Altria Group, Inc. Fourth Quarter 2022 Earnings Conference Call Transcript (MO) (2023)

Grupo Altria, Inc. (NYSE:mes) Fourth Quarter 2022 Results Conference Call February 1, 2023 9:00 AM Eastern Time

company participants

Mac Livingston - Vice-presidente, RI Altria Customer Services

Billy Gifford-CEO

Sal Mancuso - Chief Financial Officer

Conference call participants

Vivien Azer Cowen

Pamela Kaufman - Morgan Stanley

Bonnie Herzog-Goldman Sachs

Callum Elliott - Bernstein

Gaurav Jain - Barclays

Chris Growe - Stifel

Andrei Condrea - UBS

Priya Ohri-Gupta - Barclays

Jennifer Maloney-The Wall Street Journal


Good morning, and welcome to the Altria Group full year and fourth quarter 2022 earnings conference call. Today's conference call is scheduled to last approximately one hour, including comments from Altria management and a Q&A session. And answers. Representatives of the investment community and the media on the conference call will be able to ask questions after the prepared comments have been completed.

I would now like to turn the call over to Mac Livingston, Vice President of Investor Relations Customer Service at Altria. Please go ahead, sir.

Mac Livingston

Thank you, Todd. Good morning. And thanks for joining us.

This morning, Billy Gifford, CEO of Altria; and Sal Mancuso, our CFO, will discuss Altria's fourth quarter and full year business results. Today, we issued a press release with our results. The launch, presentation, quarterly metrics and our latest Corporate Responsibility Report are available at

During our conference call today, unless otherwise indicated, we compared results with the same period in 2021. Our comments contain forward-looking and cautionary statements and projections of future results. Please review the Forward-Looking and Cautionary Statements section at the end of today's earnings release for a number of factors that could cause actual results to differ materially from projections.

Future dividend payments and share repurchases remain subject to the discretion of the Altria Board. Altria reports its financial results in accordance with generally accepted US standards.Accounting principles. Today's conference call will contain several operating results, both in reported and adjusted form.

Adjusted results exclude special items that affect comparisons with reported results. Descriptions of these measures and non-GAAP financial reconciliations are included in today's earnings release and on our website at

Finally, everyonereferences in today's comments to tobacco users or consumers within a specific tobacco category or segment refer to adult tobacco users 21 years of age or older. With that, I'm going to call Billy.

billy gifford

Thank you Mac Good morning. And thanks for joining us.

It has been an exciting year for Altria as our businesses have delivered strong financial performance and we continue to invest strategically towards our vision. We increased our adjusted diluted earnings per share by 5%, and our tobacco business remained resilient and successfully executed its strategies.

We also return a significant amount of cash to shareholders through dividends and share repurchases. Last year, we returned more than $8.4 billion to shareholders, surpassing our record 2021 performance and representing the highest single-year cash return since 2002. Our vision guided our actions, and we believe we made significant progress on our path to leaving of smoking.

Our teams took several steps throughout the year, including accelerating the growth of on! nicotine pouches, creating long-term options for our smokeless inhalant portfolio, enhancing our digital consumer engagement, and continuing to advocate for tobacco harm reduction. Helix has grown! recorded shipment volume of 82.5 million cans during its first full year of unrestricted manufacturing capacity, an increase of more than 70% year-over-year. Retail, in! Stock momentum continued into the fourth quarter, as the brand achieved 5.9% of the total oral tobacco category and 24% of the nicotine sachets category.

This impressive performance was driven by continued increases in brand awareness and adoption by smokers and users alike. Plus, we think Helix handled it well! promotional spending as the year wore on and off! promotional spend per can by approximately 15% during the second half of the year compared to the first half.

In oral tobacco product development, we are pleased to announce that we have finalized a new product design, which will provide tobacco consumers with more smokeless options in our portfolio. We have also begun regulatory preparations for the product and are encouraged by the initial survey results and the response we have received from users of nicotine pods and sachets. We look forward to sharing more details and showcasing this innovative product at our Investor Day next month.

Going back to our smokeless inhalant portfolio. We create long-term optionality in heated tobacco and e-vapor spaces. Internally, we have yet to finalize the design of our heated tobacco lozenge product, but our teams continue to make progress. The consumer remains at the center of our innovation system and our teams are adapting the product to appeal to smokers who have not yet found a satisfactory alternative to cigarettes. We are also looking forward to showcasing this exciting new product at our Investor Day next month.

And in October, we announced a strategic partnership with the JT Group, including a joint venture for the US marketing of heated tobacco products. We are encouraged by the early collaboration between our teams and the pace at which they are operating.

