Altria Group, Inc.

Q4 2021 Earnings Conference Call


spk_0: thereby your program is about to begin if you need assistance on today's conference please press stars a room today and while some to the altria group two thousand and twenty one fourth quarter earnings conference call today's call is scheduled to last about one hour including remarks by al tree is 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 when i like to call over to max livingston vice president of investor relations for altria client services please go ahead sir
spk_1: thankfully out good morning to thank you for joining us this morning billy gifford algeria ceo and sell makes you so or cfl or discuss algeria's fourth quarter and for your business results earlier today we issued a press release providing our results the release presentations poorly metrics and our latest corporate responsibility reports are all available at algeria dot com during our call today unless otherwise stated were comparing results to the same period in two thousand and twenty or remarks contained 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 teacher dividend payments and share repurchases remain subject to the discretion of outreach for lg reports it's financial results in accordance with us generally accepted accounting principles today's call will contain various operating results on both he reported and adjusted basis adjusted results exclude special items that affects comparisons with reported results descriptions of these non gaap financial measures and reconciliations are included in today's earnings release and on our website that altria dot 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 twenty one years of age or older with that i'll turn the call over to believe thanks mac good morning and thank you for joining us ultra delivered outstanding results in two thousand twenty one across a businesses including strong financial performance
spk_2: progress toward a visual and advancements in our he has she efforts this morning we'll highlight or accomplishments in each of these areas
spk_1: first i'll druids two thousand and twenty one adjusted earnings per share five five point seven percent driven in part by the resiliency other cigarettes cigars and more smokeless tobacco businesses additionally we return more than eight point one billion dollars in cash to shareholders through dividends and share repurchases that's total represents the third largest single year tax return and outreach history
spk_0: and the largest annual return since two thousand and two
spk_1: we have continued to make progress toward a vision of responsibly leading the transition of adult smokers to a smoke free future or tombs took several steps forward in two thousand and twenty one including accelerating the reach oh sure growth of on and for them hansen the capabilities to expand she the tobacco and other the u s tobacco products advancing the science research and development for hundred smoke free products
spk_2: advocating for tobacco harm production by encouraging the f b i and other stakeholders to address the widely held nicotine misperceptions in society and we made excellent strides in establishing a best in class consumer engagement system to support smoker transition to smoke free products our system leverages robot transactional data and our advanced analytics capabilities to engage with consumers at the point of purchase
spk_1: finally some other achievements across a responsibility focus areas included publishing six corporate responsibility reports summarizing our progress and critical areas such as harm reduction and underage prevention and publishing our inaugural task force on climate related financial disclosures reports we were recognized for the second consecutive year for the double a rating from cdp for climate and water stewardship
spk_2: and we advanced our internal power and cultural goals embraced workplace flexibility
spk_1: and embedded inclusion a diversity considerations within our performance review process to hold our leaders accountable
spk_2: we're excited to share was about a responsibility efforts and our consumer engagement system next month attacking two thousand and twenty one was a dynamic year for the us tobacco industry and total industry volumes for influenced by several factors including pandemic induce shifts and consumer purchasing behavior and tobacco use occasions they continued trend towards smoke free alternatives
spk_1: and and an evolving regulatory and legislative plans guess despite your of your volatility due to pandemic related factors total tobacco buying trends remained stable in fact we estimate that overall tobacco space clients had decreased five point three percent annualized for the past two years and by point eight percent of the last five years on a calm have an annual basis
spk_0: diving deeper total estimated equivalence lions for smoke free products and the us grew to three point eight billion equivalence units in two thousand twenty one
spk_1: and represented approximately twenty four percent of the total tobacco space
spk_0: we estimate that your your increases in smoke free volumes are driven by the newspaper category which results resumed it's grown after a separate pause in two thousand twenty and all nicotine patches which continue to grow rapidly from a small base
spk_1: two thousand twenty one smoke free volumes also benefited from the geographic expansion of i chose in the heated tobacco category
spk_2: what were pressured by modest declined in the image t category
spk_0: the shifts and consumer purchasing behavior and movements to other smoke free categories
spk_1: any combustible find declined to approximately an approximately eleven point eight billion equivalence units driven by several factors which saw will discuss later in his remarks
spk_2: turning tourist smoke free product for leo we're excited by the exceptional performance of on and old exchange patches
spk_1: on retail share of all tobacco increased by nearly a full sure point sequentially reaching three point nine sure points for the fourth quarter and nearly doubling its share over the past six months
spk_0: the strong results were primarily driven by an increase in multi cam purchases
spk_3: as of the end of the year
spk_1: on was available for sale and approximately a hundred and seventeen thousand us retail stores
spk_2: the all nicotine patch category reached a total all tobacco retail share a seventeen point nine percentage points in the fourth quarter growing seven point four share point year over year
spk_1: we're encouraged that on represented more than one third of this growth and the brand is proving to be a hobby competitor products in the space
spk_2: a premarket tobacco applications for the empire own portfolios remain pending with you have to yeah we believe that the ft eight should determine that the margin of these products is appropriate for the protection of public health
spk_1: we're also working actively working on modified risk tobacco product applications for on than expected some of these applications to the up the a buddy ended this year
spk_2: we believe in him a cheap he claims would be an impactful point of differentiation for the brand and an important tool witness and educating and ultimately transition smokers to less harmful products
spk_1: in a heated tobacco our teams make that's what progress with typos and the northern virginia markets with model she sticks achieve in a one point nine percent free kill share of the cigarette categories
spk_2: and stores with distribution for the month of october unfortunately three of us as remove i post from the market in november due to the international trade commissions importation band and cease and desist order
spk_0: kill my is responsible for i cause manufacturing and we have been in contact regarding product availability
