BW20030416002031 20030416T113624Z UTC
( BW)(ALTRIA-GROUP)(MOP) 1st Quarter Results
Business Editors
UK REGULATORY NEWS
NEW YORK--(BUSINESS WIRE)--April 16, 2003--
Altria Group, Inc. Reports 2003 First-Quarter Results; Diluted
Earnings Per Share Down 1.8% to $1.07; Net Earnings Down 7.6% to $2.2
Billion
Altria Group, Inc. (NYSE: MO) announced today that first-quarter 2003
net earnings decreased 7.6% to $2.2 billion, while diluted earnings
per share fell 1.8% to $1.07.
"Our first-quarter performance was in line with our expectations.
However, our results were clearly overshadowed by developments in the
Price class action suit against Philip Morris USA," said Louis C.
Camilleri, chairman and chief executive officer of Altria Group, Inc.
"While the court's April 14 appeal bond order is onerous, we are
pleased that Philip Morris USA can now promptly move forward with what
I am convinced will be a successful appeal on the merits of the case.
It is regrettable that credit rating agency action has denied us
access, for now, to the commercial paper market. We are hopeful that
such access will be restored in the relative near term."
"While we suffered difficult comparisons versus the prior-year
quarter," Mr. Camilleri said, "I am pleased with the volume and share
stability exhibited by Philip Morris USA, as well as by the continuing
solid fundamentals of our international tobacco business and our
worldwide food business."
Standard & Poor's Rating Services, Moody's Investors Services and
Fitch Ratings took ratings actions that eliminated Altria's access to
the commercial paper market, due to the Price case. As a result of
these developments, Altria has drawn against its revolving credit
lines in order to repay its maturing commercial paper and to fund
normal working capital needs, and has suspended its share repurchase
program until such time as its access to the capital markets is
restored.
Despite these developments, Altria Group, Inc. is reaffirming the
earnings per share guidance of $4.60 to $4.70 for the full-year 2003
originally provided on January 29, 2003. The factors described in the
Forward-Looking and Cautionary Statements section of this release
represent continuing risks to these projections.
A conference call with members of the investment community will be
Webcast at 9:00 a.m. Eastern Time on April 16, 2003. Access is
available at www.altria.com.
ALTRIA GROUP, INC.
As described in "Note 14, Segment Reporting" of Altria Group, Inc.'s
2002 Annual Report, management reviews operating companies income,
which is defined as operating income before corporate expenses and
amortization of intangibles, to evaluate segment performance and
allocate resources. Management believes it is appropriate to disclose
this measure to help investors analyze business performance and
trends.
2003 First-Quarter Results
Net revenues for the first quarter of 2003, as detailed in the
attached schedule entitled "Selected Financial Data by Business
Segment," decreased 5.7% versus 2002 to $19.4 billion, due primarily
to the impact of the Miller Brewing Company (Miller) transaction, with
$1.2 billion in net revenues included in the first quarter of 2002 but
not the first quarter of 2003, and a $1.2 billion decrease in net
revenues from the domestic tobacco business, partially offset by
higher net revenues from the food and international tobacco
businesses. Favorable currency increased net revenues by $619 million.
Operating companies income, as detailed on the attached schedule
entitled "Selected Financial Data by Business Segment," decreased 6.7%
to $4.0 billion, due primarily to lower operating results of $508
million from the domestic tobacco business, and $130 million from the
Miller transaction, partially offset by higher operating results for
the other businesses. Also affecting operating companies income
comparisons were increases due to favorable currency of $91 million,
as well as the impact of 2002 charges for separation programs and
integration costs.
Altria Group, Inc. declared a regular quarterly dividend of $0.64
during the first quarter of 2003, which represents an annualized rate
of $2.56 per common share. During the first quarter, Altria Group,
Inc. spent $689 million to repurchase 18.7 million shares of its
common stock.
DOMESTIC TOBACCO
2003 First-Quarter Results
Results for Philip Morris USA Inc., Altria Group, Inc.'s domestic
tobacco business, were in line with expectations. Operating companies
income decreased 40.6% to $742 million in the first-quarter 2003
versus 2002, due to lower volume and higher spending to support its
new promotional strategy and expanded sales force. However, Philip
Morris USA believes that these strategies are having their intended
results, as sequential retail shares are improving. Philip Morris USA
also continues to invest in programs to address contraband issues,
including counterfeit enforcement, and compliance with the Master
Settlement Agreement and related state escrow requirements.