Horizon is optimizing the equipment for the US market and plans to begin regulatory preparations later this year. We are excited about the opportunity and are working diligently to bring Ploom to smokers across the United States.

We at e-vapor have previously announced that we have elected to be released from non-compete obligations relating to our investment in JUUL. We maintain our economic interest in JUUL. E-vapor remains the largest smoke-free category in the US and the most successful category in transitioning American smokers away from cigarettes. We believe that the category can play an important role in harm reduction and we continue to evaluate all options to better compete in the category.

Next, let's discuss the progress we've made to improve our engagement with the digital consumer. We launched a new digital commerce program last spring, and we believe this program enhances our ongoing commitment to responsible retailing.

The program includes multiple participation options for retailers. For those who participated at the highest level, we introduced incentives for retailers to include identity and age verification solutions on their digital platforms. And once the consumer is verified, retailers can provide offers and messages from our brands within the retailer app.

I am pleased to share that we have implemented these solutions in over 33,000 stores, surpassing the target set last year at CAGNY. Currently, consumers can view our brands' offerings of smoking tobacco and more smokeless tobacco. But in the future, we hope to expand the program to include! and other smoke-free brands.

As we continue to expand our digital reach, data will help us better understand each smoker's journey and successfully transition to other smoke-free alternatives in our portfolio.

Moving on to the regulatory environment. We remain optimistic about the future of harm reduction in the United States. We believe we have an unprecedented opportunity to lead the shift of millions of smokers to smoke-free alternatives by following the science and driving innovation backed by sound regulation.

In December, the Reagan-Udall Foundation published its operational assessment of the FDA's Center for Tobacco Products. We were among the stakeholders who contributed to this assessment. Among its recommendations, the report urges the FDA to clearly define product routes and expedite PMTA decision-making, take enforcement action against manufacturers and products that violate the law, and address the need to communicate risks to consumers.

We agree that these are important opportunities and believe that the FDA should shift its focus to implementing a framework to promote harm reduction rather than focusing on prohibition policies that we believe will further expand the illicit market and create other unintended consequences.

Now let's move on to the operating environment. We estimate that total tobacco equivalent volumes declined 6% over the year and 1.7% over the past five years on a compound annual basis. Fuel volumes declined approximately 7.8% last year as smokers faced increasing economic challenges. We are encouraged that smokeless volumes were flat year-on-year at 3.8 billion equivalent units and now represent approximately 26% of the total tobacco space.

E-vapor has been a major contributor to the growth of smokeless products over the five year period. While volumes declined approximately 1% year-over-year amid considerable regulatory uncertainty, such as the FDA's denial order and subsequent temporary suspension of JUUL products, causing market disruptions for consumers and retailers alike. In oral tobacco, volumes grew by approximately 1.5%, driven by continued adoption of all nicotine packs.

Returning to our financial perspective. Our plans for 2023 include continuing our strategy of balancing earnings growth and shareholder returns with strategic investments towards our vision. Through 2023, our planned investment areas include: ongoing research, development and regulatory preparations for smokeless products; digital consumer engagement; and marketing activities in support of our smokeless products. We believe the external environment will remain dynamic in 2023. We will continue to monitor the economy, including the impact of high inflation, tobacco user dynamics, and regulatory and legislative developments.

Taking these factors into account, we expect to deliver full-year 2023 adjusted diluted EPS in the range of $4.98 to $5.13. This range represents a 3% to 6% adjusted diluted EPS growth rate from a base of $4.84 in 2022.

Before handing the floor over to Sal, I would like to sincerely thank our employees. I continue to be impressed by the talent within our companies and our ability to adapt and overcome challenges in a dynamic operating environment. The passion and dedication of our employee base is evident and I am confident in our ability to execute on our vision because of you.

Additionally, I would like to honor the memory of Leo Kiely, our former board member who recently passed away. Leo has served on our Board since 2011 and has made many contributions to Altria, including as chairman of the Talent Development and Compensation Committee and as a member of the Innovation Committee. We will miss his leadership, guidance and friendship.

I now turn the floor over to Sal.

Sal Mancuso

Thanks Billy. We were fortunate to have Leo's 12 years of service to Altria and our thoughts remain with the Kiely family.

Moving on to our results. Our tobacco business again delivered strong financial performance this year and responded to changes in a dynamic external environment. In the fourth quarter, the Smoking segment increased its adjusted operating income by 4% and expanded its adjusted OCI margins to 58.4%. The segment also reported strong net price realization of 13.5%.

