Altria Debt Due, Liquidity, And Credit Rating

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Altria (NYSE: MO) produces cigarette and tobacco products. Contrary to Philip Morris International, Altria distributes and sells its products mainly in the U.S. instead of globally.

The company earns revenue primarily from the sales of cigarettes and cigars.

While Altria owns some of the world’s best cigarette brands and makes loads of money, it may not necessarily be so regarding its financial health, particularly its debt and liquidity.

Investors are primarily concerned with Altria’s rising debt levels. The company has accumulated significant debt over the years, which has raised questions about its financial stability and long-term viability.

In this context, it is essential to understand the scale and nature of Altria Group’s indebtedness and its implications for the company’s prospects.

This article explores the potential concerns and problems related to Altria’s debt and liquidity. Let’s get started.

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Definitions

To help readers understand the content better, the following terms and glossaries have been provided.

Investment Grade: Investment grade means a rating equal to or higher than Baa3 (or the equivalent) by Moody’s; a rating equal to or higher than BBB- (or the equivalent) by S&P or Fitch; and the equivalent investment grade credit rating from any replacement rating agency or rating agencies selected by Altria.

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How Does Altria Use Its Debt?

Altria Group uses its debt strategically to support its business operations and growth initiatives. Here’s how they manage and utilize their debt:

1. Capital Expenditures: Altria uses debt to finance capital investments, such as expanding production facilities, upgrading technology, and developing new products.

2. Acquisitions and Investments: Debt is leveraged to fund acquisitions of other companies or investments in strategic partnerships, helping Altria expand its market presence and product offerings.

3. Research and Development (R&D): Altria invests in R&D to innovate and improve its product lines, ensuring long-term competitiveness in the market.

4. Working Capital: Debt helps manage day-to-day operations by providing liquidity for working capital needs, such as inventory management and operational expenses.

By using debt strategically, Altria Group supports its growth initiatives, maintains financial flexibility, and enhances its competitive position in the market.

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Debt And Other Payments Due

Altria’s debt and other payments due data are obtained from the 2023 annual report dated 31 Dec 2023.

The table above shows Altria’s debt due and other payable items such as purchase obligations and dividend payments. Purchase obligations and dividend payments are included here because these items will severely affect the company’s operations and stock price if they are canceled. For example, puchase obligations are for buying raw materials while dividend payments are for shareholders.

That said, Altria’s debt payable in the next 12 months (2024) was $1.1 billion, while other payable items, including purchase obligations and dividends totaled $8.6 billion.

Cumulatively, Altria has nearly $10 billion due in 2024 in the form of various payments. These payments need to be paid in cash in the next 12 months. The lagest portion of the payments comes from dividends, which totaled as much as $7 billion in 2024.

For your information, Altria’s dividends paid in 2023 and 2022 were approximately $6.8 billion and $6.6 billion, respectively, an increase of 2.7%, according to the 2023 annual report.

Is Altria going to satisfy the respective cash requirement? Let’s find out in the next section.

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Sources Of Liquidity

Altria’s liquidity data are obtained from the 2023 annual report dated 31 Dec 2023.

Altria’s sources of liquidity include cash and cash equivalents, credit from the capital market, and cash provided by operating activities.

On a consolidated basis, Altria’s total liquidity exceeds US$ 15 billion as of the end of 2023 after accounting for the impressive net cash from operations.

For your information, Altria generates solid cash flow from operating activities according to this article: Altria cash flow.

With cash and cash equivalents totaling $3.7 billion, Altria can easily cover the $1.1 billion long-term debt due in 2024 and the $1.6 billion purchase obligations due in the same period.

However, Altria’s cash on hand alone is not sufficient to pay for dividends. Instead, Altria needs to rely on its operating cash flow to comfortably settle the coming dividend payment, which is estimated at a staggering $7.0 billion for fiscal year 2024.

In short, Altria has sufficient liquidity to meet its debt obligation and purchase obligations. However, it needs to generate enough cash flow to cover the dividend payments.

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Credit Rating

Altria’s credit rating as of 31 Dec 2023.

Altria obtained investment grades for all of its corporate and long-term debt as of 4Q 2023. On June 16, 2023, S&P changed its outlook for Altria’s indebtedness to Positive from Stable.

Fitch credit rating definitions can be found here – Fitch.

Moody’s credit rating definitions can be found here – Moody’s.

Standard & Poor’s credit rating definitions can be found here – Understanding Credit Ratings.

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Conclusion

To recap, Altria has sufficient liquidity for debt payments and purchase obligations due in 2024. However, its cash alone is not sufficient for the dividend payments which is estimated at $7 billion in 2024.

Altria needs to rely on operating cash flow to cover the $7 billion dividend payment due in 2024. For debt alone, Altria has no problem or issue in settling its debt payments.

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References and Credits

1. All financial figures presented in this article were obtained and referenced from Altria’s annual reports which are available in Altria’s SEC Filings.

2. Featured images in this article are used under Creative Commons licenses and sourced from the following links: Elsa Olofsson and Peter Pike.

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Disclosure

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