Altria Group, Inc. 2013 CAGNY Investor Presentation Boca Raton, - - PowerPoint PPT Presentation

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Altria Group, Inc. 2013 CAGNY Investor Presentation Boca Raton, - - PowerPoint PPT Presentation

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Altria Group, Inc. 2013 CAGNY Investor Presentation Boca Raton, Florida February 19, 2013 For Investor Relations Purposes Only CAGNY Conference, Feb. 19, 2013 Safe Harbor Statement Statements, including earnings guidance, in this

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For Investor Relations Purposes Only – CAGNY Conference, Feb. 19, 2013

Boca Raton, Florida February 19, 2013

Altria Group, Inc.

2013 CAGNY Investor Presentation

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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 based on current plans, estimates and expectations, and are not guarantees of future performance. They are based on management’s expectations that involve a number of business risks and uncertainties, any of which could cause actual results to differ materially from those expressed in

  • r implied by the forward-looking statements. Altria undertakes no obligation to publicly update
  • r revise any forward-looking statement other than in the normal course of its public disclosure
  • bligations. The risks and uncertainties relating to the forward-looking statements in this

presentation include those described under the caption “Cautionary Factors That May Affect Future Results” in its Annual Report on Form 10-K for the year ended December 31, 2011 and its Quarterly Report on Form 10-Q for the period ended September 30, 2012. Reconciliations of non-GAAP Financial measures included in this presentation to the most comparable GAAP measures are available on Altria’s website at altria.com.

Safe Harbor Statement

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  • Marty Barrington

Chairman and Chief Executive Officer, Altria

  • Dave Beran

President and Chief Operating Officer, Altria

  • Howard Willard

EVP and Chief Financial Officer, Altria

  • Murray Garnick

SVP and Associate General Counsel - Litigation, ALCS

Altria’s Executive Management

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  • Strengths of Altria’s diverse business model
  • Plan to continue creating value for shareholders

Today’s Remarks

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  • Invest in our tobacco companies’ premium brands
  • Manage cost structures
  • Maintain a strong balance sheet
  • Return cash to shareholders

Altria’s Core Strategies

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  • Dave Beran

Invest in premium brands

  • Howard Willard

Cost management Balance sheet Cash returns to shareholders

  • Marty Barrington

External environment and summary

Presentation

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  • Growing profit pool
  • Large number of adult consumers
  • Total tobacco volume declined moderately
  • Opportunities for growth through innovation

U.S. Tobacco Space

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$11.1 $13.8 $0.0 $15.0 2007 2012 4.5%

CAGR

Source: Altria company reports; ALCS SB&D estimates; other public company reports

Total Profit Pool

($ in Billions)

Altria’s Share of Tobacco Profit Pool

(Percent)

44% 52%

35% 55% 2007 2012

(1) Does not include USSTC in 2007, but does reflect adjusted OCI financial results from Middleton after its acquisition in December 2007 as well as PM USA. (2) Includes PM USA, USSTC and Middleton adjusted OCI financial results. Note: Altria’s Profit Pool share is calculated by combining the adjusted OCI for PM USA, USSTC & Middleton divided by Total Profit Pool For reconciliation of non-GAAP to GAAP measures visit altria.com

(1)

+8pp

(2)

Tobacco Manufacturers’ Profit Pool

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60 2006 2007 2008 2009 2010 2011 75

Source: National Health Interview Survey (NHIS) and National Survey on Drug Use and Health (NSDUH); ALCS MICR estimates

(in millions)

Number of Adult Tobacco Consumers

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  • Types of products used by adult tobacco consumers have continued to evolve
  • Significant number of adults have switched from cigarettes to smokeless

alternatives or use multiple forms of tobacco products

Adult Tobacco Consumer Behavior

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Total Tobacco Volume Estimate

1,100 2009 2010 2011 2012

Pounds in Millions

Source: ALCS MICR estimates based on TTB data through October 2012; cigarettes, small cigars based on 0.0325 oz./stick

~(1.5)%

CAGR

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Tobacco Categories’ 2009 to 2012 Volume Change

