2020 CAGNY Investor Presentation
Safe Harbor Statement
Statements, including earnings guidance, in this presentation that are not reported financial results or other historical information are “forward-looking statements” within the meaning of Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on current plans, estimates and expectations, and are not guarantees of future performance. They are based on management’s expectations that involve a number of business risks and uncertainties, any of which could cause actual results to differ materially from those expressed in or implied by the forward-looking statements. Altria undertakes no obligation to publicly update or revise any forward-looking statement other than in the normal course of its public disclosure obligations. The risks and uncertainties relating to the forward-looking statements in this presentation include those described in Altria’s publicly-filed reports, including its Annual Report on Form 10-K for the year ended December 31, 2018 and its Quarterly Report on Form 10-Q for the periods ended March 31, 2019 and September 30, 2019, and under “Forward-looking and Cautionary Statements” in today’s earnings release.
Reconciliations of non-GAAP financial measures included in this presentation to the most comparable GAAP measures are available on Altria’s website at altria.com.
2For Investor Presentation ONLY | CAGNY 2020 | 02.19.2020 |
3
Tobacco Space Estimated VolumeEquivalized Volume in Billions
For Investor Presentation ONLY | CAGNY 2020 | 02.19.2020 |
Sources: CMI Estimates; IRI MOC; Capstone; ComScore, MerkleEQ Estimation – For purposes of this theoretical analysis the following are assumed to be equivalent: 1 pack of cigarettes = 1 can of MST/Snus/TDN = 10 Cigars = 1 E-Vapor cartridgeCombustible contains Cigarettes and Cigars; Oral Tobacco contains MST, Snus and oral TDN
16.7 16.9 16.6 16.3 16.2 16.0
2014 2015 2016 2017 2018 2019
Combustible Oral Tobacco E-Vapor
(0.9%)5yr CAGR
For Investor Presentation ONLY | CAGNY 2020 | 02.19.2020 | 4
Adjusted Diluted Earnings Per Share* Performance
* For reconciliation of non-GAAP to GAAP measures visit Altria.com
Source: Altria company reports
$2.57
$4.22
2014 2019
+10.4%CAGR
Core Tobacco Business Operating Performance
46.4%56.5%
2014 2019
$8.0 B
$10.8 B
2014 2019
* For reconciliation of non-GAAP to GAAP measures visit Altria.com
Source: Altria company reports
+6.2%CAGR +10.1pp
For Investor Presentation ONLY | CAGNY 2020 | 02.19.2020 | 5
Smokeable and Smokeless Segments Combined Adjusted OCI* Margins
Smokeable and Smokeless Segments Combined Adjusted OCI*
Significant Cash Returns to Shareholders
$2.08
$3.36
2014 2019
For Investor Presentation ONLY | CAGNY 2020 | 02.19.2020 | 6
+10.1%CAGR
Note: reported annualized dividend per share based on latest declared dividend
Dividends Per ShareCash Returned to Shareholders
$25 B
$7 B
$32 B
2015 - 2019
Dividends Paid Shares Repurchased
Unmatched Noncombustible Brands & Investments
U.S. Smokeless Tobacco Co. & Copenhagen
Most profitable MST company with the # 1 brand
IQOSExclusive license to the only
FDA authorized heated tobacco system
JUULStrategic investment in the
leading e-vapor manufacturer
on!Broadest portfolio of oral
nicotine pouches
All-third party trademarks remain the property of their respective owners.
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For Investor Presentation ONLY | CAGNY 2020 | 02.19.2020 | 8
10-YEAR VISIONResponsibly lead the transition of adult smokers
to a noncombustible future.
Lead the industry in operating responsibly and preventing underage use of adult products.
Develop and expand our portfolio of FDA-authorized, noncombustible products and actively convert adult smokers to them.
Maximize the profitability of our combustible products while appropriately balancing investments in Marlboro with funding the growth of our noncombustible portfolio.
Seize leadership in the external environment through communications, engagement, science-based policy and regulatory solutions.
9
To Achieve Our Vision, We Will...
