Altria Group, Inc.

Good day and welcome to the Altria Group 2021 Third Quarter 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. 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, Kathryn. Good morning, and thank you for joining us. This morning, Billy Gifford, Altria's CEO, and Sal Mancuso, our CFO, will discuss Altria's third quarter and first nine months' business results. Earlier today, we issued a press release providing our results. The release, presentation, quarterly metrics, and our latest corporate responsibility reports are all available at altria.com. During our call today, unless otherwise stated, we're comparing results to the same period in 2020. 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, Matt. Good morning, and thank you for joining us. In the third quarter, Altria continued to balance maximizing profitability from our core tobacco businesses with investing to realize that vision, of responsibly leading the transition of adult smokers to a smoke-free future. Our tobacco businesses performed well against difficult year-over-year comparisons, and we're encouraged by the significant retail share growth from on in the third quarter. We also continue to reward shareholders with a strong and growing dividend and announced today the expansion of our share repurchase program to $3.5 billion. Both Altria and the tobacco industry are evolving, and with transformation comes opportunity. It also brings uncertainty and adversity, including the recently International Trade Commission decision related to ICOS. We knew our journey to a smoke-free future would not be easy, but our determined and talented employees have demonstrated they are up to the challenge. The pursuit of our vision is not based on a single brand or product platform. Our vision is built on our understanding of tobacco consumers, their capabilities as a leading tobacco company, and a portfolio of smoke-free brands and product formats. We make progress through the performance of our current smoke-free portfolio and advancements in regulatory sciences, data analytics, and a robust consumer engagement system. Our tobacco businesses remain strong, and our vision keeps us focused and guides us forward. Let's now turn to our business results. Altria grew its third quarter adjusted to diluted earnings per share 2.5%, despite a backdrop of challenging comparisons and unfavorable year-over-year trade inventory movement. For the first nine months of the year, adjusted EPS grew 4.5%, primarily driven by the strong financial performance of our tobacco businesses and higher ABI adjusted earnings. Our smokable products segment continues to generate significant cash and return to shareholders and fuel our vision. Third quarter adjusted operating company's income decreased 2.2%, reflecting the impact of trade inventory swings but grew 2.6% to $7.9 billion for the first nine months, while Marlboro remained strong. The oral tobacco product segment continued to deliver robust profit margins, while Copenhagen maintained its leadership position. In oral nicotine pouches, we have accelerated investment behind Helix and believe that the oral portfolio is well positioned in this fast-growing category. We're advancing the sophistication of our analytics across our companies. The Helix team uses this capability to evaluate the impact of promotional tools on tobacco consumers and understand what actions effectively drive trial, repeat purchase, and adoption. Born retail share of all tobacco increased a full share point sequentially, reaching three share points for the third quarter and nearly tripling since the end of last year. These strong results were driven by increased smoker trial and repeat purchase from existing ONN consumers. We're excited by the performance of ONN during the first nine months of the year and believe consumer insights, disruptive retail executions, and consumer engagement will continue to fuel its growth. Last year, we submitted premarket tobacco applications to the FDA for the entire ONN portfolio. While the FDA has made substantial progress in reviewing millions of PMTAs they received, our applications for ON are still pending. A week ago, the FDA authorized the marketing of four of our oral nicotine products, Verve Discs and Verve Chews, in the flavors of green mint and blue mint, and determined that the marketing of these products is appropriate for the protection of public health. This is the first flavored product authorization issued by the FDA for newly deemed tobacco products. While our VRB products are not currently in market, we believe the learnings we gained from developing our VRB submission were critical in following compelling and timely submissions for OARN, which we completed in only nine months after closing the OARN transactions. We're also actively working on modified risk tobacco product applications for ON. We believe an MRTP would be an impactful point of differentiation for the brand and an important tool in educating and ultimately transitioning smokers to less harmful products. In the vapor, we estimate that the total category volume increased 17% versus the year-ago period, and increased 2% sequentially as a result of continued elevated levels of competitive activity. While we had hoped for clarity on the category's outlook as manufacturers received PMTA decisions, the future of eVapor is still uncertain. For most of the leading eVapor products, the applications are still pending, including those submitted by Jules. Moving forward, we expect eVapor buying trends to be influenced by regulatory activity, which has the potential to impact the degree of cross-category movement. Recently, the CDC published an update from their National Youth Tobacco Survey. While caution is warranted when comparing results year-over-year due to the impact of the pandemic on the survey's methodology, underage eVapor use, including use of Juul, shows continued signs of decline. We're encouraged by the progress, but more still needs to be done, and we remain committed to continuing our work to drive down underage use. Turning to heated tobacco, the ICOS team continued to refine its go-to-market approach for new and innovative products. Across the four states where ICOS is available, Total Marlboro heat sticks volume continued to grow, with repeat purchase accounting for approximately 85% of sales. According to ICO's consumers, our ICO's experts program played a significant role in their repeat purchases. The program offers smokers personalized support and encouragement through consistent, tailored engagements. In the Northern Virginia lead market, Device penetrations, as a percent of the smoker population, continue to exceed the performance of previous rollouts. In the last four weeks of the third quarter, mobile heat sticks achieved a cigarette category retail share of 1.8% in Northern Virginia stores with distributions. As we mentioned earlier, the International Trade Commission recently imposed an importation ban and issued cease and desist orders on ICOS, marble heat sticks, and infringing components. We're disappointed in this decision, as ICOS is the only inhalable tobacco product to have received FDA authorization as a modified risk tobacco product. The ITC's importation ban will make the product unavailable for all consumers who have switched to ICOS, reduced the options for over 20 million smokers looking for alternatives to cigarettes, and ultimately is detrimental to public health. We continue to believe the plaintiff's patents are invalid and that ICOS does not infringe on those patents. The ITC's decision is currently under 60-day review by the administration's U.S. Trade Representative. In the event that the administration does not reject the decision, we're preparing to comply with the order. We've been focused on our contingency plans surrounding sales and distribution and have been in communication with PMI on their domestic manufacturing plans. We view the ITC's decision as a frustrating obstacle, but we are not deterred from the work required to realize our vision. We remain committed to the heated tobacco category and believe it can play an important role in transitioning smokers to a smoke-free future. Going forward, we expect to apply the knowledge and capabilities we gain from introducing and responsibly marketing a brand-new product category. For example, we've learned how to blend behavioral science, data insights, and consumer engagement to support smokers on their smoke-free journey, leverage MRTPs to educate consumers on the benefits of reduced-risk products, and establish a robust post-market surveillance system as required to monitor FDA-authorized products. I'm optimistic about the future for tobacco harm reduction in the US. We have an unprecedented opportunity to lead the way in shifting millions of smokers away from cigarettes if we follow the science and foster innovation with the support of reasonable regulation. Let's turn to our financial outlook. We're raising the lower end of our full year 2021 guidance and now expect to deliver adjusted diluted EPS in a range of $4.58 to $4.62. This range represents a growth rate of 5% to 6% from a $4.36 base in 2020. I'd also like to welcome Marge Connolly and Matt Davis to our Board of Directors as announced this morning. They bring significant combined expertise in operations, business strategy, consumer insights, and public policy and will be tremendous assets as we pursue our vision. I'll now turn it over to Sal to provide more detail on the business environment and our results.