It is worth remembering that the realization of the manufacturer's price does not reflect changes in the retail price for smokers. For example, the net price of the Marlboro retail package increased 6.4% in the fourth quarter compared to last year. We continue to successfully execute our strategy in the smoking segment, maximizing profitability while balancing investments in Marlboro with funding growth in smokeless products.

For the full year, adjusted OCI for the smokers segment grew 2.9% to $10.7 billion, and adjusted OCI margins expanded 1.4 percentage points to 59%. In the tobacco segment, the net realization price in the year was 11.1%. Additionally, over the past five years, the Smoking segment has increased adjusted OCI by $2.2 billion, representing a CAGR of 4.7%. Over the same period, adjusted OCI margins increased from 51% to 59%, an impressive increase of 8 percentage points.

Returning to the volumes. Our Smoking segment reported that domestic cigarette volume was down 12.1% in the fourth quarter and 9.7% for the full year. When adjusting for calendar differences and commercial inventory movements, fourth-quarter and full-year domestic cigarette volumes were down approximately 11% and 9.5%, respectively. At the industry level, when adjusting for commercial inventory movements, timing differences and other factors, we estimate that adjusted volumes for domestic cigarettes declined 9% for the fourth quarter and 8% for the full year.

Next, let's take a look at retail stock performance. Full-year retail share for the industry discount segment increased by 1.4 share points. We believe these results were driven by increased pressure on smokers' disposable income and increased competitive activity including multi-brand discount offers at deeply discounted price levels.

Marlboro's retail share was down 0.4% on the year. Most of the full-year inventory losses were attributed to value options within the Marlboro family of brands, such as Special Select and Marlboro 72, as some price-sensitive consumers continue to seek additional price reductions. Meanwhile, the brand's core non-menthol offerings, including the iconic red and gold packet varieties, were resilient and performed well over the year.

Marlboro's share in the premium segment grew to 58.2% in the year. Marlboro has outperformed many other premium brands in recent years. In fact, over the past three years, Marlboro has increased its premium share by 1 total share point. We are encouraged by the strong performance of Marlboro, a brand celebrating 50 years of leadership in the cigarette category.

In cigars, the reported volume of cigar shipments decreased by 4% for the full year. While Black & Mild continued to maintain its leadership in a lucrative machine-made cigar segment.

Then we will move on to the segment of tobacco products for oral use. Adjusted OCI and full-year adjusted OCI margins tightened as we continued to lag. The total segment reported shipment volume down 2.4% over the year due to growth in on! volume, which was more than offset by lower reported MSP volumes.

When adjusting for commercial inventory movements and calendar differences, we estimate that total year-round volumes for the oral tobacco segment declined by approximately 2%. The annual retail share of the oral tobacco products segment declined by 1.3 percentage points as declines in the MST were partially offset by continued growth in on!. Within the traditional smoke-free category of MST and snus products, Copenhagen's stock performance has been flat over the past three years, down just 0.3 since 2019, while the second-largest traditional smoke-free brand has gained 1.6 share points.

Overall, we continue to be encouraged by the performance of our oral tobacco products as in! increased volume and share in a competitive category, and Copenhagen remained the category leader.

Returning to our investment in ABI. We recorded $571 million in adjusted capital gains for the full year, down 10.6% from 2021. We continue to view the ABI stake as a financial investment and our goal remains to maximize the long-term value of the investment for our shareholders.

In our other operating category, we completed the liquidation of Philip Morris Capital Corporation and have no financial assets remaining. I would like to thank the many PMCC employees who have contributed to its success over the years and the other Altria employees who helped to complete a successful liquidation.

Finally, we continue to manage our balance sheet efficiently, while delivering strong financial performance and returning significant cash to shareholders. These results were driven by our tobacco business, which continues to be highly cash-generating. Our year-end credit metrics remain strong. Our debt-to-EBITDA ratio was 2.1x, down 0.4 over the last three years, and our weighted average coupon was 4%, down 0.2 over the last three years. We also expect to retire approximately $1.3 billion in notes due later this month with cash on hand.

In addition, we returned more than $8.4 billion in cash to shareholders last year through dividends and share repurchases. These record cash returns included paying $6.6 billion in dividends and increasing dividends for the 57th time in 53 years.

We also repurchased more than 38 million shares during the year, totaling $1.8 billion, which completed our previously authorized program. Earlier this week, our Board authorized a new $1 billion share repurchase program, which we expect to complete by the end of 2023.