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(87%)
28.3%
3.7%0%
30%
1991 1994 1997 2000 2003 2006 2009 2012 2015 2018
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Generational Lows in Youth Smoking RatesMonitoring The Future – 8th, 10th and 12th Grades Combined
Source: See detailed tables for 8th, 10th, 12th grades combined: http://www.monitoringthefuture.org/data/19data/19drtbl7.pdf
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We Must Earn Our License To Operate Every Day
January 2019Altria launches
national campaign
July 2019Half of U.S. Population governed
by Tobacco 21 state laws
December 2019Congress enacts federal Tobacco 21 legislation
12
Our Underage Tobacco Prevention Efforts
For Investor Presentation ONLY | CAGNY 2020 | 02.19.2020 |
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Noncombustible Brands & Investments
All-third party trademarks remain the property of their respective owners.
For Investor Presentation ONLY | CAGNY 2020 | 02.19.2020 |
JUULStrategic investment in the
leading e-vapor manufacturer
IQOSExclusive license to the only FDA
authorized heated tobacco system
on!Broadest portfolio of oral nicotine pouches
We believe the recent agreement with JUUL better positions both companies for future success
We continue to expect the FTC to complete its review in the first half of this year
14
Path Forward for our JUUL Investment
For Investor Presentation ONLY | CAGNY 2020 | 02.19.2020 |
0.1 0.5
0.9 1.1 1.0 1.1
1.61.9
0.0
2.5
2015 2016 2017 2018 2019
15
Historical E-Vapor Category PerformanceEstimated Equivalized Volume (in billions of units)
For Investor Presentation ONLY | CAGNY 2020 | 02.19.2020 |
Source: ALCS CMI estimates
Volume equivalized to cartridges (1 disposable = 1 cartridge = 1mL e-liquid) Estimated category volume and share are subject to revisions based on the latest available data
JUUL Industry Balance
In order to receive authorization, a manufacturer will have to submit significant scientific data to support that a product is appropriate for the protection of public health
The PMTA standard is a high bar that we believe is warranted
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May 2020 PMTA Deadline for Newly Deemed Products
For Investor Presentation ONLY | CAGNY 2020 | 02.19.2020 |
A market ultimately consisting solely of FDA authorized products
Clear FDA marketing guidelines and ongoing post-market surveillance to help ensure that products do not reach unintended audiences
Pro-active regulatory enforcement against noncompliant manufacturers and new entrants trying to avoid pre-market regulatory requirements
Uniform rules and regulations that apply to all e-vapor types, manufacturers and retail trade classes
17
We Believe The E-Vapor Category Needs:
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18
2019 National Youth Tobacco Survey Results
For Investor Presentation ONLY | CAGNY 2020 | 02.19.2020 |
53.7%
24.2%
10.1% 9.4%2.6%
0%
70%
* ALCS analysis of 2019 NYTS data
Device type used most often among past 30-day high school and middle school e-cigarette users*
Pre-filled pods
Refillable tank
Modsystem
Unknown / NA
Disposable
~37%
17.5%15.2%
0%
35%
Retail source of e-cigarettes among past 30 day high school and middle school e-cigarette users*
Gas Station / Convenience
Store
Vape Shop / E-Cigarette Only Store
40%
Current U.S. Adult Smokers
For Investor Presentation ONLY | CAGNY 2020 | 02.19.2020 | 19
U.S. Adult Smoker Experience With E-Vapor Products
Source: National Center for Health Statistics. National Health Interview Survey, 2018. Public-use data file and documentation. https://www.cdc.gov/nchs/nhis/data-questionnaires-documentation.htm.
We believe adult smokers are looking for alternatives to cigarettes beyond just the e-vapor category
40% of current U.S. adult smokers have tried, but ultimately rejected e-vapor products
We believe IQOS and on! could be satisfying alternatives for these adult smokers
U.S. Adult Smokers Who Have Tried,But Rejected E-Vapor Products
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All-third party trademarks remain the property of their respective owners.
21
IQOS Consumer Journey
For Investor Presentation ONLY | CAGNY 2020 | 02.19.2020 |
Awareness
Engagement
Trial
Purchase
Conversion
22
IQOS Consumer Journey - Awareness
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40%
31%
Adult Smoker Awareness
IQOS2H 2019 - Atlanta
MarlboroSmooth Ice
1H 2019 - National
Source: ALCS CMI Estimates
All-third party trademarks remain the property of their respective owners.
23
IQOS Retail EcosystemBoutiques Mobile Pop-Up
CornersHeatSticks®
RetailersPods
Kiosks
For Investor Presentation ONLY | CAGNY 2020 | 02.19.2020 |
All-third party trademarks remain the property of their respective owners.
