2014 CAGNY Investor Presentation February 19, 2014 Management Team - - PowerPoint PPT Presentation

February 19, 2014

2014 CAGNY Investor Presentation

Dave Beran – President and Chief Operating Officer, Altria Group, Inc. Jim Dillard – Sr. Vice President, Regulatory Affairs, ALCS Murray Garnick – Sr. Vice President and Associate General Counsel, ALCS Howard Willard – EVP and Chief Financial Officer, Altria Group, Inc.

Management Team Participants

Safe Harbor Statement

Statements, including earnings guidance, in this presentation that are not reported financial results

• r 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

• n 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 or implied by the forward-looking statements. Altria undertakes no obligation to publicly update or revise any forward- looking statement other than in the normal course of its public disclosure obligations. The risks and uncertainties relating to the forward-looking statements in this presentation include those described under “Risk Factors” in its Annual Report on Form 10-K for the year ended December 31, 2012 and under “Cautionary Factors That May Affect Future Results” in its Quarterly Report on Form 10-Q for the period ended September 30, 2013. 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.

EPS and Dividend Growth

$1.51 $2.38

2007 2013

Adjusted Diluted EPS*

+7.9% CAGR

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

$1.16 $1.92

2007 2013

Dividend Per Share

+8.8% CAGR

Note: Annualized rate: 6-year CAGR assumes the post-PMI spin-off dividend

• f $0.29 per common share was the end of 2007 dividend rate.

137% 44%

Altria Group S&P 500

Six-Year Total Shareholder Return

Source: Bloomberg Daily Return Note: Total shareholder return is simple price appreciation plus the reinvestment of the dividend as of the ex-dividend date (12/31/2007 to 12/31/2013).

Long-Term Financial Goals

• Grow adjusted diluted EPS at average annual rate of 7% to 9%
• Maintain a dividend payout ratio of approximately 80% of adjusted

diluted EPS

Altria’s Strategies

Grow new income streams with innovative products Maximize income from core premium tobacco businesses over the long term Manage diverse income streams and strong balance sheet to deliver consistent financial performance

Altria Companies’ Capabilities

• Deeply understanding adult tobacco consumers
• Building and sustaining premium brands
• Creating strong sales and distribution relationships
• Developing innovative products
• Managing external challenges facing our businesses

Agenda

• Maximizing income from our core tobacco businesses
• Approach to innovation
• Diverse business model and strong balance sheet
• Regulatory capabilities
• Delivering shareholder returns

Tobacco Industry Manufacturers’ Profit Pool

$11.4 $14.5

$0 $16 2008 2013

Source: Altria company reports; ALCS S&BD estimates; other public company reports

$ in Billions

~+5% CAGR

Share of 2013 U.S. Tobacco Industry Profits by Category

80% 10% 6% 4%

Cigarettes Smokeless Tobacco Cigars Other

Source: Altria company reports; ALCS S&BD estimates; other public company reports

Cigarette Category Decline Rate Estimates

(4.0)% (4.0)% (8.0)% (5.0)% (3.5)% (3.0)% (4.0)%

2007 2008 2009 2010 2011 2012 2013

Source: ALCS MICR Estimates

Although cigarette volumes continue to decline, the rate of decline has held steady at 3 to 4% for many years.

Primarily due to FET increase

Tobacco Categories’ Volume – 2010 to 2013 CAGR

~(1)% ~(3.5)% ~3% ~5%

Total Tobacco* Cigarettes Machine-made Large Cigars Smokeless Products

Source: ALCS MICR estimates based on TTB data through September 2013, cigarettes, small cigars based on 0.0325 oz/stick; ALCS MICR estimates * Total tobacco in pounds

Largest Consumer Products Categories

Source: IRI Infoscan-MOC for the 52 weeks ending 12/29/13

$66 $30 $28 $20

$0 $70

Cigarettes Beer / Cider Carbonated Beverages Salty Snacks

Note: Total US MOC is comprised of Food, Drug, Mass Merchandisers, Club, Dollar, DeCA, Convenience and Walmart classes of trade with ACV of $2MM+ excluding Pharmaceutical

• sales. Carbonated Beverage sales exclude on-premise, and Beer/Cider sales exclude on-premise and Liquor.