Philip Morris USA's shipment volume decreased 16.1% to 43.8 billion
units for the first quarter. Comparisons to the year-ago period are
adversely impacted by both higher promotional shipments and a
significant build-up of inventories by the trade in the first quarter
of 2002. Industry shipments as reported by Management Science
Associates decreased 12.9% to 88.2 billion units in the first quarter
of 2003 versus the first quarter of 2002. As a result of these
factors, Philip Morris USA's shipment share as reported by Management
Science Associates decreased by 1.9 share points to 49.7%.
However, on a sequential basis, Philip Morris USA's shipment share
increased from 48.3% in the fourth quarter of 2002 to 49.7% in the
first quarter of 2003. Philip Morris USA cautions that industry volume
and share, as reported by Management Science Associates, do not
include shipments of some manufacturers that Management Science
Associates is presently unable to monitor effectively. Accordingly,
the discussion of Philip Morris USA's performance within the industry
is based upon Management Science Associates' estimates of total
industry volume.
Effective with the first quarter of 2003, Philip Morris USA is
reporting retail share results based on an enhanced retail tracking
service, the IRI/Capstone Total Retail Panel. This new service was
developed to provide a more comprehensive measure of market share in
all retail outlets selling cigarettes, versus approximately 87%
coverage in the previous service. Market share data for the fourth
quarter of 2002 has been restated to reflect this new retail service.
Philip Morris USA's retail share is lower using data from the
IRI/Capstone Total Retail Panel compared to its previous service,
primarily because the new service expands coverage into stores where
Philip Morris USA historically had a lower retail presence.
Based on data from the new IRI/Capstone Total Retail Panel, Philip
Morris USA's retail share increased from the fourth quarter of 2002 to
the first quarter of 2003, aided by Philip Morris USA's new
off-invoice promotional allowance program that is paid at the
wholesale level on its four focus brands. The promotional program
broadens the reach of these brands' price promotions to a greater
number of retail stores and has been extended through May 2003.
Philip Morris USA essentially held its share of both the premium and
discount segments at retail, as its share of the premium segment
declined 0.1 share point to 61.0% versus the fourth quarter of 2002
and its share of the discount segment increased 0.1 share point to
15.7%. Total industry retail share for the discount segment decreased
from the fourth quarter of 2002 to the first quarter of 2003 by 0.4
share points to 28.1%, while growth of the deep discount segment
moderated.
The following table summarizes retail share performance for Philip
Morris USA's key brands, based on data from the IRI/Capstone Total
Retail Panel for the first quarter of 2003 versus the fourth quarter
of 2002:
Q1 2003 Q4 2002 Change
--------------------------------
Marlboro 37.5% 37.4% 0.1pp
Parliament 1.5% 1.3% 0.2pp
Virginia Slims 2.5% 2.5% 0.0pp
Basic 4.3% 4.3% 0.0pp
--------------------------------
Focus Brands 45.8% 45.5% 0.3pp
Other PM USA 2.5% 2.6% -0.1pp
--------------------------------
Total PM USA 48.3% 48.1% 0.2pp(a)
(a) On an unrounded basis, retail share for Philip Morris USA was up
0.14 share points.
The new service's audit sample was not complete until the fourth
quarter of 2002. Consequently, Philip Morris USA is not reporting
share comparisons versus the year-ago period. Additionally, the new
service cannot be meaningfully compared to previously reported market
shares, which reflected data that projected to a smaller universe of
stores.
In addition to announcing its new off-invoice promotional allowance in
the first quarter of 2003, Philip Morris USA launched a new line
extension, Marlboro Blend No. 27, which began shipping nationwide
during the last week in March. Philip Morris USA also announced that
it will launch another new line extension, Parliament Ultra Lights, in
the second quarter.
During the first quarter, Philip Morris USA announced that it is
moving its corporate headquarters from New York City to Richmond,
Virginia, with the move to be completed by June 2004. Philip Morris
USA estimates that the total cost of the relocation will be
approximately $120 million, including compensation to those employees
who do not relocate, and the relocation is expected to result in
annual cost savings of $60 million for Philip Morris USA beginning in
2005. The announced move had no impact on results for the first
quarter of 2003.