I now turn to Billy to conclude our remarks.

billy gifford

Thank you, Sal. While the calls are being compiled, I'll remind you that today's earnings release and our non-GAAP reconciliations are available at We also publish our regular quarterly metrics, which include pricing, inventory, and more.

As we mentioned during the conference call, we have interesting topics to discuss at our Investor Day next month. We look forward to a full conversation about our smoke-free future and look forward to sharing more about our journey beyond smoking. Todd, we will now move on to the question and answer period.

question and answer session


Thanks. [Operator Instructions] Our first question comes from Vivien Azer with Cowen.

vivien azer

So I just wanted to start with the background of industry volume. I recognize that they have discontinued the historical practice of providing guidance to the industry, and that makes sense to me. But I'm just hoping to get some information on how you're thinking about the potential impact of California's ban on menthol if you think that's an incremental headwind for the year. Thanks.

billy gifford

Clear. Yes, I think it's a little early to say exactly what the headwind will be, Vivien. It will certainly be a headwind from the fact that the state of California has banned it. It came into effect, remember, in December. So let's see how this proceeds. But yeah, I would say it would be a headwind as we go into 2023.

vivien azer

Fantastic. Thank you for that. And so, back to the oral tobacco segment, it's heartening to hear some rationalizations on the subject! promo having dropped 15% in two halves of '22. Can you offer a little color on where that is? in relation to the competitive set?

billy gifford

Yes. We think we're really, really pleased with the results, as you mentioned, we've reduced 15% from the first half to the second half and we continue with your momentum and increased engagement. We think it's a growing category, Vivien, and the whole segment is growing, and we want to be a part of that growth. So we continue to invest behind that. And as we move forward, I think you see the benefit of data analytics. And then the application of what most people call revenue growth management, which we've had success with both traditional and smokeless cigarettes. So this is what you can expect from us as we move forward.

vivien azer

Perfect. And just one last thing for you, Sal, please recognize that it's premature for us to start modeling royalties from intellectual property litigation with British American Tobacco because there is certainly an appeals process. But if you could put into context how we should be thinking about this incremental revenue stream as the litigation comes to a close, please? Thanks.

Sal Mancuso

Yes of course. Vivien, you're right, there is an appeals process. We developed our guide. We do not consider royalties, any potential royalties in this guide. But, as you know, in any given year, you put plans into action, and there are always decisions and decisions. So I think it's too early to really think about how you might model this. Let's see how the appeal process unfolds.


Our next question comes from Pamela Kaufman at Morgan Stanley.

Pamela Kaufman

How would you characterize the current state of your consumer? And this is based on Vivien's question, but I just wanted to know how you're thinking about changes to calculating volumes in '23. Volume declines were clearly very large in 22. So do you expect a more normalized year with volume declines in the single digits given the easier comparisons and moderate gas prices?

billy gifford

Yes. Vivien, I know you're looking... I'm sorry, Pamela, you're looking for guidance for the next volume. Let's talk about headwinds and headwinds throughout the year. First I'll talk about the consumer because it's the most important thing when you think about volume.

I think the consumer is still pressured. We tried to highlight that it was the combination of the impact of inflation as we move into 2022. I think you've heard as many predictions of a soft landing without a deep recession as I have. So, I think even specialists from an economist's point of view are everywhere. We feel good about the guidance we offer. We feel good about where the consumer is, but we want the adaptability and flexibility to be able to move with the consumer's needs.

So I think the consumer will continue to be pressured until we see some relief, so to speak, from inflationary pressures in the market. Gas prices are just one aspect. I mean, we've certainly seen a decline, but it's nowhere near the lows that we saw when we were at pre-pandemic levels. So gas prices could change depending on China reopening and things of that nature. So let's see where this goes.

I think when you think of volumes, it's specifically fuel volume. It's important to remember that what we're seeing is how the consumer is affected. The tobacco industry is not immune to the macroeconomic environment. It is less impacted than other industry categories. So, from that point of view, historically, what we've seen, Pamela, is that as the consumer experiences this rapid change in their economic condition, whether it's up or down, they make changes in their buying behavior and then they become more comfortable. . over time and adjust various factors in your shopping basket. So, it remains to be seen. We will see how the macroeconomy shapes itself. But would I say this is the most important thing and how does this affect buying behavior macroeconomically?

