transaction costs | $187 | $63 | $44 | $14 | - The final purchase price allocation for NJOY resulted in $1,768 million in goodwill, primarily reflecting the value of future growth opportunities in the e-vapor category[33][35] Note 3. Revenues from Contracts with Customers Explains revenue recognition policies and presents receivables and deferred revenue - Cash discounts for PM USA and USSTC changed from a flat rate per unit to a percentage of the list price in Q1 2024[36] Receivables and Deferred Revenue (in millions) | Metric | Sep 30, 2024 | Dec 31, 2023 | | :----- | :----------- | :----------- | | Receivables | $87 | $71 | | Deferred revenue | $218 | $258 | Note 4. Supplier Financing Describes Altria's voluntary supplier financing program and outstanding obligations - Altria facilitates a voluntary supplier financing program, guaranteeing ALCS's obligations to participating financial institutions[39][105] - Confirmed outstanding obligations under the program were $115 million at September 30, 2024, down from $119 million at December 31, 2023[39] Note 5. Goodwill and Other Intangible Assets, net Reports on goodwill and other intangible assets, including impairment charges and amortization Goodwill and Other Intangible Assets, net (in millions) | Metric | Sep 30, 2024 | Dec 31, 2023 | | :----- | :----------- | :----------- | | Goodwill | $6,945 | $6,791 | | Other intangible assets, net | $13,010 | $13,686 | - A non-cash, pre-tax impairment of $354 million was recorded on the Skoal trademark in Q2 2024 due to lower projected revenue and income from declining MST sales volumes, a decrease in perpetual growth rate, and an increase in the discount rate[44][45] - A pre-tax gain of $2.7 billion was recorded for the nine months ended September 30, 2024, from the assignment of IQOS System commercialization rights to PMI[43] - Annualized amortization expense for definite-lived intangible assets is estimated to be approximately $150 million for each of the next five years[43] Note 6. Investments in Equity Securities Details Altria's investments in ABI and Cronos, including sales and ownership interests Carrying Amount of Investments (in millions) | Investment | Sep 30, 2024 | Dec 31, 2023 | | :--------- | :----------- | :----------- | | ABI | $7,846 | $9,676 | | Cronos | $307 | $335 | | Total | $8,153 | $10,011 | - In March 2024, Altria sold 35 million ordinary shares of ABI and 3.3 million ordinary shares to ABI in a private transaction, generating approximately $2.4 billion in gross proceeds[49] Pre-tax Gain on ABI Transaction (in millions) | Metric | 9 Months Ended Sep 30, 2024 | | :----- | :-------------------------- | | Gain on partial sale of investment | $165 | | Transaction costs | $(62) | | Total pre-tax gain | $103 | - Altria maintains an approximate 8.1% ownership interest in ABI and a 41.0% ownership interest in Cronos, both accounted for using the equity method[49][50] - In March 2023, Altria disposed of its JUUL equity securities, recording a non-cash, pre-tax loss of $250 million[51] Note 7. Financial Instruments Discusses Altria's use of financial instruments, including foreign currency hedges and debt fair values - Altria uses foreign currency denominated debt as net investment hedges for its ABI investment to mitigate foreign currency exchange risk[52] Long-term Debt Carrying and Fair Value (in millions) | Metric | Sep 30, 2024 | Dec 31, 2023 | | :----- | :----------- | :----------- | | Carrying value | $25,155 | $26,233 | | Fair value | $24,031 | $24,373 | | Foreign currency denominated debt (carrying value) | $3,334 | $3,303 | | Foreign currency denominated debt (fair value) | $3,274 | $3,125 | - Pre-tax gains of $29 million from net investment hedges were recognized in accumulated other comprehensive losses for the nine months ended September 30, 2024[54] Note 8. Benefit Plans Presents net periodic benefit costs and employer contributions for pension and postretirement plans Net Periodic Benefit Cost (Income) (in millions) | Metric | 9 Months Ended Sep 30, 2024 (Pension) | 9 Months Ended