2013 U.S. Dollar Sales in Major Retail Channels

$ in Billions

7.2% 3.2% (0.7)% 4.0%

Smokeless Tobacco Beer/Cider Carbonated Beverages Salty Snacks

Source: IRI Infoscan-MOC for the 52 weeks ending 12/29/13 Note: Total US MOC is comprised of Food, Drug, Mass Merchandisers, Club, Dollar, DeCA, Convenience and Walmart classes of trade with ACV of $2MM+ excluding Pharmaceutical

• sales. Carbonated Beverage sales exclude on-premise, and Beer/Cider sales exclude on-premise and Liquor.

Category Growth – 2009 to 2013 CAGR

U.S. Dollar Sales in Major Retail Channels

Manufacturers’ Share of the 2013 U.S. Tobacco Profit Pool

Note: Altria’s Profit Pool share is calculated by combining the adjusted OCI* for Altria’s Smokeable & Smokeless Products segments divided by Total Profit Pool. *For reconciliation of non-GAAP to GAAP measures visit altria.com

51% 22% 14% 13%

Altria Reynolds American Lorillard Other

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

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43.7%

Marlboro

Marlboro – 2013 Retail Share

Source: IRI/MSAi

Next 10 Largest Brands = 42.2%

50.7%

Smokeless – 2013 Retail Share

Source: IRI InfoScan

Copenhagen & Skoal

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Machine-Made Large Cigars – 2013 Retail Share

Source: IRI InfoScan

29.2%

Black & Mild

Competitive Brands Black & Mild

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Smokeable Products Companies’ Strategy

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

Cigarette Category Income Drivers

• Pricing
• Cost management
• Retail share performance
• Equity-building activities
• Product innovation

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2013

Marlboro Long-Term Retail Share Growth

50 1954 1959 1964 1969 1974 1979 1984 1989 1994 1999 2004 2009

43.7%

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

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Marlboro Product Expansions

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Marlboro Adult Smoker Engagement – Retail

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Marlboro Adult Smoker Engagement – Direct Mail

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Marlboro Adult Smoker Engagement – Digital

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Marlboro Black is growing share and building a strong position, including with 21 to 29 year-old smokers. This space is blank because brand images which appeared in the original presentation have been removed.

Marlboro Digital Engagement

Marlboro.com is among the largest CPG websites in the U.S. based on average number of unique adult visitors age 21+.

comScore, 2013

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2011 2013

Marlboro Adult Smoker Connections

Source: PM USA

~+50%

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Marlboro’s Modest Retail Share Momentum

Source: _____________________________________________________________________________ Note: _____________________________________________________________________________

42.9% 43.7%

2008 2013

Source: IRI/MSAi

Average Annual Growth = ~0.2pp

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Pricing Considerations

• Economic conditions
• Price gaps
• Competitive dynamics

PM USA carefully manages its pricing to deliver long-term income growth.

Pricing Considerations – Economic Conditions

• Employment rates
• Housing starts
• Consumer confidence

PM USA continuously monitors key indicators to understand the conditions of adult smokers.

