Altria experienced significant growth in 2015, and the company expects to continue growing in the new year.
The fourth-quarter and full-year business results for Altria Group Inc. have been released. Along with these results, Altria has also provided guidance for 2016 full-year adjusted diluted EPS.
“In 2015, Altria delivered yet another year of excellent business results and outstanding shareholder returns,” said Marty Barrington, Altria’s chairman, CEO and president. “We grew full-year adjusted diluted EPS by 8.9%, in line with our long-term EPS growth objective. Altria paid nearly $4.2 billion in dividends to shareholders, consistent with our goal of paying out approximately 80% of adjusted diluted EPS. And Altria’s total return to shareholders of 23.1% far outpaced the S&P 500 and the S&P Food, Beverage and Tobacco Index, marking the third consecutive year that total shareholder return has exceeded 20%.”
“Our core businesses generated impressive and consistent income growth during the year behind the strength of their premium brands. Marlboro grew retail share for the fourth consecutive year. And in smokeless products, our leading premium brand, Copenhagen, was the fastest growing brand in the category, supporting USSTC’s strategy of combined Copenhagen and Skoal retail share growth.”
“In addition, we supported the agreement between AB InBev and SABMiller to create the first truly global beer company. When completed, we expect to capture a significant premium on our very large investment in SABMiller and continue our participation in the global beer profit pool on attractive terms.”
Conference Call
A conference call with the investment community and news media was webcast on January 28, 2016. Access to the webcast is available at www.altria.com/webcasts and via the Altria Investor app.
Cash Returns to Shareholders – Dividends and Share Repurchase Program
In December 2015, Altria’s Board of Directors (Board) declared a regular quarterly dividend of $0.565 per share. The current annualized dividend rate is $2.26 per share. As of January 22, 2016, Altria’s annualized dividend yield was 3.9%. Altria paid over $1 billion in dividends in the fourth quarter and nearly $4.2 billion in 2015. 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 fourth quarter, Altria repurchased 0.6 million shares at an average price of $57.66 for a total of $35 million. For the full year, Altria repurchased 10.7 million shares at an average price of $51.83 for a total cost of $554 million. Since 2011, Altria has repurchased over 130 million shares at an average price of $33.85 for a total cost of approximately $4.5 billion. As of December 31, 2015, Altria had approximately $965 million remaining in the current $1 billion share repurchase program, which it expects to complete by the end of 2016. The timing of share repurchases depends upon marketplace conditions and other factors. This program remains subject to the discretion of the Board.
Innovative Tobacco Products
Nu Mark LLC (Nu Mark) continued to build a portfolio of innovative tobacco products. In November 2015, based on encouraging results from lead markets, Nu Mark continued its disciplined expansion of MarkTen XL e-vapor products to additional select retail chains.
Anheuser-Busch InBev’s Proposed Business Combination with SABMiller
Altria is SABMiller plc’s (SABMiller) largest shareholder, with an approximate 27% economic and voting interest. On November 11, 2015, Anheuser-Busch InBev SA/NV (AB InBev) and SABMiller jointly announced that they had reached an agreement on the terms of AB InBev’s offer to effect a business combination with SABMiller.
As previously announced, when the transaction is completed, Altria expects to receive an approximate 10.5% equity interest in the new, combined company and approximately $2.5 billion in pre-tax cash, each subject to proration. Further, subject to proration, the announced transaction will provide Altria with two seats on the new company’s board of directors and continued use of equity accounting for the beer asset’s contribution to Altria’s earnings. Finally, Altria anticipates the transaction structure to provide tax efficiency.
Pension Accounting Estimate Change
At Dec. 31, 2015, Altria updated the approach used to estimate the service and interest cost components of net periodic benefit costs for its pension and post-retirement plans. Altria expects this change to decrease 2016 pre-tax pension and post-retirement benefit costs by approximately $90 million.
Productivity Initiative
Altria is implementing a productivity initiative designed to maintain its operating companies’ leadership and cost competitiveness. The initiative, which will reduce spending on certain selling, general and administrative (SG&A) infrastructure and implement a leaner organizational structure, is expected to deliver approximately $300 million in annualized productivity savings by the end of 2017.
Altria estimates total pre-tax restructuring charges in connection with the initiative of approximately $140 million, or $0.05 per share, substantially all of which is expected to be recorded in the first quarter of 2016. The estimated charges, substantially all of which will result in cash expenditures, relate primarily to employee separation costs of approximately $120 million and other associated costs of approximately $20 million.
These estimated charges do not reflect the non-cash impact that may result from pension settlement and curtailment accounting.
2016 Full-Year Guidance
Altria forecasts 2016 full-year adjusted diluted EPS to be in a range of $3 to $3.05, which excludes the restructuring charges (approximately $0.05 per share) mentioned above. This range represents a growth rate of 7% to 9% from an adjusted diluted EPS base of $2.80 in 2015. Altria expects that its 2016 full-year effective tax rate on operations will be 35.3%. This guidance 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.
Altria expects capital expenditures for 2016 in the range of $140 million to $180 million and that depreciation and amortization will be approximately $200 million.
