Altria Group Inc.

Overview Key strengths Key risks Dominant player in the traditional tobacco sector, including combustible cigarettes, cigars, and moist smokeless tobacco (MST). Regulatory environment becoming more challenging, though outcomes are still not certain and resolutions many years out. Significant industry expertise, including experience in distribution, regulatory affairs, and litigation defense Combustible cigarette volumes in secular decline. Substantial scale with $8 billion in free operating cash flow (FOCF). Increased trade-down risk as continued inflation pressures smokers? real incomes. Relatively conservative financial policies including approximately 2x debt to EBITDA target. Aggressive shareholder payments, including a very high dividend payout. Increased clarity on potential to effectively compete in next generation smokeless products Large equity stake in Anheuser-Busch InBev SA/NV (ABI), which provides potential financial

...Altria Group Inc. is protecting profitability and credit metrics amid continued deterioration of smokeable products volume. Smokeable products accounts for over 85% of adjusted operating income and primarily consists of combustible cigarettes and, to a lesser extent, cigars. However, it continues to experience historically high volume declines of about 10%, compared to 4%-5% before the pandemic. We believe this elevated deterioration above historic levels, including a roughly 3% long-term, secular rate of decline, reflects smokers who are under pressure due to economic factors (primarily inflation), price elasticity, and cross-category movements to other nicotine products. Thus far, Altria has protected profitability and cash flow primarily by increasing prices, as demonstrated by the low-single-digit percent adjusted operating income growth trend. We believe this reflects the strength of Altria's brands-- particularly Marlboro--despite its combustible cigarette portfolio shedding two share...

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