Altria Group, Inc. (Altria) (NYSE: MO) today announces its 2020 first-quarter business results, including strong performance from its core tobacco segments and the withdrawal of its full-year 2020 adjusted diluted earnings per share (EPS) guidance and 2020 - 2022 adjusted diluted EPS growth objective due to COVID-19 uncertainty.
'The first-quarter brought out the best in Altria's employees as we navigated the dynamic tobacco environment and the unprecedented effects of the COVID-19 pandemic,' said Billy Gifford, Altria's Chief Executive Officer. 'We've approached these challenges together by focusing on the health and welfare of our employees, maintaining business continuity and supporting our communities.'
'We had an excellent start to the year, growing our first-quarter adjusted diluted EPS by 18.5%, driven by the strength of our smokeable and oral tobacco products segments. Due to the uncertainties related to the impact of the COVID-19 pandemic on our diverse business model and economic recovery scenarios, we're withdrawing our full-year 2020 adjusted diluted EPS guidance and, as a result, we're also withdrawing our compounded annual adjusted diluted EPS growth objective. We're continuing to assess the COVID-19 situation and intend to reestablish guidance at the appropriate time.'
'Our dividend is important to our investors and it remains a top priority for us. Our objective continues to be a dividend payout ratio target of approximately 80% of adjusted diluted EPS. For 2020, we expect to recommend a quarterly dividend rate to our Board that reflects, among other things, our strong cash generation and the strength of our balance sheet.'
Altria Leadership and Governance Changes
On April 17, 2020, Altria announced Howard Willard's retirement as Chairman of the Board (Chairman) and Chief Executive Officer (CEO) of Altria.
Following Mr. Willard's retirement, Altria's Board of Directors (Board) elected Billy Gifford, formerly Altria's Vice Chairman and Chief Financial Officer (CFO), to serve as Altria's CEO.
Altria also announced the Board's decision to separate the roles of Chairman and CEO. The Board elected Thomas Farrell, formerly the Board's independent Presiding Director, to serve as independent Chairman.
In connection with Mr. Gifford's appointment as CEO, the Board elected Salvatore Mancuso to serve as Altria's CFO.
Impact of COVID-19 Pandemic
Impact to Employees
Altria has implemented remote working for many employees and aligned our practices with the recommended social distancing protocols from public health authorities. To date, Altria has experienced minimal impact to productivity due to remote working and its critical information technology systems have remained operational.
Impact to Business Operations:
Altria has reopened the Richmond Manufacturing Center under enhanced safety protocols and all of Altria's manufacturing facilities are currently operational. Altria is continuing to monitor the risks associated with facility disruptions and workforce availability as a result of COVID-19 uncertainty.
To date, Altria's companies have not experienced any material disruptions to their supply chains or distribution systems, but continue to monitor these risks and are executing against business continuity plans.
In March, PM USA closed its Atlanta and RichmondIQOS stores temporarily and paused its IQOS in-person marketing efforts. PM USA will consider guidance from public health authorities in deciding when to reopen the stores and resume its interactive marketing approach. HeatSticks remain available for sale in over 500 retail stores across Atlanta and Richmond, and PM USA believes it currently has sufficient on-hand inventories. PM USA has also delayed the launch of IQOS in Charlotte due to COVID-19 concerns.
To date, Altria's companies have not experienced any material adverse effects associated with governmental actions to restrict consumer movement or business operations, but continue to monitor these factors. The majority of retail stores in which their products are sold, including convenience stores, have been deemed to be essential businesses by authorities and remain open.
Altria is monitoring the macro-economic risks of COVID-19 and its effect on adult tobacco consumers, including impacts to unemployment rates, consumer confidence levels, number of housing starts and gasoline prices. Altria expects an increase in consumer down-trading in the cigarette and moist smokeless tobacco (MST) categories, and believes the degree of down-trading will depend on several factors, including the depth and duration of higher unemployment and the severity of COVID-19 impacts, with potential offsetting factors of lower gasoline prices, increased unemployment benefits and government stimulus payments. Altria is also monitoring adult tobacco consumers' purchasing behavior, including overall tobacco product expenditures and interest in noncombustible products.
Helix is continuing to build domestic manufacturing capacity for on! in the Richmond Manufacturing Center. Current installed annualized capacity is approximately 25 million cans. However, due to the impacts of COVID-19, Helix expects potential delays in its ability to achieve annualized production capacity of 50 million cans by mid-year and 75 million cans by the end of 2020.
