Altria Reports 2019 First-Quarter Results; Reaffirms 2019 Full-Year Earnings Guidance

RICHMOND, Va.–(BUSINESS WIRE)–Altria Group, Inc. (Altria) (NYSE:MO) today announces its 2019
first-quarter business results and reaffirms its guidance for 2019
full-year adjusted diluted earnings per share (EPS).

“After taking steps to position Altria for long-term success at the end
of 2018, we entered 2019 with an evolved business platform that includes
our strong core tobacco businesses and new strategic investments with
tremendous potential for growth,” said Howard Willard, Altria’s Chairman
and Chief Executive Officer. “We believe we’ve made significant progress
in the first quarter on key initiatives to realize the potential of our
evolved business platform.”

“As expected, Altria’s first quarter adjusted diluted EPS declined in
the mid-single digit range as we incurred higher interest expense as a
result of our recently issued debt, without the full benefit of savings
from our cost reduction program, which began to ramp up at the end of
the quarter. We continue to expect full-year adjusted diluted EPS growth
of 4% to 7%.”

As previously announced, a conference call with the investment community
and news media will be webcast on April 25, 2019 at 9:00 a.m. Eastern
Time. Access to the webcast is available at www.altria.com/webcasts
and via the Altria Investor app.

Altria Headline Financials1

($ in millions, except per share data)   Q1 2019   Change vs.

Q1 2018

Net revenues   $ 5,628     (7.9)%
Revenues net of excise taxes   $ 4,389     (6.0)%
 
Reported tax rate     26.1 %   2.9 pp
Adjusted tax rate     24.0 %   0.8 pp
 
Reported diluted EPS   $ 0.60     (40.0)%
Adjusted diluted EPS   $ 0.90     (5.3)%

1 “Adjusted” financial measures presented in this
release exclude the impact of special items.
See “Basis of
Presentation” for more information.

Cash Returns to Shareholders

Dividends:

  • Altria’s current annualized dividend rate is $3.20 per share,
    representing an annualized dividend yield of 5.9% as of April 22, 2019.
  • Altria paid $1.5 billion in dividends in the first quarter.
  • Altria expects to maintain a dividend payout ratio target of
    approximately 80% of adjusted diluted EPS. Future dividend payments
    remain subject to the discretion of Altria’s Board of Directors
    (Board).

Share Repurchase Program:

  • Altria repurchased 2.7 million shares in the first quarter at an
    average price of $56.34 per share, for a cost of $151 million.
  • As of March 31, 2019, Altria had $195 million remaining in the current
    $2 billion share repurchase program, which Altria expects to complete
    by the end of the second quarter of 2019. The timing of share
    repurchases depends upon marketplace conditions and other factors, and
    this program remains subject to the discretion of the Board.

Transactions & Financing Matters

  • Altria completed its investment of $1.8 billion (CAD $2.4 billion) in
    Cronos. Altria’s investment represents a 45% economic and voting
    interest in Cronos with a warrant, if exercised in full, to acquire an
    additional 10% equity stake.Altria also received certain
    anti-dilution protections to purchase Cronos shares to maintain its
    ownership percentage upon the occurrence of specified events.

    • Altria will record Cronos-related financial instruments at fair
      value each quarter. As such, there may be significant reported
      earnings volatility, primarily driven by quarterly adjustments
      related to movement in Cronos’ stock price. Any fair-value
      adjustment is non-cash and will be reported as a special item.*
  • Altria filed its Hart-Scott-Rodino (HSR) notification with the U.S.
    Federal Trade Commission (FTC) in the first quarter related to the
    proposed conversion of its interest in JUUL to voting securities
    pursuant to the terms of its investment. In April, Altria received a
    request for additional information and documents from the FTC relating
    to its HSR filing.
  • Altria issued $16.3 billion of debt in the form of senior unsecured
    notes in the European and U.S. markets. Altria used the net proceeds
    to repay the term loan that it used to fund the JUUL investment, to
    fund the Cronos investment and for other general corporate purposes.
    The weighted-average coupon of the notes is approximately 4.1%.