spk_2: at the present time we did not expect to have access to i fighters devices or model he sticks in two thousand and twenty two
spk_0: however we remain focused on returning i close to the market as soon as possible or teams are actively working or reentry plans and we expect to be ready to bring i coast back to us consumers when available out agreement with pm i contemplates disruptions such as those caused by the i tc quarters have acquired the parties to negotiate in good faith to amend the agreement appropriately in the third quarter of two thousand and twenty we just got to milestones in our i agreement with your my necessary for pm usa to maintain to maintain it's exclusive license and distribution rights for coast in the us
spk_1: and to on the renewal option for an additional five year term
spk_2: the initial five year term does not expire until april of two thousand and twenty four what we believe that pm usa is already met these milestones based on the strong performance or i close and the charlotte and or the virginia marcus pm my has communicated that it disagrees with their position we expected country discuss discussing these matters would be alive we firmly believe that she tobacco products can play an important role and us harm reduction and we are continuing efforts to support the categories growth we have been significant knowledge from her eyes somehow i curse commercialization efforts which we expect to use going forward or teams learned how to educate us smokers on a brand new tobacco category and how to effectively support their transition journey to smoke free alternatives we demonstrated improve performance in each successive markets and gain valuable knowledge on leveraging them are cheaper he claims to transition smokers
spk_1: additionally we have got a robust post market surveillance system all of which we will we believe opposition us to successfully achieve our objective of moving beyond smoking
spk_2: moving to the vapor category
spk_1: the two thousand and twenty one monitoring the future studies was recently released and the data showed positive improvements and other age usage trends both hundred years of nicotine vapor products and you're specifically show continued signs of the decline the latest data shows that you're underage usage is they'll by seventy percent from two thousand and nineteen what total under age sixteen beeping tell twenty seven percent over the same period we are encouraged by the progress for more still needs to be done and we remain committed to continuing to work to reduce hundred use of all tobacco products
spk_2: trying to the regulatory environment the idea is currently ways and several decisions that we believe will shape the future of harm reduction in the us
spk_1: the vapor category the up yeah he has issued marching to thou orders for many vapor champions predominantly applications for open systems and flavored even was the denial orders have resulted in significant litigation across the country
spk_2: in the meantime pm th from most leaving be vapor products including jones are still and a review yes the a granted it's first he vapor market or last year for the tobacco variants of a second like products the of the a has not reached a final decision for that manufactures mit bavarian but they deny it's emissions for it's other to cartridges in all tobacco pm chase for the leading for the pouch products including on remain pending with yep yeah last year the fk granted the first market authorizations a month innovative for tobacco products for a bird just and shoes and the flavors agreement and bloomer these were also the first flavored product authorizations for new against tobacco products
spk_1: additionally similar cheaply applications previously submitted for copenhagen snuff and competitive snooze products remains and ft overview
spk_2: finally and combustible see a few has stated that they are on track to issue a proposed products to issue proposed product standards that april two thousand and twenty two regarding menthol cigarettes and characterizing flavors and cigars
spk_1: as a reminder that at the a woman can process for these and all potential products standards has multiple steps and provides several opportunities for stakeholders always to provide input terraforming requirements related to public notice and comment and stuff for the office of management and budget to assess economic consequences at several points in the process
spk_2: importantly if you have to a chooses to move forward with a follow rules they must address all comments received throughout the rulemaking process
spk_1: of course any final will must take into account the potential for unintended consequences
spk_2: and would be subject to legal challenges we plan to review the proposed rules and details and intend to engage with the sta throughout the rulemaking process on each of these issues we remain optimistic about the future of harm reduction in the us we believe we have an unprecedented opportunity to lead the way and shipping millions of smokers away from cigarettes if we follow the science and foster innovation with the support a reasonable regulation we're encouraged that the of the a has authorized the product each of the three major smoke free category going forward to this year we expect the fts to carefully consider the scientific merit of each remaining application and we're hopeful for significant progress and product marketing and claim authorizations
spk_0: i would like to in my commentary regarding two thousand and twenty one with a message to altruism toys
spk_2: thank you for your dedication passion and creativity through a difficult period
spk_1: we experience and several challenges last year in both are professional and personal was and i admire your resiliency and four inches you are a driving force a moving beyond smoking and we are very appreciative of your efforts and commitment
spk_2: let's now move term financial outlook for two thousand and twenty two or plans for the year ahead include a continuation of our strategy about earnings growth and shareholder returns with investments toward of vision for two thousand and twenty two a planned investment investment areas include digital consumer engagement
spk_0: smoke free product research development and regulatory preparations a marketplace activities and sport and support of are smoke free products the external environment remains dynamic however and were monitoring various factors such as the economy including the impact of increase inflation
spk_2: the impact of current and potential future covert liking variance and mitigation strategies
spk_1: tobacco consumer dynamics including tobacco use it's occasions and available disposable income
spk_2: and regulatory and legislative developments
spk_1: they can be factors into consideration we expect to deliver two thousand and twenty two for your adjusted to the dps in a range of four hours and seventy nine cents support hours and and three says
spk_0: this range represents an adjusted to the dps growth rate of four percent to seven percent from a four hour and sixty one said face and two thousand and twenty one
spk_1: we expect two thousand and twenty two adjustability dps growth to be weighted toward the second half a year i've got into includes anticipated inflationary increases the master settlement agreement expenses
spk_2: a direct materials expenses that are current expectation that we will not have access to the ico system and two thousand twenty two
spk_1: are now turn it over to sell to provide more details on the business environment and our results thanks believe
spk_4: i'd like to begin with an update on consumer disposable income mobility and retail store traffic we believe rising gas prices inflation and the reduction of covert nineteen relief programs lead to a decrease in disposable income and a sequential when year over year basis

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