~(1.5)% ~(3 to 4)% ~2% ~5 to 6%

Total Tobacco* Cigarettes Machine-made Large Cigars Smokeless Products

Source: ALCS MICR estimates * Based on estimated total tobacco pounds

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Tobacco Categories’ 2012 Volume Change

Source: ALCS MICR estimates * Based on estimated total tobacco pounds

~(3.0)% ~5.0%

Cigarettes Smokeless Products

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  • Middleton believes category volume grew in 2012
  • Category volume is difficult to estimate in the short term

Machine-made Large Cigar 2012 Volume Change

Source: ALCS MICR estimates

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49.8% 42.6%

PM USA Marlboro

PM USA 2012 Retail Share

Source: IRP SymphoneIRI Group/Capstone Projected Retail Panel

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Marlboro vs. Next 10 Largest Brands

Next 10 Largest Brands = 40.2% Marlboro

Source: IRP SymphoneIRI Group/Capstone Projected Retail Panel

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55.4% 50.6%

USSTC & PM USA Copenhagen & Skoal

USSTC and PM USA 2012 Combined Retail Share

Source: SymphonyIRI InfoScan Smokeless Tobacco Database

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30.2% 30.0%

Middleton Black & Mild

Middleton’s 2012 Retail Share

Source: SymphoneIRI Group InfoScan Cigar Database

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  • Leading presence across categories
  • Uniquely positioned to understand evolving preferences
  • Tens of millions of adult tobacco consumer interactions

Meeting Adult Tobacco Consumer Preferences

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11.4% 5.1% 11.2% Middleton

New Products - Retail Share 2012 Comparisons

Source: Altria company reports, ALCS MICR estimates. 2012 retail share of new products introduced in 2009 – 2012

8.8% 0.4% 0.9% PM USA 15.1% 4.2% USSTC & PM USA Competition

Cigarettes

Competition Competition

Machine-made Large Cigars Smokeless Products

Note: Products defined as new during launch year and next three full calendar years. Does not include products in “Test Markets”

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  • Adult tobacco consumers continue to express interest in tobacco alternatives
  • Closely monitoring adult tobacco consumer interest in alternative tobacco

products

Alternatives to Cigarettes

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  • Working internally and through partners to develop products
  • Products available in lead markets
  • Making disciplined financial investments

Alternative Tobacco Products

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  • Attractive business environment
  • Positioned to maximize income
  • Support future growth through innovation

U.S. Tobacco Space

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  • Invest in our tobacco companies’ premium brands

Altria’s Core Strategies

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  • Strong equity
  • Opportunities for growth
  • Evolved to meet changing adult tobacco consumer preferences
  • Exciting plans for the future

Our Tobacco Companies’ Premium Brands

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Cigarettes Machine-made Large Cigars

Maximize income while maintaining modest share momentum on Marlboro and Black & Mild

Smokeable Products Companies’ Strategy

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1954 1964 1974 1984 1994 2004

Marlboro’s Retail Share

42.6%

Source: Maxwell; MSAi Shipments; IRI/Capstone – Total Retail Panel; IRP SymphonyIRI Group/Capstone Projected Retail Panel

2012

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Marlboro NXT Distribution

Source: PM USA

NXT Distribution

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Marlboro’s Retail Share

42.0% 42.6%

2011 2012

+0.6pp

Source: IRP SymphoneIRI Group/Capstone Projected Retail Panel

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Black & Mild’s Tipped Cigarillo Segment Share

84%

Tipped Cigarillo Segment

Source: SymphonyIRI Group InfoScan Cigar Tobacco Database

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29.5% 30.0%

2011 2012

Black & Mild’s Retail Performance

+0.5pp

Source: SymphonyIRI Group InfoScan Cigar Tobacco Database

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Marlboro’s Retail Share

41.9% 41.8%

42.6% 42.0% 42.6% 2008 2009 2010 2011 2012

Source: IRP SymphonyIRI Group/Capstone Projected Retail Panel Database

+0.2pp

  • Avg. Annual

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30.0% 29.0% 29.5% 30.0%

2009 2010 2011 2012

Black & Mild’s Retail Performance

Source: SymphonyIRI Group InfoScan Cigar Tobacco Database

0.0pp

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Adjusted OCI*

($ in Billions)

Adjusted OCI*

($ in Billions)

$5.2 $6.3

$3.0 $6.5 2008 2012

$6.0 $6.3

$3.0 $6.5 2011 2012

Smokeable Products Segment’s Results

Source: Altria company reports * For reconciliations of non-GAAP to GAAP measures visit www.altria.com Note: 2008 segment data have been recast to conform with the current-period segment reporting.