*See “Special Items” below for description of first quarter 2019
adjustment.

Cost Reduction Program

  • In December 2018, Altria announced a cost reduction program that it
    expects to deliver approximately $575 million in annualized cost
    savings by the end of 2019 (Cost Reduction Program). The program
    includes, among other things, third-party spending reductions across
    Altria’s businesses and workforce reductions.
  • Altria recorded pre-tax charges of $61 million in the first quarter of
    2019 related to the program.

2019 Full-Year Guidance

Altria reaffirms its guidance for 2019 full-year adjusted diluted EPS to
be in a range of $4.15 to $4.27, representing a growth rate of 4% to 7%
from an adjusted diluted EPS base of $3.99 in 2018, as shown in Schedule
6. Altria’s 2019 guidance reflects its expectation for a higher
full-year adjusted effective tax rate, primarily resulting from lower
dividends from AB InBev; increased interest expense from the debt
incurred to fund the Cronos and JUUL transactions; savings from the Cost
Reduction Program, which Altria expects to build over the course of the
year to an annualized level of approximately $575 million; and increased
investments related to PM USA’s lead market plans for launching IQOS,
once authorized by the FDA. The guidance assumes little-to-no earnings
or cash contributions from the Cronos and JUUL investments.

This guidance range excludes the special items for the first quarter of
2019 shown in Table 1 and additional estimated per share charges of: (i)
$0.03 of tax expense resulting from the Tax Cuts and Jobs Act (Tax
Reform Act) related to a tax basis adjustment to Altria’s AB InBev
investment; and (ii) $0.02 in charges associated with the Cost Reduction
Program.

Altria revises its estimate for the 2019 full-year total domestic
cigarette industry volume decline rate to a range of 4% to 5%, primarily
due to increased gas prices and other factors that Altria believes
impacted adult tobacco consumer behavior in the first quarter of 2019.

Altria reaffirms its 2019 full-year adjusted effective tax rate to be in
a range of 23.5% to 24.5%.

Altria’s full-year adjusted diluted EPS guidance and full-year
forecast for its adjusted effective tax rate exclude the impact of
certain income and expense items that management believes are not part
of underlying operations.
These items may include, for example,
restructuring charges, asset impairment charges, acquisition-related
costs, gain/loss on AB InBev/SABMiller plc (SABMiller) business
combination, AB InBev special items, gain/loss on Cronos-related
financial instruments, certain tax items, charges associated with
tobacco and health litigation items, and resolutions of certain
non-participating manufacturer (NPM) adjustment disputes under the
Master Settlement Agreement (such dispute resolutions are referred to as
NPM Adjustment Items).

Altria’s management cannot estimate on a forward-looking basis the
impact of certain income and expense items, including those items noted
in the preceding paragraph, on its reported diluted EPS or its reported
effective tax rate because these items, which could be significant, may
be infrequent, are difficult to predict and may be highly variable.
As
a result, Altria does not provide a corresponding U.S. generally
accepted accounting principles (GAAP) measure for, or reconciliation to,
its adjusted diluted EPS guidance or its adjusted effective tax rate
forecast.

The factors described in the “Forward-Looking and Cautionary Statements”
section of this release represent continuing risks to Altria’s forecast.

ALTRIA GROUP, INC.

See Basis of Presentation below for an explanation of
financial measures and reporting segments discussed in this release.

