Altria Reports 2023 Second-Quarter and First-Half Results; Reaffirms 2023 Full-Year Earnings Guidance

RICHMOND, Va.–(BUSINESS WIRE)–$MO #ALTRIA–Altria Group, Inc. (NYSE: MO) today reports our 2023 second-quarter and first-half business results and reaffirms our guidance for 2023 full-year adjusted diluted earnings per share (EPS).

“We had a solid first half of the year and we continue on our exciting journey towards Moving Beyond Smoking,” said Billy Gifford, Altria’s Chief Executive Officer. “We completed our acquisition of NJOY and delivered strong business results, growing adjusted diluted EPS by 5% in the first half. And we returned $3.8 billion to shareholders while investing in pursuit of our Vision.”

“We look forward to executing our commercial plan for NJOY in the second half of the year, and we reaffirm our guidance to deliver 2023 full-year adjusted diluted EPS in a range of $4.89 to $5.03. This range represents an adjusted diluted EPS growth rate of 1% to 4% from a $4.84 base in 2022.”

Altria Headline Financials¹

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

² “EPS” represents diluted earnings per share.

As previously announced, a conference call with the investment community and news media will be webcast on August 1, 2023 at 9:00 a.m. Eastern Time. Access to the webcast is available at www.altria.com/webcasts.

NJOY Transaction and Final Payment from Philip Morris International Inc. (PMI)

• On June 1, 2023, we completed our acquisition of NJOY Holdings, Inc. (NJOY Transaction), paying $2.75 billion in cash which we funded through a combination of a $2 billion term loan, commercial paper and available cash. We may also be obligated to pay up to $500 million in additional cash payments that are contingent on receipt of FDA authorizations with respect to certain NJOY products.
• In July, we received final payment of approximately $1.8 billion (including interest) from PMI as part of our total $2.7 billion (plus interest) transition agreement for the IQOS Tobacco Heating System®. The proceeds were subsequently applied to the full repayment of the outstanding $2 billion term loan.

Cash Returns to Shareholders

• In the second quarter and first half, we repurchased 10.4 million shares at an average price of $45.37, for a total cost of $472 million. As of June 30, 2023, we had $528 million 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 and $3.4 billion in the second quarter and first half, respectively. In March 2023, we established a new progressive dividend goal that targets mid-single digits dividend growth annually. Future dividend payments remain subject to the discretion of our Board.

Macroeconomic 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.

Environmental, Social and Governance

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 Responsibility section of www.altria.com.

• Most recently, we published the following responsibility reports:
  • 2022 Engage and Lead Responsibly Report;
  • 2022 Prevent Underage Use Snapshot;
  • 2022 Drive Responsibility Through Our Value Chain Snapshot;
  • 2022 Support Our People & Communities Snapshot; and
  • 2022 Reduce Harm of Tobacco Products Snapshot.
• In June, we were recognized as one of the most community-minded businesses by the national service organization, Points of Light, in its 2022 Civic 50 recognition. This is our eleventh consecutive year of recognition for our commitment to supporting communities and advancing social causes.
• In July, we commenced an equity and civil rights assessment (Assessment) in response to a 2022 shareholder proposal requesting that we commission a civil rights equity audit. We are leading the Assessment, which is being overseen by an external Advisory Review Board. The review board consists of five independent members with relevant expertise in fields such as civil rights, inclusion, diversity and equity, legal, law enforcement, public policy, and youth development. More information is available on the Investors section of www.altria.com.

2023 Full-Year Guidance

We reaffirm our guidance to deliver 2023 full-year adjusted diluted EPS in a range of $4.89 to $5.03, representing a growth rate of 1% to 4% from an adjusted diluted EPS base of $4.84 in 2022. 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, including planned investments behind the U.S. commercialization of NJOY ACE. Our guidance range also includes estimated amortization charges of approximately $50 million related to intangible assets acquired in the NJOY Transaction.

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.

We continue to expect our 2023 full-year adjusted effective tax rate to be in a range of 24.5% to 25.5% and our 2023 capital expenditures to be between $175 million and $225 million. As a result of the NJOY Transaction, we revised our estimate for 2023 depreciation and amortization expenses to be approximately $280 million.

Our full-year adjusted diluted EPS guidance range and full-year forecast for our adjusted effective tax rate exclude 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 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 (NPM Adjustment Items). See Table 1 below for the income and expense items for the second quarter of 2023.

Our 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 our reported diluted EPS or our effective tax rate 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 or our adjusted effective tax rate forecast.

ALTRIA GROUP, INC.