Pamela Kaufman

Thanks. That's helpful. And my other question is just about your 2023 earnings guidance, which reflects a slightly lower growth rate compared to your 4% to 7% guidance over the past few years. So can you talk about the call and put options influencing the outlook for the 23rd? And how much incremental investment does that reflect behind the risk reduction? And are there other discrete factors contributing to the slight change in the growth rate?

billy gifford

Yes. I think in the last comment you made, I would say there is a little change. We are very excited about the guide we have released. I think when you think about it, it's really the uncertainty around the macroeconomic environment that has the biggest impact on the overall direction. And you've mentioned and asked about this before. Where is the macroeconomic environment going as we move into 2023 and how does this specifically affect our tobacco consumer across all categories?


Our next question comes from Bonnie Herzog at Goldman Sachs.

bonnie herzog

I had a question about your price. Just thinking about the strength of net price realization and smokables over the last few quarters, it's been really strong. So I just wanted to hear from you how sustainable you think this is, especially considering, I think, consumer pressure and some of the other things that you mentioned.

billy gifford

Of course, Bonnie. And I will be careful not to talk about future price increases. But the way we think about pricing, as you know, is an important part of the algorithm when you're in a declining category. Remember, our strategy in this category is to maximize long-term returns while making the right Marlboro investments in growth areas. So we see it as the engine that does that.

When you think about pricing I think it's important to really focus on what Sal mentioned in his comments. You see high price realization, but in retail from a consumer perspective, Marlboro on average is up about 6.5%, 6.4%. Therefore, the price increase for the consumer is much smaller than what he sees in the realization of the price.

And we mentioned before that price realization is really two components for us. It's unsurprisingly industry-wide list price, but so is the RGM implementation. So with that price realization and generally Bonnie, you or one of the other analysts will ask us about the price difference, and it's 41%. I think it's important to remember, as we get the data and really that data, it's kind of impersonal. It is the consumer's buying behavior over time. As we look at this, what we can tell is that the price difference varies from location to location. It may vary from store to store, and it may vary within, even within, the Marlboro franchise. I've heard Sal talk about, if you think about that overall 41% price difference, you've got the packaging. So take red and gold in the Marlboro franchise.

If you look at the 2022 year total to the 2021 year total, you can see that it was very stable. Where we're looking at it is in the packages or SKUs that we have within Marlboro that are there for price sensitive consumers to have a secure point of destination. And so, we will continue to implement these tools.

As for how we think about pricing going forward, we've shared with you whether it's a percentage of discretionary income, a minute job, and when you compare the US to other countries around the world, we're still on the lower end. disso.

bonnie herzog

Yes. This is really very helpful. And that would be a question. I'm glad you crossed the gap. This is a useful context. Just changing the subject, if I may, a question about your oral tobacco business. You emphasized how strong in! Volume growth has been and, but in the context of that, total oral tobacco revenue and earnings growth is under pressure with a fair amount of margin crunch. So, in a way, you've touched on that. But I hope you can talk a little more about your strategy for changing the entire oral tobacco business. Any major initiatives that you can highlight for us and maybe you'll talk more about that in March?

billy gifford

Yes. We will, we're certainly excited to be able to talk about it in March. You are absolutely right. Within the old tobacco space, if you think about that total space, you have the traditional smokeless wet tobacco and the new oral pouches. Some of the margin squeeze that you're seeing is just real compounding, right, as consumers are transitioning from traditional smokeless wet tobacco to the newer oral crop, there's going to be some compounding impacts on that overall margin.

We highlight for you the reductions we made in promotional spending per can, but we still had the minimum share. I think what we're most excited about is being able to present the product that we've designed and block and being able to show on Investor Day what that product is and some of the research related to it. So more to come on Investor Day.

bonnie herzog

Good. Last one for me, just talking about it. Any other colors you could bring to your smoke-free vision today, and perhaps how confident are you that you'll be able to deliver on your long-term strategy? I'm sure you'll be talking about this at an investor meeting and I look forward to hearing from you, but any previews of what you're most excited about?

billy gifford

I'm not necessarily going to take a peek because I don't want to pre-empt Investor Day, we'd like to put it in full context and paint a strong picture for investors. So I appreciate the question. I look forward to revealing it on Investor Day.


Our next question comes from Callum Elliott with Bernstein.

callus eliott

Billy, you spoke in the communiqué and in your prepared comments about making some sort of "significant progress" on the smokefree portfolio. And he also mentioned strategic investments in the division. But at the same time, his CapEx guidance is flat compared to last year's guidance. It continues to deliver all algorithm EPS growth. And I think, as you said to Pam, any small reduction is more driven by the macro environment, which presumably also implies little or no incremental P&L investment in NGP. So my question is, what strategic investments are you talking about? How significant are they? And where can we see them in the financial statements?

billy gifford

Yes. I think it's a great question. I appreciate that. I think when you think about where these investments come in, it's important to remember that not all of them are incremental expenses. They are always made and decisions. They're going to change some of them -- the infrastructure that fuel or traditional MST has supported throughout history, and they're going to change that into the NGP space. We have incremental investments around NGP product development, the regulatory preparations associated with that, and the research associated with that.