Sep 30, 2023 (Pension) | 9 Months Ended Sep 30, 2024 (Postretirement) | 9 Months Ended Sep 30, 2023 (Postretirement) | | :----- | :------------------------------------ | :------------------------------------ | :------------------------------------------- | :------------------------------------------- | | Service cost | $31 | $29 | $11 | $11 | | Interest cost | $242 | $250 | $46 | $49 | | Expected return on plan assets | $(349) | $(364) | $(4) | $(5) | | Net periodic benefit cost (income) | $(51) | $(78) | $19 | $23 | - Employer contributions of $13 million were made to pension plans during the nine months ended September 30, 2024, with an anticipation of up to $5 million more in 2024[57] Note 9. Earnings per Share Provides detailed calculations for basic and diluted earnings per share Earnings per Share Data (in millions, except per share data) | Metric | 9 Months Ended Sep 30, 2024 | 9 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2024 | 3 Months Ended Sep 30, 2023 | | :----- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net earnings | $8,225 | $6,070 | $2,293 | $2,166 | | Earnings for basic and diluted EPS | $8,205 | $6,058 | $2,287 | $2,161 | | Weighted-average shares for basic and diluted EPS | 1,726 | 1,780 | 1,703 | 1,773 | | Basic and diluted EPS | $4.75 | $3.40 | $1.34 | $1.22 | Note 10. Other Comprehensive Earnings/Losses Details changes in accumulated other comprehensive losses and reclassifications to net earnings Changes in Accumulated Other Comprehensive Losses (in millions) | Component | Dec 31, 2023 Balance | 9 Months Ended Sep 30, 2024 Change | Sep 30, 2024 Balance | | :-------- | :------------------- | :--------------------------------- | :------------------- | | Benefit Plans | $(1,493) | $(4) | $(1,497) | | ABI | $(1,195) | $64 | $(1,131) | | Currency Translation Adjustments and Other | $15 | $(4) | $11 | | Total Accumulated Other Comprehensive Losses | $(2,673) | $56 | $(2,617) | Pre-tax Reclassifications from Accumulated Other Comprehensive Losses to Net Earnings (in millions) | Component | 9 Months Ended Sep 30, 2024 | 9 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2024 | 3 Months Ended Sep 30, 2023 | | :-------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Benefit Plans | $(5) | $(21) | $(2) | $(7) | | ABI | $258 | $(5) | $1 | $(14) | | Total | $253 | $(26) | $(1) | $(21) | Note 11. Segment Reporting Outlines Altria's reportable segments and their respective net revenues and operating income - Altria's reportable segments are smokeable products (cigarettes, machine-made large cigars) and oral tobacco products (MST, snus, oral nicotine pouches). The "all other" category includes NJOY, Horizon, Helix International, and R&D for new product platforms[67] Segment Net Revenues and OCI (in millions) | Metric | 9 Months Ended Sep 30, 2024 (Net Revenues) | 9 Months Ended Sep 30, 2023 (Net Revenues) | 9 Months Ended Sep 30, 2024 (OCI) | 9 Months Ended Sep 30, 2023 (OCI) | | :----- | :----------------------------------------- | :----------------------------------------- | :-------------------------------- | :-------------------------------- | | Smokeable products | $15,941 | $16,482 | $8,183 | $8,092 | | Oral tobacco products | $2,084 | $1,993 | $996 | $1,314 | | All other | $19 | $33 | $(291) | $(17) | | Total Net Revenues | $18,044 | $18,508 | | | | Total Operating Income | | | $8,359 | $8,751 | - The oral tobacco products segment recorded a non-cash, pre-tax impairment of $354 million on the Skoal trademark for the nine months ended September 30, 2024[70] - R&D expense for certain new product platforms and technologies is now primarily recorded in the "all other" category, totaling $165 million for the nine months ended September 30, 2024[73] Note 12. Debt Reports on Altria's short-term and long-term debt, including credit facilities and compliance - Altria had no short-term borrowings at September 30, 2024[74] - Total long-term debt decreased from $26.2 billion at December 31, 2023, to $25.2 billion at September 30, 2024, with $1,121 million repaid in Q1 