Altria Group, Inc. (Altria) (NYSE: MO) is participating today in
the Barclays Global Consumer Staples Conference. Billy Gifford,
Altria’s Chief Executive Officer, and Sal Mancuso, Chief Financial
Officer, will host virtual meetings with investors to discuss the
company’s business fundamentals.
2020 Full-Year Guidance
Altria reaffirms its guidance for 2020 full-year adjusted
diluted earnings per share (EPS) to be in a range of $4.21 to
$4.38. This range represents a growth rate of 0% to 4% from an
adjusted diluted EPS base of $4.21 in 2019, as shown in Schedule 1,
and excludes the special items recorded in the first six months of
2020, also shown in Schedule 1. While the 2020 full-year adjusted
diluted EPS guidance accounts for a range of scenarios, the
external environment remains dynamic. Altria will continue to
monitor ABI performance and conditions for adult tobacco consumers,
including unemployment rates, disposable income (which may be
impacted by the July 31, 2020 expiration of enhanced federal
unemployment benefits, and potential future changes in government
stimulus and federal unemployment benefit payments) and adult
consumer purchasing behaviors.
Altria’s full-year adjusted diluted EPS guidance excludes the
impact of certain income and expense items that management believes
are not part of underlying operations. These items may include, for
example, restructuring charges, asset impairment charges,
acquisition-related costs, COVID-19 special items, equity
investment-related special items (including any changes in fair
value for the equity investment and any related warrants and
preemptive rights), certain tax items, charges associated with
tobacco and health litigation items, and resolutions of certain
nonparticipating manufacturer (NPM) adjustment disputes under the
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
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.
The factors described in the "Forward-Looking and Cautionary
Statements" section of this release represent the continuing risks
to Altria's forecast.
JUUL Investment Update
On September 3, 2020, JUUL announced additional steps towards
its goal of resetting the e-vapor category and positioning JUUL for
long-term success, including a significant global reduction in
workforce and the possibility of exiting a variety of markets in
EMEA (Europe, Middle East and Africa) and APAC (Asia-Pacific).
While JUUL believes these steps are necessary to the company’s
success, Altria must determine the impact of these steps, if any,
on its valuation of its investment in JUUL. Consequently, Altria
plans to perform a quantitative assessment in connection with the
preparation of Altria’s third-quarter 2020 financial statements.
This assessment will consider these steps, including any related
cost savings, as well as recent domestic performance of JUUL
products and other matters relevant to the analysis. If this
quantitative assessment indicates that the fair value of the JUUL
investment is less than its carrying value, the investment will be
written down to its fair value. This assessment may or may not
result in a material impairment charge.
Altria's Profile
Altria’s wholly-owned subsidiaries include Philip Morris USA
Inc. (PM USA), U.S. Smokeless Tobacco Company LLC (USSTC), John
Middleton Co. (Middleton), Ste. Michelle Wine Estates Ltd. (Ste.
Michelle) and Philip Morris Capital Corporation (PMCC). Altria owns
an 80% interest in Helix Innovations LLC (Helix). Altria holds
equity investments in Anheuser-Busch InBev SA/NV (ABI), JUUL Labs,
Inc. (JUUL) and Cronos Group Inc. (Cronos).
The brand portfolios of Altria’s tobacco operating companies
include Marlboro®, Black & Mild®, Copenhagen®, Skoal® and on!®
. Ste. Michelle produces and markets premium wines sold under
various labels, including Chateau Ste. Michelle®, 14 Hands® and
Stag’s Leap Wine Cellars™, and it imports and markets Antinori®,
Champagne Nicolas Feuillatte™ and Villa Maria Estate™ products in
the United States. Trademarks and service marks related to Altria
referenced in this release are the property of Altria or its
subsidiaries or are used with permission.
More information about Altria is available at altria.com and on
the Altria Investor app, or follow Altria on Twitter, Facebook and
LinkedIn.