Pricing Considerations – Price Gap

$4.27 $5.86 $3.04 $4.38 $0.00 $6.50

2009 2010 2011 2012 2013

Price Gap = ~35%

Note: Marlboro excludes Marlboro 72mm Lowest = Actual Lowest Effective Pack Price (without PM USA Premium) Source: IRI/Capstone Pricing Database; IRI Sales Advantage Sample - ending 12/29/13

Marlboro Net Price Lowest Effective Price

61.2% 63.8%

2009 2013

75% 75%

2009 2013

Pricing Considerations – Competitive Dynamics

Source: IRI/MSAi Cigarettes 2013 – Total US Blended Share

Leading Premium Domestic Cigarette Brands Premium Cigarettes Segment

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Middleton’s Retail Share

31.7% 29.4%

2009 2013

Note: The IRI InfoScan 2013 service was implemented to read market share in 2011 and beyond. Share in 2009-2010 reflects estimates based on share changes derived from 2009-2010 IRI InfoScan 2011 service. Source: IRI InfoScan 2011 and 2013

Average Annual Decline = ~0.6pp

In a competitive environment, Middleton has focused

• n income growth, while managing share performance.

$5.2 $6.4

$0.0 $7.5 2008 2013

Smokeable Products Income Growth

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

Adjusted OCI*

+4.2% CAGR

$ in Billions

Smokeless Products Companies’ Strategy

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 Segment Performance

646 788

2009 2013

47.3% 50.7%

2009 2013

Source: Altria company reports Note: Reported domestic shipment volume for USSTC and PM USA cans and packs in millions

Copenhagen & Skoal Combined Retail Share Smokeless Products Shipment Volume

+5.1% CAGR ~+0.9pp/yr average

Note: The IRI InfoScan 2013 service was implemented to read market share in 2011 and beyond. Share in 2009-2010 reflects estimates based on share changes derived from 2009-2010 IRI InfoScan 2011 service. Source: IRI InfoScan 2011 and 2013

Copenhagen and Skoal Retail Share

22.5% 29.3% 24.8% 21.4% 47.3% 50.7%

0% 20% 40% 60% 2009 2013 Copenhagen Skoal

Source: IRI InfoScan 2011 and 2013 Note: The IRI InfoScan 2013 service was implemented to read market share in 2011 and beyond. Share in 2009-2010 reflects estimates based on share changes derived from 2009-2010 IRI InfoScan 2011 service.

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Copenhagen’s Share of Natural Segment

0% 25% 50% 75% 100% Natural Segment

Source: IRI Group InfoScan Smokeless Tobacco Database (FY 2012 – Retail Share) Source: IRI InfoScan Retail Share FY 2013

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Copenhagen Wintergreen Retail Share

0% 5% 10% 2009 2011 2013

Source: IRI InfoScan 2011 and 2013 Note: The IRI InfoScan 2013 service was implemented to read market share in 2011 and beyond. Share in 2009-2010 reflects estimates based on share changes derived from 2009-2010 IRI InfoScan 2011 service.

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Skoal Classic and X-TRA

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Skoal Share Performance and Price Gap

0% 10% 20% 30% 2009 2013 $0 $2 $4 $6 Classic Leading Discount

55% price gap Skoal Retail Share 2013 Price Per Can

*

24.8% 21.4%

Source: IRI InfoScan 2011 and 2013 Note: The IRI InfoScan 2013 service was implemented to read market share in 2011 and beyond. Share in 2009-2010 reflects estimates based on share changes derived from 2009-2010 IRI InfoScan 2011 service.

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“80 Days of Saturdays”

Website Direct Mail

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$632 $1,026

$0 $600 $1,200

2009 2013

Smokeless Products Adjusted OCI*

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

$ in Millions

+12.9% CAGR

Altria’s Tobacco Businesses

Agenda

• Maximizing income from our core tobacco businesses
• Approach to innovation
• Diverse business model and strong balance sheet
• Regulatory capabilities
• Delivering shareholder returns

• Deep expertise and Altria service companies’ scale
• Acquire complementary products, technologies and capabilities
• Third-party agreements

U.S. E-Vapor Consumer Expenditures

$0.3 $0.5 ~$1.0

$0.0 $1.5

2011 2012 2013

Source: ALCS MICR estimates

$ in Billions

+80% CAGR

E-Vapor Awareness and Trial

~90%

November 2013

Source: ALCS/MICR e-Cigarette Awareness & Usage Study among Adult Smokers 21-54

28% 39% 63%

November 2012 May 2013 November 2013

* Among Adult smokers aware of e-cigarettes

Awareness Trial*

E-Vapor Category Growth

• Product innovation
• Regulation
• Taxation

Many adult smokers and vapers are still looking for a product that meets their requirements and desires.

