According to the company’s website press release on April 27, 2023, Altria Group, Inc. (NYSE: MO) reports our 2023 first-quarter business results and reaffirms our guidance for 2023 full-year adjusted diluted earnings per share (EPS).
“We are off to a strong start and believe our businesses are on track to deliver against full-year plans,” said Billy Gifford, Altria’s Chief Executive Officer. “Our tobacco businesses performed well in a challenging macroeconomic environment. We delivered strong adjusted diluted EPS growth of 5.4%, and we announced exciting progress toward our Vision.”
“We reaffirm our guidance to deliver 2023 full-year adjusted diluted EPS in a range of $4.98 to $5.13. This range represents an adjusted diluted EPS growth rate of 3% to 6% from a $4.84 base in 2022.”
As previously announced, a conference call with the investment community and news media will be webcast on April 27, 2023 at 9:00 a.m. Eastern Time. Access to the webcast is available at www.altria.com/webcasts.
Cash Returns to Shareholders and Capital Markets Activity
Cash Returns to Shareholders
- Due to the timing of our announcement of the NJOY Holdings, Inc. (NJOY) transaction, we did not repurchase any shares in the first quarter. As of March 31, 2023, we had $1 billion remaining under the current share repurchase program, which we expect to complete by December 31, 2023. Share repurchases depend on marketplace conditions and other factors, and the program remains subject to the discretion of our Board of Directors (Board).
- We paid dividends of $1.7 billion in the first quarter.
Capital Markets Activity
- We retired approximately $1.3 billion of outstanding debt at maturity in February 2023.
Macroeconomic and Geopolitical Conditions Impacting Our Businesses
Impact on Tobacco Business Operations
- Our businesses were not materially impacted by increased costs resulting from high inflation.
Impact on Adult Tobacco Consumers (ATCs)
- We believe the cumulative effect of high inflation over the past several quarters impacted ATC behaviors, discretionary income and spending. As a result, PM USA and the cigarette industry experienced elevated volume declines, and we observed accelerated share growth in the discount cigarettes segment. Despite these factors, our leading tobacco brands remained resilient and we continued to observe significant brand loyalty in the tobacco space overall.
NJOY Transaction
- As previously disclosed, we entered into a definitive agreement to acquire NJOY for approximately $2.75 billion in cash payable at closing and up to an additional $500 million in cash payments that are contingent upon regulatory outcomes with respect to certain NJOY products (NJOY Transaction).
- The completion of the NJOY Transaction is subject to customary conditions, including clearance from the U.S. Federal Trade Commission (FTC) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (HSR Act). The NJOY Transaction remains under FTC review, and the current waiting period under the HSR Act expires in May 2023.
JUUL Transaction
As previously disclosed, we have exchanged our entire minority economic interest in JUUL Labs, Inc. (JUUL) for a non-exclusive, irrevocable global license to certain of JUUL’s heated tobacco intellectual property (2023 JUUL Transaction). As a result of the 2023 JUUL Transaction, we recorded a non-cash, pre-tax loss of $250 million on the disposition of our JUUL equity securities for the three months ended March 31, 2023. Additionally, we considered specific facts and circumstances around the nature of intellectual property we received as part of the 2023 JUUL Transaction and determined that the fair value of the intellectual property was not material to our financial statements. As a result, we did not record an asset associated with this intellectual property on our condensed consolidated balance sheet at March 31, 2023. The primary drivers of this conclusion were (i) our rights to the intellectual property being non-exclusive, (ii) there being no product or technology transferred to us associated with the intellectual property and (iii) there being no connection between the intellectual property and our current product development plans.
2028 Enterprise Goals
At our 2023 Investor Day, we announced our 2028 Enterprise Goals. These goals assume the successful completion of the NJOY Transaction and are listed below:
Corporate
- Deliver mid-single digits adjusted diluted EPS growth on a compounded annual basis through 2028.
- A new progressive dividend goal targeting mid-single digits dividend growth annually through 2028.
- Maintain a debt-to-earnings before interest, taxes, depreciation and amortization (consolidated EBITDA, as defined in our senior unsecured revolving credit agreement) ratio of approximately 2.0x.
- Maintain our leadership position in the U.S. tobacco space.
- Maintain a total adjusted OCI margin of at least 60% in each of the next five years.
U.S. Smoke-Free Portfolio
- Grow U.S. smoke-free volumes by at least 35% from our 2022 base of 800 million units.