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

Financial Performance

Second Quarter

• Net revenues decreased 0.5% to $6.5 billion, primarily driven by lower net revenues in the smokeable products segment. Revenues net of excise taxes increased 1.2% to $5.4 billion.
• Reported diluted EPS increased 100%+ to $1.19, primarily driven by 2022 charges related to our former investment in JUUL Labs Inc. (JUUL) equity securities, favorable Cronos and ABI-related special items, higher reported operating companies income (OCI) and fewer shares outstanding, partially offset by higher tobacco and health and certain other litigation items and acquisition costs related to the NJOY Transaction.
• Adjusted diluted EPS increased 4.0% to $1.31, primarily driven by higher adjusted OCI and fewer shares outstanding, partially offset by lower net periodic benefit income.

First Half

• Net revenues decreased 1.7% to $12.2 billion, primarily driven by lower net revenues in the smokeable products segment. Revenues net of excise taxes was essentially unchanged at $10.2 billion.
• Reported diluted EPS increased 38.9% to $2.18, primarily driven by lower charges related to our former investment in JUUL equity securities, favorable Cronos-related special items, higher reported earnings from our investment in ABI, fewer shares outstanding, favorable interest expense and higher reported OCI. These drivers were partially offset by higher tobacco and health and certain other litigation items and acquisition costs related to the NJOY Transaction.
• Adjusted diluted EPS increased 5.0% to $2.50, primarily driven by higher adjusted OCI, fewer shares outstanding, higher adjusted earnings from our investment in ABI and favorable interest expense, partially offset by lower net periodic benefit income.

Note: For details of pre-tax, tax and after-tax amounts, see Schedules 7 and 9.

Special Items

The EPS impact of the following special items is shown in Table 1 and Schedules 6, 7, 8 and 9.

NPM Adjustment Items

• In the first half of 2022, we recorded pre-tax income of $60 million (or $0.02 per share) for NPM Adjustments Items.

Tobacco and Health and Certain Other Litigation Items

• In the second quarter of 2023 and 2022, we recorded pre-tax charges of $290 million (or $0.12 per share) and $46 million (or $0.02 per share), respectively, for tobacco and health and certain other litigation items and related interest costs. The 2023 charges were primarily driven by our previously announced settlement of JUUL-related litigation.
• In the first half of 2023 and 2022, we recorded pre-tax charges of $401 million (or $0.17 per share) and $58 million (or $0.02 per share), respectively, for tobacco and health and certain other litigation items and related interest costs.

Loss on Disposition and Changes in Fair Value of JUUL Equity Securities

As previously disclosed, we exchanged our entire minority economic interest in JUUL for a non-exclusive, irrevocable global license to certain of JUUL’s heated tobacco intellectual property (2023 JUUL Transaction). We recorded non-cash, pre-tax losses from investments in equity securities as a result of the 2023 JUUL Transaction and changes in the estimated fair value of our former investment in JUUL in 2022. Amounts consisted of the following:

We recorded corresponding adjustments to the JUUL tax valuation allowance in 2023 and 2022.

ABI-Related Special Items

• In the second quarter and first half of 2022, equity earnings from ABI included net pre-tax losses of $112 million (or $0.05 per share) and $53 million (or $0.02 per share), respectively, consisting primarily of ABI’s non-cash impairment charge related to its investment in a joint venture with direct exposure to Russia and Ukraine. The net pre-tax losses for the first half of 2022 were partially offset by ABI’s net mark-to-market gains on certain ABI financial instruments associated with its share commitments.

The ABI-related special items above include our respective share of the amounts recorded by ABI and additional adjustments related to (i) conversion from international financial reporting standards to GAAP and (ii) adjustments to our investment required under the equity method of accounting.

Cronos-Related Special Items

We recorded net pre-tax expense consisting of the following:

¹ Amounts include our share of special items recorded by Cronos and additional adjustments, if required under the equity method of accounting, related to our investment in Cronos including the $107 million non-cash pre-tax impairment of our investment in Cronos in the second quarter of 2022.

We recorded corresponding adjustments to the Cronos tax valuation allowance in 2023 and 2022 relating to the special items.

SMOKEABLE PRODUCTS

Revenues and OCI

Second Quarter

• Net revenues decreased 0.9%, primarily driven by lower shipment volume and higher promotional investments, partially offset by higher pricing. Revenues net of excise taxes increased 0.9%.
• Reported and adjusted OCI increased 3.0% and 3.1%, respectively, primarily driven by higher pricing, partially offset by lower shipment volume, higher promotional investments, higher per unit settlement charges and higher costs. Adjusted OCI margins increased by 1.3 percentage points to 60.4%.

First Half

• Net revenues decreased 2.0%, primarily driven by lower shipment volume and higher promotional investments, partially offset by higher pricing. Revenues net of excise taxes decreased 0.2%.
• Reported OCI increased 0.5%, primarily driven by higher pricing, partially offset by lower shipment volume, higher promotional investments, higher per unit settlement charges, NPM Adjustment Items in 2022 and higher costs.
• Adjusted OCI increased 1.7%, primarily driven by higher pricing, partially offset by lower shipment volume, higher promotional investments, higher per unit settlement charges and higher costs. Adjusted OCI margins increased by 1.1 percentage points to 60.4%.