Financial Performance

  • Net revenues decreased 7.9% to $5.6 billion primarily due to lower net
    revenues in the smokeable products segment. Revenues net of excise
    taxes decreased 6.0% to $4.4 billion.
  • Reported diluted EPS decreased 40.0% to $0.60, primarily driven by the
    2019 unrealized loss on Cronos-related financial instruments
    (substantially all of which was non-cash), lower reported equity
    earnings from AB InBev (which included AB InBev special items), higher
    asset impairment, exit, implementation and acquisition-related costs,
    higher ongoing interest expense and 2018 NPM Adjustment Items,
    partially offset by higher reported operating companies income (OCI)
    in the smokeless products segment.
  • Adjusted diluted EPS decreased 5.3% to $0.90, primarily driven by
    higher ongoing interest expense and lower adjusted equity earnings
    from AB InBev, partially offset by higher adjusted OCI in the
    smokeless products segment.
Table 1 – Altria’s Adjusted Results  
         
First Quarter
2019   2018   Change
Reported diluted EPS $ 0.60   $ 1.00 (40.0)%
Asset impairment, exit, implementation and acquisition-related costs 0.06
Tobacco and health litigation items 0.01 0.01
AB InBev special items 0.05 (0.04 )
Loss on Cronos-related financial instruments 0.17
NPM Adjustment Items (0.03 )
Loss on AB InBev/SABMiller business combination 0.01
Tax items 0.01      
Adjusted diluted EPS $ 0.90     $ 0.95     (5.3)%

Note: For details of pre-tax, tax and after-tax amounts, see Schedule
5.

Special Items

The EPS impact of the following special items is shown in Table 1 and
Schedule 5.

Asset Impairment, Exit, Implementation and Acquisition-Related
Costs

  • In the first quarter of 2019, Altria recorded pre-tax charges of $159
    million (or $0.06 per share) for acquisition-related costs associated
    with the Cronos and JUUL transactions and the Cost Reduction Program.

AB InBev Special Items

  • In the first quarter of 2019, equity earnings from AB InBev included
    pre-tax charges of $114 million (or $0.05 per share), consisting
    primarily of Altria’s share of AB InBev’s mark-to-market losses on AB
    InBev’s derivative financial instruments used to hedge certain share
    commitments.
  • In the first quarter of 2018, equity earnings from AB InBev included
    net pre-tax income of $117 million (or $0.04 per share), consisting
    primarily of Altria’s share of AB InBev’s estimated effect of the Tax
    Reform Act, partially offset by Altria’s share of AB InBev’s
    mark-to-market losses on AB InBev’s derivative financial instruments
    used to hedge certain share commitments.

Loss on Cronos-related Financial Instruments

  • In the first quarter of 2019, Altria recorded a pre-tax unrealized
    loss of $425 million (or $0.17 per share) primarily resulting from the
    non-cash change in the fair value of Cronos-related financial
    instruments to acquire additional shares in Cronos.

NPM Adjustment Items

  • In the first quarter of 2018, Altria recorded pre-tax income of $68
    million (or $0.03 per share) for an NPM adjustment settlement with
    nine states.

SMOKEABLE PRODUCTS

Revenues and OCI

  • Net revenues decreased 8.8%, as lower shipment volume was partially
    offset by higher pricing and lower promotional investments. Revenues
    net of excise taxes decreased 7.0%.
  • Reported OCI decreased 5.2%, as lower shipment volume, 2018 NPM
    Adjustment Items and higher asset impairment, exit and implementation
    costs were partially offset by higher pricing, lower promotional
    investments and lower costs.
  • Adjusted OCI was essentially unchanged, as lower shipment volume was
    offset by higher pricing, lower promotional investments and lower
    costs. Adjusted OCI margins increased 3.6 percentage points to
    53.3%.
Table 2 – Smokeable Products: Revenues and OCI ($ in millions)
         
First Quarter
2019   2018   Change
Net revenues $ 4,935   $ 5,414   (8.8)%
Excise taxes (1,203 )   (1,401 )  
Revenues net of excise taxes $ 3,732     $ 4,013     (7.0)%
 
Reported OCI $ 1,932 $ 2,038 (5.2)%
NPM Adjustment Items (68 )
Asset impairment, exit and implementation costs 44 1
Tobacco and health litigation items 15     24    
Adjusted OCI $ 1,991     $ 1,995     (0.2)%
Adjusted OCI margins 1 53.3 %   49.7 %   3.6 pp

1Adjusted OCI margins are calculated as adjusted
OCI divided by revenues net of excise taxes.