2024[74] - Altria maintains a $3.0 billion senior unsecured 5-year revolving credit agreement and was in compliance with all covenants, including a Consolidated EBITDA to Consolidated Interest Expense ratio of not less than 4.0 to 1.0[74] Note 13. Income Taxes Presents income tax data, rates, and significant tax benefits or charges Income Tax Data (in millions) | Metric | 9 Months Ended Sep 30, 2024 | 9 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2024 | 3 Months Ended Sep 30, 2023 | | :----- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Earnings before income taxes | $10,881 | $8,193 | $3,026 | $2,908 | | Provision for income taxes | $2,656 | $2,123 | $733 | $742 | | Income tax rate | 24.4% | 25.9% | 24.2% | 25.5% | - The income tax rate decreased due to an income tax benefit from the partial release of a valuation allowance on JUUL-related losses, triggered by the capital gain on the ABI Transaction[76][77] - An agreement with the IRS in October 2024 is expected to result in a $0.9 billion tax benefit in Q4 2024 from the reversal of an unrecognized tax benefit related to JUUL losses[78][79] Note 14. Contingencies Details Altria's legal proceedings, including product liability, e-vapor, and patent infringement cases - Altria faces various legal proceedings, including product liability, health care cost recovery, e-vapor, and patent infringement cases[80] Accrued Liability for Litigation Items (in millions) | Metric | Sep 30, 2024 | Dec 31, 2023 | | :----- | :----------- | :----------- | | Accrued liability at beginning of period | $346 | $71 | | Pre-tax charges for tobacco and health and certain other litigation | $59 | $75 | | Pre-tax charges for JUUL-related settlements | $30 | $240 | | Related interest costs | $1 | $11 | | Payments | $(300) | $(122) | | Accrued liability at end of period | $136 | $373 | - As of October 28, 2024, 178 individual smoking and health cases, 1 health care cost recovery action, and 75 e-vapor cases were pending against Altria[85] - In May 2023, Altria settled the majority of Multidistrict Litigation lawsuits related to JUUL e-vapor products for $235 million, with final approval granted in March 2024. A separate settlement for Native American tribes was agreed upon in July 2024 for $20 million[98] - NJOY is involved in patent infringement lawsuits regarding NJOY ACE, with an ALJ issuing an initial determination supporting plaintiffs' allegations for four patents in August 2024, recommending an exclusion order. The ITC is expected to issue its final determination by December 23, 2024[99] Note 15. New Accounting Guidance Not Yet Adopted Identifies upcoming accounting standards that will impact future financial disclosures - ASU 2023-07 (Segment Reporting) will require expanded footnote disclosures for segment information, effective for fiscal years beginning after December 15, 2024[109] - ASU 2023-09 (Income Taxes) will require additional income tax disclosures, primarily related to rate reconciliation and income taxes paid, effective for fiscal years beginning after December 15, 2024[109] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Analyzes Altria's financial condition, operating results, strategic goals, and critical accounting estimates for the reported periods Executive Summary Outlines Altria's vision, strategic goals, and key initiatives for transitioning to a smoke-free future - Altria's vision is to responsibly lead the transition of adult smokers to a smoke-free future, focusing on moving adult smokers away from cigarettes to potentially less harmful choices[112] - The company's portfolio includes leading combustible brands (Marlboro, Black & Mild) and smoke-free brands (Copenhagen, Skoal, on!, NJOY ACE)[113][114] Altria's 2028 Enterprise Goals | Goal Category | Metric | Target | | :------------ | :----- | :----- | | Corporate | Adjusted diluted EPS CAGR | Mid-single digits (from 2022 base) | | Corporate | Dividend per share growth | Mid-single digits annually | | Corporate | Debt-to-Consolidated EBITDA ratio | Approximately 2.0x | | Corporate | Total adjusted OCI margin | At least 60% annually | | U.S. Smoke-Free Portfolio | U.S. smoke-free volumes growth | At least 35% (from 2022 base of 800 million units) | | U.S. Smoke-Free Portfolio | U.S. smoke-free net revenues | Approximately double to $5 billion (from 2022 base, with $2 billion from innovative products) | - The "Optimize & Accelerate" initiative aims to deliver at least $600 million in cumulative cost savings over the next five years, with initial pre-tax charges of $100 million to $125 million[115] Consolidated Results of Operations for the Nine Months Ended September 30, 2024 Summarizes Altria's consolidated net earnings and diluted EPS performance for the nine-month period Consolidated Net Earnings and Diluted EPS (9 Months Ended Sep 30) | Metric | 2024 | 2023 | % Change | | :----- | :--- | :--- | :------- | | Reported Net Earnings (in millions) | $8,225 | $6,070 | 35.5% | | Reported Diluted EPS | $4.75 | $3.40 | 39.7% | | Adjusted Net Earnings (in millions) | $6,637 | $6,739 | (1.5)% | | Adjusted Diluted EPS | $3.84 | $3.78 | 1.6% | - The significant increase in reported net earnings and diluted EPS was primarily driven by the $2.7 billion gain on the sale of IQOS System commercialization rights and favorable results from equity investments[118][131] - Fewer shares outstanding contributed $0.12 to diluted EPS growth for the nine months ended September 30, 2024[118] Consolidated Results of Operations for the three months ended September 30, 2024 Summarizes Altria's consolidated net earnings and diluted EPS performance for the three-month period Consolidated Net Earnings and Diluted EPS (3 Months Ended Sep 30) | Metric | 2024 | 2023 | % Change | | :----- | :--- | :--- | :------- | | Reported Net Earnings (in millions) | $2,293 | $2,166 | 5.9% | | Reported Diluted EPS | $1.34 | $1.22 | 9.8% | | Adjusted Net Earnings (in millions) | $2,357 | $2,275 | 3.6% | | Adjusted Diluted EPS | $1.38 | $1.28 | 7.8% | - The increase in reported net earnings and diluted EPS was primarily due to higher operating income and favorable results from equity investments[132] - Fewer shares outstanding contributed $0.05 to diluted EPS growth for the three months ended September 30, 2024[120] Non-GAAP Financial Measures Explains Altria's use of non-GAAP financial measures for business analysis and internal evaluation - Altria uses non-GAAP financial measures (adjusted OCI, adjusted OCI margins, adjusted net earnings, adjusted diluted EPS, debt-to-Consolidated EBITDA) to provide insight into underlying business trends and for internal planning and evaluation[121][122] - Special items excluded from non-GAAP measures include loss on early extinguishment of debt, restructuring charges, asset impairment charges, acquisition/disposition/integration-related items, equity investment-related special items, certain income tax items, tobacco and health litigation charges, and NPM Adjustment Items[121] Discussion and Analysis Provides in-depth analysis of critical accounting estimates, consolidated operating results, and segment performance Critical Accounting Estimates Discusses key accounting judgments, including asset impairment and the risks associated with e-vapor goodwill - A $354 million non-cash, pre-tax impairment was recorded on the Skoal trademark in Q2 2024 due to lower projected revenue and income, a decreased perpetual growth rate (0% from 1%), and an increased discount rate (11.5% from 11.0%)[124] - The e-vapor reporting unit's goodwill ($1.8 billion) is at risk of material non-cash impairment due to ongoing patent infringement lawsuits against NJOY ACE and the negative impact of increasing illicit e-vapor product sales on NJOY's volume growth[124][125] - A hypothetical 1% increase in the discount rate or a 1% decrease in the perpetual growth rate for Skoal could result in an additional pre-tax impairment of approximately $300 million and $120 million, respectively[124] Consolidated Operating Results Analyzes Altria's overall net revenues and operating income trends for the reported periods