Altria Reports 2021 Fourth-Quarter and Full-Year Results; Provides 2022 Full-Year Earnings Guidance

RICHMOND, Va.–(BUSINESS WIRE)–$MO #ALTRIA–Altria Group, Inc. (Altria) (NYSE: MO) today reports its 2021 fourth-quarter and full-year business results and provides its 2022 full-year adjusted diluted earnings per share (EPS) guidance.

“Altria delivered outstanding results in 2021 across our businesses, including strong financial performance, progress toward our Vision and advancements in our ESG efforts,” said Billy Gifford, Altria’s Chief Executive Officer.

“We returned more than $8.1 billion in cash to shareholders in 2021 through dividends and share repurchases. This total represents the third-largest single-year cash return in Altria’s history and the largest annual return since 2002.”

“Our plans for the year ahead include a continuation of our strategy to balance earnings growth and shareholder returns with investments toward our Vision. We expect to deliver 2022 full-year adjusted diluted EPS in a range of $4.79 to $4.93, representing a growth rate of 4% to 7% from an adjusted diluted EPS base of $4.61 in 2021.”

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 (losses) per share attributable to Altria.

As previously announced, a conference call with the investment community and news media will be webcast on January 27, 2022 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

Share Repurchase Program

• Through December 31, 2021, Altria repurchased:
  
  • 15.5 million shares at an average price of $45.40, for a total cost of $703 million in the fourth quarter.
  • 35.7 million shares at an average price of $46.97, for a total cost of $1.7 billion for the full year.
• As of December 31, 2021, Altria had approximately $1.8 billion remaining under its existing $3.5 billion share repurchase program, which Altria expects to complete by December 31, 2022. Share repurchases depend on marketplace conditions and other factors, and the program remains subject to the discretion of Altria’s Board of Directors (Board).

Dividends

• Altria paid dividends of $1.7 billion in the fourth quarter and $6.4 billion for the full year.

• Altria maintains its long-term objective of a dividend payout ratio target of approximately 80% of its adjusted diluted EPS. Future dividend payments remain subject to the discretion of Altria’s Board.

Smoke-free Products Business Platform

Oral Tobacco

• Total U.S. oral tobacco category share for on! nicotine pouches grew to 3.9% in the fourth quarter, an increase of 0.9 percentage points sequentially and an increase of 2.8 percentage points from the end of 2020.

• As of December 31, 2021, on! was available for sale in approximately 117,000 U.S. retail stores.

• Premarket tobacco product applications (PMTA) for the entire on! portfolio, submitted in May 2020, remain pending with the U.S. Food and Drug Administration (FDA).

• Helix is actively working on modified risk tobacco product (MRTP) applications for on!, and expects to submit these MRTP applications to the FDA by the end of 2022.

• Copenhagen remained the largest U.S. oral tobacco brand. The MRTP application for Copenhagen Snuff, submitted in March 2018, remains pending with the FDA.

Heated Tobacco

• Marlboro HeatSticks achieved a cigarette category retail share of 1.9% in Northern Virginia stores with distribution for the month of October.

• On November 29, 2021, the importation ban and cease-and-desist orders imposed by the International Trade Commission (ITC) on the IQOS device, Marlboro HeatSticks and infringing components went into effect. PM USA believes it has complied with the orders; the IQOS system is no longer available for sale in the U.S.

• Philip Morris International Inc. (PMI) is responsible for manufacturing the IQOS system, and PM USA has been in communication with PMI regarding product availability. At the present time, PM USA does not expect to have access to IQOS devices or Marlboro HeatSticks in 2022. However, PM USA remains focused on returning IQOS to the market, is working on re-entry plans and expects to be ready to re-launch the product when it becomes available. The agreement with PMI contemplates disruptions, such as those caused by the ITC orders, and requires the parties to negotiate in good faith to amend the agreement appropriately.

• In the second quarter of 2020, Altria disclosed two milestones in its IQOS agreement with PMI necessary for PM USA to maintain its exclusive license and distribution rights for IQOS in the U.S. and to earn the renewal option for an additional five-year term. The initial five-year term does not expire until April 2024, but Altria believes that PM USA has already met these milestones based on the performance of IQOS in the Charlotte and Northern Virginia markets. PMI has communicated that it disagrees with Altria’s position. Altria expects to continue discussing these matters with PMI.

E-Vapor

• PMTAs submitted in July 2020 by JUUL for its JUUL device and four JUULpod SKUs remain pending with the FDA.

