Altria Group Inc. (MO) has reported strong fourth quarter 2009 results, with earnings of 35 cents per share, up 6.1% compared to the year-earlier quarter. For full fiscal 2009, earnings were up 4.1% year-over-year to $1.54 per share. Altria’s adjusted earnings were up 5.4% to 39 cents in the fourth quarter and up 6.1% to $1.75 for full-year 2009 compared to the prior-year periods.
Adjusted earnings, however, marginally missed the quarterly and fiscal Zacks Consensus Estimate by a penny and two cents, respectively. Profits were primarily driven by the company’s growth in the cigarette and cigar businesses, partially offset by a higher interest expense and higher general corporate expenses versus the prior-year period.
Net revenues for the quarter increased 29.2% year-over-year to $6.0 billion, primarily driven by cigar segment results that increased 38.1%. The cigarette segment revenues increased 18.9% for the quarter. Altria’s smokeless products segment posted revenues of $343 million during the quarter.
Total industry cigarette shipments declined approximately 10% during the quarter, while cigarette shipments for the company declined 12% after adjustments in trade inventories. Volume for the company’s core brand Marlboro declined 9%, while its market share decreased marginally by 0.4 point. Volumes of Parliament, Basic, and Virginia Slims brands declined 31.2%, 28.8% and 21.9%, respectively, during the quarter. Their market shares also declined 0.4, 0.7 and 0.1 points, respectively.
Altria generated $157 million in cost savings in the quarter and $398 million in savings for full year 2009. The company expects to achieve approximately $462 million in additional cost savings by 2011. Furthermore, as part of its corporate expense and selling, general & administrative (SG&A) cost reduction initiatives, the company incurred pre-tax charges of $24 million in the reported quarter and $85 million for full year 2009, consisting primarily of employee separation costs.
Earlier in 2009, the company’s cigarette segment (Phillip Morris USA) closed its production of cigarettes in the Cabarrus County, North Carolina, plant. The facility closure is part of Phillip Morris USA’s Manufacturing Optimization Program, which is expected to deliver ongoing cost savings of $188 million by 2011. Altria incurred pre-tax charges of $74 million in the fourth quarter and $254 million for full year 2009 for exit and implementation costs related to this initiative. The company expects to incur pre-tax charges of approximately $100 million in 2010 related to this initiative.
Altria completed the UST integration during the quarter and incurred pre-tax charges of $438 million in acquisition-related charges as well as restructuring and integration costs in 2009, which included pre-tax charges of $75 million in the fourth quarter of 2009. Altria expects to incur additional integration and restructuring charges of approximately $50 million in 2010. Altria expects the UST acquisition to be accretive to its adjusted diluted earnings per share in 2010.
Beginning with its next declared dividend, Altria is changing its dividend payout ratio target to approximately 80% of adjusted earnings per share. The current dividend policy anticipates a payout ratio of approximately 75%. The change in the dividend payout ratio is primarily the fallout of the underlying financial strength of the company, which includes its strong balance sheet. At year-end 2009, the company had cash and cash equivalents of approximately $1.9 billion.
In concurrence with the results, management expects 2010 earnings in the range of $1.78 to $1.82. Adjusted EPS for 2010 is expected in the range of $1.85 to $1.89, representing a growth rate of 6% to 8% from an adjusted base of $1.75 per share in 2009.
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