Nu Mark’s Goal and Approach

• Launched MarkTen e-cigarettes in Indiana and Arizona
• Announced the agreement to acquire the e-vapor business of Green Smoke
• Signed agreements with Philip Morris International (PMI)

Nu Mark’s goal is to achieve leadership in the U.S. e-vapor category.

MarkTen Expansion

Nu Mark plans to expand MarkTen e-cigarettes nationally beginning in Q2 2014.

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Creating a Path to E-Vapor Leadership

• Product superiority and innovation
• Premium brand building
• Distribution and customer partnerships
• Supply chain capability
• Regulatory and government affairs capability

MarkTen E-Cigarettes

Indiana – August 2013

• First MarkTen test market

Arizona – December 2013

• Improved flavor systems for Classic and Menthol
• USB charger added to single unit pack

MarkTen Distribution in Arizona

~1,900 stores

Note: As of January 28, 2014 Source: STARS Cigarette & e-Cigarette report ending 11/23/13; coverage represents YTD volume

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MarkTen Test Market

48%

60

Week 0 for MarkTen AZ - 12-15-13 Source: IRI InfoScan TDN Projected Retail Database ending 02/02/2014, (4-week moving average)

Arizona

Retail Cartridge Share %

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Green Smoke

• Agreement to acquire the e-vapor business of

Green Smoke, Inc. for ~$110 million

• Manufacturing and marketing high-quality,

premium products since 2009

• Expands Nu Mark’s product portfolio, including a

larger product format and a new brand

• Expect the transaction to be completed by the

second quarter of 2014

Note: Third party trademarks are the property of their respective owners and are included for informational purposes only.

Altria Strategic Agreements with PMI

• Exclusive license to PMI to commercialize

e-vapor products internationally

• Cooperation on regulatory engagement
• Contract manufacturing arrangements

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Agreements on PMI Next Generation Products

• Exclusive U.S. license to Altria to sell two of PMI’s heated tobacco products
• Cooperation on regulatory engagement related to heated tobacco products

Our agreements with PMI support Altria’s broader strategy to create a robust portfolio of innovative products for adult tobacco consumers.

Agenda

• Maximizing income from our core tobacco businesses
• Approach to innovation
• Diverse business model and strong balance sheet
• Regulatory capabilities
• Delivering shareholder returns

Diverse Business Model Delivers Financial Objectives

27% Economic Interest

Note: Third party trademarks are the property of their respective owners and are included for informational purposes only.

Smokeable Products Segment Performance

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

2008 2013 +5.2%

CAGR

Net Revenue per 1000*

$90.46 $116.60

2008 2013 Adjusted OCI * - $ in Billions

$5.2 $6.4

+4.2%

CAGR

2008 2013 Adjusted OCI Margins*

33.8% 42.2%

+8.4pp

Note: Net of FET

Source: Altria company reports Note: Reported domestic shipment volume for USSTC and PM USA. Cans and packs in millions.

2009 2013 Smokeless Products Shipment Volume

788 646

2009 2013 Copenhagen & Skoal Combined Retail Share ~+0.9pp/yr

average

50.7% 47.3%

Smokeless Products Segment Performance

2009 2013 Adjusted OCI* - $ in Millions +12.9%

CAGR

$1,026 $632

*For reconciliation of non-GAAP to GAAP measures visit altria.com

+5.1%

CAGR

Cost Management

• Altria delivered ~$2 billion in productivity savings
• PM USA has efficiently managed costs

Cost Management

$27.81 $28.69

2008 2013

Source: ALCS Finance

~$400 ~$300 $0

2013 2014 2015 FETRA Expense - $ in Millions

Note: FETRA refers to the Fair and Equitable Tobacco Reform Act of 2004 * For reconciliations of non-GAAP to GAAP measures visit www.altria.com

Smokeable Products Controllable Costs/1000* +0.6%

CAGR

Altria’s Alcohol Interests

Note: Third party trademarks are the property of their respective owners and are included for informational purposes only. Note: Third party trademarks are the property of their respective owners and are included for informational purposes only.