Experts
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IQOS Consumer Journey – Engagement, Trial & Purchase
For Investor Presentation ONLY | CAGNY 2020 | 02.19.2020 |
Awareness
Engagement
Trial
Purchase
Conversion~60%
~55%
Source: GMR Queue Extract through 02/01/2020, GMR Sales Extract through 02/01/2020
5%
25
IQOS Purchaser Consumer ProfileAtlanta Lead Market
For Investor Presentation ONLY | CAGNY 2020 | 02.19.2020 |
71%
29%
40-59
60+
31%
21%
43%
21-29
30-39Male Female
Source: GMR Queue Extract through 02/01/2020, GMR Sales Extract through 02/01/2020
Age Gender
65%
4%
26
IQOS Purchaser ProfileCigarette Brand by Engagement Channel – Atlanta Lead Market
For Investor Presentation ONLY | CAGNY 2020 | 02.19.2020 |
Experts
72%
6%
Boutiques
Camel
Corners/Pods/MRU
Marlboro Newport
32%
61%
7%
37%
48%
15%
OtherNAS
9%
17%5%
62%
18%
10%4% 7%
3%
38%
28%
19%
8%7%
Source: GMR Queue Extract through 02/01/2020, GMR Sales Extract through 02/01/2020
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Charlotte, NC IQOS Expansion
For Investor Presentation ONLY | CAGNY 2020 | 02.19.2020 |
All-third party trademarks remain the property of their respective owners.
28
IQOS 3 Submission
For Investor Presentation ONLY | CAGNY 2020 | 02.19.2020 |
PMI plans to submit a supplemental PMTA for the IQOS 3 device
The IQOS 3 device has a shorter battery charge time versus the currently authorized 2.4 device
All-third party trademarks remain the property of their respective owners.
29
on! Manufacturing – Richmond, VA
For Investor Presentation ONLY | CAGNY 2020 | 02.19.2020 |
Our Richmond Manufacturing Center is a state-of-the-art, FDA-compliant facility that’s a key competitive advantage to our success as an enterprise
We expect to have annualized capacity of 50 million cans by mid-year and 75 million cans by the end of the year
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on! Packaging & Portfolio
For Investor Presentation ONLY | CAGNY 2020 | 02.19.2020 |
All Seven Flavors Available in Five Nicotine Strengths
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on! Actual Use Study – Behavioral Switch: Cigarettes/Smokeless to on!
28%
72%
Adult Smokersn= 399
Adult Dippersn=353
(Base: Completed Phase 2); Users had expressed interest in on! after brief trial period. Phase 2 Study participants were provided on! in various nicotine levels and flavor varieties. Among those participants who started using on! (20 or more pouches during Phase 2), the % of participants who reported (1) not smoking cigarettes/using smokeless tobacco during Week 6 and (2) using on! in some capacity during Week 6.
32
Adult Tobacco Consumer Basket AnalysisTobacco Basket Volume Composition in Four Weeks Prior to First on! or Zyn Purchase
For Investor Presentation ONLY | CAGNY 2020 | 02.19.2020 |
Cigarettes MST & Snus Nicotine Pouches
50%
34%
on!
16%16%
Zyn
39%
58%
3%
Source: POS Scan data April – December 2019 (Top 5 Convenience Chain By Smokeless Volume)
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Percent Reduction in HPHC levels of on! 4 mg Mint Product Compared to General® Snus in Market
0%
20%
40%
60%
80%
100%
NNK NNN B(a)P Arsenic* Cadmium* Acetaldehyde Formaldehyde
>83% >97% >99% >97%
*Arsenic and Cadmium were below the limit of quantification (BLOQ) in on! products. The limits of quantification (LOQ) were used to estimate the percent reduction. Results show HPHC reductions in our 4mg Mint on! product and may vary for other SKUs.
General® snus HPHC data source: FDA reviewer notes - Chemistry Review of Pre-market Tobacco Applications (PMTAs) Submitted by Swedish Match North America for Snus Smokeless Tobacco Product, 10/30/2015 (obtained by Freedom of Information Act request). Data used for comparison are mean values of eight General® snus products on a wet weight basis.
All-third party trademarks remain the property of their respective owners.HPHC levels are compared on per unit of use basis.