INTERNATIONAL TOBACCO
2003 First-Quarter Results
Operating companies income for Philip Morris International Inc. (PMI),
Altria Group, Inc.'s international tobacco business, rose 8.1% versus
the same period a year ago to $1.7 billion, due to volume gains,
higher pricing and favorable currency translation of $85 million,
partially offset by unfavorable mix and higher investment spending.
Shipment volume increased 3.6% to 190.7 billion units, due to gains in
Central & Eastern Europe, Asia and Latin America, partially offset by
lower volume in Western Europe and the Middle East. Total Marlboro
shipments declined 1.5% in the first quarter, due primarily to
tax-driven price increases in France and Germany, low-price
competition in Italy and anti-American sentiment in certain markets.
PMI achieved strong market share gains in many markets, including the
key income markets of Germany, Japan, Russia, Spain and Turkey.
In Western Europe, shipment volume fell 2.2%, driven by declines in
France, Germany and Italy, partially offset by higher volumes in
Spain, Austria and Greece. In France, shipment volume was down 10.8%,
driven by a corresponding industry decline following the January 2003
tax-driven price increase. PMI's share in France essentially held
steady in the quarter at 39.3%. In Germany, volume was down 4.2%,
driven by an industry decline of 6.7% as a result of a January 2003
tax-driven price increase and the timing of Easter holiday shipments.
However, market share in Germany was up 0.7 share points, driven by
Marlboro's continued momentum. In Italy, volume declined 6.6%, while
share fell 12.4 share points as year-on-year comparisons were hugely
distorted by competitor shipment patterns. Total market share in
Western Europe declined 0.5 points to 38.9%, due to shipment
distortions in the Italian market.
In Central Europe, the Middle East and Africa (CEMA), volume increased
6.2%, driven by strong gains in the Czech Republic, Poland, Romania
and Turkey, partially offset by declines in Saudi Arabia, Egypt,
Israel and Lebanon, reflecting consumer down trading as well as
anti-American sentiment.
In Eastern Europe, PMI achieved volume growth of 11.8%, driven by
continued robust gains in Russia and solid growth in the Ukraine. In
Russia, L&M, Bond Street, Parliament, Marlboro, Chesterfield, Virginia
Slims and local brand Optima, each contributed to the strong volume
gain versus prior year.
In Asia, volume increased 5.1%, driven by strong gains in Japan,
Thailand and Taiwan, partially offset by lower shipments to Korea, due
to continued intense competition and a decline in Indonesia as a
result of the November 2002 tax-driven price increase. In Japan, share
advanced 0.7 share points to a record 24.1%, driven by the continued
growth of Lark and Marlboro.
In Latin America, volume rose 4.4%, driven by gains in Brazil and
Mexico and an improved performance for PMI's portfolio of brands in
Argentina, including Marlboro, L&M and the Philip Morris brand.
FOOD
Yesterday, Kraft Foods Inc. (Kraft) reported first-quarter 2003
results. Kraft worldwide volume increased 0.1%, despite the impact of
divested businesses of 0.8 percentage points. Kraft's volume was
reduced by the shift in shipments supporting the Easter holidays,
which fall into the second quarter of 2003 versus the first quarter of
2002, a reduction in trade inventories in the first quarter of 2003
and a difficult business environment in Venezuela. It is estimated
that together, these three items reduced Kraft's total volume by
nearly 2.0% in the first quarter. Worldwide operating companies income
increased $184 million, or 13.6%, to $1.5 billion, due primarily to
the absence of $169 million in pre-tax separation and integration
charges incurred in 2002. Operating companies income also benefited
from revenue growth, productivity and synergy savings and currency
favorability, offset by higher benefit costs.
NORTH AMERICAN FOOD
2003 First-Quarter Results
Volume for Kraft Foods North America, Inc. (KFNA) increased 1.3%,
driven by new products and strong results in Beverages, Desserts and
Cereals and Oscar Mayer and Pizza, partially offset by the shift in
Easter timing and trade inventory reductions. Operating companies
income increased 18.1% to $1.3 billion, due primarily to the absence
of $162 million of separation and integration charges recorded in
2002. Operating companies income also was driven by pricing, net of
cost increases, for several non-dairy businesses, favorable cheese
commodity costs and productivity and synergy savings, partially offset
by higher benefit costs.