+4.2%

+4.7%

CAGR

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For Investor Relations Purposes Only – CAGNY Conference, Feb. 19, 2013 Sources: Public filings, ALCS Finance and S&BD Estimates *Net of FET Note: Domestic Volume ONLY; RJRT and Santa Fe excludes BAT; Lorillard excludes blu e-cigs

5.5% 4.9% 5.3%

0% 6% Altria Smokeable RJRT and Santa Fe Lorillard

Net Revenues/1000*

2008 — 2012

CAGR

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For Investor Relations Purposes Only – CAGNY Conference, Feb. 19, 2013 Sources: Public filings, ALCS Finance and S&BD Estimates

Adjusted Operating Companies Income Margins

Note: RJRT and Santa Fe excludes BAT; Lorillard excludes blu e-cigs For reconciliation of non-GAAP to GAAP measures visit altria.com

+7.4pp +7.3pp +0.1pp

0pp 10pp Altria Smokeable RJRT and Santa Fe Lorillard

2008 — 2012

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Moist Smokeless Tobacco (MST) and Snus Snus

Increase income by growing volume at or ahead of the category growth rate, while maintaining modest share momentum on Copenhagen and Skoal combined

Smokeless Products Companies Strategy

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0% 100% Natural Segment

Copenhagen’s Natural Segment Share

Source: SymphonyIRI Group InfoScan Smokeless Tobacco Database (FY 2012 – Retail Share)

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Copenhagen’s Retail Share Performance

Source: Altria company reports; SymphonyIRI Group InfoScan Smokeless Tobacco Database

22.8% 28.4%

2009 2012

+5.6pp

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Copenhagen Southern Blend Distribution

Source: USSTC

Southern Blend

Distribution

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Mint Segment

(Flavor)

Pouch Segment

(Form) Skoal 53% Skoal 35%

Smokeless Tobacco Segments

Source: SymphonyIRI Group InfoScan Smokeless Tobacco Database 2012

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Skoal Ready Cut Distribution

Source: USSTC

Skoal Ready Cut

Distribution

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Skoal’s Side-label Communications

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47.5% 50.6%

2009 2012

Combined Retail Share

(Percent) +1.0pp

  • Avg. Annual

Source: SymphonyIRI Group InfoScan Smokeless Tobacco Database

546 681

2009 2012

Combined Volume

(Cans in Millions) +7.6%

CAGR

Copenhagen and Skoal’s Performance

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$632 $959

2009 2012 +14.9%

CAGR

Source: Altria company reports * For reconciliations of non-GAAP to GAAP measures visit www.altria.com

Adjusted OCI*

($ in Millions)

Smokeless Products Segment’s Results

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  • Ste. Michelle Wine Estates Strategy

Wine

Grow income by expanding share and distribution of premium wines

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14 Hands Stag’s Leap Wine Cellars Columbia Crest Chateau Ste. Michelle

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$73 $104

2009 2012 +12.5%

CAGR

Wine Segment Results

Source: Altria company reports * For reconciliations of non-GAAP to GAAP measures visit www.altria.com

Adjusted OCI*

($ in Millions)

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  • Investments in premium brands delivered strong results in 2012
  • These investments and plans for 2013 position our operating companies well

for the future

Invest In Premium Brands

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Cost Management Strategy

  • Supports:
  • Adjusted OCI growth
  • Investments in our companies’ premium brands
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  • Completed a $1.5 billion program in Q3

2011

  • Launched a new initiative in Q4 2011
  • Expect $400 million in annualized

savings by end of 2013

  • Current program focused on reducing

cigarette-related infrastructure

  • Cost management and process

improvement are part of the culture

Cost Reduction Programs

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Efficient Corporate Structure

