Altria Group, Inc. · NYSE:MO
Altria — 2015 CAGNY Conference
98 slides from Altria's conference presentation, Feb 18, 2015
Slide 1: 2015 CAGNY Investor Presentation
2015 CAGNY Investor Presentation February 18, 2015 For Investor Relations Purposes Only
Slide 2: Management Team Participants
Management Team Participants Howard Willard Dave Beran EVP and Chief Financial President and Chief Operating Officer, Altria Group Officer, Altria Group Billy Gifford Murray Garnick SVP, Strategy and Business Sr. Vice President and Associate Development, Altria Group General Counsel, ALCS For Invest
Slide 3: Safe Harbor Statement
Safe Harbor Statement Statements, including earnings guidance, in this presentation that are not reported financial results or other historical information are “forward-looking statements” within the meaning of Private Securities Litigation Reform Act of 1995. Such forward-looking statements are bas
Slide 4: 2014 Results
2014 Results Altria Results Segment Results Grew adjusted diluted earnings Smokeable products segment grew per share* 8% adjusted operating companies income* 6.7% Grew dividend 8.3% Marlboro achieved retail share of Paid shareholders $3.9 billion in 43.8% dividends Copenhagen & Skoal ach
Slide 5: Agenda
Agenda Financial Goals Strategies Performance Outlook for 2015 For Investor Relations Purposes Only
Slide 6: Long-Term Financial Goals
Long-Term Financial Goals Grow adjusted diluted EPS at average annual rate of 7% to 9% For Investor Relations Purposes Only
Slide 7: Adjusted Diluted EPS Performance
Adjusted Diluted EPS* Performance +8.0% CAGR $2.57 $1.75 2009 2014 *For reconciliation of non-GAAP to GAAP measures visit altria.com Source: Altria company reports For Investor Relations Purposes Only
Slide 8: Long-Term Financial Goals
Long-Term Financial Goals Grow adjusted diluted EPS at average annual rate of 7% to 9% Maintain a target dividend payout ratio of approximately 80% of adjusted diluted EPS For Investor Relations Purposes Only
Slide 9: Dividend Payout Ratio
Dividend Payout Ratio S&P Food, Beverage and Tobacco Index MO 80.9% PM 79.7% RAI 78.4% LO 73.2% KRFT 70.3% GIS 60.7% KO 59.8% PEP 57.1% HSY 53.8% DPS 52.6% NOTE: Altria’s dividend payout ratio is based on the current annualized dividend (Last increased August 2014) of $2.08 / $2.57 2014 adjusted dil
Slide 10: Dividend Per Share Growth
Dividend Per Share Growth +8.9% CAGR $2.08 $1.36 2009 2014 Altria increased its dividend 48 times in the past 45 years. Note: Year-end annualized rate: 5-year CAGR. Dividend is based on the current annualized dividend (Last increased August 2014) Source: Altria company reports For Investor Relations
Slide 11: Altria's Strategies
Altria’s Strategies Maximize income from core premium tobacco businesses over the long term Grow new income streams with innovative tobacco products Manage diverse income streams and strong balance sheet to deliver consistent financial performance For Investor Relations Purposes Only
Slide 12: A View of Altria on Key Measures
A View of Altria on Key Measures Net Income Revenues* per Employee Free Cash Flow NetofIncome Revenues per Employee Free Cash Flow* as a % Revenues* ($ in Millions) ($ in Millions) as a % of Revenues* (as a % of Revenues) (as a % of Revenues) $1.97 24.4% 24.9% 14.3% 13.8% $0.60 $0.70 8.6% 7.9% Altri
Slide 13: Total Shareholder Return 2010-2014
Total Shareholder Return 2010-2014 230% 116% 94% Altria Group S&P Beverage S&P Food Note: Total shareholder return is simple price appreciation plus the reinvestment of the dividend as of the ex-dividend date Source: FactSet, 12/31/2009-12/31/2014 For Investor Relations Purposes Only
Slide 14: U.S. Tobacco Manufacturers' Profit Pool
U.S. Tobacco Manufacturers’ Profit Pool $ in Billions $20 +5.5% CAGR $15.5 $11.8 $0 2009 2014 Source: Altria company reports; ALCS estimates; other public company reports For Investor Relations Purposes Only
