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Altria Is A Cash Printing Machine

Altria’s vaping devices. Flickr Image.

Altria Group (NYSE:MO) is one of the best-run companies in the world.

Its businesses span from tobacco to wine.

Additionally, the company also has investment in Juul, ABI and Cronos Group.

While Altria Group may not be as popular as a tech company such as Apple, its businesses generate tonnes of cash, particularly free cash flow.

Aside from cash, Altria also is wildly profitable; the company has a huge earnings power.

Consequently, Altria is returning tonnes of cash to stockholders as cash dividends.

In addition to dividends, Altria also buys back its shares and has just announced a $2 billion share repurchase program in 2021 Q1, which it expects to complete by June 2022.

In this article, we will focus on Altria’s cash flow and cash on hand.

Let’s get started!

Altria’s Cash On Hand By Quarter

Altria cash on hand by quarter

Altria cash on hand by quarter

* Cash on hand consists of cash and cash equivalents and restricted cash.
* Data comes directly from Altria’s quarterly and annual statements.
* Both cash and cash equivalents and restricted cash are GAAP measures.

Let’s first look at Altria’s cash on hand as shown in the chart above for the period from 2018 to 2020.

The cash on hand data in the chart is the sums of Altria’s highly liquid assets such as cash and equivalents and restricted cash.

These assets are near cash forms and can be instantly deployed as needed.

Altria may need to satisfy additional terms and conditions if it wanted to withdraw restricted cash.

All told, Altria’s cash on hand hovered around $2 billion between 2018 and 2019 according to the chart above.

Altria was having these levels of cash in its balance sheets before the arrival of the COVID-19 pandemic.

Amid the COVID-19 outbreak in 2020, Altria’s cash on hand shot up considerably to more than $4 billion in all quarters, more than 2X the amount in 2019.

As of the 4th quarter of 2020, Altria’s cash on hand stood at $5 billion.

Altria increased its cash piles when the COVID-19 outbreak hit in the 1st quarter of 2020.

Altria may have been expecting a liquidity crunch during the pandemic and hence, the increase in cash on hand.

Altria’s Cash On Hand to Current Assets Ratio

Altria cash on hand to current assets ratio

Altria cash on hand to current assets ratio

* Ratio comes from the author’s own calculation.
* Current assets are GAAP measures and come directly from Altria’s quarterly and annual statements.

Just seeing the absolute cash-on-hand data alone may not tell us the whole picture.

As such, a plot of cash on hand to current assets ratio is shown in the chart above for the period from 2018 to 2020.

Prior to 2020, Altria’s cash on hand to current assets ratio hovered between 40% and 50%.

However, the ratio increased significantly to 60% in 1Q 2020 and reached its peak at 70% in 2Q 2020.

The ratio stayed at this level for the rest of 2020, indicating Altria’s deliberate moves to stockpile cash amid the COVID-19 outbreak.

Altria’s Free Cash Flow – TTM

Altria free cash flow

Altria free cash flow

* Free cash flow equals net cash from operating activities minus capital spending
* TTM free cash flow comes from the author’s own calculation.
* Both net cash from operating activities and capital spending are GAAP measures and come directly from Altria’s quarterly and annual statements.

Having a lot of cash on hand does not necessarily mean that Altria may not have a cash flow problem.

To figure out that the cash on hand does not come from debts or borrowings, we may use the free cash flow metric to evaluate Altria’s cash flow health.

Free cash flow is defined as net cash from operating activities minus capital expenditures as shown in the following equation:

Free cash flow = Net cash from operating activities – Capital expenditures

Both net cash from operating activities and capital expenditures can easily be obtained from Altria’s cash flow statements.

All told, Altria’s free cash flow has been positive in the last 3 years from 2018 to 2020, suggesting a very healthy cash flow for the company.

Moreover, Altria has been able to generate sufficient operating cash flow to cover the capital spending all these years.

In fact, from a TTM (trailing 12-months) perspective, Altria’s has been having excess cash totaling more than $6 billion in all quarters.

Some of this excess cash even reached as much as $10 billion on a TTM basis.

All in all, Altria has been a cash cow and has no cash flow problems at all.

Altria’s Net Cash From Financing Activities – TTM

Altria net cash from financing activities

Altria net cash from financing activities

* TTM net cash from financing activities comes from the author’s own calculation.
* Net cash from financing activities is a GAAP measure and is obtained directly from Altria’s quarterly and annual statements.

The net cash from financing activities details Altria’s cash flow involving debts and borrowings.

A positive number indicates that Altria has raised capital through debt or equity whereas a negative number indicates that Altria has paid back the debt.

As seen in the chart above, Altria has borrowed quite a huge amount of debt during 2018 and 2019.

On a TTM basis, Altria has raised cash totaling as high as $8 billion in some quarters.

Going into 2020, we can see that Altria has mostly been paying back debts as shown by the negative numbers.

On a TTM basis, some of the cash paid on the debt has totaled more than $6 billion.

To find out if Altria has been able to afford to pay back the debt, we just have to compare the cash paid on the debt with the free cash flow data which was discussed in prior paragraphs.

Altria’s Free Cash Flow vs Net Cash From Financing Activities

Altria free cash flow vs net cash from financing activities

Altria free cash flow vs net cash from financing activities

* Data comes from the author’s own calculation.

The chart above shows the comparison between Altria’s free cash flow and net cash from financing activities.

The comparison is meant to find out whether Altria has been able to afford to pay back the debt that it borrowed in the past.

Over the chart, we should focus on only the negative numbers of the net cash from financing activities as these numbers define Altria’s cash outflow or cash burn.

According to the chart, Altria has lower net cash from financing activities compared to the free cash flow in any quarter.

Take the 2Q 2020 quarter, Altria’s free cash flow totaled $10 billion while net cash from financing activities totaled slightly more than $6 billion.

In this case, there was a surplus in Altria’s free cash flow as the cash generated was more than enough to cover the cash outflow.

Similarly, it’s the same case for all quarters that Altria has enough cash to finance the debt.

In short, Altria’s net cash from operations has been able to not only finance the company’s capital spending but also pay back the debt.

Even after Altria has paid off these expenses, the company was still left with tonnes of excess cash!

Summary

Altria’s cash on hand shot up considerably during the COVID-19 outbreak and stay at this elevated level throughout 2020.

As of 2020 4Q, Altria’s cash on hand totaled as much as $5 billion.

Altria has been a cash cow and generated tonnes of free cash flow that totaled more than $6 billion between 2018 and 2020.

Altria’s free cash flow has been more than enough to cover not only the business operations but also the cash paid on debt.

In conclusion, Altria is literally printing cash!

References and Credits

1. All financial figures in this article were obtained and referenced from Altria’s quarterly and annual statements which can be found in Altria’s SEC Filings.

2. Some data come from the author’s own calculation.

3. Featured images are used under Creative Common Licenses and were obtained from 7C0 and elycefeliz.

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