Altria(US:MO)2023-10-26 11:11Financial Performance and Targets - Adjusted diluted EPS growth target of mid-single digits on a compounded annual basis through 2028[113] - Net earnings for the nine months ended September 30, 2023, increased by 97.5% to $6.07 billion compared to $3.07 billion in 2022[119] - Adjusted net earnings for the nine months ended September 30, 2023, increased by 1.7% to $6.74 billion compared to $6.63 billion in 2022[119] - Adjusted diluted EPS for the nine months ended September 30, 2023, increased by 3.3% to $3.78 compared to $3.66 in 2022[119] - Net earnings for Q3 2023 increased to $2.166 billion, up from $224 million in Q3 2022, representing a 100%+ growth[121] - Adjusted diluted EPS for Q3 2023 was $1.28, slightly down by 1.1% compared to $1.28 in Q3 2022[121] - The company narrowed its 2023 full-year adjusted diluted EPS forecast to a range of $4.91 to $4.98, representing a growth rate of 1.5% to 3% from the 2022 base of $4.84[122] - The 2023 adjusted diluted EPS guidance includes planned investments in smoke-free product R&D, digital consumer engagement, and U.S. commercialization of NJOY ACE, as well as $50 million in amortization charges related to the NJOY Transaction[122] - The 2023 full-year adjusted effective tax rate is expected to be in the range of 24.5% to 25.5%[123] - Special items in 2023 included $11 million from NPM Adjustment Items, $(9) million from acquisition-related items, and $(65) million from ABI-related special items[121] - Adjusted net earnings for the nine months ended September 30, 2023, were $6,739 million, compared to $6,629 million in 2022[134] - Adjusted diluted EPS for the nine months ended September 30, 2023, was $3.78, compared to $3.66 in 2022[134] - Reported net earnings increased by $2,996 million (97.5%) to $6,070 million, driven by favorable equity securities investments and lower debt expenses[140] - Adjusted net earnings increased by $110 million (1.7%) to $6,739 million, with adjusted diluted EPS rising 3.3% to $3.78[140] - Net revenues decreased by $269 million (4.1%), primarily due to lower revenues in the smokeable products segment[140] - Cost of sales decreased by $137 million (8.0%), and excise taxes on products decreased by $134 million (11.8%), both due to lower shipment volumes in the smokeable products segment[140] - Net revenues for the Smokeable Products segment decreased by $538 million (3.2%) for the nine months ended September 30, 2023, primarily due to lower shipment volume[167] - Adjusted OCI for the Smokeable Products segment increased by $19 million (0.2%) for the nine months ended September 30, 2023, driven by higher pricing and promotional investments[167] - Net revenues for the Smokeable Products segment decreased by $310 million (5.3%) for the three months ended September 30, 2023, primarily due to lower shipment volume[169] - Adjusted OCI for the Smokeable Products segment decreased by $71 million (2.5%) for the three months ended September 30, 2023, primarily due to lower shipment volume and higher costs[169] - Net revenues for the oral tobacco products segment increased by $45 million (2.3%) for the nine months ended September 30, 2023, driven by higher pricing and promotional investments[178] - Reported and adjusted OCI for the oral tobacco products segment increased by $52 million (4.1%) for the nine months ended September 30, 2023, due to higher pricing and lower costs[178] - Reported and adjusted OCI margins for the oral tobacco products segment increased by 0.9 percentage points to 68.9% for the nine months ended September 30, 2023[179] - Net revenues for the nine months ended September 30, 2023, were $15,606 million for the Guarantor, with gross profit of $8,622 million[199] - Net earnings (losses) for the nine months ended September 30, 2023, included a loss of $11,300 million for the Parent and earnings of $5,743 million for the Guarantor[199] Smoke-Free Products and Innovation - U.S. smoke-free volumes to grow by at least 35% from 800 million units in 2022 to 1.08 billion units by 2028[113] - U.S. smoke-free net revenues to approximately double to $5 billion by 2028 from $2.6 billion in 2022[113] - Acquisition of NJOY Holdings for approximately $2.9 billion in June 2023[114] - The 2023 adjusted diluted EPS guidance includes planned investments in smoke-free product R&D, digital consumer engagement, and U.S. commercialization of NJOY ACE, as well as $50 million in amortization charges related to the NJOY Transaction[122] - NJOY ACE reported shipment volume of approximately 7.5 million pods in Q3 2023, with distribution expanding to 42,000 stores[143] - The company expects ACE distribution to reach 70,000 stores by the end of 2023, representing approximately 70% of e-vapor volume and 55% of cigarette volume sold in the U.S. multi-outlet and convenience channel[184] - The company's NJOY e-vapor business reported domestic shipment volume of approximately 7.5 million ACE pods for the three months ended September 30, 2023, with retail share remaining stable since the NJOY Transaction[184] - The company acquired NJOY Holdings for approximately $2.75 billion (net of cash acquired) on June 1, 2023, with potential additional payments of up to $500 million contingent on FDA authorizations[190] Regulatory and Legal Environment - FDA has resolved more than 99% of timely applications received for e-vapor products, with the majority resulting in denials[147] - Helix submitted PMTAs for on! oral nicotine pouches in May 2020, but as of October 23, 2023, no marketing order decisions have been issued[147] - Middleton has received market orders or exemptions covering over 99% of its cigar product volume as