Slide 15: 2014 Share of the U.S. Tobacco Profit Pool
2014 Share of the U.S. Tobacco Profit Pool 51% 23% 14% 12% Altria Reynolds American Lorillard Other Note: Altria’s Profit Pool share is calculated by combining the adjusted OCI* for Altria’s Smokeable & Smokeless Products segments divided by Total Profit Pool. *For reconciliation of non-GAAP to GAAP
Slide 16: Altria's Strategies
Altria’s Strategies Maximize income from core premium tobacco businesses over the long term Grow new income streams with innovative tobacco products Manage diverse income streams and strong balance sheet to deliver consistent financial performance For Investor Relations Purposes Only
Slide 17: Smokeable Products Companies' Strategy
Smokeable Products Companies’ Strategy Maximize income while maintaining modest share momentum on Marlboro and Black & Mild over time. For Investor Relations Purposes Only
Slide 18: Cigarette Category Decline Rate Estimates
Cigarette Category Decline Rate Estimates Primarily due to FET increase (3.0)% (3.5)% (3.5)% (4.0)% (4.0)% (5.0)% (8.0)% 2008 2009 2010 2011 2012 2013 2014 Source: ALCS estimates For Investor Relations Purposes Only
Slide 19: Smokeable Products Income Growth
Smokeable Products Income Growth Adjusted OCI* Adjusted OCI* Margins $ in Billions +6.7% +1.9pp $10.0 60% 42.2% 44.1% $6.9 $6.4 $0.0 0% 2013 2014 2013 2014 *For reconciliation of non-GAAP to GAAP measures visit altria.com Source: Altria company reports For Investor Relations Purposes Only
Slide 20: Smokeable Products Income Growth
Smokeable Products Income Growth Adjusted OCI* Adjusted OCI* Margins $ in Billions +4.5% +7.0pp $10.0 CAGR 60% 44.1% $6.9 37.1% $5.5 $0.0 0% 2009 2014 2009 2014 *For reconciliation of non-GAAP to GAAP measures visit altria.com Source: Altria company reports For Investor Relations Purposes Only
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Slide 22: Smokeable Products Segment Pricing
Smokeable Products Segment Pricing Revenues Net of Excise Taxes /1000 Units* +4.4% +5.1% CAGR $116.60 $122.56 $122.56 $98.77 2013 2014 2009 2014 *For reconciliation of non-GAAP to GAAP measures visit altria.com Source: Altria company reports For Investor Relations Purposes Only
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Slide 24: Smokeable Products Cost Management
Smokeable Products Cost Management Controllable Costs/1000 Units* +0.6% +3.1% CAGR $28.69 $29.57 $28.73 $29.57 2013 2014 2009 2014 The end of the federal quota buyout will reduce the cost of goods sold by $300 million versus 2014. * For reconciliations of non-GAAP to GAAP measures visit www.altria.c
Slide 25: 2014 Marlboro Retail Share
2014 Marlboro Retail Share 43.8% Next 10 Largest Brands = 42.6% Marlboro Source: IRI/MSAi For Investor Relations Purposes Only
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Slide 27: Marlboro Mobile Engagement
Marlboro Mobile Engagement Mobile Logins ~+1,000% This space is blank because brand images which appeared in the original presentation have been removed. 2011 2014 Note: Total mobile interactions (Adult Smokers 21+) Source: PM USA For Investor Relations Purposes Only
Slide 28: Marlboro Digital Engagement
Marlboro Digital Engagement Marlboro.com is among the largest This space is blank CPG websites in the because brand images U.S. based on the average number of which appeared in the unique visitors. original presentation have comScore, 2014 been removed. Note: Dec .2014 Top CPG domain comparison of 6
Slide 29: Marlboro's Modest Retail Share Momentum
Marlboro’s Modest Retail Share Momentum Average Annual Growth = ~0.2pp 42.8% 43.8% This space is blank because brand images which appeared in the original presentation have been removed. 2009 2014 Note: _____________________________________________________________________________ Source: IRI/MSAi Fo
Slide 30: Marlboro Brand Equity Scores 2014