- Approximately double our smoke-free net revenues to $5 billion from our 2022 base of $2.6 billion, with $2 billion coming from innovative smoke-free products.
Long-Term Growth
- Our aspiration is to compete in the international innovative smoke-free and non-nicotine categories. We are evaluating these opportunities and expect to finalize strategies for these growth areas over the next 12 months.
Additional details on these goals can be found in the Investors section of www.altria.com.
Environmental, Social and Governance (ESG)
Our Corporate Responsibility Focus Areas are: (i) reduce the harm of tobacco products, (ii) prevent underage use, (iii) protect the environment, (iv) drive responsibility through our value chain, (v) support our people and communities and (vi) engage and lead responsibly. Our corporate responsibility reports are available on the Corporate Responsibility section of www.altria.com.
Our responsibility efforts and recognitions from the first quarter include the following:
- We signed a Virtual Power Purchase Agreement in 2022 for renewable energy produced by a wind farm in Texas that became operational in January 2023. We currently expect to achieve our targets - 100% renewable electricity and 55% reduction in operational greenhouse gas emissions by 2030 - ahead of schedule.
- We were recognized as a member of CDP’s 2022 Supplier Engagement Leaderboard for climate change. Our Supplier Engagement Rating (SER) positions us in the top 8% of companies that completed CDP's full climate questionnaire. The SER provides a rating for how effectively companies are engaging their suppliers on climate change.
- We published our 2022 Lobbying and Political Activity Transparency & Integrity Annual Report, which examines our public policy activities - including lobbying at the federal, state and local levels, grassroots (indirect) lobbying activities, and support of public policy organizations, candidates and political committees - as well as our extensive compliance program that governs these activities.
2023 Full-Year Guidance
We reaffirm our guidance to deliver 2023 full-year adjusted diluted EPS in a range of $4.98 to $5.13, representing a growth rate of 3% to 6% from an adjusted diluted EPS base of $4.84 in 2022. While the 2023 full-year adjusted diluted EPS guidance accounts for a range of scenarios, the external environment remains dynamic. We will continue to monitor conditions related to (i) the economy, including the impact of high inflation, rising interest rates and global supply chain disruptions, (ii) ATC dynamics, including disposable income, purchasing patterns and adoption of smoke-free products, and (iii) regulatory and legislative developments.
Our 2023 full-year adjusted diluted EPS guidance range includes planned investments in support of our Vision, such as (i) continued smoke-free product research, development and regulatory preparation expenses, (ii) enhancement of our digital consumer engagement system and (iii) marketplace activities in support of our smoke-free products. The guidance range also includes lower expected net periodic benefit income due to market factors, including higher interest rates, and the impact of the 2022 completion of the wind-down of our former financial services business. This guidance range does not include the potential financial impacts of the NJOY Transaction.
Our full-year adjusted diluted EPS guidance range excludes the impact of certain income and expense items that our management believes are not part of underlying operations. These items may include, for example, loss on early extinguishment of debt, restructuring charges, asset impairment charges, acquisition-related and disposition-related items, equity investment-related special items (including any changes in fair value of our equity investment recorded at fair value and any changes in the fair value of related warrants and preemptive rights), certain income tax items, charges associated with tobacco and health and certain other litigation items, and resolutions of certain non-participating manufacturer (NPM) adjustment disputes under the MSA (such dispute resolutions are referred to as NPM Adjustment Items). See Table 1 below for the income and expense items for the first quarter of 2023.
Our manag ement cannot estimate on a forward-looking basis the impact of certain income and expense items, including those items noted in the preceding paragraph, on our reported diluted EPS because these items, which could be significant, may be unusual or infrequent, are difficult to predict and may be highly variable. As a result, we do not provide a corresponding U.S. generally accepted accounting principles (GAAP) measure for, or reconciliation to, our adjusted diluted EPS guidance.
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 2.9% to $5.7 billion, primarily driven by lower net revenues in the smokeable products segment. Revenues net of excise taxes decreased 1.2% to $4.8 billion.
- Reported diluted EPS decreased 7.4% to $1.00, primarily driven by loss on the disposition of our JUUL equity securities, higher tobacco and health and certain other litigation items, partially offset by 2022 changes in the estimated fair value of our former investment in JUUL equity securities, favorable interest expense and fewer shares outstanding.