Shipment Volume

  • Smokeable products segment reported domestic cigarette shipment volume
    declined 14.3%, primarily driven by trade inventory movements, the
    industry’s rate of decline, retail share losses and one fewer shipping
    day.
  • When adjusted for trade inventory movements and one fewer shipping
    day, smokeable products segment domestic cigarette shipment volume
    decreased by an estimated 7%.
  • When adjusted for trade inventory movements and one fewer shipping
    day, total domestic cigarette industry volumes declined by an
    estimated 5%.
  • Reported cigar shipment volume increased 1.1%.
Table 3 – Smokeable Products: Shipment Volume (sticks in millions)
     
First Quarter
2019 2018 Change
Cigarettes:
Marlboro 20,467 23,653 (13.5)%
Other premium 1,165 1,409 (17.3)%
Discount 1,962   2,460   (20.2)%
Total cigarettes 23,594   27,522   (14.3)%
 
Cigars:
Black & Mild 380 375 1.3%
Other 2   3   (33.3)%
Total cigars 382   378   1.1%
   
Total smokeable products 23,976   27,900   (14.1)%

Note: Cigarettes volume includes units sold as well as
promotional units, but excludes units sold for distribution to Puerto
Rico, and units sold in U.S. Territories, to overseas military and by
Philip Morris Duty Free Inc., none of which, individually or in the
aggregate, is material to the smokeable products segment.

Brand Activity and Retail Share

Brand Activity

  • PM USA launched Marlboro Rewards nationally in January 2019.
  • PM USA announced the national expansion of Marlboro Smooth Ice,
    a menthol offering, with innovative reseal pack technology starting in
    April.
  • Nat Sherman announced plans to expand Nat’s nationally starting
    in April.

Retail Share

  • Marlboro retail share declined 0.2 share points to 43.1% from
    the year ago period and is unchanged sequentially from the fourth
    quarter of 2018.
  • Nat’s first-quarter 2019 share was 0.3 share points in states
    selling the product.
Table 4 – Smokeable Products: Cigarettes Retail Share (percent)
     
First Quarter
2019 2018

Percentage
point change

Cigarettes:
Marlboro 43.1 % 43.3 % (0.2 )
Other premium 2.5 2.6 (0.1 )
Discount 4.2   4.6   (0.4 )
Total cigarettes 49.8 % 50.5 % (0.7 )

Note: Retail share results for cigarettes are based on data
from IRI/MSAi, a tracking service that uses a sample of stores and
certain wholesale shipments to project market share and depict share
trends. This service tracks sales in the food, drug, mass merchandisers,
convenience, military, dollar store and club trade classes.
For
other trade classes selling cigarettes, retail share is based on
shipments from wholesalers to retailers (STARS).
This service is
not designed to capture sales through other channels, including the
internet, direct mail and some illicitly tax-advantaged outlets.
It
is IRI’s standard practice to periodically refresh its services, which
could restate retail share results that were previously released in this
service.

SMOKELESS PRODUCTS

Revenues and OCI

  • Net revenues increased 2.9%, primarily driven by higher pricing and
    lower promotional investments, partially offset by lower shipment
    volume. Revenues net of excise taxes increased 3.2%.
  • Reported OCI increased 5.9%, primarily driven by higher pricing, lower
    promotional investments and lower costs, partially offset by lower
    shipment volume and higher asset impairment, exit and implementation
    costs.
  • Adjusted OCI increased 7.9%, primarily driven by higher pricing, lower
    promotional investments and lower costs, partially offset by lower
    shipment volume. Adjusted OCI margins increased 3.1 percentage points
    to 72.1%.
Table 5 – Smokeless Products: Revenues and OCI ($ in millions)
           
First Quarter
2019   2018   Change
Net revenues $ 540   $ 525   2.9%
Excise taxes (31 )   (32 )
Revenues net of excise taxes $ 509     $ 493   3.2%
 
Reported OCI $ 358 $ 338 5.9%
Asset impairment, exit and implementation costs 9     2  
Adjusted OCI $ 367     $ 340   7.9%
Adjusted OCI margins 1   72.1 %   69.0 %   3.1 pp

1Adjusted OCI margins are calculated as adjusted
OCI divided by revenues net of excise taxes.