Marlboro Brand Equity Scores 2014 70 0 Marlboro Competitor A Competitor B Source: 2014 TNS Brand Equity Study (Age Group: 21 – 54), February 2015 For Investor Relations Purposes Only
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Slide 32: Cigars 2014 Performance
Cigars 2014 Performance Black & Mild Retail Middleton Reported Share of Tipped Segment Shipment Volume +2.6pp +6.1% 88.8% 91.4% 1,271 1,198 2013 2014 2013 2014 Note: Cigars volume (sticks in millions) Source: IRI InfoScan For Investor Relations Purposes Only
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Slide 34: Black & Mild's Retail Share
Black & Mild’s Retail Share Average Annual Growth = ~(0.5)pp (0.3)pp 31.0% 28.9% 28.6% 28.6% 2013 2014 2009 2014 Source: IRI InfoScan For Investor Relations Purposes Only
Slide 35: Litigation Update
Litigation Update Comprehensive discussion of tobacco litigation is found in the 8-K filed on January 30 For Investor Relations Purposes Only
Slide 36: Status Update: "Lights" Litigation
Status Update: “Lights” Litigation Obtained dismissals of “lights” cases pending in federal court Handful of cases remain in state courts Aspinall in Massachusetts may be tried later this year Illinois Supreme Court granted review of Miles/Price For Investor Relations Purposes Only
Slide 37: Status Update: "Engle Progeny" Litigation
Status Update: “Engle Progeny” Litigation Substantial success managing Engle suits in Florida Some losses in 2014 Of the 9,400 claims filed in 2008, less than half remain pending Obtained a defense verdict or mistrial in over half of cases tried in 2014 Federal appeals court affirmed dismi
Slide 38: 2014 Litigation Update
2014 Litigation Update Continued to effectively manage the litigation environment Significant challenges remain We will continue to protect the interests of our shareholders by vigorously defending these claims. For Investor Relations Purposes Only
Slide 39: Smokeless Products Strategy
Smokeless Products Strategy Increase income by growing volume at or ahead of the category growth rate, while maintaining modest share momentum on Copenhagen and Skoal combined For Investor Relations Purposes Only
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Slide 41: Estimated Smokeless Category Growth Rates
Estimated Smokeless Category Growth Rates ~+5% CAGR ~7% ~7% ~5% to 6% ~5% ~5% ~2% 2009 2010 2011 2012 2013 2014 Source: ALCS Estimates For Investor Relations Purposes Only
Slide 42: Smokeless Products Segment Performance
Smokeless Products Segment Performance 2014 Smokeless Copenhagen & Skoal Adjusted Volume Growth Combined Retail Share +0.5pp ~2.5% 50.7% 51.2% ~2% Industry USSTC 2013 2014 Source: Altria company reports Source: IRI InfoScan For Investor Relations Purposes Only
Slide 43: Smokeless Products Adjusted OCI
Smokeless Products Adjusted OCI* $ in Millions +3.3% $1,026 $1,060 2013 2014 *For reconciliation of non-GAAP to GAAP measures visit altria.com Source: Altria company reports For Investor Relations Purposes Only
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Slide 45: Copenhagen Retail Share
Copenhagen Retail Share +1.5 pp 29.3% 30.8% This space is blank because brand images which appeared in the original presentation have been removed. 2013 2014 Source: IRI Group InfoScan Smokeless Tobacco Database (FY 2012 – Retail Share) Source: IRI InfoScan For Investor Relations Purposes Only
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This space is blank because brand images which appeared in the original presentation have been removed. For Investor Relations Purposes Only
Slide 47: Skoal Retail Share Performance
Skoal Retail Share Performance Q1 2014 Q2 2014 Q3 2014 Q4 2014 This space is blank because brand images (0.7)% which appeared in the (1.1)% (1.0)% original presentation have (1.3)% been removed. Source: IRI InfoScan For Investor Relations Purposes Only
Slide 48: Mobile Engagement