INTERNATIONAL FOOD
2003 First-Quarter Results
Volume for Kraft Foods International, Inc. (KFI) decreased 3.2%, as
the impact of the decrease in Venezuela, the Easter shift and the
divestiture of KFI's Latin America bakery ingredients business in 2002
were partially offset by the benefit of new product launches,
successful marketing programs and the acquisition of the Kar Gida
salted snacks business in Turkey. Operating companies income decreased
6.0% to $237 million, due primarily to lower results in Latin America
and the shift in Easter volume, partially offset by favorable currency
of $7 million.
FINANCIAL SERVICES
Operating companies income for Philip Morris Capital Corporation
(PMCC) increased 16.9% to $83 million, driven by increased income from
leasing activities. During the first quarter, US Airways emerged from
bankruptcy and affirmed all of its leases with PMCC. PMCC continues to
closely monitor its exposure to the troubled airline industry.
Altria Group, Inc. Profile
Altria Group, Inc. is the parent company of Kraft Foods Inc., with
approximately 84% ownership of outstanding Kraft common shares, Philip
Morris Capital Corporation, Philip Morris International Inc. and
Philip Morris USA Inc. In addition, Altria Group, Inc. has a 36%
economic interest in SABMiller plc, the world's second-largest brewer.
The brand portfolio of Altria Group, Inc.'s consumer packaged goods
companies includes such well-known names as Kraft, Jacobs, L&M,
Marlboro, Maxwell House, Nabisco, Oreo, Oscar Mayer, Parliament,
Philadelphia, Post and Virginia Slims. Altria Group, Inc. recorded
2002 net revenues of $80.4 billion.
Trademarks and service marks mentioned in this release are the
registered property of, or licensed by, the subsidiaries of Altria
Group, Inc.
Effective January 27, 2003, Altria Group, Inc., is the new name of the
parent company of Kraft Foods Inc., Philip Morris International Inc.
and Philip Morris USA Inc. For clarity, this news release refers to
Altria Group, Inc. even when historical events took place under the
parent company's former name of Philip Morris Companies Inc.
On May 30, 2002, Altria Group, Inc. announced an agreement with South
African Breweries plc (SAB) to merge Miller into SAB. The transaction
closed on July 9, 2002 and SAB changed its name to SABMiller plc
(SABMiller) and resulted in a pre-tax gain of approximately $2.6
billion or approximately $1.7 billion after-tax in the third quarter
of 2002. Altria records its share of SABMiller's net earnings based on
its economic ownership percentage in minority interest in earnings,
net, on the condensed consolidated statement of earnings.
You may learn more by listening to a live audio webcast of the Altria
Group, Inc. conference call with members of the investment community
at 9:00 a.m. Eastern Time on April 16, 2003. Access is available at
www.altria.com.
Forward-Looking and Cautionary Statements
This press release contains projections of future results and other
forward-looking statements that involve a number of risks and
uncertainties and are made pursuant to the Safe Harbor Provisions of
the Private Securities Litigation Reform Act of 1995. The following
important factors could cause actual results and outcomes to differ
materially from those contained in such forward-looking statements.
Altria Group, Inc.'s consumer products subsidiaries are subject to
unfavorable currency movements; intense price competition, changes in
consumer preferences and demand for their products; changing prices
for raw materials, fluctuations in levels of customer inventories and
the effects of foreign economies and local economic and market
conditions. Their results are dependent upon their continued ability
to promote brand equity successfully; to anticipate and respond to new
consumer trends; to develop new products and markets and to broaden
brand portfolios in order to compete effectively with lower-priced
products in a consolidating environment at the retail and
manufacturing levels; to improve productivity; and to respond
effectively to changing prices for their raw materials.
