On Tuesday, corporate bond research firm Gimme Credit reiterated its "Outperform" rating on Altria Group (NYSE:MO), specifically for the company's 2033 notes at T+144. Despite a challenging economic environment and a secular decline in cigarette volume, Altria has managed to keep its financial performance steady through strategic maneuvers, explained the firm.
In January, Altria reported its fourth-quarter results, which indicated a modest adjusted earnings per share (E.P.S.) growth of 1%-4% for 2024, falling short of its five-year goal of a mid-single-digit compound annual growth rate. The company's adjusted E.P.S. growth for 2023 stood at 2.3%, largely supported by a reduction in share count resulting from share repurchases. Adjusted net income for the year increased by less than 1%.
Furthermore, Gimme Credit explained that last week, Altria announced the sale of $200 million worth of Anheuser-Bush InBev (ABI) shares back to ABI and plans to sell an additional 35 to 40 million shares through a secondary offering, expecting to raise approximately $2.4 billion before underwriters' options. Following the sale, Altria will retain about 8% ownership in ABI, down from 10%. The company intends to use the proceeds to "significantly enhance" shareholder returns, adding $2.4 billion to its new $1 billion share repurchase program and initiating a $2.4 billion accelerated share repurchase (ASR).
Altria also anticipates a noncash gain of $200 million from the ABI share transaction, despite having written down its holdings by about $8.4 billion in 2021 and 2022, notes Gimme Credit. The company projects annual cash savings on dividends from the buyback to be around $170 million, with only about $4 million in lost ABI dividends, resulting in a cash flow positive situation. The company raised its adjusted E.P.S. guidance for the year to reflect a 3% growth at the midpoint, in light of the ASR.
After the offering, Altria's remaining ABI shares are valued between $9.3 billion and $9.5 billion, providing the company with "plenty of financial flexibility" on top of its free cash flow generation of over $2 billion. Despite the economic pressure on consumers, Altria's premium-priced Marlboro brand has maintained its market share.
Overall, Gimme Credit feels that Altria continues to generate strong cash flow, $9.3 billion in 2023, with capital spending "quite modest."
"Net debt was unchanged despite the $2.8 billion NJOY acquisition, and cash was $3.7 billion before the recent repayment of $1 billion in debt maturities. The new ten-year bond issued in October has tightened but still represents good relative value," they added.