Mobile Engagement This space is blank because brand images which appeared in the original presentation have been removed. For Investor Relations Purposes Only
Slide 49: Copenhagen and Skoal Mobile Engagement
Copenhagen and Skoal Mobile Engagement Mobile Logins* +680% 2013 2014 * Adult Tobacco Consumers 21+ Source: USSTC For Investor Relations Purposes Only
Slide 50: Marlboro Long-Term Retail Share Growth
Marlboro Long-Term Retail Share Growth 50 43.8% 0 1954 1959 1964 1969 1974 1979 1984 1989 1994 1999 2004 2009 2014 Source: Maxwell; MSAi Shipments; IRI/Capstone – Total Retail Panel; IRP IRI Group/Capstone Projected Retail Panel; IRI/MSAi For Investor Relations Purposes Only
Slide 51: Leading Sales Organization
Leading Sales Organization This space is blank because brand images which appeared in the original presentation have been removed. For Investor Relations Purposes Only
Slide 52: Leading Sales and Distribution Capability
Leading Sales and Distribution Capability Breadth of Cigarettes ~95% of Volume Coverage Smokeless ~240K Stores ~96% of Volume Examples 2 Weeks 8 Weeks Speed of Marlboro Edge 85%+ 90%+ Distribution* Copenhagen 85%+ 90%+ Southern Blend * % of targeted stores Source: MIConnect STARS Data Wk Ending 12/2
Slide 53: Maximizing the Core, Innovating for the Future
Maximizing the Core, Innovating for the Future Maximize income from core premium tobacco businesses over the long term Grow new income streams with innovative tobacco products Manage diverse income streams and strong balance sheet to deliver consistent financial performance For Investor Relations Pu
Slide 54: Altria's Strategies
Altria’s Strategies Maximize income from core premium tobacco businesses over the long term Grow new income streams with innovative tobacco products Manage diverse income streams and strong balance sheet to deliver consistent financial performance For Investor Relations Purposes Only
Slide 55: E-Vapor Estimated U.S. Consumer Expenditures
E-Vapor Estimated U.S. Consumer Expenditures $ in Billions $2.5 +90% CAGR ~$2 ~$1.3 $0.5 $0.3 $0.0 2011 2012 2013 2014 Source: ALCS estimates For Investor Relations Purposes Only
Slide 56: 2014 U.S. Adult Tobacco Consumer Spending
2014 U.S. Adult Tobacco Consumer Spending $ in Billions ~$86 ~$2 e-Vapor Total Tobacco Source: ALCS estimates For Investor Relations Purposes Only
Slide 57: E-Vapor Category Status
E-Vapor Category Status Adult smokers and vapers have a variety of performance, taste and form expectations Adoption rates remain low Current products generally fall short of fully meeting their expectations For Investor Relations Purposes Only
Slide 58: "Leading" E-Vapor Brands Over Time
“Leading” E-Vapor Brands Over Time 2011 2012 2013 2014 Brand A #1 Brand B #1 Brand C #1 Brand D #1 Brand E #1 Note: Total US – Multi-Outlet & Convenience – 4wm Source: IRI Tobacco Derived Nicotine – MOC as of 12/28/14 For Investor Relations Purposes Only
Slide 59: Our Aspiration and Approach
Our Aspiration and Approach Long-term success Financial discipline Adult tobacco consumer focused Portfolio of products For Investor Relations Purposes Only
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Slide 61: For Investor Relations Purposes Only
For Investor Relations Purposes Only
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This space is blank because brand images which appeared in the original presentation have been removed. For Investor Relations Purposes Only
Slide 63: MarkTen National Expansion
MarkTen National Expansion +130,000 stores Source: Altria company reports For Investor Relations Purposes Only
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Slide 65: E-Vapor Supply Chain
E-Vapor Supply Chain Improved efficiency, diversification and cost structure Investing in quality For Investor Relations Purposes Only
Slide 66: E-Vapor Regulatory Capabilities