Not Detectable
*
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Our World-Class Sales Organization
A leading sales force of over 1,600 employees
Cigarette Portfolio
Highly profitable niche brands
Altria’s Enhanced Business Platform
CombustibleTobacco Portfolio
Noncombustible TobaccoBrands & Investments
MarlboroLeading
cigarette brand
Black & MildLeading
tipped cigar brand
CopenhagenLeading MST brand
IQOSGlobal heated tobacco
leader(U.S. license)
JUULLeading e-vapor brand(strategic investment)
on!Oral nicotine pouches
(tobacco-derived nicotine)
ComplementaryAssets
Top 10 domestic wine producer
~10% investmentglobal beer industry leader
Emerging global cannabinoid company(strategic investment)
All-third party trademarks remain the property of their respective owners.
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Key Macro-Economic Indicators
Source: US. Department of Labor, Bureau of Labor Statistics & The Conference Board, Consumer Confidence Survey
Unemployment Rate Total Consumer Confidence Housing Starts (in millions)
5.3% 4.9% 4.4% 3.9% 3.7%
0%
10%
2015 2017 2019
98 100 120 130 128
0
180
2015 2017 2019
1.1 1.2 1.2 1.2 1.3
0
2
2015 2017 2019
37
Consistent Cigarette Prevalence TrendsAdult Smoker Prevalence - Past 30 day, 12 month moving
For Investor Presentation ONLY | CAGNY 2020 | 02.19.2020 |
10%
25%
Jun-14 Jun-15 Jun-16 Jun-17 Jun-18 Jun-19
Source: Age 21+, P30D ATCT Jul 2013 to Dec 2019`
Q1 2019 Q2 2019 Q3 2019 Q4 2019
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Estimated Adjusted Cigarette Industry Volume Decline Rates
FY 2018 FY 2019
(4.5%) (4.5%)
(6.0%)(5.5%)(5.5%)
Source: Altria Company Reports
Annual Quarterly
(4.5%)
39
Cigarette Industry Volume Decomposition Estimates
For Investor Presentation
ONLY | CAGNY 2020 |
02.19.2020 |
Source: ALCS CMI estimates 1 Macroeconomic & Other Factors had no impact to the cigarette industry volume decline rate for 20172 Macroeconomic & Other Factors was a 0.2% tailwind to the cigarette industry volume decline rate for 20193 Includes approximately 1% historical movement across tobacco categories
-2.5% -2.5% -2.5%
-1.3% -1.1% -1.2%-0.5%-0.2%-0.4%
-2.0%
2017 2018 2019
Secular Decline Cigarette Price ElasticityMacroeconomic & Other Factors Additional Cross Category Movement
Our 2020 U.S. cigarette industry volume decline rate estimate is 4% to 6%.
(4.0%) (4.5%)
3
1
(5.5%)2
For Investor Presentation ONLY | CAGNY 2020 | 02.19.2020 |
0%
5%
10%
15%
2001 2003 2005 2007 2009* 2011 2013 2015 2017 2019
40
Total Cigarette Industry Effective Pack Price Estimated % Change vs. Prior Year
For Investor Presentation ONLY | CAGNY 2020 | 02.19.2020 |
Note: Estimates are subject to revision based on restatementsSources: ALCS CMI Estimates; SymphonyIRI Group/Capstone; IRI Unify*2009 not shown to scale. Retail prices increased by an estimated 22% YoY due to a Federal Excise Tax increase of $1.01 per pack
FET
CASET
0
100
2001 2003 2005 2007 2009 2011 2013 2015 2017 2019
Deep Discount Branded Discount Premium
Sources: ALCS CMI Estimates; SymphonyIRI Group/Capstone; IRI Unify
41
75.9
24.1
75.8
24.2
Premium and Discount Cigarette Categories – Annual Retail Share
For Investor Presentation ONLY | CAGNY 2020 | 02.19.2020 |
Note: Estimates are subject to revision based on restatements
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Exceptional 2019 Core Tobacco Business Performance
$8,449$9,173
2018 2019
50.6% 54.5%
2018 2019
8.6% +3.9pp
Source: Altria company reports
* For reconciliations of non-GAAP to GAAP measures visit Altria.com.
Note: Reported annualized dividend per share is based on the latest declared dividend.