¹ Reported and adjusted OCI margins are calculated as reported and adjusted OCI, respectively, divided by revenues net of excise taxes.

Shipment Volume

Second Quarter

• Smokeable products segment reported domestic cigarette shipment volume decreased 8.7%, primarily driven by the industry’s decline rate and retail share losses (both of which were impacted by macroeconomic pressures on ATC disposable income), partially offset by trade inventory movements.
• When adjusted for trade inventory movements, smokeable products segment domestic cigarette shipment volume decreased by an estimated 10%.
• When adjusted for trade inventory movements and other factors, total estimated domestic cigarette industry volume decreased by an estimated 7.5%.
• Reported cigar shipment volume increased 7.6%.

First Half

• Smokeable products segment reported domestic cigarette shipment volume decreased 10.0%, primarily driven by the industry’s decline rate and retail share losses (both of which were impacted by macroeconomic pressures on ATC disposable income), partially offset by calendar differences.
• When adjusted for calendar differences and trade inventory movements, smokeable products segment domestic cigarette shipment volume decreased by an estimated 10.5%.
• When adjusted for trade inventory movements, calendar differences and other factors, total estimated domestic cigarette industry volume decreased by an estimated 8%.
• Reported cigar shipment volume increased 5.0%.

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

Retail Share and Brand Activity

Second Quarter

• Marlboro retail share of the total cigarette category was 42.1%, a decrease of 0.6 share points versus the prior year, primarily due to increased macroeconomic pressures on ATC disposable income and increased competitive activity. Marlboro retail share increased 0.1 share point from the first quarter of 2023. Additionally, Marlboro share of the premium segment was 58.6%, an increase of 0.5 share points versus the prior year and 0.1 share point sequentially.
• The cigarette industry discount retail share was 28.2%, an increase of 1.8 share points versus the prior year primarily due to the ATC factors mentioned above. Cigarette industry discount retail share was unchanged from the first quarter of 2023.

First Half

• Marlboro retail share of the total cigarette category was 42.0%, a decrease of 0.7 share points versus the prior year primarily due to increased macroeconomic pressures on ATC disposable income and increased competitive activity.
• The cigarette industry discount retail share was 28.2%, an increase of 1.8 share points versus the prior year due to the ATC factors mentioned above.

Note: Retail share results for cigarettes are based on data from Circana, Inc. and Circana Group, L.P. (“Circana”) as well as, MSAi. Circana is a newly formed company reflecting the recent merger of IRI and NPD Group, Inc. Circana maintains a blended retail service that uses a sample of stores and certain wholesale shipments to project market share and depict share trends. Similar to prior reporting, 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 through the Store Tracking Analytical Reporting System (“STARS”), as provided by MSAi. This service is not designed to capture sales through other channels, including the internet, direct mail and some illicitly tax-advantaged outlets. It is retail services’ standard practice to periodically refresh their retail scan services, which could restate retail share results that were previously released in these services.

ORAL TOBACCO PRODUCTS

Revenues and OCI

Second Quarter

• Net revenues increased 2.3%, primarily driven by higher pricing, partially offset by higher promotional investments, lower shipment volume and a higher percentage of on! shipment volume relative to MST versus the prior year (mix change). Revenues net of excise taxes increased 2.8%.
• Reported and adjusted OCI increased 3.0%, primarily driven by higher pricing, partially offset by mix change, higher promotional investments and lower shipment volume. Adjusted OCI margins increased by 0.1 percentage point to 68.0%.

First Half

• Net revenues increased 2.3%, primarily driven by higher pricing, partially offset by lower shipment volume, higher promotional investments and mix change. Revenues net of excise taxes increased 2.8%.
• Reported and adjusted OCI increased 2.6%, primarily driven by higher pricing, partially offset by mix change, higher promotional investments and lower shipment volume. Adjusted OCI margins declined by 0.1 percentage point to 68.7%.

¹ Reported and adjusted OCI margins are calculated as reported and adjusted OCI, respectively, divided by revenues net of excise taxes.

Shipment Volume

Second Quarter

• Oral tobacco products segment reported domestic shipment volume decreased 1.7%, primarily driven by retail share losses, partially offset by the industry’s growth rate, trade inventory movements and calendar differences. When adjusted for trade inventory movements and calendar differences, oral tobacco products segment shipment volume decreased by an estimated 2.5%.

First Half

• Oral tobacco products segment reported domestic shipment volume decreased 1.8%, primarily driven by retail share losses and other factors, partially offset by the industry’s growth rate, calendar differences and trade inventory movements.

Contacts

Altria Group, Inc.

Mac Livingston, Vice President of Investor Relations

Richard.M.Livingston@altria.com

Altria Client Services

Investor Relations

804-484-8222

Altria Client Services

Media Relations

804-484-8897

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