RICHMOND, Va.--(BUSINESS WIRE)--Altria Group, Inc. (Altria) (NYSE: MO) today announces its 2019 fourth-quarter and full-year business results, provides guidance for 2020 full-year adjusted diluted earnings per share (EPS) and revises its adjusted diluted EPS objective for the years 2020 through 2022.

“Altria’s core tobacco businesses delivered outstanding performance in 2019. In addition, Altria exceeded its $575 million annualized cost savings target and increased the dividend for the 54th time in 50 years,” said Howard Willard, Altria’s Chairman and Chief Executive Officer.

“Despite the unexpected challenges related to our investment in JUUL, which led to impairment charges and reported losses, we made significant progress advancing and building our noncombustible business platform with the launch of IQOS and completion of the on! transaction. We enter 2020 with continued focus on harm reduction. We believe Altria’s enhanced business platform best positions us to succeed under various future category scenarios.”

As previously announced, a conference call with the investment community and news media will be webcast on January 30, 2020 at 9:00 a.m. Eastern Time. Access to the webcast is available at www.altria.com/webcasts and via the Altria Investor app.

Altria Headline Financials1

Cash Returns to Shareholders

Dividends:

• Altria’s current annualized dividend rate is $3.36 per share, representing an annualized dividend yield of 6.8% as of January 27, 2020 and an increase of 5.0% from 2018.

• Altria expects to maintain a dividend payout ratio target of approximately 80% of adjusted diluted EPS for the years 2020 through 2022. Future dividend payments remain subject to the discretion of Altria’s Board of Directors (Board).

Share Repurchase Program:

• Altria repurchased 16.5 million shares in 2019 at an average price of $51.24 per share, for a total cost of approximately $845 million.
• As of December 31, 2019, Altria had $500 million remaining in the current $1 billion share repurchase program, which Altria expects to complete by the end of 2020. The timing of share repurchases depends on marketplace conditions and other factors, and this program remains subject to the discretion of the Board.

Noncombustible Products Business Platform

IQOS Heated Tobacco System

• IQOS is now commercialized in the Atlanta, Georgia and Richmond, Virginia lead markets.
• Heatsticks are distributed across more than 500 retail stores in Atlanta and Richmond combined.
• There are now more than 100+ trained IQOS professionals to provide guided trials to adult smokers.

on! Oral Nicotine Pouches

• on! is now available in 15,000 stores nationally, including 3 of the top 5 chains for smokeless volume.
• Helix expects to begin manufacturing on! at the Richmond Manufacturing Center in first-quarter 2020.

Cost Reduction Program

• Altria achieved $600 million in annualized cost savings in 2019, exceeding the target $575 million annualized cost reduction program announced in December 2018 (Cost Reduction Program). The program included savings from workforce reductions, third-party spending reductions and the closure of Altria’s Nu Mark operations.

JUUL Investment

• Altria recorded a fourth-quarter, non-cash pre-tax impairment charge of $4.1 billion related to its investment in JUUL. This impairment is primarily due to the increased number of legal cases pending against JUUL and the expectation that the number of legal cases against JUUL will continue to increase. Since October 31, 2019, the number of legal cases pending against JUUL has increased by more than 80%. Altria has not made any assumptions, or drawn any conclusions, regarding the merits or likelihood of success of any of these cases, litigation is subject to uncertainty and it is possible that there could be adverse developments in pending or future cases. For 2019, Altria recorded a total of $8.6 billion in non-cash pre-tax impairment charges to its JUUL investment, bringing the value of its JUUL investment to $4.2 billion as of December 31, 2019.
• Altria now expects a resolution with respect to antitrust clearance in the first half of 2020.

Revised Terms for Investment in JUUL

Altria and JUUL agreed to revised terms governing Altria’s minority investment in JUUL, which include the following provisions:

• Altria and JUUL are focusing their work together to create compelling pre-market tobacco product applications (PMTA) based on rigorous scientific research and data-driven underage use prevention efforts. As a result, Altria will continue providing regulatory affairs services to JUUL, which includes supporting the company in preparing and submitting its PMTA. Altria will discontinue all other services by the end of March 2020 that were part of the original investment agreement.

