Altria Group, Inc.

Good day and welcome to the Altria Group 2020 Fourth Quarter and Full Year Earnings Conference Call. Today's call is scheduled to last about one hour, including remarks by Altria's management and a question and answer session. Representatives of the investment community and media on the call will be able to ask questions following the conclusion of the prepared remarks. To ask a question during this time, simply press star, the number one on your telephone keypad. If your question has been answered and you wish to remove yourself from the queue, press the pound key. I would now like to turn the call over to Mack Livingston, Vice President of Investor Relations for Altria Client Services. Please go ahead, sir.

Thanks, Lori. Good morning, and thank you for joining us. This morning, Billy Gifford, Altria's CEO, and Sal Mancuso, our CFO, will discuss Altria's fourth quarter and full year business results. Earlier today, we issued a press release providing our results. The release, presentation, and quarterly metrics are all available on our website at altria.com. During our call today, unless otherwise stated, we're comparing results to the same period in 2019. Our remarks contain forward-looking and cautionary statements and projections of future results. Please review the forward-looking and cautionary statement section at the end of today's earnings release for various factors that could cause actual results to differ materially from projections. Future dividend payments and share repurchases remain subject to the discretion of Altria's board. Altria reports its financial results in accordance with U.S. generally accepted accounting principles. Today's call will contain various operating results on both a reported and adjusted basis. Adjusted results exclude special items that affect comparisons with reported results. Descriptions of these non-GAAP financial measures and reconciliations are included in today's earnings release and on our website at altria.com. Finally, all references in today's remarks to tobacco consumers or consumers within a specific tobacco category or segment refer to existing adult tobacco consumers 21 years of age or older. With that, I'll turn the call over to Billy.