Environmental, Social and Governance (ESG)

Altria’s Corporate Responsibility Focus Areas are (i) reducing the harm of tobacco products, (ii) preventing underage use, (iii) protecting the environment, (iv) driving responsibility through our value chain, (v) supporting our people and communities and (vi) engaging and leading responsibly. Altria’s corporate responsibility reports can be found on the Corporate Responsibility Reports page at www.altria.com/responsibility.

• In November, Altria released:
  • its 2020-2021 Protect the Environment corporate responsibility report; and
  • its inaugural Task Force on Climate-Related Financial Disclosures (TCFD) report. Altria is proud to be the first U.S. tobacco company to join more than 2,700 supporters of the TCFD.
• In the fourth quarter, Altria was recognized by the following third-party organizations:
  • Altria was named a trendsetter for a sixth year by the CPA-Zicklin Index, which measures political transparency among S&P 500 companies and their voluntary disclosures of political spending.
  • Altria was named to the inaugural Forbes Green Growth 50 list, which includes the only “big American corporations that have managed to slash their greenhouse gas emissions, while simultaneously growing earnings.”
  • Altria was recognized for a second consecutive year with a double ‘A’ rating for tackling climate change and protecting water security by CDP, a non-profit organization that runs a global disclosure system on managing environmental impact. CDP’s A List distinguishes companies for leadership on transparency and action on key environmental issues.

Impact of COVID-19 Pandemic

Impact on Tobacco Business Operations

• Altria’s tobacco businesses have not experienced a material adverse impact to date due to the COVID-19 pandemic, but there is continued uncertainty as to how the COVID-19 pandemic (including changes in COVID-19-related restrictions and guidelines) may impact adult tobacco consumers (ATC) in the future. Altria continues to monitor the macroeconomic risks of the COVID-19 pandemic (including risks associated with the timing and extent of vaccine administration and the impact of COVID-19 variants) and their effect on ATC, including stay-at-home practices and disposable income, which may be further impacted by unemployment rates and inflation. Altria also continues to monitor ATC purchasing behaviors, including overall tobacco product expenditures, mix between premium and discount brand purchases and adoption of smoke-free products.

• Altria believes that the COVID-19 pandemic altered ATC behaviors and purchasing patterns in the earlier stages of the pandemic. Altria estimates that although the number of ATC trips to the store remains below pre-pandemic levels, ATC tobacco expenditures per trip remain elevated. However, the environment continues to evolve and Altria believes rising gas prices, inflation and the reduction of COVID-19 relief programs led to a decrease in ATC disposable income on a sequential and year-over-year basis. In addition, Altria believes increased ATC mobility versus the prior year offered ATCs more options for their discretionary spending and led to fewer tobacco usage occasions versus the prior year.

• Altria’s suppliers and those within its distribution chain continue to be subject to potential facility closures, remote working protocols and labor shortages. To date, Altria has not experienced any material disruptions to its supply chains or distribution systems but is continuing to monitor these factors. Altria continues to monitor the risk that the business of one or more suppliers, distributors or any other entities within its supply and distribution chains may be disrupted.

Impact on ABI, JUUL and Cronos Investments

• ABI continued to be impacted by the COVID-19 pandemic in 2021, including the effects of COVID-19 variants, supply-chain constraints across certain markets, transactional foreign exchange and commodity cost headwinds.

• During 2020 and 2021, JUUL’s operations were negatively impacted by the COVID-19 pandemic due to stay-at-home practices and government-mandated restrictions. While the impact was considered in Altria’s quantitative valuations conducted in connection with the preparation of its financial statements for the year ended December 31, 2021 and during 2020, Altria does not believe the COVID-19 pandemic was a primary driver of the non-cash, pre-tax impairment charge recorded during 2020 or any quarterly changes in fair value recorded since the fourth quarter of 2020. Altria will continue to monitor the impact of the COVID-19 pandemic (including the impact of new variants) on JUUL’s operations.

• Cronos has been adversely impacted by the COVID-19 pandemic, due in part to government actions limiting access to retail stores in the United States and Canada. Altria will continue to monitor the impact of COVID-19 pandemic on Cronos’s business, including as a result of new variants, near-term supply chain challenges, inflation and market valuation.

Philip Morris Capital Corporation Update

As of December 31, 2021, Altria’s net finance assets balance was $114 million, down $206 million since the end of 2020 due to rents received and asset sales. As previously announced, Altria expects to fully complete the Philip Morris Capital Corporation (PMCC) wind-down by the end of 2022.