- Adjusted diluted EPS increased 5.4% to $1.18, primarily driven by fewer shares outstanding, higher adjusted earnings from our investment in ABI and favorable interest expense.
Note: This schedule is intended to provide supplemental financial data for certain income and expense items that management believes are not part of underlying operations and their presentation in Altria’s consolidated statements of earnings. This schedule is not intended to provide, or reconcile, non-GAAP financial measures.
Forward-Looking and Cautionary Statements
This release contains projections of future results and other forward-looking statements that are subject to a number of risks and uncertainties and are made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995.
Important factors that may cause actual results to differ materially from those contained in the forward-looking statements included in this release are described in our publicly filed reports, including our Annual Report on Form 10-K for the year ended December 31, 2022. These factors include the following:
- our inability to anticipate and respond to changes in adult tobacco consumer preferences and purchase behavior;
- our inability to compete effectively;
- the growth of the e-vapor category and other innovative tobacco products, including oral nicotine pouches, contributing to reductions in cigarette and MST consumption levels and shipment volume;
- our failure to commercialize innovative products, including tobacco products that may reduce health risks relative to other tobacco products and appeal to adult tobacco consumers;
- changes, including in macroeconomic and geopolitical conditions (including inflation), that result in shifts in adult tobacco consumer disposable income and purchasing behavior, including choosing lower-priced and discount brands or products;
- unfavorable outcomes with respect to litigation proceedings or any governmental investigations;
- the risks associated with significant federal, state and local government actions, including U.S. Food and Drug Administration (FDA) regulatory actions, and various private sector actions;
- increases in tobacco product-related taxes;
- our failure to complete or manage successfully strategic transactions, including the NJOY Transaction and other acquisitions, dispositions, joint ventures and investments in third parties or realize the anticipated benefits of such transactions;
- significant changes in price, availability or quality of tobacco, other raw materials or component parts, including as a result of changes in macroeconomic, climate and geopolitical conditions;
- our reliance on a few significant facilities and a small number of key suppliers, distributors and distribution chain service providers and the risks associated with an extended disruption at a facility or in service by a supplier, distributor or distribution chain service provider;
- the risk that we may be required to write down intangible assets, including trademarks and goodwill, due to impairment;
- the risk that we could decide, or be required to, recall products;
- the various risks related to health epidemics and pandemics, such as the COVID-19 pandemic, and the measures that international, federal, state and local governments, agencies, law enforcement and health authorities implement to address them;
- our inability to attract and retain a highly skilled and diverse workforce due to the decreasing social acceptance of tobacco usage, tobacco control actions and other factors;
- the risks associated with the various U.S. and foreign laws and regulations to which we are subject due to our international business operations;
- the risks concerning a challenge to our tax positions, an increase in the income tax rate or other changes to federal or state tax laws;
- the risks associated with legal and regulatory requirements related to climate change and other environmental sustainability matters;
- disruption and uncertainty in the credit and capital markets, including risk of losing access to these markets;
- a downgrade or potential downgrade of our credit ratings;
- our inability to attract investors due to increasing investor expectations of our performance relating to environmental, social and governance factors;
- the failure of our, or our key service providers’ or key suppliers’, information systems to function as intended, or cyber-attacks or security breaches;
- our failure to comply with personal data protection and privacy laws;
- the risk that the expected benefits of our investment in ABI may not materialize in the expected manner or timeframe or at all, including due to foreign currency exchange rates; ABI’s business results; ABI’s share price, impairment losses on the value of our investment, our incurrence of additional tax liabilities related to our investment in ABI and potential reductions in the number of directors that we can have appointed to the ABI board of directors;
- the risks related to the FTC’s challenge with respect to our former investment in JUUL, which, if successful, could result in a broad range of resolutions, as well as the outcome of certain other related putative class actions; and
- the risks associated with our investment in Cronos, including legal, regulatory and reputational risks and the risk that the expected benefits of the transaction may not materialize in the expected timeframe or at all.
You should understand that it is not possible to predict or identify all factors and risks. Consequently, you should not consider the foregoing list complete. We do not undertake to update any forward-looking statement that we may make from time to time except as required by applicable law. All subsequent written and oral forward-looking statements attributable to Altria or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements referenced above.
Altria Client Services
Investor Relations
804-484-8222
Altria Client Services
Media Relations
804-484-8897