Adjusted OCI (in millions)* Adjusted OCI Margins*
43
Smokeable Products Segment Financial Performance
For Investor Presentation ONLY | CAGNY 2020 | 02.19.2020 |
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Marlboro Share Stability
For Investor Presentation ONLY | CAGNY 2020 | 02.19.2020 |
43.2 43.2 43.1
Q4 2017 FY 2018 FY 2019
IRI/MSAi Info Scan Cigarette 2019-Blended, as of 12/29/19
45
Marlboro Bold Ice
For Investor Presentation ONLY | CAGNY 2020 | 02.19.2020 |
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Marlboro RewardsOver 2.5 million adult smokers enrolled; 200 million pack codes entered
For Investor Presentation ONLY | CAGNY 2020 | 02.19.2020 |
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PM USA Discount Portfolio
$1,464$1,606
2018 2019
68.7% 71.7%
2018 2019
+9.7% +3.0pp
Source: Altria company reports
* For reconciliations of non-GAAP to GAAP measures visit Altria.com.
Adjusted OCI ($ in millions)* Adjusted OCI Margins*
48
Smokeless Products Segment Financial Performance
For Investor Presentation ONLY | CAGNY 2020 | 02.19.2020 |
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CopenhagenAdult Dippers describe Copenhagen Packs as “the perfect mix between long cut and a pouch”
For Investor Presentation ONLY | CAGNY 2020 | 02.19.2020 |
Source: CMI Consumer Research (January 2019)
Beginning Q1 2020, we expect to rename the “smokeless products” financial reporting segment to the “oral tobacco products” segment
Our oral tobacco product segment will include financial results, volume and retail share performance from our MST and Snus products as well as on! oral nicotine pouches
50
Oral Tobacco Products Financial Reporting Segment
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24
86
164
2011 - 2017 2018 2019
Continued Constructive Engagement with FDA274 Total Substantial Equivalence Market Orders Received For Cigarettes & Smokeless Products
For Investor Presentation ONLY | CAGNY 2020 | 02.19.2020 |
52
Substantial Equivalence (SE) Process For Cigars
For Investor Presentation ONLY | CAGNY 2020 | 02.19.2020 |
Cigars
% of Volume With Pre-Market Authorization* We are pursuing regulatory clearance for our
cigar portfolio through the SE process
We believe Middleton is the best positioned cigar manufacturer to navigate the FDA framework
Middleton has been proactively engaging with the FDA and was the first cigar manufacturer to receive a SE market order following the August 2016 deeming date
>80%
*Middleton intends to submit SE applications for the vast majority of its remaining volume by the May 2020 deadline
53
Note: Third party trademarks are the property of their respective owners and are included for informational purposes only.
Complementary Alcohol Assets
For Investor Presentation ONLY | CAGNY 2020 | 02.19.2020 |
Trademarks used for discussion purposes only.All third-party trademarks remain the property of their respective owners.
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We remain very excited about the opportunity for Cronos to position itself for future leadership within the cannabis industry
In the U.S., we support federal legalization of cannabis under an appropriate regulatory framework
We intend to work with policy makers and regulators to establish a responsible operating environment
55
Committed to maintaining an investment grade credit rating
Committed to an 80% dividend payout ratio target
2019 marked our 54th dividend increase in the past 50 years
We’ve generally produced ~$1 billion of cash annually in excess of dividend payments
Committed to a Strong Balance Sheet and Balanced Capital Allocation
For Investor Presentation ONLY | CAGNY 2020 | 02.19.2020 |
Note: Dividend payments and increases remain subject to the approval of Altria’s Board of Directors
*For reconciliation of non-GAAP to GAAP measures visit Altria.com
Net Debt toEBITDA*
Weighted Avg.Coupon
Credit Metrics as ofDecember 31, 2019
2.3x
4.2%
* For reconciliation of non-GAAP to GAAP measures visit altria.com
We reaffirm our full-year 2020 adjusted diluted EPS* guidance of $4.39 to $4.51. This range represents a growth rate of 4% to 7% from a 2019 adjusted diluted base of $4.22*.
2020 Adjusted Diluted EPS Guidance
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Altria Stock Forward Price to Earnings Multiple
8.4
20.3
10.7
5
25
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Jan2020
NYSE: MO2009 – 2019 calculated using the end-of-year stock price divided by the next twelve months consensus estimate for adjusted diluted earnings per share Jan 2020 calculated using the end-of-the-month stock price dividend by the next twelve months consensus estimate for adjusted diluted earnings per share Source: FactSet
59For Investor Presentation ONLY | CAGNY 2020 | 02.19.2020 |
All-third party trademarks remain the property of their respective owners.
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