Altria Debt Due, Cash Assets And Debt To Equity Ratio

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Altria (NYSE:MO) is well-known for its cigarette and tobacco products but it is also involved in wine distribution and production.

Contrary to Philip Morris International, Altria distributes and sells its products mainly in the U.S.

The company generates 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 be necessarily so when it comes to financial health, its debt level in particular.

Investors are especially concerned with Altria’s rising debt levels.

Therefore, in this article, we will explore Altria’s balance sheets to find out how well the company has been doing in terms of debt.

Apart from debt, we also look into Altria’s cash, leverages, interest coverage, etc.

For leverages, Altria’s debt-to-equity and debt-to-asset ratios are of particular interest.

Without further ado, let’s start with the following topics!

Altria’s Total Debt

Altria total debt

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Altria’s total debt consists of only the company’s interest-bearing indebtedness such as company-issued bonds, credit facilities, credit revolvers, etc.

While Altria’s total debt has remained roughly flat in the past several years, it went up significantly in fiscal 2018.

For example, Altria’s debt level doubled to nearly $30 billion in 2018, driven largely by the company’s $14.6 billion borrowings.

In December 2018, Altria entered into a loan agreement for an aggregate amount of $14.6 billion so that the company could buy a stake in JUUL and Cronos.

In other words, Altria used debt to finance its investment in JUUL and Cronos.

However, in subsequent quarters, Altria’s investment in JUUL and Cronos has turned out to be a bad decision as the company has incurred a series of impairment charges or write-downs that have severely impacted Altria’s profitability in 2019 and 2020.

As of 1Q 2023, Altria’s total debt came in at roughly $25 billion, down slightly from a year ago.

Altria’s Total Cash

Altria total cash

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From the perspective of cash, Altria’s figures vary significantly from quarter to quarter.

For example, Altria’s total cash exceeded $5 billion in some quarters but totaled less than $2 billion in some.

On average, Altria carried roughly $3 billion in cash per quarter.

Compared to its debt levels of $25 billion, Altria’s cash amount is far from sufficient to pay off the debt.

However, Altria may not necessarily have to pay off its debt since its earnings power alone is more than sufficient to service the debt.

Altria’s Net Debt

Altria net debt

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Since Altria’s cash had been insufficient to fully cover the debt, its net debt came in at roughly $20 billion in most fiscal quarters.

Altria’s net debt totaled $21.4 billion as of Q1 2023.

This figure has slightly decreased since 2019.

Altria’s Debt To Equity Ratio

Altria debt to equity ratio

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Altria’s debt leverage can be explored through the debt-to-equity ratio.

As seen, Altria’s debt-to-equity ratio had slowly increased in line with the company’s growing indebtedness and reached a record level of 100% before plunging to negative values.

Between 3Q 2020 and 2Q 2021, Altria’s debt levels were 100% of total equity, meaning that for every $1 of equity, Altria carried $1 of debt.

Altria’s negative debt-to-equity ratio had been driven by its negative equity which has occurred since 2021.

For your information, Altria’s shares buybacks, cash dividends paid, and negative earnings in some fiscal years have shrunk the company stockholders’ equity until it had become negative since fiscal 2021.

The following snapshot shows the changes in Altria’s stockholders’ equity:

Altria statements of changes in stockholders’ equity

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The above snapshot shows that Altria’s stockholder equity had significantly shrunk as a result of the company’s reduced earnings, cash dividend declared, and share buybacks.

Altria’s Debt To Assets Ratio

Altria debt to assets ratio

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Altria’s debt-to-asset ratio has been on the rise, illustrating the growing portion of debt with respect to assets.

As of 2023, Altria’s capital structure was 70% debt compared to only 30% debt reported back in fiscal 2017.

The rising debt-to-asset ratio illustrates Altria’s increasing use of debt to finance its assets.

Therefore, is Altria’s rising leverage and decreasing asset value a cause of concern for investors?

We will find out in the next several discussions.

Altria’s Debt To Sales Ratio (Debt Margin)

Altria debt to sales ratio

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Altria’s debt margin measures the company’s efficient use of debt with respect to revenue.

Therefore, the lower the ratio, the more efficient Altria is in utilizing its debt to generate sales.

While Altria’s debt margin grew significantly in fiscal 2018, it has slowly been on the decline.

As of 2023, Altria’s debt margin reached 123%.

This figure means that Altria’s debt is more than 1X higher than its TTM revenue.

The decreasing ratio bodes well for the company.

Altria’s Operating Income And Debt Expenses

Altria operating income and debt expenses

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While Altria’s interest payment and debt expenses doubled in fiscal 2019 over 2018, driven primarily by the growing indebtedness, the figures have been on the decline.

As of 2023, Altria’s interest payments and debt expenses totaled $1.1 billion, the lowest figure that has ever been reported since 2019.

Altria’s decreasing interest payments and debt expenses were largely due to the declining debt levels since 2019.

With respect to the operating income, Altria’s interest and debt expenses were much lower figures.

As of 2022, Altria’s operating income of $12 billion was more than sufficient to cover the interest and debt expenses of only $1.1 billion.

Altria’s Interest Coverage Ratio

Altria interest coverage ratio

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The interest coverage ratios presented in the chart above shows that Altria has sufficient operating income to cover its interest payments and other debt expenses.

In fact, Altria’s operating income is more than enough to cover the interest payments and debt expenses multiple times.

The ratio has risen to 11.3X as of 2023, illustrating Altria’s improving ability to service its debt.

Altria’s Debt Payments Due

Altria debt due

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The snapshot above shows Altria’s debt payment due date.

For example, Altria’s total debt due in fiscal 2023 alone amounts to $1.6 billion USD while that for fiscal 2024 totals $1.1 billion.

The aggregate amount of debt due between fiscal 2023 and 2027 or over the next 5 years is going to be nearly $7 billion.

On average, Altria will pay about $1.4 billion of cash to settle the debt each year between 2023 and 2027.

Is Altria going to be able to satisfy this future debt obligation?

Definitely.

As we saw in prior discussions, Altria boasts cash and near-cash assets totaling around $4 billion in the latest quarter and this amount should be able to satisfy at least the debt payment due in the next 3 years starting in fiscal 2023.

In short, Altria should not have any problem fulfilling its debt obligations from 2023 to 2025 and can pay off the debt due with just the latest cash assets alone.

Conclusion

To recap, Altria’s debt level grew significantly in 2019 over 2018 due to the company’s take-up of more debt to invest in JUUL and Cronos.

Altria’s debt level has not grown since then but slowly decreased over time.

While the debt-to-asset ratio shows Altria’s rising leverage with respect to assets, it is not of concern to investors.

The reason is that Altria’s superior earnings are more than sufficient to cover the interest and debt payments without having to rely on cash generated from assets.

Moreover, Altria’s latest cash and near-cash assets alone can settle the debt payments due in the next 3 years starting in 2023.

However, investors should keep an eye on Altria’s growing negative equity, driven primarily by cash dividends paid, share buybacks, and negative earnings.

Do you know how far can Altria’s negative equity keep on going?

Please leave your comments below.

References and Credits

1. All financial figures in this article were obtained and referenced from Altria’s SEC filings, earnings reports, financial statements, etc, 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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