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RICHMOND, Va. — Tobacco company Altria Group Inc. is launching a productivity initiative that's expected to result in approximately $300 million in annual savings by the end of next year.
Marty Barrington, chairman, CEO and president of Altria Group, announced the initiative during the Richmond-based company's fourth-quarter and full-year earnings call Thursday morning.
"Turning to 2016 and beyond, Altria is initiating a productivity initiative designed to maintain its operating companies' leadership and cost competitiveness," Barrington explained. "This initiative is expected to deliver approximately $300 million in annual productivity savings by the end of 2017 and as a result of reinvesting some of those savings, strengthen our business capability."
The savings will come from a leaner organization and reduced spending on certain selling, general and administrative infrastructure, he noted.
When asked if this move means layoffs, Barrington declined to provide details on what the company means by "leaner," citing a meeting with the organization later in the day. He did acknowledge, however, that Altria wants to have an organization with fewer layers and broader control in its managerial ranks.
"If we can work toward those ends and we can reinvest those savings in our growth initiatives, then we should do that," the chief executive stated.
According to Barrington, some of the productivity savings will be invested in important initiatives such as brand building, harm reduction and regulatory capabilities.
He explained the company is continually challenging its cost structure, and investing in its future remains important for Altria as the company focuses on delivering strong results for the long term.
"It's our desire to grow our business for the long term and reallocate our resources against growth initiatives. You always have to be mindful of costs over time. If you have opportunities to improve in your infrastructure, or to improve your organization and invest those savings in our brands or in our products for the future, or in the way you can go to the market, you should do that," he said.
Similar initiatives, he pointed out, have played a role in Altria's success over the past few decades.
"While these programs are never easy to accomplish, that's how you grow over time. When you see Altria's growth over time, it's because we do these programs often from strength," Barrington said. "That is the case today; our business is strong, but we believe we should invest in several of these initiatives now."
Altria Group Inc. is the parent company for Philip Morris USA, John Middleton, U.S. Smokeless Tobacco Co., Nu Mark and Ste. Michele Wine Estates. Altria also holds a continuing economic and voting interest in SABMiller.
The brand portfolios of Altria’s tobacco operating companies include Marlboro, Black & Mild, Copenhagen, Skoal, MarkTen and Green Smoke.