2022 Full-Year Guidance

Altria expects its 2022 full-year adjusted diluted EPS to be in a range of $4.79 to $4.93, representing a growth rate of 4% to 7% from an adjusted diluted EPS base of $4.61 in 2021. Altria expects 2022 adjusted diluted EPS growth to be weighted toward the second half of the year. While the 2022 full-year adjusted diluted EPS guidance accounts for a range of scenarios, the external environment remains dynamic. Altria will continue to monitor conditions related to (i) the economy, including the impact of increased inflation, (ii) the impact of current and future COVID-19 variants and mitigation strategies, (iii) ATC dynamics, including tobacco usage occasions, available disposable income, purchasing patterns and adoption of smoke-free products and (iv) regulatory and legislative developments.

Altria’s 2022 full-year adjusted diluted EPS guidance range includes planned investments in support of its Vision, such as (i) costs to enhance its digital consumer engagement system, (ii) increased smoke-free product research, development and regulatory preparation expenses and (iii) marketplace activities in support of Altria’s smoke-free products. The guidance range also includes anticipated inflationary increases in Master Settlement Agreement expenses and direct materials expenses and Altria’s current expectation that PM USA will not have access to the IQOS system in 2022.

Altria expects its 2022 full-year adjusted effective tax rate will be in a range of 24.5% to 25.5%. Altria also expects 2022 capital expenditures to be between $200 million and $250 million and depreciation and amortization expenses of approximately $210 million.

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, loss on early extinguishment of debt, restructuring charges, asset impairment charges, acquisition-related and disposition-related costs, COVID-19 special items, equity investment-related special items (including any changes in fair value of the equity investment and any related warrants and preemptive rights), certain 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 1998 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 unusual or 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.

ALTRIA GROUP, INC.

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

Financial Performance

Fourth Quarter

• Net revenues decreased 0.8% to $6.3 billion, primarily driven by no net revenues in the wine segment (due to the timing of the sale of the wine business), partially offset by higher net revenues in the financial services business (primarily driven by reductions in the estimated residual value of certain assets at PMCC in 2020), oral tobacco products and smokeable products segments. Revenues net of excise taxes increased 0.6% to $5.1 billion.

• Reported diluted EPS decreased 14.6% to $0.88, primarily driven by unfavorable Cronos-related special items, 2020 changes in the estimated fair value of Altria’s investment in JUUL and higher income taxes, partially offset by higher reported operating companies income (OCI), favorable net periodic benefit income and fewer shares outstanding.

• Adjusted diluted EPS increased 10.1% to $1.09, primarily driven by higher adjusted OCI, favorable net periodic benefit income and fewer shares outstanding, partially offset by higher income taxes.

Full Year

• Net revenues decreased 0.5% to $26.0 billion, primarily driven by lower net revenues in the smokeable products and wine segments (due to the sale of the wine business), partially offset by higher net revenues in the financial services business (primarily driven by reductions in the estimated residual value of certain assets at PMCC in 2020) and oral tobacco products segment. Revenues net of excise taxes increased 1.3% to $21.1 billion.

• Reported diluted EPS decreased 44.2% to $1.34, primarily driven by lower reported earnings from Altria’s investment in ABI (due primarily to the 2021 impairment of its investment in ABI), losses on early extinguishment of debt and unfavorable Cronos-related special items. These items were partially offset by the 2020 net charges associated with Altria’s investment in JUUL, higher reported OCI, favorable net periodic benefit income and fewer shares outstanding.

• Adjusted diluted EPS increased 5.7% to $4.61, primarily driven by higher adjusted OCI, favorable net periodic benefit income, higher adjusted earnings from Altria’s investment in ABI and fewer shares outstanding, partially offset by a higher adjusted income tax rate.
  

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.

Non-Participating Manufacturer (NPM) Adjustment Items

• For full-year 2021, Altria recorded pre-tax income of $76 million (or $0.03 per share) due to NPM Adjustment Items and related interest, including $53 million recorded as a reduction to cost of sales in the smokeable products segment and $23 million recorded as interest income.

Implementation, acquisition and disposition-related costs.

• For full-year 2021, Altria recorded pre-tax charges of $120 million (or $0.05 per share), due primarily to charges associated with the sale of Ste. Michelle and acquisition-related costs for the settlement of an arbitration related to the 2019 on! transaction.