Forward-Looking and Cautionary Statements
This release contains projections of future results and other
forward-looking statements that involve 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 and outcomes to
differ materially from those contained in the projections and
forward-looking statements included in this release are described
in Altria’s publicly filed reports, including its Annual Report on
Form 10-K for the year ended December 31, 2019 and its Quarterly
Reports on Form 10-Q for the periods ended March 31, 2020 and June
30, 2020. These factors include the following:
- the risks associated with health epidemics and pandemics,
including the COVID-19 pandemic and similar outbreaks, such as
their impact on our financial performance and financial condition
and on our subsidiaries’ and investees’ ability to continue
manufacturing and distributing products, and the impact of health
epidemics and pandemics on general economic conditions (including
any resulting recession or other economic crisis) and, in turn,
adult consumer purchasing behavior which may be further impacted by
the July 31, 2020 expiration of enhanced federal unemployment
benefits, and potential changes in government stimulus and federal
unemployment benefit payments;
- unfavorable litigation outcomes, including risks associated
with adverse jury and judicial determinations, courts and
arbitrators reaching conclusions at variance with our, our
subsidiaries’ or our investees’ understanding of applicable law,
bonding requirements in the jurisdictions that do not limit the
dollar amount of appeal bonds, and certain challenges to bond cap
statutes;
- government (including the U.S. Food and Drug Administration
(FDA)) and private sector actions that impact adult tobacco
consumer acceptability of, or access to, tobacco products;
- the growth of the e-vapor category and other innovative tobacco
products contributing to reductions in cigarette and moist
smokeless tobacco consumption levels and sales volume;
- tobacco product taxation, including lower tobacco product
consumption levels and potential shifts in adult consumer purchases
as a result of federal, state and local excise tax increases;
- the failure of our tobacco and wine subsidiaries to compete
effectively in their respective markets;
- our tobacco and wine subsidiaries’ continued ability to promote
brand equity successfully; to anticipate and respond to evolving
adult consumer preferences; to develop, manufacture, market and
distribute products that appeal to adult consumers (including,
where appropriate, through arrangements with, and investments in
third parties); to improve productivity; and to protect or enhance
margins through cost savings and price increases;
- changes, including in economic conditions (due to the COVID-19
pandemic or otherwise), that result in adult consumers choosing
lower-priced brands including discount brands;
- the unsuccessful commercialization of adjacent products or
processes by our tobacco subsidiaries and investees, including
innovative tobacco products that may reduce the health risks
associated with cigarettes and other traditional tobacco products,
and that appeal to adult tobacco consumers;
- significant changes in price, availability or quality of
tobacco, other raw materials or component parts, including as a
result of the COVID-19 pandemic;
- the risks related to the reliance by our tobacco and wine
subsidiaries on a few significant facilities and a small number of
key suppliers, and the risk of an extended disruption at a facility
of, or of service by, a supplier of our tobacco or wine
subsidiaries or investees, including as a result of the COVID-19
pandemic;
- required or voluntary product recalls as a result of various
circumstances such as product contamination or FDA or other
regulatory action;
- the failure of our information systems or service providers’
information systems to function as intended, or cyber-attacks or
security breaches;
- unfavorable outcomes of any government investigations of
Altria, our subsidiaries or investees;
- a successful challenge to our tax positions;
- the risks related to our and our investees’ international
business operations, including failure to prevent violations of
various U.S. and foreign laws and regulations such as laws
prohibiting bribery and corruption;
- our inability to attract and retain the best talent due to the
impact of decreasing social acceptance of tobacco usage and tobacco
control actions;
- the adverse effect of acquisitions, investments, dispositions
or other events on our credit rating;
- our inability to acquire attractive businesses or make
attractive investments on favorable terms, or at all, or to realize
the anticipated benefits from an acquisition or investment and our
inability to dispose of businesses or investments on favorable
terms or at all;
- the risks related to disruption and uncertainty in the credit
and capital markets, including risk of access to these markets both
generally and at current prevailing rates, which may adversely
affect our earnings or dividend rate or both;
- impairment losses as a result of the write down of intangible
assets, including goodwill;
- the risks related to Ste. Michelle’s wine business, including
competition, unfavorable changes in grape supply, and changes in
adult consumer preferences that have resulted and may continue to
result in increased inventory levels and inventory write offs, and
governmental regulations;
- the risk that any challenge to our investment in JUUL, if
successful, could result in a broad range of resolutions such as
divestiture of the investment or rescission of the
transaction;
- the risks generally related to our investments in JUUL and
Cronos, including our inability to realize the expected benefits of
our investments in the expected time frames, or at all, due to the
risks encountered by our investees in their businesses, such as
operational, compliance and regulatory risks at the international,
federal, state and local levels, including actions by the FDA, and
adverse publicity; potential disruptions to our investees’
management or current or future plans and operations; domestic or
international litigation developments, government investigations,
tax disputes or otherwise; and impairment of our investments;
- the risks related to our inability to acquire a controlling
interest in JUUL as a result of standstill restrictions or to
control the material decisions of JUUL, restrictions on our ability
to sell or otherwise transfer our shares of JUUL until December 20,
2024, and non-competition restrictions for the same time period
subject to certain exceptions;
- the adverse effects of risks encountered by ABI in its
business, including effects of the COVID-19 pandemic, foreign
currency exchange rates and the impact of movements in ABI’s stock
price on our equity investment in ABI, including on our reported
earnings from and carrying value of our investment in ABI, which
could result in impairment of our investment, and the dividends
paid by ABI on the shares we own;
- the risks related to our inability to transfer our equity
securities in ABI until October 10, 2021, and, if our ownership
percentage decreases below certain levels, the adverse effects of
additional tax liabilities, a reduction in the number of directors
that we have the right to have appointed to the ABI board of
directors, and our potential inability to use the equity method of
accounting for our investment in ABI;
- the risk of challenges to the tax treatment of the
consideration we received in the ABI/SABMiller plc business
combination and the tax treatment of our equity investment;
and
- the risks, including criminal, civil or tax liability for
Altria, related to Cronos’s or Altria’s failure to comply with
applicable laws, including cannabis laws.
