Altria: Talk About Profit Margin!

Altria (MO) had its investor day in NY to discuss its upcoming spin.

Shareholders as of March 19 will receive 1 share of Phillip Morris International for each Altria share they hold on March 28, the spin date.

Guidance:

Altria (MO):

• 2008 full-year diluted earnings per share from continuing operations are projected to grow approximately 9% to 11% from an adjusted base of $1.50, excluding PMI.
• Long term total annual shareholder return of over 12% when combined with the dividend.
• EPS growth in the range of 8% to 10%.
• An anticipated dividend payout ratio of 75%, with an initial post-spin annualized dividend rate of $1.16 per share;
• A planned share repurchase program of $7.5 billion over the next two years, which will commence in April of this year;
• Approximately $1.0 billion in cumulative annual cost savings, $300 million of which were realized in 2007 and approximately $700 million in additional savings to be realized by the end of 2011.
• Tests in both smokeless and snuffs are going "very well".

Presentation:

Phillip Morris International (PM):

• Full-year diluted EPS from continuing operations are projected to grow 12% to 14% from a 2007 pro-forma adjusted base of $2.78.
• Long term revenue growth, net of excise taxes, of 4% to 6%; shipment volume growth of 1% to 2%; operating income growth of 6% to 8%; earnings per share growth in the range of 10% to 12%.
• Dividend policy anticipates a pay-out ratio of 65%. The initial annual dividend rate has been set at $1.85 per share.
• A share repurchase program of $13 billion over two years.
• Expect to return approximately $21 billion to shareholders over the next 2 years.
• $1.0 billion in cumulative annual cost savings by the end of 2010; and a cumulative total cash flow of approximately $22 billion by the end of 2010.

Presentation:

Why is the cig biz so good? Altria's cost to produce 1000 cigarettes is $16.40. Talk about profit margin? This is 16% to 21% lower than the competition.

I own Altria and plan to hold both for the foreseeable future...

Disclosure: Long MO, Long PM (post spin).

Comments

[folly]

Thanks, good bullet points.

[User 164131]

Good article, sweet and to the point. more business writers should use bullet points. Long time PM man,

[wtj]

Bought some yesterday to take advantage of the spin, but a worrisome thought interferes with the joy of my winsome purchase.
It's assumed that the spin-off will indemnify PMI from the increasingly successful tobacco injury torts here in the U.S.

However, litigation in European courts have emerged
and I worry that our neighbors across the seas will find fashion in blaming their self-imposed respiratory damage on vendors like PMI.

The big one for Altria, here, in the US, was lost in Oregon.
It's being kicked around the courts ONLY to determine the exact punitive damage amount.
The last appeal court returned the case suggesting that the punitive damages accessed may be excessive
and also suggested ,
NOT ORDERED however,
that 9 times actual damages might be more reasonable.

If you consider the million dollar-plus medical bill that's possible for treatment of lung cancer
and the number of folks that were told that
Marlboro lights were safer when the tobacco execs knew better,
9 times damages can destroy this cash cow before it can be milked.