Thursday, cigarette manufacturer Altria Group, Inc. (MO) posted a 69% decline in profit for the fourth quarter, absent prior year's hefty gain related to Philip Morris International spin off. Earnings per share from continuing operations dropped 15.4% on higher one-time charges, but increased 5.7% on an adjusted basis. The Richmond, Virginia-based company issued fiscal 2009 adjusted earnings forecast, and suspended its $4 billion 2008-2010 share repurchase program, citing the current economic environment.
Fourth-quarter net earnings plunged to $679 million from last year's $2.19 billion, while earnings per share declined 68% to $0.33 from $1.03 in the previous year. The prior year results were benefited by income from discontinued operations of $1.37 billion or $0.64 per share related to Philip Morris International, or PMI, which was spun off in March 2008.
Altria's 2008 fourth-quarter earnings from continuing operations dropped 17.2% to $679 million from $820 million last year, and earnings per share declined to $0.33 from $0.39 a year ago.
The latest quarter results were impacted by charges related to a restructuring of certain corporate, selling, general and administrative and manufacturing functions during the quarter, financing fees and interest expenses related to the acquisition of UST Inc., an increased allowance for losses at Philip Morris Capital Corp., and other items.
However, these items were partially offset by solid operating companies income performance by Philip Morris USA Inc., or PM USA, and John Middleton Co., and lower general corporate expenses.
Excluding one-time items, adjusted earnings per share from continuing operations increased to $0.37 from $0.35 last year.
On average, 10 analysts polled by First Call/Thomson Financial expected the company to report earnings of $0.37 per share. Analysts' estimates typically exclude special items.
Quarterly net revenues grew 2.8% to $4.65 billion from $4.52 billion in the previous year quarter. Seven Wall Street analysts expected revenues of $3.88 billion.
In the preceding third quarter, the company had reported net earnings of $867 billion or $0.42 per share, and adjusted earnings per share from continuing operations of $0.46, with net revenues of $5.24 billion from $4.99 billion.
Operating income in the fourth quarter decreased 0.7% to $998 million, primarily driven by charges, partially offset by lower general corporate expenses.
In the quarter, PM USA Cigarettes and other tobacco products net revenues edged up 1.1% year-over-year to $4.52 billion, and the segmental operating income rose 3.5% to $1.12 billion. PM USA's adjusted revenues, net of excise taxes and contract volume manufactured for PMI, edged down 0.7% to $3.62 billion. Total PMA USA's total cigarette volume declined 2.1% to 40.8 billion units.
For the fiscal 2008, Altria's net earnings fell 49.6% to $4.93 billion from $9.79 billion last year. On a per share basis, earnings declined 48.9% to $2.36 from $4.62 a year ago. The latest quarter results included $1.84 billion or $0.88 per share income from discontinued operations related to PMI spin-off, while last year's results included $6.66 billion or $3.14 per share income from discontinued operations related to Kraft spin-off in March 2007
Excluding discontinued operations, annual income from continuing operations edged down 1.3% to $3.09 billion from $3.13 billion last year, while earnings per share remained at the prior year level of $1.48.
Excluding one-time items, adjusted earnings per share from continuing operations rose 10% to $1.65 from $1.50 in 2007.
For the full year 2008, Altria's net revenues increased 3.7% to $19.36 billion from $18.66 billion last year.
Analysts expected earnings of $1.66 per share on revenues of $15.86 billion for the full year.
Commenting on the results, Michael Szymanczyk, Chairman and Chief Executive Officer of Altria, stated, "Altria delivered strong 2008 business results in a year of significant change for the company. In 2008, Altria successfully completed both the spin-off of PMI and a significant corporate restructuring, which included relocating our headquarters to Richmond, Virginia."
Looking forward, for the full year 2009, Altria forecasts adjusted earnings per share from continuing operations in a range of $1.70 to $1.75, representing a 3% to 6% increase from prior year's adjusted earnings of $1.65. Street analysts expect earnings of $1.75 per share for the year.
During 2009, Altria intends to focus on earnings per share growth and continuing its strong dividend policy.
Altria also anticipates that in 2009 capital expenditures will be approximately $350 million, and depreciation and amortization will be about $300 million.
On January 6, 2009, the company completed the $11.7 billion acquisition of UST Inc., which included UST's smokeless tobacco and wine businesses. Altria noted that it has identified an additional $50 million in new UST integration cost savings, bringing total anticipated cost savings to $300 million by 2011. Altria said it expects to absorb all costs related to the UST acquisition in 2009, and incur pre-tax charges of approximately $550 million related to transaction and restructuring costs.
Further, Altria said it is suspending its $4.0 billion 2008-2010 share repurchase program, citing the current economic environment, of which $1.2 billion was completed in 2008. Altria said the suspension will give it the opportunity to monitor economic impacts on its business and protect its investment grade credit rating. The company said it recognizes the importance of share repurchases to investors and intends to evaluate them again in early 2010.
In a January 15 research note, Credit Suisse reiterated its rating on Altria at 'Outperform', with $21 price target.
MO closed Wednesday's regular trading session at $16.80, down $0.13, on a volume of 19.7 million shares.
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