Altria Group, Inc.'s tobacco subsidiaries (Philip Morris USA and
Philip Morris International) continue to be subject to litigation,
including risks associated with adverse jury and judicial
determinations, courts reaching conclusions at variance with the
company's understanding of applicable law, bonding requirements and
the absence of adequate appellate remedies to get timely relief from
any of the foregoing; price disparities and changes in price
disparities between premium and lowest-price brands; legislation,
including actual and potential excise tax increases; increasing
marketing and regulatory restrictions; the effects of price increases
related to excise tax increases and concluded tobacco litigation
settlements on consumption rates and consumer preferences within price
segments; health concerns relating to the use of tobacco products and
exposure to environmental tobacco smoke; governmental regulation;
privately imposed smoking restrictions; and governmental and grand
jury investigations.
Altria Group, Inc.'s financial flexibility may be affected by its
current inability to access credit markets for short-term and
long-term borrowings on terms as favorable as those that existed prior
to recent actions by credit rating agencies.
Altria Group, Inc.'s financial services subsidiary (Philip Morris
Capital Corporation) is subject to the effects of a weak economy,
particularly with respect to aircraft leases to the troubled airline
industry.
Altria Group, Inc.'s consumer products subsidiaries are subject to
other risks detailed from time to time in its publicly filed
documents, including its Annual Report on Form 10-K for the period
ended December 31, 2002. Altria Group, Inc. cautions that the
foregoing list of important factors is not complete and does not
undertake to update any forward-looking statements that it may make.
ALTRIA GROUP, INC.
and Subsidiaries
Condensed Statements of Earnings
For the Quarters Ended March 31,
(in millions, except per share data)
2003 2002 % Change
-------------------------
Net revenues $19,371 $20,535 (5.7)%
Cost of sales 7,565 8,532 (11.3)%
Excise taxes on products (a) 4,887 4,575 6.8 %
----------------
Gross profit 6,919 7,428 (6.9)%
Marketing, administration and research costs 2,870 2,894
Food integration costs - 27
Food separation programs - 142
Beer separation programs and asset impairment - 23
----------------
Operating companies income 4,049 4,342 (6.7)%
Amortization of intangibles 2 2
General corporate expenses 183 169
----------------
Operating income 3,864 4,171 (7.4)%
Interest and other debt expense, net 283 293
----------------
Earnings before income taxes and minority
interest 3,581 3,878 (7.7)%
Provision for income taxes 1,261 1,376 (8.4)%
----------------
Earnings before minority interest 2,320 2,502 (7.3)%
Minority interest in earnings, net 134 137
----------------
Net earnings $2,186 $2,365 (7.6)%
================
Basic earnings per share $1.08 $1.10 (1.8)%
================
Diluted earnings per share $1.07 $1.09 (1.8)%
================
Weighted average number of
shares outstanding - Basic 2,032 2,145 (5.3)%
- Diluted 2,040 2,171 (6.0)%
(a) The detail of excise taxes on products sold is as follows:
2003 2002
----------------
Domestic tobacco $866 $1,028
International tobacco 4,021 3,334
Beer - 213
----------------
Total excise taxes $4,887 $4,575
================
ALTRIA GROUP, INC.
and Subsidiaries
Selected Financial Data by Business Segment
For the Quarters Ended March 31,
(in millions)
North
Domestic International American International
tobacco tobacco food food
---------------------------------------------
2003 Net Revenues $3,817 $8,079 $5,380 $1,979
2002 Net Revenues 5,018 7,034 5,294 1,853
% Change (23.9)% 14.9% 1.6% 6.8%
Reconciliation:
--------------------------
2002 Net Revenues $5,018 $7,034 $5,294 $1,853
Divested businesses - 2002 - - (4) (18)
Currency - 538 (6) 87
Operations (1,201) 507 96 57
------------------------------------------
2003 Net Revenues $3,817 $8,079 $5,380 $1,979
==========================================
Financial
Beer services Total
-----------------------------
2003 Net Revenues $- $116 $19,371
2002 Net Revenues 1,219 117 20,535
% Change (0.9)% (5.7)%
Reconciliation:
----------------------------
2002 Net Revenues $1,219 $117 $20,535
Divested businesses - 2002 (1,219) - (1,241)
Currency - - 619
Operations - (1) (542)
-----------------------------
2003 Net Revenues $- $116 $19,371
=============================
Note: The detail of excise taxes on products sold is as follows:
2003 2002
---------------------
Domestic tobacco $866 $1,028
International tobacco 4,021 3,334
Beer - 213
---------------------
Total excise taxes $4,887 $4,575
=====================
Currency increased international tobacco excise taxes by $312 million.