AGDC

  • Sales, Distribution and Adult Consumer Engagement

PM USA

  • Brand Management
  • Manufacturing

ALCS

  • Includes: Compliance, Finance, HR, Legal, R&D and Regulatory Affairs

Tobacco Operating Companies Service Companies

JMC

  • Brand Management
  • Manufacturing

USSTC

  • Brand Management
  • Manufacturing

Note: For illustration purposes only

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  • Secures the cash flow generated by its operating companies
  • Protects Altria’s investment grade credit rating
  • Supports Altria’s ability to return cash to shareholders
  • Primarily through dividends

Altria’s Balance Sheet

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For Investor Relations Purposes Only – CAGNY Conference, Feb. 19, 2013 Source: Altria company reports; ALCS SB&D estimates; other public company reports

Total Global Beer Profit Pool

(~$31.5 Billion) SABMiller 20%

Altria’s Economic Interest in SABMiller

Note: Trademarks used for discussion purposes only. All third party trademarks remain the property of the respective owners.

This space is blank because brand images which appeared in the original presentation have been removed.

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  • Contributes to:
  • Income diversification
  • EPS & dividend growth

Economic Interest in SABMiller

Note: Trademarks used for discussion purposes only. All third party trademarks remain the property of the respective owners.

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For Investor Relations Purposes Only – CAGNY Conference, Feb. 19, 2013 Source: Altria company reports; Bloomberg closing stock price in GBP converted to USD as of Dec 31, 2012

$3.4 $19.8

Jul-02 Dec-12

Altria’s Economic Interest in SABMiller

Market Value

($ in Billions)

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  • Low tax basis of under $500 million
  • Any sale would be taxed at corporate tax rate of ~35%
  • Regularly evaluate interest and currently believe maintaining investment is in

best interests of shareholders

SABMiller

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August 2012:

  • Completed a tender offer, repurchasing high coupon debt
  • Issued new, lower cost debt
  • These actions:
  • Reduced 2018 and 2019 debt maturity towers
  • Lowered future interest expense
  • Reduced weighted average coupon rate

Balance Sheet Actions

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9.1% 7.2%

2009 Dec-12

Weighted Average Coupon Rate

Source: ALCS Finance

(1.9)pp

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$1.5 $0.5

Debt Maturities

Debt Maturities

Source: ALCS Finance

Associated annual interest payments of $160 million

Feb 2014 Nov 2013

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  • In January 2013, voluntary $350 million pension contribution
  • Approximately 82% funded on a Projected Benefit Obligation basis

Pension Plan Contribution

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$241 $273 $168 $105 $124 $125 - $150

2008 2009 2010 2011 2012 2013e

Altria’s Capital Expenditures

5-yr History

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Return Cash to Shareholders

79% 74% 65% 59% 53% 53% 52% 51% 49% 80%

MO RAI LO PM HNZ K PEP HSY KO GIS

Source: Bloomberg and Thomson Reuters

Dividend Payout Ratio – Food, Beverage and Tobacco Index

Note: Payout ratio ranks companies in the Food, Beverage and Tobacco Index in these respective categories as of Jan 31, 2013. Payout Ratios have been calculated using each company’s current annualized dividend rate / 2012 Consensus Adjusted EPS estimate. HNZ and GIS consensus estimates are comprised of the fiscal quarters most closely resembling the 2012 calendar year. KRFT is excluded due to lack of 2012 FY EPS estimates.

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  • Long history of dividend payments and increases
  • Increased the dividend 46 times in the past 44 years

Altria’s Dividend History

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$14.4 $18.0 $3.6

$0.0 $20.0 Dividends Share Repurchases Total

Dividends

Source: Altria company reports

($ in Billions)

Note: Data through March 28, 2008 through January 31, 2013

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$1.16 $1.76 10.3% 6.3% 2.9% 8.6% 7.9% 7.3%

$0.00 $2.00 2008 Aug-08 Aug-09 Feb-10 Aug-10 Aug-11 Aug-12 2012

Altria’s Dividend Increases Since PMI Spin-off

Source: Altria company reports

+8.7%

CAGR

* Annualized rate Note: 5-year CAGR assumes the post-PMI spin-off dividend of $0.29 per common share was the end of 2007 dividend rate