Shipment Volume

  • Smokeless products segment reported domestic shipment volume declined
    2.2%, primarily driven by the industry’s rate of decline and one fewer
    shipping Monday. When adjusted for trade inventory movements and
    calendar differences, smokeless products segment shipment volume
    declined an estimated 1%.
  • Total smokeless industry volume declined by an estimated 1.5% over the
    past six months.
Table 6 – Smokeless Products: Shipment Volume (cans and packs in
millions)
     
First Quarter
2019 2018 Change
Copenhagen 125.2 124.4 0.6 %
Skoal 50.3   55.0   (8.5 )%
Copenhagen and Skoal 175.5 179.4 (2.2 )%
Other 15.9   16.3   (2.5 )%
Total smokeless products 191.4   195.7   (2.2 )%

Note: Volume includes cans and packs sold, as well as
promotional units, but excludes international volume, which is not
material to the smokeless products segment.
New types o f
smokeless products, as well as new packaging configurations of existing
smokeless products, may or may not be equivalent to existing moist
smokeless tobacco (MST) products on a can-for-can basis.
To
calculate volumes of cans and packs shipped, one pack of snus,
irrespective of the number of pouches in the pack, is assumed to be
equivalent to one can of MST.

Brand Activity and Retail Share

Brand Activity

  • USSTC presented at the Tobacco Products Scientific Advisory Committee
    meeting in February 2019, related to its modified risk tobacco product
    application for Copenhagen Snuff. The committee overwhelmingly
    voted that USSTC’s proposed modified risk claim is fully supported by
    scientific evidence.
  • USSTC announced plans to open a dedicated store in Nashville. The
    store is designed to reinforce Copenhagen’s leading equity
    position among adult dippers and its 100% American craftsmanship
    positioning.

Retail Share

  • Copenhagen retail share grew 0.7 share points to 35.0%.
  • Skoal retail share declined 0.8 share points to 15.4%.
Table 7 – Smokeless Products: Retail Share (percent)
         
First Quarter
2019   2018  

Percentage
point change

Copenhagen 35.0 %   34.3 %   0.7
Skoal 15.4     16.2     (0.8 )
Copenhagen and Skoal 50.4   50.5 (0.1 )
Other 3.5     3.3     0.2  
Total smokeless products 53.9 %   53.8 %   0.1  

Note: Retail share results for smokeless products are based on data
from IRI InfoScan, a tracking service that uses a sample of stores to
project market share and depict share trends.
This service tracks
sales in the food, drug, mass merchandisers, convenience, military,
dollar store and club trade classes on the number of cans and packs sold.

Smokeless products is defined by IRI as moist smokeless and spit-free
tobacco products.
New types of smokeless products, as well as new
packaging configurations of existing smokeless products, may or may not
be equivalent to existing MST products on a can-for-can basis.
For
example, one pack of snus, irrespective of the number of pouches in the
pack, is assumed to be equivalent to one can of MST. Because this
service represents retail share performance only in key trade channels,
it should not be considered a precise measurement of actual retail share.

It is IRI’s standard practice to periodically refresh its InfoScan
services, which could restate retail share results that were previously
released in this service.