E-Vapor Regulatory Capabilities Advocating with FDA and other stakeholders Supporting minimum age requirements Establishing strict product standards For Investor Relations Purposes Only
Slide 67: Our View on Regulation
Our View on Regulation Include common sense approach to harm reduction based on science and evidence Recognize the differences in product types Create a level playing field among diverse product types Support right of informed adults to make choices Encourage manufacturers to bring potenti
Slide 68: Heat-Not-Burn Platform
Heat-Not-Burn Platform Offers a familiar taste for adult smokers with no ash Working to support PMI in the research needed for an FDA modified risk tobacco product application Developing brand and go-to-market strategies Building capability in modified risk tobacco products Note: Third party
Slide 69: PMI Licensing of e-Vapor
PMI Licensing of e-Vapor Expect to begin shipping e-vapor products for the international market in first quarter For Investor Relations Purposes Only
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Slide 71: Harm Reduction
Harm Reduction Adult tobacco consumers are interested in innovative tobacco products U.S. regulatory framework in place to assess products and guide our communication New technologies are showing promise We continue to embrace the opportunities and challenges of bringing lower risk tobacco pro
Slide 72: Altria's Strategies
Altria’s Strategies Maximize income from core premium tobacco businesses over the long term Grow new income streams with innovative tobacco products Manage diverse income streams and strong balance sheet to deliver consistent financial performance For Investor Relations Purposes Only
Slide 73: Enhancing Productivity
Enhancing Productivity Altria delivered ~$2 billion in savings between 2007-2013 Simplifying our businesses - Redesigning 100+ processes Realigning people resources Investing against Altria priorities Continuing to manage costs by streamlining, balancing and investing. For Investor Relations
Slide 74: Investment in Our Priorities
Investment in Our Priorities Expect to continue making disciplined investments in innovative tobacco products, including: - New product development - Awareness and trial - Regulatory science needed to bring reduced risk products to market For Investor Relations Purposes Only
Slide 75: Howard Willard
Howard Willard For Investor Relations Purposes Only
Slide 76: Altria's Strategies
Altria’s Strategies Maximize income from core premium tobacco businesses over the long term Grow new income streams with innovative tobacco products Manage diverse income streams and strong balance sheet to deliver consistent financial performance For Investor Relations Purposes Only
Slide 77: Smokeable and Smokeless Products Segments
Smokeable and Smokeless Products Segments 2014 Combined Results Net revenues* of $17.2 billion Reported OCI of $7.9 billion * Net of FET Source: Altria company reports For Investor Relations Purposes Only
Slide 78: Altria's Alcohol Interests
Altria’s Alcohol Interests This space is blank because brand images which appeared in the original presentation have been removed. Note: Third party trademarks are the property of their respective owners and are included for informational purposes only. For Investor Relations Purposes Only
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Slide 80: Ste. Michelle Wine Estates
Ste. Michelle Wine Estates Adjusted OCI* - $ in Millions +12.9% +13.6% CAGR $134 $134 $118 $73 2013 2014 2009 2014 * For reconciliations of non-GAAP to GAAP measures visit www.altria.com Source: Altria company reports For Investor Relations Purposes Only
Slide 81: SABMiller Investment
SABMiller Investment Reported Equity Earnings - $ in Millions +10.9% +1.5% CAGR $1,006 $991 $1,006 $600 2009 2014 2013 2014 Source: Altria company reports For Investor Relations Purposes Only
Slide 82: Market Value of SABMiller Investment