Ste. Michelle's on-premise wine sales in restaurants, bars, hospitality venues and cruise lines have been negatively affected by COVID-19 disruptions. Due to product volume demand uncertainty, which has been further negatively impacted in the first quarter by factors related to the COVID-19 pandemic, Ste. Michelle recorded inventory-related charges, including a write-off and an estimated loss on non-cancelable future grape purchase commitments. Ste. Michelle will continue to monitor the impact of COVID-19 associated risks on its earnings.
Impact to Investments
ABI has made several public disclosures regarding the impact of COVID-19 on its business, including withdrawing its financial forecast and a proposal to halve the final 2019 dividend payment. In addition, the extreme market disruption and volatility associated with the COVID-19 pandemic has resulted in a steep decline in ABI's stock price, and the fair value of our investment in ABI is now well below the carrying value of our investment in ABI. While Altria believes that this decline is temporary, we will continue to monitor our investment in ABI and the impact of the COVID-19 pandemic on ABI's business and market valuation and the associated risks to Altria.
Altria has considered the impact of COVID-19 on the businesses of JUUL and Cronos, including their sales, distribution, operations, supply chain and liquidity. At this time, Altria believes the impact of COVID-19 to these businesses is not material, and Altria's assessment, which included the consideration of potential impacts of COVID-19 on the businesses, did not result in impairment at March 31, 2020.
Impact to Liquidity and Capital Allocation: In the first quarter, Altria did not repurchase any shares of its common stock and borrowed the full $3 billion capacity available under its revolving credit facility as a precautionary measure.
To further strengthen Altria's liquidity position, the Board rescinded Altria's $1 billion share repurchase program that had a $500 million balance.
For the coming quarters, Altria expects to maintain a higher cash balance than normal to preserve its financial flexibility.
Altria's objective remains a dividend payout ratio target of approximately 80% of adjusted diluted EPS. Since Altria has withdrawn its full-year 2020 adjusted diluted EPS guidance due to the impacts of COVID-19, it expects to approach the 2020 dividend by recommending a quarterly dividend rate to the Board that reflects, among other things, its strong cash generation and the strength of its balance sheet.
Altria Support for Communities:
Altria donated supplies and committed an initial $1 million to support COVID-19 relief efforts.
Altria is providing additional flexibility to its valued non-profit partners with the use of grant and sponsorship dollars to support general operating needs. Altria is also accelerating some payments and relaxing reporting requirements.
JUUL Investment
On April 1, 2020, the U.S. Federal Trade Commission announced its decision to file an administrative complaint against Altria and JUUL to challenge Altria's minority investment in JUUL.
Altria intends to vigorously defend the transaction.
Graphic Health Warnings for Cigarettes
On March 17, 2020, the U.S. Food and Drug Administration ('FDA') issued a final rule requiring graphic health warnings on cigarettes and advertisements.
Altria believes the final rule goes beyond what is permitted under the First Amendment and that FDA's cited research provides inadequate support for the warnings.
Altria is evaluating its options for further action.
2020 Full-Year Guidance and 2020 - 2022 Adjusted Diluted EPS Growth Objective
Due to the uncertainties related to the impact of the COVID-19 pandemic and economic recovery scenarios, Altria withdraws its full-year 2020 adjusted diluted EPS guidance of $4.39 to $4.51 and, as a result, Altria also withdraws its 2020 to 2022 compounded annual adjusted diluted EPS growth objective of 4% to 7%. In making the decision, Altria considered various factors, including uncertain contributions from its equity investment in ABI and the potential impacts of COVID-19 on the macro-economic environment and adult tobacco consumers.
Altria maintains its 2020 estimated full-year domestic cigarette industry adjusted decline rate to be in a range of 4% to 6%.
Altria revises its expectation for 2020 capital expenditures to be between $200 million and $250 million. Altria maintains its expectation for depreciation and amortization expenses of approximately $240 million.
Financial Performance
Net revenues increased 13.0% to $6.4 billion, primarily due to higher net revenues in the smokeable and oral tobacco products segments. Revenues net of excise taxes increased 15.0% to $5.0 billion.
Reported diluted EPS increased 38.3% to $0.83, primarily driven by higher reported operating companies income (OCI) in the smokeable and oral tobacco products segments, lower charges for Cronos-related special items, 2019 acquisition-related costs associated with the JUUL and Cronos transactions, higher reported earnings from Altria's equity investment in ABI and fewer shares outstanding, partially offset by higher asset, exit, implementation and acquisition-related costs.
Adjusted diluted EPS increased 18.5% to $1.09, primarily driven by higher adjusted OCI in the smokeable and oral tobacco products segments and fewer shares outstanding, partially offset by lower adjusted earnings from Altria's equity investment in ABI.
Contact:
Tel: 804-484-8222
ALTRIA GROUP, INC. 