WINE

Revenues, OCI and Shipment Volume

  • Net revenues increased 6.3%, primarily driven by higher shipment
    volume, partially offset by higher promotional investments.
  • Reported and adjusted OCI decreased $2 million, primarily driven by
    higher costs and higher promotional investments, partially offset by
    higher shipment volume.
  • Reported wine shipment volume increased 8.0% to approximately 1.9
    million cases.
Table 8 – Wine: Revenues and Operating Companies (Loss) Income ($
in millions)
     
First Quarter
2019 2018 Change
Net revenues $ 151 $ 142 6.3%
Excise taxes (5 ) (5 )
Revenues net of excise taxes $ 146   $ 137   6.6%
   
Reported and Adjusted OCI $ 15   $ 17   (11.8)%
OCI margins 1 10.3 % 12.4 % (2.1) pp

1OCI margins are calculated as adjusted OCI
divided by revenues net of excise taxes.

Altria’s Profile

Altria’s wholly-owned subsidiaries include Philip Morris USA Inc. (PM
USA), U.S. Smokeless Tobacco Company LLC (USSTC), John Middleton Co.
(Middleton), Sherman Group Holdings, LLC and its subsidiaries (Nat
Sherman), Ste. Michelle Wine Estates Ltd. (Ste. Michelle) and Philip
Morris Capital Corporation (PMCC). Altria holds equity investments in
Anheuser-Busch InBev SA/NV (AB InBev), JUUL Labs, Inc. (JUUL) and Cronos
Group Inc. (Cronos).

The brand portfolios of Altria’s tobacco operating companies include Marlboro®,
Black & Mild®, Copenhagen® and
Skoal®. Ste. Michelle produces and markets
premium wines sold under various labels, including Chateau Ste.
Michelle
®, Columbia Crest®,
14 Hands® and Stag’s Leap Wine Cellars,
and it imports and markets Antinori®, Champagne
Nicolas Feuillatte
, Torres®
and Villa Maria Estate products in
the United States. Trademarks and service marks related to Altria
referenced in this release are the property of Altria or its
subsidiaries or are used with permission.

More information about Altria is available at altria.com and on the
Altria Investor app, or follow us on Twitter, Facebook and LinkedIn.

Basis of Presentation

Altria reports its financial results in accordance with GAAP. Altria’s
management reviews OCI, which is defined as operating income before
general corporate expenses and amortization of intangibles, to evaluate
the performance of, and allocate resources to, the segments. Altria’s
management also reviews certain financial results, including OCI, OCI
margins and diluted EPS, on an adjusted basis, which excludes certain
income and expense items, including those items noted under “2019
Full-Year Guidance.” Altria’s management does not view any of these
special items to be part of Altria’s underlying results as they may be
highly variable, may be infrequent, are difficult to predict and can
distort underlying business trends and results. Altria’s management also
reviews income tax rates on an adjusted basis. Altria’s adjusted
effective tax rate may exclude certain tax items from its reported
effective tax rate. Altria’s management believes that adjusted financial
measures provide useful additional insight into underlying business
trends and results and provide a more meaningful comparison of
year-over-year results. Altria’s management uses adjusted financial
measures for planning, forecasting and evaluating business and financial
performance, including allocating resources and evaluating results
relative to employee compensation targets. These adjusted financial
measures are not consistent with GAAP and may not be calculated the same
as similarly titled measures used by other companies. These adjusted
financial measures should thus be considered as supplemental in nature
and not considered in isolation or as a substitute for the related
financial information prepared in accordance with GAAP. Reconciliations
of historical adjusted financial measures to corresponding GAAP measures
are provided in this release.

Altria uses the equity method of accounting for its investment in AB
InBev and Cronos and reports its share of AB InBev’s and Cronos’s
results using a one-quarter lag because AB InBev’s and Cronos’s results
are not available in time to record them in the concurrent period. The
one-quarter reporting lag for AB InBev and Cronos does not affect
Altria’s cash flows. Altria accounts for its investment in JUUL as an
investment in an equity security.

Contacts

Altria Client Services
Investor Relations
804-484-8222

Altria Client Services
Media Relations
804-484-8897

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Author: dmnnewswire