of October 23, 2023[147] - FDA authorized PMTAs for three new tobacco-flavored varieties of Marlboro HeatSticks in January 2023[147] - FDA issued a final rule in March 2020 requiring 11 textual warnings with color graphics on cigarette packaging and advertising, which was later blocked by a U.S. District Court in December 2022[148] - FDA plans to propose a product standard by December 2023 to establish a maximum nicotine level in cigarettes and other combustible tobacco products[149] - FDA issued two proposed product standards in April 2022: banning menthol in cigarettes and banning all characterizing flavors in cigars, with plans to complete rulemaking by August 2023[149] - FDA proposed a product standard for NNN levels in finished smokeless tobacco products in January 2017[149] - FDA issued a proposed rule in March 2023 setting forth requirements for tobacco product manufacturers regarding good manufacturing practices[149] - Compliance with FDA regulations could result in increased costs, including manufacturing, labeling, and packaging requirements, potentially impacting the company's business operations and financial position[150] - The company faces ongoing governmental investigations related to its former investment in JUUL, including inquiries from the FTC, SEC, and state attorneys general[158] - The company has filed a lawsuit in federal court in California against manufacturers of illegal e-vapor products in October 2023 to protect its lawful e-vapor product business[160] Market Share and Consumer Behavior - Cigarette retail share for the industry discount segment was up year-over-year but unchanged from the first half of 2023[115] - Domestic cigarette industry volume declined by 8% in Q3 2023 compared to Q3 2022, influenced by macroeconomic conditions and illegal flavored disposable e-vapor products[143] - Marlboro's market share increased by 0.3 share points to 42.3% in Q3 2023 compared to Q2 2023, but decreased by 0.3 share points year-over-year[143] - The U.S. nicotine pouch category grew to 32.3% of the oral tobacco category, up 9.8 share points year-over-year, with on! achieving 6.9% market share[143] - The discount share of the cigarette category remained at 28.2% in Q3 2023, with a 1.1 share point increase year-over-year[143] - Marlboro's retail share of the total cigarette category decreased by 0.6 percentage points to 42.1% for the nine months ended September 30, 2023, primarily due to macroeconomic pressures and increased competitive activity[173][174] - Total cigarettes industry discount segment retail share increased by 1.6 percentage points to 28.2% for the nine months ended September 30, 2023, driven by macroeconomic pressures and competitive activity[174] - The smokeable products segment's reported domestic cigarettes shipment volume decreased by 10.5% for the nine months ended September 30, 2023, with premium cigarettes accounting for 94.6% of the volume[174] - The company's oral tobacco products segment's retail share decreased to 43.7% for the nine months ended September 30, 2023, down from 46.7% in the same period in 2022, primarily due to share losses in MST products[181] - The U.S. nicotine pouch category grew to 32.3% of the U.S. oral tobacco category, an increase of 9.8 share points compared to the prior year, with the company's on! brand holding a 21.4% share of the nicotine pouch category[181] Operational and Supply Chain Risks - The company faces risks from illicit trade in tobacco products, including counterfeit products and untaxed sales, which could adversely affect its business[160] - The company is mitigating risks related to tobacco supply by maintaining inventory levels, sourcing from diverse geographic regions, and entering into long-term contracts with growers[161] - The company faces risks from its inability to anticipate and respond to changes in adult tobacco consumer preferences and purchase behavior[200] - Growth of the e-vapor category and other innovative tobacco products could reduce cigarette and MST consumption levels and shipment volumes[200] - The company may face challenges in commercializing innovative tobacco products that reduce health risks and appeal to adult consumers[200] - Macroeconomic and geopolitical conditions, including inflation, could shift adult tobacco consumer disposable income and purchasing behavior[200] - The company relies on a few significant facilities and a small number of key suppliers, distributors, and distribution chain service providers[200] - Risks include potential write-downs of intangible assets, such as trademarks and goodwill, due to impairment[200] - The company faces risks related to health epidemics and pandemics, such as COVID-19, and government measures to address them[200] Debt and Financial Position - Debt-to-Consolidated EBITDA ratio target of approximately 2.0x[113] - The company had $1.5 billion in cash and cash equivalents as of September 30, 2023, with access to a $3.0 billion senior unsecured 5-year revolving credit agreement for general corporate purposes[185] - Total long-term debt decreased to $25.1 billion as of September 30, 2023, from $26.7 billion at the end of 2022, with a weighted-average coupon interest rate of approximately 4.2%[188] - The company's debt-to-Consolidated EBITDA ratio was 2.1 as of September 30, 2023, with Consolidated EBITDA of $12.131 billion for the twelve months ended September 30, 2023[189] - The company estimates payments related to State Settlement Agreements and FDA user fees to average $3.9 billion annually over the next three years, excluding potential NPM Adjustment Items[189] - The company paid approximately $3.5 billion in fees for the nine