Here's an example for you, Callum. If you think about digital consumer engagement, we're rolling out to traditional and MST smokables or fuels, and we've mentioned in the comments that we can transition. So you'll see these costs actually show up in fuel and smokeless before they show up in the NGP categories.

So there's a lot going on below the surface, if you will, from an investment perspective. But there are always outlets and decisions. We're trying to be prudent with investment, but not restricting growth categories.

callus eliott

I think the natural next step is, if I look at their big competitors, both in the US and internationally, the two biggest among them are spending literally billions of dollars a year. And I think instinctively, if you're just talking about shifting a portion of your cigarette spending to NGP, you're not going to get anywhere near those billions of dollars a year. So the question is, do you really think you can be successful while spending a lot less than your competitors? And then how?

billy gifford

Yeah, we think we're really trying to be consumer-oriented, learning from the global market for products in the marketplace and using that as, if you will, a launching point for products and really trying to satisfy the desires. and consumer needs are in the market that are not satisfied by existing products on the market.

And so, we feel that we can achieve the vision. We highlight for you that we truly believe we can generate strong shareholder returns while making the appropriate investments in these growing categories. And we believe we can do it. I think you'll continue to hear us talk about investing, and we'll go into more detail about some of the progress we made on Investor Day.


Our next question comes from Gaurav Jain at Barclays.

gaurav jainist

Hello. So I have three questions. So first for you, Billy. We will have a new competitor next year in the US market with IQOS. And when you were rolling out IQOS, the volumes were much smaller than any of us expected. So what were the challenges when American consumers came to IQOS?

billy gifford

Yes. It's a great question. Thanks for asking, Gaurav. I think when you think of IQOS, it's really about the disciplined approach we took to introducing an entirely new category. The US consumer was used to the e-vapor space. They had understood that. When you're introducing a new category that requires some education on how to use the product and how to maintain the product, there's an investment being made. And we talk about the learnings we had along the way. But I would say that the biggest challenge is to educate the consumer about the product and thus satisfy their desires. And I think there are still unmet needs in the market.

gaurav jainist

Clear. The next question and maybe for you Sal is about the MSA payments next year and how we should account for inflation. And if you can help us understand why I think there's confusion about how that 3% number works compared to inflation, or is it the change in inflation that we should be looking at?

Sal Mancuso

Gaurav, you are correct that inflation is a factor when thinking about MSA expenses. I'll make some points. One of them is that the high inflation rate in 2022 was accounted for and is already at the bottom. You are correct in pointing out that when you think about MSA-related inflation, there is a 3% floor. So even if inflation were measured below 3%, there would be a 3% increase in MSA spending.

And I will also remind you that inflation is measured at a certain point in time, from December 31 of the current year to December 31 of the previous year. So we consider that when you think about 2023, there will be a high level of inflation. We have seen some drop in the inflation rate, but we still expect it to be high. So we considered that when we put together our guide. And finally, I will say that there are factors other than inflation to consider when thinking about MSA spend, including volume, co-shipping, and the like.

gaurav jainist

Clear. And my last question is on the share buyback for the next year, which is $1 billion or less than what we thought and I think that's where most people were. And even if your EBITDA is growing, you're generating free cash flow after dividends, your leverage will still be lower when you own the ABI stake. So which mix buys $2 billion of stocks and not $1 billion?

Sal Mancuso

Well, first let me say that we are very pleased that the Board has authorized a $1 billion share repurchase. And if you think about capital allocation, I think we have a track record of taking a balanced approach. So, as you know, as I noted in our opening comments, we plan to pay about $1.3 billion of notes maturing in cash on hand. We continue to pay a strong dividend as well as a $1 billion share repurchase. Gaurav, I really have nothing to report about the ABI asset. We continue to do the analysis that we do with all capital allocations. And currently, we believe that the best option for shareholders in the long run is to keep the asset.


Our next question will come from Chris Growe with Stifel.