• JUUL will, upon antitrust clearance from the U.S. Federal Trade Commission under the Hart-Scott-Rodino Act, restructure its board of directors to consist of two directors designated by Altria, three independent directors, the JUUL CEO and three directors designated by JUUL stockholders other than Altria.

• Upon antitrust clearance, the restructured JUUL Board of Directors will add a nominating committee and a litigation oversight committee to its existing compensation and audit committees.

• Altria has the option to be released from its non-compete obligation if JUUL is prohibited by federal law from selling e-vapor products in the U.S. for at least a year, or if Altria’s carrying value of the JUUL investment is not more than 10% of its initial carrying value of $12.8 billion.

“This agreement is a continuation of the reset initiated by JUUL’s leadership team.” said Willard. “We look forward to working with the company under this structure to support JUUL’s commitment to working with regulators and submitting the best possible PMTA.”

For more information, see the Form 8-K that will be filed with the Securities and Exchange Commission (SEC).

Expected Accounting Methodology for Investment in JUUL

Upon antitrust clearance, Altria expects to account for its equity investment in JUUL using the fair value option. Under the fair value option, Altria’s income statement will include any cash dividends received from the investment and any quarterly changes in the fair value of the investment. Quarterly changes in the fair value of the investment will be treated as a special item and excluded from adjusted diluted EPS.

2020 - 2022 Adjusted Diluted EPS Growth Objective

Altria lowers its compounded annual adjusted diluted EPS growth objective to 4% to 7% for the years 2020 through 2022 from its previously announced objective of 5% to 8%, primarily to reflect Altria’s current expectation for no equity earnings contributions from JUUL through 2022.

2020 Full-Year Guidance

Altria expects its 2020 full-year adjusted diluted EPS to be in a range of $4.39 to $4.51, representing a growth rate of 4% to 7% from an adjusted diluted EPS base of $4.22 in 2019, as shown in Table 1. Altria’s 2020 guidance reflects increased investments related to PM USA’s commercialization efforts for IQOS, Helix’s plans to manufacture and expand U.S. distribution of on! and one extra shipping day in the first quarter.

The guidance range excludes estimated per share charges in 2020 of $0.05 of tax expense resulting from the Tax Cuts and Jobs Act (Tax Reform Act) related to a tax basis adjustment to Altria’s ABI investment.

Altria expects the 2020 full-year total domestic cigarette industry adjusted volume decline rate to be in a range of 4% to 6%, which includes the impact of federal legislation raising the minimum age to purchase all tobacco products to 21. Altria expects continued volatility across tobacco categories and will no longer provide a multi-year forecast for U.S. cigarette volume declines.

Altria expects its 2020 full-year adjusted effective tax rate will be in a range of 23.5% to 24.5%.

Altria expects its 2020 capital expenditures to be between $225 million and $275 million and depreciation and amortization expenses of approximately $240 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, restructuring charges, asset impairment charges, acquisition-related costs, 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 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.

The factors described in the “Forward-Looking and Cautionary Statements” section of this release represent continuing risks to Altria’s 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 1.8% to $6.0 billion, primarily due to lower net revenues in the smokeable products segment, partially offset by higher net revenues in the smokeless products segment. Revenues net of excise taxes was essentially unchanged at $4.8 billion.
• Reported diluted EPS decreased 100%+ to ($1.00), primarily driven by the impairment of JUUL equity securities and higher interest expense, partially offset by higher reported operating companies income (OCI), higher reported earnings from Altria’s equity investment in ABI, 2019 Cronos-related special items and favorable tax items.
• Adjusted diluted EPS increased 7.4% to $1.02, primarily driven by higher adjusted OCI in the smokeable and smokeless products segments and higher adjusted earnings from Altria’s equity investment in ABI, partially offset by higher interest expense.