months ended September 30, 2023, related to State Settlement Agreements and FDA user fees, with $3.0 billion recorded as charges to cost of sales[190] - The fair value of the company's long-term debt is $21.3 billion as of September 30, 2023, compared to $22.9 billion as of December 31, 2022[203] - A 1% increase in market interest rates would decrease the fair value of long-term debt by $1.6 billion as of September 30, 2023, and $1.7 billion as of December 31, 2022[203] - A 1% decrease in market interest rates would increase the fair value of long-term debt by $1.9 billion as of September 30, 2023, and $2.0 billion as of December 31, 2022[203] Taxes and Settlement Agreements - The weighted-average state cigarette excise tax increased from $0.36 to $1.90 per pack between 1998 and October 2023, with New York enacting a new excise tax increase effective September 2023[151] - 33 states, the District of Columbia, Puerto Rico, and several cities and counties have enacted legislation to tax e-vapor products, with 11 states and the District of Columbia taxing oral nicotine pouches as of October 2023[153] - The State Settlement Agreements require annual payments adjusted for factors like inflation, with a 6.5% inflation calculation based on CPI-U data as of December 2022, though the impact on financial position was not material[155] - The company estimates payments related to State Settlement Agreements and FDA user fees to average $3.9 billion annually over the next three years, excluding potential NPM Adjustment Items[189] - The company paid approximately $3.5 billion in fees for the nine months ended September 30, 2023, related to State Settlement Agreements and FDA user fees, with $3.0 billion recorded as charges to cost of sales[190] Shareholder Returns and Cash Flow - Dividends paid during the first nine months of 2023 increased by 2.7% to $5,040 million compared to $4,908 million in the same period of 2022[191] - The company declared a 4.3% increase in the quarterly dividend rate to $0.98 per share in August 2023, with an annualized dividend rate of $3.92 per share[191] - Net cash provided by operating activities increased to $6,060 million for the first nine months of 2023, up from $5,637 million in the same period of 2022, primarily due to lower payments for State Settlement Agreements and income taxes[192] - Net cash used in investing activities was $1,217 million for the first nine months of 2023, compared to $215 million in the same period of 2022, primarily due to the NJOY Transaction[193] - Net cash used in financing activities decreased to $7,353 million for the first nine months of 2023, compared to $7,476 million in the same period of 2022, primarily due to lower share repurchases[195] - The company recorded a $10.8 billion loss related to the cancellation of certain interests in a non-guarantor subsidiary for the nine months ended September 30, 2023[198] Product Performance and Shipment Volumes - Total cigarette shipment volume decreased by 10.5% for the nine months ended September 30, 2023, with Marlboro experiencing a 9.5% decline[171] - Cigars shipment volume increased by 4.2% for the nine months ended September 30, 2023, led by Black & Mild's 4.3% growth[171] - Shipment volume for Copenhagen decreased by 6.5% to 333.3 million cans and packs for the nine months ended September 30, 2023, while on! shipment volume increased by 40.8% to 83.9 million cans and packs[180] - Total oral tobacco products shipment volume decreased by 2.3% to 589.8 million cans and packs for the nine months ended September 30, 2023[180] - Adjusted domestic cigarette industry volume decreased by an estimated 8% for the nine months ended September 30, 2023, when adjusted for trade inventory movements and other factors[174] - Domestic shipment volume for the oral tobacco products segment decreased by 2.3% for the nine months ended September 30, 2023, with an adjusted decrease of 2.5% when accounting for calendar differences and trade inventory movements[181] Pricing and Cost Management - PM USA increased the list price of Marlboro, L&M, and Basic by $0.16 per pack effective July 23, 2023, and increased the list price of all other cigarette brands by $0.21 per pack[175] - Marketing, administration, and research costs increased by $399 million (24.4%) primarily due to higher general corporate expenses and acquisition-related costs[139] - Provision for income taxes increased by $512 million (31.8%) primarily due to lower pre-tax earnings in 2022 associated with the non-cash impairment of the investment in ABI[139] - Marketing, administration, and research costs increased by $25 million (4.3%) due to higher amortization from the NJOY Transaction[140] - The decrease of $39 million in operations for Q3 2023 was primarily due to lower OCI (Other Comprehensive Income)[121] - The company repurchased shares under its share repurchase programs, resulting in fewer shares outstanding and a $0.01 impact on diluted EPS[121] - Net revenues decreased by $477 million (2.5%) primarily due to lower revenues in the smokeable products segment[139] - Smokeable products segment revenues decreased to $16,482 million for the nine months ended September 30, 2023, compared to $17,020 million in 2022[131] - Operating income decreased by $350 million (3.8%) due to higher general corporate expenses and higher amortization of intangible assets[139] - Excise taxes on products decreased by $350 million (10.4%) due to lower shipment volume in the smokeable products segment[139] Intangible Assets and Impairment - The fair value of the Skoal trademark exceeded its carrying value of $3.9 billion by approximately 12% ($0.5 billion) as of December 31