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SABMiller Delivers Strong Income Growth

$467 $991

2008 2013

Source: Altria company reports

$7.3 $19.4

December 2008 January 2014

Source: Bloomberg

Market Value - $ in Billions Equity Earnings - $ in Millions +16.2%

CAGR

• Ste. Michelle Wine Estates 90+ Ratings

159 193 187 221

2010 2011 2012 2013

Source: Altria company reports Note: Third party trademarks are the property of their respective owners and are included for informational purposes only.

“Winery of the Year”

for the 19th time

• Ste. Michelle Wine Estates

$73 $118

2009 2013

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

Adjusted OCI* - $ in Millions

+12.8% CAGR

Progress Unwinding PMCC Business

$9.4 $5.7 $2.0

2002 2008 2013

Net Finance Receivable - $ in Billions

Source: Altria company reports Note: Net Finance Receivables reflects PMCC’s investments in finance leases excluding the allowance for losses.

PMCC Income Contribution

$289 $157 $141 $183 $238

2009 2010 2011 2012 2013

Lease Income, net of expenses Other (Primarily Gains from Asset Sales)

Source: Altria company reports; ALCS Finance

61 55 49 38 29

2009 2010 2011 2012 2013 Adjusted OCI* - $ in Millions Year-end Portfolio - # of Assets

*For reconciliations of non-GAAP to GAAP measures visit www.altria.com

Altria’s Strong Balance Sheet

• Provides stability and liquidity
• Supports Altria’s investment grade credit rating
• Enhances ability to return cash to shareholders

2012-2013 Capital Markets Activities

• Tendered for high-coupon debt
• Replaced with lower cost debt
• Improved debt maturity profile
• Lowered future interest expense

Reduced Weighted Average Coupon Rate

9.1% 5.9%

December 2009 December 2013

Source: ALCS Finance

(3.2)pp

Altria’s Strong Dividend

$1.16 $1.92 2007 2013

Source: Altria company reports

Annualized Dividend 5.4% 2.7% 2.1%

Altria 10-yr UST S&P 500

Note: As of February 14, 2014

Current Dividend Yield

Source: Bloomberg

+8.8% CAGR

Note: Annualized rate: 6-year CAGR assumes the post-PMI spin-off dividend

• f $0.29 per common share was the end of 2007 dividend rate.

Share Repurchase Programs

• ~$4.2 billion in shares repurchased since PMI spin-off
• ~$540 million in shares repurchased through end of 2013
• Current $1 billion repurchase program
• Expect to complete program by end of Q3 2014
• Timing of share repurchases depends upon marketplace conditions and
• ther factors

Diverse Business Model

27% Economic Interest

Note: Third party trademarks are the property of their respective owners and are included for informational purposes only.

Altria’s Consistent EPS Growth

9.3% 6.1% 8.6% 7.9% 7.8% 7.7%

2008 2009 2010 2011 2012 2013

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

Adjusted Diluted EPS* - YOY % Change

2014 Guidance

• Altria reaffirms it expects its 2014 full-year adjusted diluted EPS* to increase by

6% to 9% to a range of $2.52 to $2.59 from its 2013 adjusted diluted EPS base

• f $2.38 per share.