Full Year

• Net revenues decreased 1.0% to $25.1 billion, primarily due to lower net revenues in the smokeable products segment, partially offset by higher net revenues in the smokeless products segment. Revenues net of excise taxes increased 0.9% to $19.8 billion.
• Reported diluted EPS decreased 100+% to ($0.70), primarily driven by the impairment of JUUL equity securities, 2019 Cronos-related special items and higher interest expense (which includes acquisition-related costs associated with the JUUL and Cronos transactions), partially offset by higher reported OCI, favorable tax items and higher reported earnings from Altria’s equity investment in ABI.
• Adjusted diluted EPS increased 5.8% to $4.22, primarily driven by higher adjusted OCI in the smokeable and smokeless products segments, lower spending as a result of Altria’s decision in 2018 to refocus its innovative products efforts and higher adjusted earnings from Altria’s equity investment in ABI, partially offset by higher interest expense.
• Special Items
  The EPS impact of the following special items is shown in Table 1 and Schedules 7 and 9.
  NPM Adjustment Items
  
  • For the full year 2018, Altria recorded pre-tax income of $145 million (or $0.06 per share) for NPM adjustment settlements with 10 states.
  Asset Impairment, Exit, Implementation and Acquisition-Related Costs
  
  • In the fourth quarter of 2019, Altria recorded pre-tax charges of $116 million (or $0.06 per share), primarily due to the impairment of the Ste. Michelle goodwill and the Cost Reduction Program.
  • For the full year 2019, Altria recorded pre-tax charges of $331 million (or $0.15 per share), primarily due to the Cost Reduction Program, acquisition-related costs associated with the JUUL and Cronos transactions, and the impairment of the Ste. Michelle goodwill.
  • In the fourth quarter of 2018, Altria recorded pre-tax charges of $532 million (or $0.23 per share) related to Altria’s decision to refocus its innovative product efforts (which includes the discontinuation of production and distribution of all MarkTen and Green Smoke e-vapor products), the Cost Reduction Program, acquisition-related costs related to the JUUL transaction and the impairment of the Columbia Crest trademark.
  Tobacco and Health Litigation Items
  
  • For the full year 2019, Altria recorded pre-tax charges of $77 million (or $0.03 per share) for tobacco and health litigation items, including related interest costs.
  • For the full year 2018, Altria recorded pre-tax charges of $131 million (or $0.05 per share) for tobacco and health litigation items, including related interest costs.
  ABI-Related Special Items
  
  • In the fourth quarter and full year 2019, equity earnings from ABI included net pre-tax income of $364 million (or $0.16 per share) and $354 million (or $0.15 per share), respectively, consisting primarily of a gain related to ABI’s completion of its initial public offering of a minority stake of its Asia Pacific subsidiary and Altria’s share of ABI’s mark-to-market gains on ABI’s derivative financial instruments used to hedge certain share commitments.
  • In the fourth quarter of 2018, equity earnings from ABI included net pre-tax charges of $69 million (or $0.03 per share), consisting primarily of Altria’s share of ABI’s mark-to-market losses on ABI’s derivative financial instruments used to hedge certain share commitments.
  • For the full year 2018, equity earnings from ABI included net pre-tax income of $85 million (or $0.03 per share), consisting primarily of Altria’s share of ABI’s estimated effect of the Tax Reform Act and gains related to ABI’s merger and acquisition activities, partially offset by Altria’s share of ABI’s mark-to-market losses on ABI’s derivative financial instruments used to hedge certain share commitments.
  Cronos-Related Special Items
  