Consolidated Net Revenues and Operating Income (in millions) | Metric | 9 Months Ended Sep 30, 2024 | 9 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2024 | 3 Months Ended Sep 30, 2023 | | :----- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net Revenues | $18,044 | $18,508 | $6,259 | $6,281 | | Operating Income | $8,359 | $8,751 | $3,152 | $3,089 | | Adjusted OCI | $9,272 | $9,454 | $3,096 | $3,011 | - Net revenues decreased for the nine months primarily due to lower shipment volume in the smokeable products segment, partially offset by higher oral tobacco product net revenues[130] - Operating income decreased for the nine months due to lower OCI, which includes the non-cash impairment of the Skoal trademark[130] Operating Results by Business Segment Details the financial performance and market trends of Altria's smokeable and oral tobacco product segments - The U.S. tobacco industry faces significant challenges from pending litigation, FDA regulations (including inaction on illicit products), illicit trade, excise tax increases, and shifts in adult tobacco consumer preferences[133][134] - Total estimated domestic cigarette industry volume declined by 9% in Q3 2024, primarily due to the growth of illicit e-vapor products and continued discretionary income pressures on adult tobacco consumers[134] - The e-vapor category grew approximately 30% over the 12 months ended September 30, 2024, driven by illicit flavored disposable products, which now represent 65% of the category[134] - The U.S. nicotine pouch category grew to 43.9% of the U.S. oral tobacco category in Q3 2024, with Altria's on! brand achieving an 8.9% share[136] Smokeable Products Segment Examines the financial results, shipment volumes, and retail share performance of Altria's smokeable products Smokeable Products Segment Financial Results (in millions) | Metric | 9 Months Ended Sep 30, 2024 | 9 Months Ended Sep 30, 2023 | % Change | | :----- | :-------------------------- | :-------------------------- | :------- | | Net revenues | $15,941 | $16,482 | (3.3)% | | Reported OCI | $8,183 | $8,092 | 1.1% | | Adjusted OCI | $8,213 | $8,142 | 0.9% | | Reported OCI margin | 61.5% | 59.8% | 1.7 pp | | Adjusted OCI margin | 61.7% | 60.1% | 1.6 pp | Smokeable Products Shipment Volume (sticks in millions) | Brand | 9 Months Ended Sep 30, 2024 | 9 Months Ended Sep 30, 2023 | % Change | | :---- | :-------------------------- | :-------------------------- | :------- | | Marlboro | 47,411 | 52,339 | (9.4)% | | Total cigarettes | 51,989 | 58,132 | (10.6)% | | Total smokeable products | 53,312 | 59,493 | (10.4)% | Cigarettes Retail Share Performance | Brand | 9 Months Ended Sep 30, 2024 | 9 Months Ended Sep 30, 2023 | Percentage Point Change | | :---- | :-------------------------- | :-------------------------- | :---------------------- | | Marlboro | 41.9% | 42.1% | (0.2) | | Total cigarettes | 46.1% | 47.0% | (0.9) | - PM USA implemented multiple price increases across its cigarette brands in 2024 and 2023, with increases ranging from $0.15 to $0.25 per pack. Middleton also increased cigar list prices[168] Oral Tobacco Products Segment Reviews the financial results, shipment volumes, and retail share performance of Altria's oral tobacco products Oral Tobacco Products Segment Financial Results (in millions) | Metric | 9 Months Ended Sep 30, 2024 | 9 Months Ended Sep 30, 2023 | % Change | | :----- | :-------------------------- | :-------------------------- | :------- | | Net revenues | $2,084 | $1,993 | 4.6% | | Reported OCI | $996 | $1,314 | (24.2)% | | Adjusted OCI | $1,350 | $1,314 | 2.7% | | Reported OCI margin | 49.6% | 68.9% | (19.3) pp | | Adjusted OCI margin | 67.2% | 68.9% | (1.7) pp | Oral Tobacco Products Shipment Volume (cans and packs in millions) | Brand | 9 Months Ended Sep 30, 2024 | 9 Months Ended Sep 30, 2023 | % Change | | :---- | :-------------------------- | :-------------------------- | :------- | | Copenhagen | 304.4 | 333.3 | (8.7)% | | Skoal | 111.6 | 123.3 | (9.5)% | | on! | 116.4 | 83.9 | 38.7% | | Total oral tobacco products | 582.4 | 589.8 | (1.3)% | Oral Tobacco Products Retail Share Performance | Brand | 9 Months Ended Sep 30, 2024 | 9 Months Ended Sep 30, 2023 | Percentage Point Change | | :---- | :-------------------------- | :-------------------------- | :---------------------- | | Copenhagen | 19.4% | 24.1% | (4.7) | | Skoal | 7.7% | 9.6% | (1.9) | | on! | 8.0% | 6.8% | 1.2 | | Total oral tobacco products | 37.8% | 43.4% | (5.6) | - USSTC and Helix implemented multiple price increases across their oral tobacco brands in 2024 and 2023[175] E-Vapor Reports on NJOY's shipment volumes and retail share performance within the e-vapor category - For the nine months ended September 30, 2024, NJOY consumables shipment volume was 33.8 million units, and device shipment volume was 3.9 million units[176] - NJOY's retail share of consumables in the U.S. multi-outlet and convenience channel was 5.3% for the nine months ended September 30, 2024[176] - For the three months ended September 30, 2024, NJOY consumables shipment volume increased 15.6% YoY to 10.4 million units, and device shipment volume increased over 100% YoY to 1.1 million units[176] - NJOY's retail share of consumables in the U.S. multi-outlet and convenience channel increased 2.8 percentage points YoY to 6.2% in Q3 2024[176] Liquidity and Capital Resources Assesses Altria's cash flows, debt, credit ratings, and capital allocation strategies - Altria's liquidity is primarily dependent on cash flows from subsidiaries, a $3.0 billion revolving credit agreement, and access to credit markets[177][178] - Cash and cash equivalents were $1.9 billion at September 30, 2024[178] - Net cash provided by operating activities decreased to $5,413 million for the nine months ended September 30, 2024, from $6,060 million in 2023, due to higher income tax credit payments and litigation payments[187] - Net cash provided by investing activities was $2,238 million for the nine months ended September 30, 2024, a significant improvement from a net use of $1,217 million in 2023, driven by proceeds from the ABI Transaction[188] - Net cash used in financing activities increased to $9,444 million for the nine months ended September 30, 2024, from $7,353 million in 2023, primarily due to higher share repurchases[189] Capital Markets and Other Matters Details Altria's credit ratings, debt levels, and capital market activities Credit Ratings at September 30, 2024 | Agency | Short-term Debt | Long-term Debt | Outlook | | :----- | :-------------- | :------------- | :------ | | Moody's | P-2 | A3 | Negative | | S&P | A-2 | BBB | Positive | | Fitch | F2 | BBB | Stable | - Total long-term debt was $25.2 billion at September 30, 2024, down from $26.2 billion at December 31, 2023[180] Debt Ratios at September 30, 2024 | Metric | Value | | :----- | :---- | | Total Debt / Consolidated net earnings | 2.4 | | Total Debt / Consolidated EBITDA | 2.1 | - Proceeds of approximately $2.4 billion from the ABI Transaction were used to fund Accelerated Share Repurchase (ASR) transactions[184] - A $250 million cash payment was made in July 2024 for NJOY contingent payments following FDA marketing granted orders[184] Payments Under State Settlement Agreements and FDA Regulation Outlines estimated annual payments for state settlements and FDA user fees - Estimated average annual payments for State Settlement Agreements and FDA user fees are $3.5 billion for the next three years[184] - Payments for State Settlement Agreements are generally made in April of the following year, while FDA user fees are paid in the quarter incurred[184] - PM USA's obligation to pay settling plaintiffs' attorneys' fees under the State Settlement Agreements is expected to terminate in Q4 2024[184] Equity and Dividends Summarizes Altria's dividend payments and share repurchase activities - Dividends paid increased by 1.3% to $5,108 million for the first nine months of 2024, driven by a higher dividend rate and fewer shares outstanding[186] - The quarterly dividend rate increased by 4.1% to $1.02 per share, with an annualized rate of $4.08 per share, aligning with a progressive dividend goal targeting mid-single digit annual growth through 2028[186] - $2.4 billion was paid for common stock repurchases under Accelerated Share Repurchase (ASR) transactions in the first half of 2024, funded by ABI Transaction proceeds[186] Financial Review Provides a detailed review of cash flows from operating, investing, and financing activities Cash Provided by/Used in Operating Activities Analyzes changes in cash generated from Altria's core business operations - Net cash provided by operating activities decreased to $5,413 million for the first nine months of 2024 (from $6,060 million in 2023), primarily due to payments for income tax credits, higher litigation payments, and NJOY contingent payments[187] Cash Provided by/Used in Investing Activities Examines cash flows related to Altria's investments and capital expenditures - Net cash provided by investing activities was $2,238 million for the first nine months of 2024, compared to a net use of $1,217 million in 2023, primarily due to proceeds from the ABI Transaction[188] - Capital expenditures for 2024 are projected to be in the range of $125 million to $175 million, a reduction from the previous estimate of $175 million to $225 million[188] Cash Provided by/Used in Financing Activities Details cash flows from Altria's debt, equity, and dividend activities - Net cash used in financing activities increased to $9,444 million for the first nine months of 2024 (from $7,353 million in 2023), driven by higher share repurchases and NJOY contingent payments, partially offset by lower long-term debt repayments[189] New Accounting Guidance Not Yet Adopted Identifies upcoming accounting standards that will impact future financial disclosures - ASU 2023-07 (Segment Reporting) will require expanded footnote disclosures for segment information, effective for fiscal years beginning after December 15, 2024[109][190] - ASU 2023-09 (Income Taxes) will require additional income tax disclosures, primarily related to rate reconciliation and income taxes paid, effective for fiscal years beginning after December 15, 2024[109][190] Contingencies Summarizes Altria's legal proceedings and related accrued liabilities - Altria faces various legal proceedings, including product liability, health care cost recovery, e-vapor, and patent infringement cases[80][191] Accrued Liability for Litigation Items (in millions) | Metric | Sep 30, 2024 | Dec 31, 2023 | | :----- | :----------- | :----------- | | Accrued liability at beginning of period | $346 | $71 | | Pre-tax charges for tobacco and health and certain other litigation | $59 | $75 | | Pre-tax charges for JUUL-related settlements | $30 | $240 | | Related interest costs | $1 | $11 | | Payments | $(300) | $(122) | | Accrued liability at end of period | $136 | $373 | Supplemental Guarantor Financial Information Presents summarized financial information for Altria's parent company and guarantor subsidiary - Philip Morris USA Inc. (PM USA), a 100% owned subsidiary, fully and unconditionally guarantees Altria's obligations under its outstanding debt securities, credit agreement, and commercial paper program[192] - The guarantees could be voided or subordinated under bankruptcy or fraudulent transfer laws if PM USA did not receive reasonably equivalent value or was insolvent when incurring the obligations[192] Summarized Balance Sheets (in millions of dollars) - Parent and Guarantor | Metric | Parent (Sep 30, 2024) | Parent (Dec 31, 2023) | Guarantor (Sep 30, 2024) | Guarantor (Dec 31, 2023) | | :----- | :-------------------- | :-------------------- | :----------------------- | :----------------------- | | Total current assets | $2,324 | $4,052 | $1,042 | $994 | | Total non-current assets | $14,532 | $16,358 | $1,319 | $1,334 | | Total current liabilities | $7,399 | $6,256 | $4,453 | $4,746 | | Total non-current liabilities | $26,436 | $27,876 | $585 | $590 | Summarized Statements of Earnings (Losses) (in millions of dollars) - Parent and Guarantor (9 Months Ended Sep 30, 