* *

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$1.64 $1.76

Aug-11 Aug-12

Dividend Growth Objective

  • Altria aims to increase its dividend

in line with adjusted diluted EPS growth Annualized Dividend

+7.3%

Source: Altria company reports Note: All dividends are subject to the discretion of Altria’s Board of Directors

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$14.4 $18.0 $3.6

$0.0 $20.0 Dividends Share Repurchases Total

Dividends and Share Repurchases

Source: Altria company reports

($ in Billions)

Note: Data from March 28, 2008 through January 31, 2013

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  • Repurchased shares valued at $1.1 billion in 2012
  • As of January 31, 2013, $57 million remained under current $1.5 billion program
  • Expect to complete by end of Q2 2013
  • Timing of share repurchase depends upon marketplace conditions and other

factors

  • Program remains subject to the discretion of Altria’s Board

Current Share Repurchase Program

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  • Demonstrable progress over the last several years
  • Remain focused on strategies to create value in the future

Altria’s Core Strategies

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  • Has posed challenges for many years
  • History of success managing challenges in the external environment
  • Regulation, taxes and litigation continue to present risks
  • Highly developed capabilities to deal with risks

External Environment

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  • Focus areas include:
  • Compliance
  • Engagement

FDA Regulation

Note: Trademarks used for discussion purposes only. All third party trademarks remain the property of the respective owners.

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  • FDA reviewing reports on products that were modified or introduced in market

within statutory time period

  • While only FDA can determine its schedule, we expect continued progress in 2013

Substantial Equivalence

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  • Opportunity related to product innovation
  • Law expressly recognizes the potential role of modified risk tobacco products
  • Advocating for scientific standards
  • FDA report due to Congress in April
  • Innovative products including modified risk tobacco products

Modified Risk Tobacco Products

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  • PM USA and USSTC completed first submission on constituents
  • By April 2013, FDA required to:
  • Issue regulations on timing of future reporting
  • Make public harmful and potentially harmful constituent information

Tobacco Constituent Reporting

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  • Proposed regulations on other tobacco products
  • Potential changes to smokeless tobacco warning labels
  • Report on menthol cigarettes

Other FDA Matters

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Weighted State Excise Tax - Cigarettes

Source: STARS Geo Aggregate Database Note: Full Year SET is volume weighted by State

$0.75 $0.82 $0.88 $0.99 $1.09 $1.19 $1.31 $1.37 $1.39

$0.00 $1.75 2004 2005 2006 2007 2008 2009 2010 2011 2012 9.7% - CAGR 3.0% - CAGR

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SLIDE 97

For Investor Relations Purposes Only – CAGNY Conference, Feb. 19, 2013

  • In June 2012, California voters defeated a ballot initiative

California Ballot Initiative

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SLIDE 98

For Investor Relations Purposes Only – CAGNY Conference, Feb. 19, 2013

State Cigarette Excise Taxes

  • Tobacco products remain a target of excise tax increases
  • Our companies will continue to advocate against excessive tax increases
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SLIDE 99

For Investor Relations Purposes Only – CAGNY Conference, Feb. 19, 2013

  • In 2012, we continued to achieve substantial success in managing litigation,

though significant challenges remain

Tobacco and Health Litigation Environment

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SLIDE 100

For Investor Relations Purposes Only – CAGNY Conference, Feb. 19, 2013

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SLIDE 101

For Investor Relations Purposes Only – CAGNY Conference, Feb. 19, 2013

  • “Lights” class actions
  • Engle progeny cases

Today’s Litigation Discussion

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SLIDE 102

For Investor Relations Purposes Only – CAGNY Conference, Feb. 19, 2013

  • Only three statewide “lights” case actions remain certified

“Lights” Class Action Litigation – State Cases

Source: PM USA Litigation Records

Aspinall Larsen Brown

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SLIDE 103

For Investor Relations Purposes Only – CAGNY Conference, Feb. 19, 2013

  • Only three statewide “lights” case actions remain certified
  • Brown: Trial date set for April 2013
  • Larsen: Retrial set for January 2014
  • Aspinall: Active but does not have a trial date