  • In the fourth quarter of 2019, Altria recorded net pre-tax income of $165 million (or $0.06 per share), consisting of the following: net gains of $280 million (included in earnings from equity investments), substantially all of which related to Altria’s share of Cronos’s non-cash change in the fair value of Cronos’s derivative financial instruments associated with the issuance of additional shares, partially offset by Altria’s mark-to-market losses of $115 million due to the non-cash change during the quarter in the fair value of Cronos-related derivative financial instruments to acquire additional shares of Cronos.
  • For the full year of 2019, Altria recorded net pre-tax charges of $0.9 billion (or $0.34 per share), consisting of the following: Altria’s mark-to-market losses of $1.4 billion, primarily due to the non-cash change during the year in the fair value of Cronos-related derivative financial instruments to acquire additional shares of Cronos, partially offset by income of $0.5 billion (included in earnings from Altria’s equity investment in Cronos), substantially all of which related to Altria’s share of Cronos’s non-cash change in the fair value of Cronos’s derivative financial instruments associated with the issuance of additional shares.
  Impairment of JUUL Equity Securities
  
  • In the fourth quarter and full year of 2019, Altria recorded non-cash pre-tax impairment charges of $4.1 billion (or $2.20 per share) and $8.6 billion (or $4.60 per share), respectively, reflecting the impairment of Altria’s equity securities in JUUL. A full tax valuation allowance was recorded for this charge that offset the tax benefit associated with the impairment charge.
  Tax Items
  
  • In the fourth quarter of 2019, Altria recorded income tax benefits of $43 million (or $0.03 per share), primarily related to tax benefits of $94 million for adjustments as a result of amended returns, partially offset by tax expense of $27 million for a valuation allowance on foreign tax credits not realizable and $21 million related to a tax basis adjustment to Altria’s equity investment in ABI.
  • For the full year 2019, Altria recorded income tax benefits of $99 million (or $0.05 per share), primarily related to $105 million for adjustments as a result of amended returns and tax benefits of $100 million for the reversal of tax accruals no longer required, partially offset by tax expense of $84 million related to a tax basis adjustment to Altria’s equity investment in ABI and $38 million for a valuation allowance on foreign tax credits not realizable.
  • In the fourth quarter of 2018, Altria recorded income tax charges of $45 million (or $0.03 per share) primarily related to a tax basis adjustment to Altria’s equity investment in ABI and an adjustment to the provisional estimates for the repatriation tax.
  • For the full year 2018, Altria recorded income tax charges of $197 million (or $0.11 per share) primarily related to a tax basis adjustment to Altria’s equity investment in ABI, a valuation allowance on foreign tax credit carryforwards that are not realizable and an adjustment to the provisional estimates for the repatriation tax.
  SMOKEABLE PRODUCTS
  Revenues and OCI
  Fourth Quarter
  
  • Net revenues decreased 2.7%, primarily driven by lower shipment volume, partially offset by higher pricing and lower promotional investments. Revenues net of excise taxes decreased 0.5%.
  • Reported OCI increased 13.4%, primarily driven by higher pricing, lower costs (which includes lower asset impairment and exit costs) and lower promotional investments, partially offset by lower shipment volume, higher resolution expenses and higher tobacco and health litigation items.
  • Adjusted OCI increased 10.1%, primarily driven by higher pricing, lower costs and lower promotional investments, partially offset by lower shipment volume and higher resolution expenses. Adjusted OCI marginsincreased 5.3 percentage points to 54.8%.
  Full Year
  • Net revenues decreased 1.3%, primarily driven by lower shipment volume, partially offset by higher pricing and lower promotional investments. Revenues net of excise taxes increased 0.7%.
  • Reported OCI increased 7.1%, primarily driven by higher pricing, lower costs (which includes lower tobacco and health litigation items) and lower promotional investments, partially offset by lower shipment volume and higher resolution expenses (which includes 2018 NPM adjustment items).
  • Adjusted OCI increased 8.6%, primarily driven by higher pricing, lower costs and lower promotional investments, partially offset by lower shipment volume and higher resolution expenses. Adjusted OCI margins increased 3.9 percentage points to 54.5%.
  • Shipment Volume
    Fourth Quarter
    
