CHICAGO (Reuters) - Altria Group Inc posted lower quarterly profit on Wednesday due to the spinoff last year of Kraft Foods Inc, and set March 28 as the date for its planned spinoff of Philip Morris International.
Altria also said the U.S. and international companies combined would buy back $20.5 billion of stock. That figure is on the low end of analysts' expectations but could allow the companies to save cash for acquisitions.
"I think they need to keep their powder dry a little bit, especially on the U.S. side, because there's some potential deals down the road," said Gregg Warren, analyst at Morningstar.
Altria Chairman and Chief Executive Louis Camilleri said the two companies plan to pay a combined $33 billion to shareholders in the next two years through share repurchases and dividends, an amount he called "generous" when analysts suggested the payout could have been higher.
"I think we need to retain financial flexibility because there are opportunities out there and we do see opportunities," Camilleri said during a conference call with analysts. He did not elaborate.
The long-anticipated spinoff of Philip Morris International will allow investors a direct play in the faster growing international business. The remaining Altria business generates a large amount of cash but is tied to the declining U.S. cigarette market.
"I absolutely cannot wait to be a shareholder in Philip Morris International directly," said Charles Norton, portfolio manager of the Vice Fund, which held 213,000 Altria shares at the end of 2007. "I think that that's the crown jewel."
Aside from Philip Morris USA, Altria will also retain its 28.6 percent stake in beer maker SABMiller Plc.
Altria plans to repurchase $7.5 billion of its stock over two years, beginning in April, and have an initial annual dividend rate of $1.16 a share. Philip Morris International will have a $13.0 billion share buyback program, expected to begin in early May, and will pay an initial dividend rate of $1.84 a share.
Combined, the dividends are the same as the current Altria rate.
Altria also said it will commence a tender offer and consent solicitation shortly to purchase all its outstanding notes, including $2.6 billion of U.S. dollar-denominated notes and 1.0 billion in euro-denominated notes.
PROFIT DOWN1
Fourth-quarter net profit for Altria was $2.19 billion, or $1.03 per share, down from $2.96 billion, or $1.40 a share, a year earlier.
Excluding one-time items, earnings were $1.00, 2 cents better that analysts' average forecast, according to Reuters Estimates.
Quarterly net revenue rose to $18.23 billion from $16.03 billion a year ago.
Excluding excise taxes, revenue rose 7.4 percent to $9.3 billion, besting the average analyst estimate of $9.19 billion.
Altria has been able to increase prices to help boost its U.S. business, while the weak dollar has helped lift sales in its international operations.
Altria forecast that 2008 earnings from continuing operations would grow 9 percent to 11 percent, excluding Philip Morris International, which will be accounted for as a discontinued operation.
On its own, Philip Morris International sees 2008 earnings from continuing operations growing 12 percent to 14 percent at current exchange rates.
Altria shares were up $1.00 at $77.12 in afternoon trade on the New York Stock Exchange. The stock is up 2 percent this year, compared with a 5.6 percent drop by the Dow Jones industrial average.
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