“Lights” Class Action Litigation – State Cases

Source: PM USA Litigation Records

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SLIDE 104

For Investor Relations Purposes Only – CAGNY Conference, Feb. 19, 2013

  • Outcomes remain uncertain
  • Believe we have substantial defenses
  • In Federal Court
  • No “lights” cases currently certified as a class action
  • No class certification has ever withstood appeal

“Lights” Class Action Litigation

Source: PM USA Litigation Records

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SLIDE 105

For Investor Relations Purposes Only – CAGNY Conference, Feb. 19, 2013

  • In 2012, PM USA continued to

demonstrate that it has strong factual and legal defenses

  • Due process issue is currently before

the Florida Supreme Court and the Eleventh Circuit federal appeals court

Engle Progeny

Source: PM USA Litigation Records

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SLIDE 106

For Investor Relations Purposes Only – CAGNY Conference, Feb. 19, 2013

  • PM USA received defense verdicts in approximately half of the cases tried to

verdict in federal and state court

  • In 2012, appellate courts reversed several prior punitive damages judgments
  • n state law grounds

Engle Progeny

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SLIDE 107

For Investor Relations Purposes Only – CAGNY Conference, Feb. 19, 2013

  • PM USA will continue to defend these cases vigorously and appeal any loss
  • Possible PM USA will pay additional judgments before due process issue is

resolved by Florida Supreme Court or U.S. Supreme Court

Engle Progeny

Source: PM USA Litigation Records

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SLIDE 108

For Investor Relations Purposes Only – CAGNY Conference, Feb. 19, 2013

  • We have had significant successes in managing litigation, although we

continue to face challenges

  • Our goal remains to protect the interests of our shareholders

Tobacco and Health Litigation Environment

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SLIDE 109

For Investor Relations Purposes Only – CAGNY Conference, Feb. 19, 2013

Engaging with Stakeholders

  • We are focused on continuously improving our culture of compliance and

responsibility

  • Fortune magazine ranked Altria #4 overall and #1 in Tobacco in social

responsibility in its Most Admired Companies Survey

  • Altria named to Dow Jones Sustainability North America Index
  • Corporate Responsibility magazine #15 on its list of Top 100 Corporate

Citizens

Note: Trademarks used for discussion purposes only. All third party trademarks remain the property of the respective owners.

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SLIDE 110

For Investor Relations Purposes Only – CAGNY Conference, Feb. 19, 2013

+7.9%

CAGR

Adjusted Diluted EPS Growth

$1.51 $2.21

$0.00 $2.50 2007 2012

Source: Altria company reports * As redefined; for reconciliation of non-GAAP to GAAP measures visit www.altria.com.

*

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SLIDE 111

For Investor Relations Purposes Only – CAGNY Conference, Feb. 19, 2013

84.2% 8.6% 54.1%

Altria S&P 500 S&P Food, Beverage & Tobacco Index

2008 — 2012

Total Shareholder Return

Source: Bloomberg Daily Return (Dec 31, 2007 – Dec 31, 2012)

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SLIDE 112

For Investor Relations Purposes Only – CAGNY Conference, Feb. 19, 2013

2013 Outlook

  • Confident in our businesses and their plans
  • Remain cautious about business environment
  • Mindful of the continued risk of SET increases
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SLIDE 113

For Investor Relations Purposes Only – CAGNY Conference, Feb. 19, 2013

2013 Full-year Adjusted Diluted EPS Forecast

  • Adjusted diluted EPS: $2.35 - $2.41
  • Growth rate of 6% - 9%
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SLIDE 114

For Investor Relations Purposes Only – CAGNY Conference, Feb. 19, 2013

Altria’s Diverse Business Model

  • Strong premium brands that support future income growth
  • Growing alcohol assets
  • Ongoing cost management
  • Strong balance sheet
  • Return cash to shareholders
  • Talented and dedicated employees
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SLIDE 115
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SLIDE 116

For Investor Relations Purposes Only – CAGNY Conference, Feb. 19, 2013

Regulation G Disclosure

  • For reconciliations and further explanations of non-GAAP financial measures,

visit: altria.com