• In the fourth quarter and for full-year 2020, Altria recorded pre-tax charges of $16 million (or $0.02 per share) and $431 million (or $0.18 per share), respectively, due primarily to inventory-related charges associated with the wine business strategic reset.

Tobacco and Health and Certain Other Litigation Items

• In the fourth quarter and for full-year 2021, Altria recorded pre-tax charges of $34 million (or $0.02 per share) and $182 million (or $0.07 per share), respectively, for tobacco and health and certain other litigation items and related interest costs.

• For full-year 2020, Altria recorded pre-tax charges of $83 million (or $0.03 per share) for tobacco and health litigation items and related interest costs.

Impairment of JUUL Equity Securities

In the fourth quarter of 2020, Altria elected to account for its investment in JUUL under the fair value option. Prior to this date, Altria accounted for its investment in JUUL as an investment in an equity security.

• For full-year 2020, Altria recorded a non-cash pre-tax impairment charge of $2.6 billion ($1.40 per share) due to the impairment of its investment in JUUL. A full tax valuation allowance was recorded for this charge that offset the tax benefit associated with the impairment charge. This charge was recorded prior to Altria’s election to account for the investment under the fair value option.

JUUL Changes in Fair Value

• In the fourth quarter and for full-year 2021, there were no changes in the estimated fair value of Altria’s investment in JUUL. As of December 31, 2021, the estimated value of the investment was $1.7 billion.

• In the fourth quarter and for full-year 2020, Altria recorded a non-cash pre-tax unrealized gain of $100 million (or $0.05 per share) as a result of an increase in the estimated fair value of its investment in JUUL. A corresponding adjustment was made to the JUUL tax valuation allowance.

ABI-Related Special Items

• In the fourth quarter of 2021, equity earnings from ABI included net pre-tax charges of $92 million (or $0.04 per share), substantially all of which related to ABI’s mark-to-market losses on certain ABI financial instruments associated with its share commitments.

• In the fourth quarter of 2020, losses from Altria’s investment in ABI included net pre-tax charges of $74 million (or $0.03 per share), consisting primarily of Altria’s share of ABI’s charges associated with early bond terminations.

• For full-year 2021, equity earnings from ABI included net pre-tax charges of $6.2 billion (or $2.66 per share), substantially all of which related to an impairment of Altria’s investment in ABI.

• For full-year 2020, losses from Altria’s investment in ABI included net pre-tax charges of $763 million (or $0.32 per share), consisting primarily of ABI’s (i) mark-to-market losses on certain of its financial instruments associated with its share commitments, (ii) completion of the sale of its Australia subsidiary and (iii) goodwill impairment charge associated with its Africa businesses.

The ABI-related special items above include Altria’s 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 Altria’s investment required under the equity method of accounting.

Cronos-Related Special Items

In the fourth quarter and for full-year 2021, Altria recorded net pre-tax (income) expense consisting of the following:

¹ Amounts are related to the non-cash change in the fair value of the warrant and certain anti-dilution protections (both acquired in March 2019).

² Amounts include Altria’s share of special items recorded by Cronos and additional adjustments, if required under the equity method of accounting, related to Altria’s investment in Cronos.

The amounts above include a non-cash, pre-tax impairment charge of $205 million for the three and twelve months ended December 31, 2021, reflecting the difference between the fair value of Altria’s investment in Cronos using Cronos’s share price at December 31, 2021 and the carrying value of Altria’s investment in Cronos at December 31, 2021.

Loss on Early Extinguishment of Debt

• For full-year 2021, Altria recorded pre-tax losses on early extinguishment of debt of $649 million (or $0.27 per share), which were recorded in the first quarter.

COVID-19 Special Items

• For full-year 2020, Altria recorded net pre-tax charges of $50 million (or $0.02 per share), directly related to disruptions caused by or efforts to mitigate the impact of the COVID-19 pandemic. These net pre-tax charges included premium pay, personal protective equipment and health screenings, partially offset by certain employment tax credits. The COVID-19 special items do not include the inventory-related implementation costs associated with the 2020 wine business strategic reset.

Tax Items

• For full-year 2020, Altria recorded net income tax expense of $50 million (or $0.03 per share), primarily related to a tax basis adjustment to Altria’s investment in ABI and adjustments as a result of amended returns and audit adjustments related to prior years.

SMOKEABLE PRODUCTS

Revenues and OCI

Fourth Quarter

• Net revenues increased 0.4%, primarily driven by higher pricing, partially offset by lower shipment volume.

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