    • Smokeable products segment reported domestic cigarette shipment volumedecreased 8.7%, primarily driven by the industry’s rate of decline, retail share losses, trade inventory movements and other factors.
    • When adjusted for trade inventory movements and other factors, smokeable products segment domestic cigarette shipment volume decreased by an estimated 6%.
    • When adjusted for trade inventory movements, total domestic cigarette industry volumes declined by an estimated 4.5%.
    • Reported cigarshipment volume increased 4.6%.
  Full Year
  • Smokeable products segment reported domestic cigarette shipment volumedecreased 7.3%, primarily driven by the industry’s rate of decline, retail share losses, trade inventory movements and other factors.
  • When adjusted for trade inventory movements and other factors, smokeable products segment domestic cigarette shipment volume decreased by an estimated 7%.
  • When adjusted for trade inventory movements and other factors, total domestic cigarette industry volumes declined by an estimated 5.5%.
  • Reported cigarshipment volume increased 3.1%.
  • Retail Share and Brand Activity
    Fourth Quarter
    
    • Marlboro retail share declined 0.1 share point to 43.0%.
    • PM USA’s Marlboro Rewards has reached 2.6 million enrollees since its launch in January 2019.
  Full Year
  • Marlboro retail share declined 0.1 share point to 43.1%.

Revenues and OCI

Fourth Quarter

• Net revenues increased 5.8%, primarily driven by higher pricing and lower promotional investments, partially offset by lower shipment volume. Revenues net of excise taxes increased 6.1%.
• Reported and adjusted OCI increased 11.3% and 9.7%, respectively, primarily driven by higher pricing, lower promotional investments and lower costs, partially offset by lower shipment volume. Adjusted OCI margins increased 2.3 percentage points to 68.8%.

Full Year

• Net revenues increased 4.6%, primarily driven by higher pricing and lower promotional investments, partially offset by lower shipment volume. Revenues net of excise taxes increased 5.1%.
• Reported and adjusted OCI increased 10.4% and 9.7%, respectively, primarily driven by higher pricing, lower promotional investments and lower costs, partially offset by lower shipment volume. Adjusted OCI margins increased 3.0 percentage points to 71.7%.

Shipment Volume

Fourth Quarter

• Smokeless products segment reported domestic shipment volume declined 4.0%, primarily driven by calendar differences, the industry’s rate of decline, retail share losses and other factors, partially offset by trade inventory movements. When adjusted for trade inventory movements and calendar differences, smokeless products segment shipment volume declined an estimated 2.5%.

Full Year

• Smokeless products segment reported domestic shipment volume declined 3.1%, primarily driven by the industry’s rate of decline, calendar differences, retail share losses and other factors, partially offset by trade inventory movements. When adjusted for trade inventory movements and calendar differences, smokeless products segment shipment volume declined an estimated 3%.
• Total smokeless industry volume declined by an estimated 1% over the past six months.

Retail Share and Brand Activity

Fourth Quarter

• Copenhagen maintained retail share at 34.8%.
• Skoal retail share declined 0.2 share points to 15.5%.

Full Year

• Copenhagen retail share grew 0.3 share points to 34.8%.
• Skoal retail share declined 0.6 share points to 15.6%.

Revenues, OCI and Shipment Volume

Fourth Quarter

• Net revenues increased 2.0%, driven by higher shipment volume.
• Reported OCI decreased $30 million, primarily driven by the 2019 impairment of the wine segment goodwill and higher costs, partially offset by the 2018 impairment of the Columbia Crest trademark.
• Adjusted OCI decreased $8 million, primarily driven by higher costs.
• Reported wine shipment volume increased 2.6% to approximately 2.4 million cases.

Full Year

• Net revenues decreased 0.3%, primarily driven by higher promotional investments, partially offset by higher shipment volume and favorable premium mix.
• Reported OCI decreased $53 million, primarily driven by the 2019 impairment of the wine segment goodwill, higher costs and higher promotional investments, partially offset by the 2018 impairment of the Columbia Crest trademark.
• Adjusted OCI decreased $31 million, primarily driven by higher costs and higher promotional investments.
• Reported wine shipment volume increased 0.6% to approximately 8.3 million cases.

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), Sherman Group Holdings, LLC and its subsidiaries (Nat Sherman), 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).