Market Value of SABMiller Investment $ in Billions +12.1% CAGR $22.5 $12.7 December 2009 December 2014 Source: Bloomberg For Investor Relations Purposes Only
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Slide 84: Philip Morris Capital Corporation
Philip Morris Capital Corporation Net Finance Receivable - $ in Billions $10 $9.4 $5 $2.0 $1.7 $1.7 $0 $0 2002 2014 2013 2014 Note: Net Finance Receivable reflects PMCC’s investments in finance leases excluding the allowance for losses. Source: Altria company reports For Investor Relations Purposes
Slide 85: 2014 Capital Markets Activities
2014 Capital Markets Activities $525 million of 7.75% notes matured $300 million of 5.75% UST notes redeemed $1.0 billion of new 2.625% notes issued Source: ALCS For Investor Relations Purposes Only
Slide 86: Reduced Weighted Average Coupon Rate
Reduced Weighted Average Coupon Rate (3.4)pp 9.1% 5.7% December 2009 December 2014 In March 2014, Standard & Poor’s upgraded Altria to BBB+. Source: ALCS For Investor Relations Purposes Only
Slide 87: Returning Cash to Shareholders
Returning Cash to Shareholders Dividend Growth $ in Billions +8.3% $2.08 $4.8 $1.92 Share Repurchase Dividend Aug-13 Aug-14 2014 Note: Dividend is based on the current annualized dividend (Last increased August 2014) Source: Altria company reports For Investor Relations Purposes Only
Slide 88: Returning Cash To Shareholders
Returning Cash To Shareholders $ in Billions $21.1 Share Repurchase Dividend 2010 - 2014 Source: Altria company reports For Investor Relations Purposes Only
Slide 89: 2014 Tobacco Category Consumer Expenditures
2014 Tobacco Category Consumer Expenditures $ in Billions ~$73 ~$6 ~$6 ~$2 Cigarettes Smokeless Large Mass Cigars e-Vapor Source: ALCS Estimates For Investor Relations Purposes Only
Slide 90: Cigarette Category Decline Rate Estimates
Cigarette Category Decline Rate Estimates (3.0)% (3.5)% (3.5)% (4.0)% 2011 2012 2013 2014 Source: ALCS estimates For Investor Relations Purposes Only
Slide 91: Weighted Average State Excise Tax on Cigarettes
Weighted Average State Excise Tax on Cigarettes 4.5% CAGR $2.00 $1.39 $1.44 $1.48 $1.31 $1.37 $1.19 $0.00 2009 2010 2011 2012 2013 2014 Note: Weighted Average SET is a full-year average SET volume weighted by State Source: ALCS For Investor Relations Purposes Only
Slide 92: 2015 Guidance
2015 Guidance Altria reaffirms it expects its 2015 full-year adjusted diluted EPS to increase by 7% to 9% to a range of $2.75 to $2.80 from its 2014 adjusted diluted EPS base of $2.57* per share. We believe we are well positioned to continue our track record of delivering solid earnings per share
Slide 93: A Compelling Investment
A Compelling Investment Adjusted diluted EPS growth at average annual rate of 7% to 9% Dividend payout ratio of approximately 80% of adjusted diluted EPS Dividend yield of 3.9% Source: Bloomberg as of February 9, 2015 For Investor Relations Purposes Only
Slide 94: Total Shareholder Return History
Total Shareholder Return History 230% 105% 116% Altria Group S&P 500 S&P Food, Beverage and Tobacco Index Note: Total shareholder return is simple price appreciation plus the reinvestment of the dividend as of the ex-dividend date (12/31/2009 to 12/31/2014). Source: Bloomberg For Investor Relations
Slide 95: Altria's Leadership
Altria’s Leadership Brands Market leadership Talented employees For Investor Relations Purposes Only
Slide 96: Our Business Model
Our Business Model Strong core businesses and premium brand leadership Building a leading position in e-vapor over time Our diverse business model helps Altria deliver consistent performance For Investor Relations Purposes Only
Slide 97: Slide 97
Slide 98: Regulation G Disclosure
Regulation G Disclosure For reconciliations and further explanations of non-GAAP financial measures, visit: altria.com For Investor Relations Purposes Only