Chris Growe

I just had a quick question about Marlboro. You must be very happy with the robust performance of the Marlboro. And obviously there's a round of deep discounts and acceleration of deep discount participation, which seems to bring some risk to the brand. I'm pretty sure we won't get your promo program on this call. But I was wondering if you could talk about how you see the brand performing at 23. And perhaps more significantly, have you ramped up promotions at a faster pace behind Marlboro to preserve that portion where you're doing so well there?

billy gifford

Yes. These are excellent questions, Chris. I think when you think about resilience here at Marlboro, we're very pleased. We are satisfied with the way it positions itself with the consumer. We are happy about it. It remains the aspirational brand within the cigarette space. I think when you think about your question about promotions, I would like to point out that noticing high prices really shows that we can be more effective and efficient in our Marlboro price promotion.

I think that might be helpful - I've talked about Marlboro Red and Gold versus some price sensitive ones, but some of the tools that we have really allow for precision. I'll show you a quick example with three consumers. You have a consumer who is buying premium brands and they occasionally show up and buy a brand at a discount. The other consumer continues to switch between premium and discount. And the third consumer is a discount consumer who occasionally shows up and smokes a premium cigarette.

When you think about these consumers, you treat them differently, so they're more of an ongoing smoker of premium brands. That discount smoker, you might never get them to go premium because of the condition, the economic condition that they're in. So, as we move towards delivering personal value as close to the consumer as possible, we can adapt this to these three. And that's where I mean the price that is national. We're doing this locally and on our journey to get as close to the consumer as possible. That allows us to make Marlboro resilient, to meet the consumer's needs on a case-by-case basis, if we can really get closer to the consumer and spend those resources accordingly to have a more consistent premium consumer over time.

Chris Growe

Thanks for that and the color there. I am aware of that. I had another follow up, which would be, you have two relatively unique types of earnings drag this year, with PMCC liquidating, obviously, pensions on the go. Could you give a little more color or context around the run, how much is that weighing on profitability this year?

Sal Mancuso

Yes, Chris, I will be, so let's talk about pensions for a moment. If you think about pensions, obviously there's a profit and loss impact related to return on assets, changes in the discount rate, but I would say pension is very well funded. We have solid funding in that pension plan. In fact, it's fully funded. So we feel really good about that. And I would say changes in pension expenditure, I'll remind you that it's not cash. We have successfully completed the PMCC liquidation. So you're right that we had earnings and cash flow last year and we won't this year. And it's a year, year after year, it's a little delay. But remember, the PMCC was part of our other category. It was, so we consider that pretty irrelevant to Altria's overall earnings.


Our next question comes from Andrei Condrea from UBS.

Andrea Condrea

One for me, please, if you don't mind. In its smokeless business, especially from what we've seen, the brand has been boosted by steep discounts compared to the mainstream pair. Now, do you hope you keep moving forward or rather just close the price gap between you and your top pair, even if you put your product on, is your promotion spend per can going down? Thanks.

billy gifford

Clear. Thanks. I think when you think about it, and this is not an excuse, these are just facts. They had the advantage of being the first to move. And when consumers -- to get consumers to have new brands in their consideration set, you have to induce testing. And that's what we feel we're doing. I would say that from a consumer point of view it is still very small compared to the total nicotine footprint. So let's spend and invest as the category as a whole grows, so that we can participate in that growth. We mentioned earlier that it was intuitive that the adult consumer would transition to the product quickly and the adult cigarette user would have to induce testing and that's what we're doing and we're thrilled with the results so far.

I think over time we've reduced the promotional spend per can. So when you think about the price difference, as you refer to a competitive product in the market, you invest as the category grows, so you put these products in the consideration set. . I talked about bringing in some of the data analysis. I think you saw the benefit of that last year, but we have more to do there.

And I think as we continue to progress and move forward, we feel good about it. However, I don't want you to think that everything is a discount. Everything is discounted. This is inducing judgment. We really see it as a complete marketing ecosystem, if you will. And I hate to use the commercial term, but it's about approaching the consumer and really meeting them where they are on their journey and then supporting them on that journey to fully transition, if you will, from cigarettes to this new buccal bag. And so, that's where we are. We feel good about the progress we've made so far, but we certainly need to continue to raise awareness of induction testing.

Andrea Condrea

That much is clear. Thanks. And yes, you are absolutely right. It's been fantastic progress for one. And if I could squeeze in one more, if you don't mind, the Marlboro did really well, and congratulations on that. But for the rest of your portfolio, small as it is relative to Marlboro, what steps are you taking to defend your market share against pressure from both your peers in the higher and lower price segments? Thanks.

billy gifford

Yes. I would say that if you look at the growth, I would say that the growth, if you look at the competitors, was really lower. Sal pointed out in his comments that there are several major manufacturers that have what we would consider a name brand discount price in a large discount space. So when we look at the total portfolios of some of them, we don't see the benefit of going down to that low price level. They may develop one brand at the expense of another brand within the discount space. So we want to participate in the discount category. We think it's important, but we certainly don't want to grow into the discount category.