ALTRIA GROUP, INC.
and Subsidiaries
Selected Financial Data by Business Segment
For the Quarters Ended March 31,
(in millions)
North
Domestic International American International
tobacco tobacco food food
---------------------------------------------
2003 Operating Companies
Income $742 $1,690 $1,297 $237
2002 Operating Companies
Income 1,250 1,564 1,098 252
% Change (40.6)% 8.1% 18.1% (6.0)%
Reconciliation:
---------------
2002 Operating Companies
Income $1,250 $1,564 $1,098 $252
Divested businesses - 2002 - - (1) (2)
Integration Costs - 2002 - - 27 -
Separation Programs - 2002 - - 135 7
Asset Impairment - 2002 - - - -
Currency - 85 (1) 7
Operations (508) 41 39 (27)
------------------------------------------
2003 Operating Companies
Income $742 $1,690 $1,297 $237
==========================================
Financial
Beer services Total
-----------------------------
2003 Operating Companies
Income $- $83 $4,049
2002 Operating Companies
Income 107 71 4,342
% Change 16.9% (6.7)%
Reconciliation:
----------------------------
2002 Operating Companies
Income $107 $71 $4,342
Divested businesses - 2002 (130) - (133)
Integration Costs - 2002 - - 27
Separation Programs - 2002 8 - 150
Asset Impairment - 2002 15 - 15
Currency - - 91
Operations - 12 (443)
-----------------------------
2003 Operating Companies
Income $- $83 $4,049
=============================
ALTRIA GROUP, INC.
and Subsidiaries
Net Earnings and Diluted Earnings Per Share
For the Quarters Ended March 31,
($ in millions, except per share data)
Diluted
Net E.P.S.
Earnings
--------- -------
2003 $2,186 $1.07
2002 $2,365 $1.09
% Change (7.6)% (1.8)%
Reconciliation:
--------------
2002 Reported $2,365 $1.09
Food integration costs - 2002,
net of minority interest impact 15 0.01
Food separation programs - 2002,
net of minority interest impact 77 0.03
Beer separation programs and
asset impairment - 2002 15 0.01
Currency 59 0.03
Shares outstanding - 0.06
Operations (345) (0.16)
--------- -------
2003 Reported $2,186 $1.07
========= =======
ALTRIA GROUP, INC.
and Subsidiaries
Condensed Balance Sheets
(in millions, except ratios)
March 31, December 31,
2003 2002
----------------------
Assets
------
Cash and cash equivalents $1,391 $565
All other current assets 17,800 16,876
Property, plant and equipment, net 15,101 14,846
Goodwill and other intangible assets, net 38,109 37,871
Other assets 8,606 8,151
----------------------
Total consumer products assets 81,007 78,309
Total financial services assets 8,893 9,231
----------------------
Total assets $89,900 $87,540
======================
Liabilities and Stockholders' Equity
------------------------------------
Accrued settlement charges $3,883 $3,027
All other current liabilities 15,970 16,055
Long-term debt 20,782 19,189
Deferred income taxes 6,092 6,112
Other long-term liabilities 15,155 15,498
----------------------
Total consumer products liabilities 61,882 59,881
Total financial services liabilities 7,869 8,181
----------------------
Total liabilities 69,751 68,062
Total stockholders' equity 20,149 19,478
----------------------
Total liabilities and
stockholders' equity $89,900 $87,540
======================
Total consumer products debt $22,713 $21,154
Debt/equity ratio - consumer products 1.13 1.09
Total debt $24,839 $23,320
Total debt/equity ratio 1.23 1.20
Short Name: Altria Group Inc.
Category Code: QRF
Sequence Number: 00004039
Time of Receipt (offset from UTC): 20030416T102312+0100
--30--SDS/ny*
CONTACT: Altria Group Inc
Nicholas M. Rolli, 917/663-3460
or
Timothy R. Kellogg, 917/663-2759
KEYWORD: NEW YORK UNITED KINGDOM INTERNATIONAL EUROPE
INDUSTRY KEYWORD: MANUFACTURING FOODS/BEVERAGES
SOURCE: Altria Group Inc
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