2024) | Metric | Parent | Guarantor | | :----- | :----- | :-------- | | Net revenues | $0 | $15,049 | | Gross profit | $0 | $8,590 | | Net earnings (losses) | $(350) | $5,803 | Cautionary Factors That May Affect Future Results Highlights key risks and uncertainties that could impact Altria's future financial performance - Future results are subject to risks including changes in adult tobacco consumer preferences, inability to compete effectively, and the growth of illicit disposable e-vapor products[198] - Significant federal, state, and local government actions, including FDA regulatory actions and inaction, and increases in tobacco product-related taxes, pose material risks[198] - Risks also include failure to successfully manage strategic transactions (like NJOY acquisition), significant changes in raw material prices/availability, and potential asset impairment (trademarks, goodwill)[198] Item 3. Quantitative and Qualitative Disclosures About Market Risk Assesses Altria's exposure to market risks, primarily interest rate fluctuations on debt - Altria's primary market risk is interest rate risk on its fixed-rate long-term debt[200] Fair Value of Long-term Debt and Sensitivity (in billions) | Metric | Sep 30, 2024 | Dec 31, 2023 | | :----- | :----------- | :----------- | | Fair value | $24.0 | $24.4 | | Decrease in fair value from a 1% increase in market interest rates | $1.9 | $1.9 | | Increase in fair value from a 1% decrease in market interest rates | $2.2 | $2.2 | Item 4. Controls and Procedures Confirms the effectiveness of Altria's disclosure controls and internal financial reporting controls - Altria's disclosure controls and procedures were deemed effective as of September 30, 2024, following an evaluation by management, including the CEO and CFO[201] - No material changes in internal control over financial reporting occurred during the most recent fiscal quarter[201] PART II - OTHER INFORMATION This part provides additional information on legal proceedings, risk factors, equity sales, and exhibits Item 1. Legal Proceedings Refers to detailed disclosures on legal proceedings in the financial statement notes - Legal proceedings pending against Altria are detailed in Note 14 of the condensed consolidated financial statements[202] Item 1A. Risk Factors Confirms no material changes to previously disclosed risk factors - No material changes to the risk factors previously disclosed in Altria's 2023 Form 10-K have occurred[203] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Details Altria's share repurchase program and its execution - A $3.4 billion share repurchase program was authorized in January 2024 (increased in March 2024), with completion expected by December 31, 2024[204] Share Repurchase Activity (3 Months Ended Sep 30, 2024) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | Approximate Dollar Value Remaining | | :----- | :------------------------------- | :--------------------------- | :------------------------------- | | July 1-31, 2024 | 4,813,800 | $48.05 | $758,711,760 | | August 1-31, 2024 | 4,694,454 | $51.07 | $519,053,962 | | September 1-30, 2024 | 4,003,761 | $52.34 | $309,534,422 | | Total (3 months) | 13,512,015 | $50.37 | | - At September 30, 2024, $310 million remained under the January 2024 share repurchase program[28] Item 5. Other Information Confirms no changes in trading arrangements by directors or officers - No Rule 10b5-1 or non-Rule 10b5-1 trading arrangements were adopted, modified, or terminated by directors or officers during Q3 2024[206] Item 6. Exhibits Lists all supplementary documents and certifications filed with the report - Exhibits include certifications from the CEO and CFO (31.1, 31.2, 32.1, 32.2), XBRL instance documents (101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE, 104), and additional litigation matters (99.1, 99.2)[208][209][210][211] Signature Identifies the signing officer and date of the financial report - The report was signed by Salvatore Mancuso, Executive Vice President and Chief Financial Officer, on October 31, 2024[213]