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

2014 Guidance

• Core tobacco businesses are positioned to deliver strong income growth
• Benefit from lower interest expense, a lower effective tax rate and a reduction in

shares from the current share repurchase program

• Plan to continue making investments to build Nu Mark’s e-vapor business
• Expect continued variability in adjusted operating companies income at PMCC

Agenda

• Maximizing income from our core tobacco businesses
• Approach to innovation
• Diverse business model and strong balance sheet
• Regulatory capabilities
• Delivering shareholder returns

Experience

Note: Third party trademarks are the property of their respective owners and are included for informational purposes only.

Strong Regulatory Capabilities

• Building a constructive and enduring relationship with FDA
• Compliance
• Engagement and advocacy

Altria’s Engagement with FDA

• Docket submissions
• Meetings with FDA
• TPSAC Presentations
• Public workshops
• Published scientific papers
• Presentations at scientific conferences

Altria’s Compliance Efforts

• Registering manufacturing facilities
• Listing of our companies’ tobacco products
• Submitting ingredient information
• Inspections of our registered facilities
• Hosting FDA at our facilities
• Conducting internal regulatory training

Regulatory Update – Substantial Equivalence

• FDA has said substantial equivalence is a priority
• Applications pending for in-market products and

products not yet introduced

Regulatory Update – Menthol

• Comments submitted to FDA -

November 2013

• Menthol cigarettes do not affect

population harm differently than non- menthol cigarettes

• FDA is reviewing nearly 200,000

stakeholder comments

“The science- and evidence-based information continues to demonstrate that regulatory actions or restrictions, including those on sales, distribution, promotion or advertising, are neither necessary nor justified.”

Regulatory Update – Deeming

• According to the FDA, deeming regulations likely to be issued soon
• Being reviewed by OMB
• Altria met with FDA to discuss regulation of all tobacco products

Support for Deeming Regulation

• Framework to evaluate tobacco products that are potentially less harmful
• Clear principles for accurate and scientifically grounded communications

We support FDA’s efforts to extend its regulatory authority to all tobacco products.

Deeming Regulation

• Registration
• Product listing
• Ingredient listing
• Good manufacturing practice requirements

These “general controls” should help establish common standards for all U.S. manufacturers and importers of deemed products.

Source: _____________________________________________________________________________ Note: _____________________________________________________________________________

Harm Reduction Framework

• Advance public health goals
• Recognize product differences
• Foster innovation
• Grounded in science and evidence

Anticipated FDA Developments in 2014

• Deeming regulation
• Menthol
• Substantial equivalence
• TPSAC appointments
• Advertising and communications

Note: Third party trademarks are the property of their respective owners and are included for informational purposes only.

Altria’s Regulatory Capabilities

• Building a constructive and enduring relationship with FDA
• Compliance
• Engagement and advocacy

We’ve built strong capabilities to help our tobacco companies successfully compete under FDA regulation.

Agenda

• Maximizing income from our core tobacco businesses
• Approach to innovation
• Diverse business model and strong balance sheet
• Regulatory capabilities
• Delivering shareholder returns

Altria’s Strategies

Grow new income streams with innovative products Maximize income from core premium tobacco businesses over the long term Manage diverse income streams and strong balance sheet to deliver consistent financial performance

$1.51 $2.38

2007 2013

Creating Shareholder Value

$82.54 $108.28

2007 2013E

Altria Adjusted Diluted EPS*

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

+7.9% CAGR

S&P 500 Operating EPS

Source: Standard & Poor’s Note: S&P 500 Operating EPS includes income from product (goods and services), but excludes corporate (M&A, financing, layoffs ) and unusual items.

+4.6% CAGR

Dividend Yield

Source: Bloomberg

5.4% 2.1%

Altria S&P 500

Six-Year Total Shareholder Return

91% 44%

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

137%

Source: Bloomberg Daily Return Note: Total shareholder return is simple price appreciation plus the reinvestment of the dividend as of the ex-dividend date (12/31/2007 to 12/31/2013).

Regulation G Disclosure

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

altria.com