Altria cautions that the foregoing list of important factors is
not complete and does not undertake to update any forward-looking
statements that it may make except as required by applicable law.
All subsequent written and oral forward-looking statements
attributable to Altria or any person acting on its behalf are
expressly qualified in their entirety by the cautionary statements
referenced above.
Schedule 1
ALTRIA GROUP, INC.
and Subsidiaries
Reconciliation of GAAP and
non-GAAP Measures
(dollars in millions, except per
share data)
(Unaudited)
Earnings before Income
Taxes
Provision for Income
Taxes
Net Earnings (Losses)
Net Earnings (Losses)
Attributable to Altria
Diluted EPS
For the year ended December 31,
2019
$
766
$
2,064
$
(1,298)
$
(1,293)
$
(0.70)
ABI-related special items 1
(383)
(80)
(303)
(303)
(0.16)
Tobacco and health litigation items
77
19
58
58
0.03
Asset impairment, exit, implementation and
acquisition-related costs
331
62
269
269
0.15
Impairment in JUUL equity securities
8,600
—
8,600
8,600
4.60
Cronos-related special items
928
288
640
640
0.34
Tax items
—
99
(99)
(99)
(0.05)
2019 Adjusted for Special Items
$
10,319
$
2,452
$
7,867
$
7,872
$
4.21
For the six months ended June 30,
2020
$
4,673
$
1,185
$
3,488
$
3,495
$
1.88
ABI-related special items2
176
37
139
139
0.07
Implementation and acquisition-related
costs
403
97
306
306
0.16
Tobacco and health litigation items
42
10
32
32
0.02
Cronos-related special items
1
—
1
1
—
COVID-19 special items
50
13
37
37
0.02
Tax items3
—
(51)
51
51
0.03
2020 Adjusted for Special Items
$
5,345
$
1,291
$
4,054
$
4,061
$
2.18
1
Prior period amounts have been recast to
conform with current period presentation for certain ABI
mark-to-market adjustments that were not previously identified as
special items and that are now excluded from Altria’s adjusted
financial measures.
2
Excludes amounts that Altria expects to
record in the third quarter of 2020, which may be material, related
to ABI’s goodwill impairment charge associated with its Africa
businesses and ABI’s completion of the sale of its Australia
subsidiary, each of which was recorded by ABI in its second quarter
of 2020.
3
Excludes additional charges of $0.02 of
tax expense that Altria expects to record in the second half of
2020 resulting from the Tax Cuts and Jobs Act (Tax Reform Act)
related to a tax basis adjustment to Altria's ABI investment.
While Altria reports its financial results in accordance with
GAAP, its management reviews certain financial results, including
diluted EPS, on an adjusted basis, which excludes certain income
and expense items, including those items noted under “2020
Full-Year Guidance.” Altria’s management does not view any of these
special items to be part of Altria’s underlying results as they may
be highly variable, may be unusual or infrequent, are difficult to
predict and can distort underlying business trends and results.
Altria’s management believes that adjusted financial measures
provide useful additional insight into underlying business trends
and results and provide a more meaningful comparison of
year-over-year results. Altria’s management uses adjusted financial
measures for planning, forecasting and evaluating business and
financial performance, including allocating resources and
evaluating results relative to employee compensation targets. These
adjusted financial measures are not consistent with GAAP and may
not be calculated the same as similarly titled measures used by
other companies. These adjusted financial measures should thus be
considered as supplemental in nature and not considered in
isolation or as a substitute for the related financial information
prepared in accordance with GAAP.
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