Thanks, Mac. Good morning, and thank you for joining us. Altria delivered outstanding results in 2020 and managed through the challenges presented by the COVID-19 pandemic. Our tobacco businesses were resilient, and our employees demonstrated unwavering commitment to their work, colleagues, and communities. Our employees continue to move Altria forward, and we believe we're making steady progress toward our 10-year vision to responsibly lead the transition of adult smokers to a noncombustible future. We continue to execute against the strategies we previously shared, including maximizing profits in our combustible businesses, responsibly expanding our noncombustible products, and demonstrating science-based leadership in the external environment. We've remained active in our communities, supporting relief efforts for the pandemic and the West Coast wildfires. We're committed to driving positive change and addressing racial and economic inequities. Change starts from within, and our employees are leading our efforts to build a more diverse, inclusive, and equitable organization. Our 11 employee resource groups are helping promote cultural awareness and diversity in our workplace and within our communities. Two of these organizations, Mosaic and SEE, were recently recognized for their contributions by the National LGBT Chamber of Commerce and by the Virginia Hispanic Chamber of Commerce, respectively. We also acknowledge the importance of addressing environmental challenges, and we've established ambitious goals for 2030. Last month, we were among the 1% of companies awarded a AA rating from CDP for climate and water stewardship. We're proud of these efforts, and I look forward to sharing more details about our ESG initiatives next month at CAGNI. 2020 was a dynamic year in the tobacco industry, with notable changes in each category. Tobacco consumers continue to adopt noncombustible alternatives to cigarettes, most significantly in the old tobacco space. With rapid growth in all nicotine pouches off of a small base, and a return to moderate volume growth in moist smokeless tobacco. The heated tobacco category also showed encouraging signs of smoker interest, though it remains in its early stages. The e-vapor category, however, which has been the biggest driver of smoker conversion over the last several years, contracted in 2020 as it continues to undergo a transition period pending FDA market determinations. And in combustibles, cigarette volumes were little changed from 2019 as the COVID-19 pandemic altered smoker behaviors and purchasing patterns. Looking at the tobacco space in total, estimated equivalence volumes remain stable. In fact, over the last five years, we estimate that total tobacco volumes have only decreased by 1% on a compounded annual basis. While 2020 represented a pause in some industry trends away from combustible products, our plans to achieve our 10-year vision remain centered around building a deep understanding of evolving tobacco consumer preferences, meeting these preferences by expanding the awareness and availability of our noncombustible product portfolio, and when authorized by the FDA, engaging with smokers to educate them on the benefits of switching to alternative products. Let's now turn to our 2020 business results. Altria's four-year adjusted diluted earnings per share grew 3.6%, driven by strong performance from our tobacco businesses. We also returned nearly $6.3 billion in cash to our shareholders in the form of dividends, and our board increased the dividend for the 55th time in the past 51 years. Our smokable products segment continues to be the engine that powers our 10-year vision, generating significant cash that can be invested in noncombustible products and returned to shareholders. This segment has demonstrated strong profit growth in a variety of marketplace conditions. Over the last five years, smokable segment adjusted OCI has grown by 5.5% on a compounded annual basis, and the segment has delivered excellent financial performance across varied volume and market share dynamics. We continue to be pleased with the performance of our combustible businesses, and Sal will provide more details on this segment in his remarks. Moving to our noncombustible offerings, we're pleased with the continued strength of USSTC's moist smokeless tobacco business and the encouraging results from our other non-combustible products. We believe our products and investments with the oil, tobacco, evapor, and heated tobacco categories present compelling options for the millions of U.S. smokers looking for alternatives to cigarettes. In oil tobacco, we believe we have an unmatched portfolio of MST and oil nicotine pouch products. Copenhagen remains the leading oil tobacco brand and delivered strong volume and profit performance for the year. We're also excited about the potential for Onn and believe it's a satisfying product for both smokers and dippers. Helix made significant progress in its first full year of operations. Over the last 12 months, our talented regulatory affairs team assisted Helix in filing PMTAs for the ORN portfolio, which we believe demonstrate that the products are appropriate for the protection of public health. Our highly skilled engineers and machine operators supported Helix in establishing a manufacturing footprint for ORN in our Richmond facility, and Helix has reached annualized capacity for ORN of 50 million cans. The team continues to install machinery, and Helix expects unconstrained manufacturing capacity for the US market by mid-year 2021. And the Helix brand management and ATBC sales teams collaborated to steadily increase the retail distribution of ON during the year and executed innovative trial generating promotions that demonstrated the ability for ON to gain traction with smokers and dippers. ON was sold in approximately 78,000 stores at the end of 2020. up nearly 40% from the third quarter, and more than five times the store count from the end of 2019. In stores with distribution, Orn achieved a retail share of 2.4 percentage points of the old tobacco category in 2020, with significant growth coming in the second half of the year. Hewitt has strong plans for the year ahead and is focused on removing capacity constraints, reaching its retail distribution targets, building brand equity, and converting smokers. We're confident in the ON proposition and believe its satisfying range of nicotine strengths and flavors and unique packaging position it well for success in the rapidly growing nicotine pouch space. Moving to eVapor, we estimate that total category volumes decrease by 10% for the full year. The category continues to undergo a transition period as FDA prepares to make market determinations on the thousands of PMTAs filed by the September 2020 statutory deadline. We continue to believe that eVapor products can play an important role in tobacco harm reduction and that sustainable evapor category will be one that consists solely of FDA-authorized products. We believe the category's long-term trajectory will be determined by regulatory decisions, legislative and tax policy, and innovation that best addresses smoker and vapor preferences. In the heated tobacco category, PMUSA continues to expand ICOS and marble heat sticks responsibly and in a disciplined manner. PMUSA's 2020 accomplishments included launching in Charlotte with a more disruptive retail fixture, expanding the retail distribution of heat sticks to approximately 1,000 total stores, introducing devices into select Charlotte convenience stores, developing an array of new digital tools, including mobile video chat capability which gives PMUSA's customer care experts a virtual option to build connections and support age-verified smokers through their conversion journey, and communicating with smokers using the FDA-authorized reduced exposure claim about the benefits of switching from cigarettes. We're excited that the FDA has authorized the IQOS3 device for sale in the U.S., The new device offers several enhancements compared to the current 2.4 version, including a longer battery life and a faster recharging time. PMUSA expects to begin selling the new device shortly, and it will be available across all existing retail channels in the Atlanta, Charlotte, and Richmond markets. PMUSA also recently introduced new packaging for heat sticks, and has renamed the three currently authorized heat stick SKUs as Amber, Blue Menthol, and Green Menthol. The new packs feature a cleaner look, and PMUSA believes the naming convention will facilitate heat stick line extensions in the future should additional variants be authorized by the FDA. PMUSA is focused on expanding the availability and awareness of ICOs. achieving its contractual performance requirements and remains on track with its 2021 plans to expand ICOs and heat sticks into four new metro markets and surrounding geographies. We believe that PMUSA has the right approach to maximize its first mover advantage while we're responsibly positioning the U.S. heated tobacco category for long-term growth and profitability. Let's now turn to our financial outlook for 2021. Our plans for the year ahead include accelerating investments in support of our 10-year vision, which we expect to fund through the financial strength of our tobacco businesses. The external environment remains dynamic, however, and we're monitoring various factors, including unemployment rates, fiscal stimulus, tobacco consumer dynamics, including stay-at-home practices, disposable income, purchasing patterns, and adoption of non-combustible products, regulatory and legislative developments, the timing and breadth of COVID-19 vaccine deployment, and expectations for adjusted earnings contributions from our alcohol assets. Taking these factors into consideration, we expect to deliver 2021 four-year adjusted diluted EPS in a range of $4.49 to $4.62. This range represents an adjusted diluted EPS growth rate of 3% to 6% from a $4.36 base in 2020. Our 2021 guidance incorporates planned investments to drive smoker conversion to noncombustible products, including continued marketplace investments to expand the availability and awareness of our noncombustible offerings, building an industry-leading consumer engagement system that enhances data collection and insights in support of conversion, and increased noncombustible product research and development. We expect our 2021 adjusted EPS growth to come in the last three quarters of the year primarily due to prior year comparisons, which includes one fewer smokable products shipping day in the first quarter. Altria's tobacco businesses delivered excellent results over the past year, and I'd like to thank our employees for their hard work. Their dedication drives their strong performance, and it's their passion and commitment that makes me excited for Altria's future. I'll now turn it over to Sal to provide more detail on the business environment and our financial performance.