And I think being focused on premium, where we feel that profitability and high fidelity are in the cigarette space, is an important place to play, and that's where we're focused. And Sal pointed out to you, our premium brands are growing. The total premium share of the premium space is growing over time thanks to Marlboro. So we're satisfied with that. We talked about RGM tools, so I won't repeat that. But being able to continue to approach a consumer-by-consumer basis and serve them where they are when they have needs is where we're going. And we are excited about this progress.


[Trader Instructions] Our next question comes from Priya Ohri-Gupta of Barclays.

Priya Ohri Gupta

So I really appreciate your comment, Sal, about intending to pay your next euro due later this month. I think as we pull back, your euro-denominated debt actually went down, I think, in part because of the income that you're getting from the ABI stake, as it was sort of a natural hedge. . Given the current situation of your exposure to the euro at the level of your debt portfolio, is it at that point or is it necessary to continue to increase that exposure to the euro over time, either synthetically or through direct issuance in that market?

Sal Mancuso

Yes. Priya, first off, I'm going to start my answer by simply reiterating that I really don't have anything to report. And when it comes to ABI, we continue to believe that holding the asset is in the best long-term interest of our shareholders. Second, I would say to you that while we have flexibility, it's really a market-by-market analysis and transaction-by-transaction analysis related to markets that we may or may not enter when we think about managing our debt going forward. So this is how I would answer your question.


At this time, we will open the question and answer session for members of the media. [Operator Instructions] We'll answer our next question from Jennifer Maloney for The Wall Street Journal.

jennifer maloney

My first question is about your JUUL review. I saw that he reduced the value of his stake to a price that values ​​JUUL at $714 million. I was wondering if you could explain the reasoning behind this downgrade. I was a little surprised because in Q4 JUUL resolved a lot of the litigation it was facing, which removed some of the uncertainty around the company. So could you explain this assessment?

Sal Mancuso

Clear. Good morning Jennifer. First, let me remind you that we take the litigation-related loss into account and actually capture it in our overall discount rate on JUUL assets. So we take that into account. But on a quarterly basis, the way we account for JUUL requires us to do a fair market value analysis of the investment. It's not publicly traded, so we have to do an independent review. And from quarter to quarter, there will be changes, and we've been pretty upfront about that. This quarter, yes -- our investment has come down to $100 million and it's really macro, it's really macro economic and other factors that are considered when doing this analysis.

jennifer maloney

So things like inflation and a possible recession?

Sal Mancuso

Yes, macro market conditions, inflation, discount rates, things like interest rates, consumer dynamics all come into the analysis.

billy gifford

You'll notice, Jennifer, that when you create a discount rate, you start with a risk-free rate. So certainly the increases in interest rates that we've seen over time will continue to impact it as long as they're still on an upward trajectory.

jennifer maloney

I understand. My second question is a little more colorful about consumer buying patterns right now. Can you talk a little more about what you see consumers doing? The volume dropped. So is it because people are going to the store less to buy cigarettes or are they buying less each time? Can you talk about what the actual standard is?

billy gifford

Yes. It's a great question. What we are seeing is increased mobility, so to speak the US is coming out of the COVID pandemic, we are actually seeing a return to more frequent travel. Remember, our pre-COVID consumer would go every day or every other day. I think what you're seeing and what consumers tend to do when they're under economic pressure is reduce the number of times they use nicotine per day. So, over time, this influences buying behavior. You kind of see, and we're highlighting this, consumers who are in dire financial straits sometimes switch or switch to a cheaper brand.

We try to give them a safe landing place within the Marlboro franchise. But in terms of the number of trips, we haven't seen a reduction in the number of trips. It comes over time, reducing your chances of nicotine.

jennifer maloney

I see. So are they smoking fewer cigarettes a day?

billy gifford

It is true. So remember, when we get into... there is no change in the overall trend, if you will, the long-term trend. As we got through COVID and there was less mobility, less societal pressures, we've really seen what we think nicotine events have increased. We see that when economic conditions and the macroeconomic environment have a big impact on the consumer, they restrict their nicotine occasions. As they get more comfortable with it, they tend to fall back into a normal trend.


Thanks. Looks like we don't have any more questions at this point. I will pass the call back to Mac Livingston for any additional or final comments.

Mac Livingston

Thank you all for joining us. Please contact the Investor Relations team if you have any questions. Thank you and have a great day.


That concludes today's call. Thank you for your participation. You can disconnect at any time.

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