Altria Group, Inc. (MO) Earnings Call Transcript & Summary

Good day, and welcome to the Altria Group 2020 Annual Meeting of Shareholders. Today's virtual meeting is scheduled to last about 1 hour. I would now like to turn the call over to Mr. Tom Farrell, Altria's Chairman of the Board. Please go ahead, sir.

Thank you. Good morning, everyone, and welcome. I call to order Altria's 2020 Annual Meeting of Shareholders. I am Tom Farrell, Chairman of the Board. With me today are Billy Gifford, Altria's CEO; and Brandt Surgner, Altria's Corporate Secretary. Thank you for joining us virtually under the unique and challenging circumstances posed by the COVID-19. We hope you're staying safe and healthy. We will begin with our meeting details and agenda. Please review our agenda, which you will find in our meeting materials located on the bottom right of the virtual meeting site. Our rules of conduct are also posted there. The rules of conduct explain how we will conduct the meeting, including our question-and-answer session. We will begin by presenting our meeting documents, move to electing directors and then vote on the selection of PricewaterhouseCoopers as Altria's independent registered public accounting firm. Next, we will move to the nonbinding advisory vote on the compensation of Altria's named executive officers, and a vote on the 2020 performance incentive plan. Finally, we will proceed to the vote on 2 shareholder proposals if properly presented. After the shareholder proposals, we will close the polls and announce the preliminary voting results. Following the business portion of the meeting, Billy will present a business update and then answer your questions. Only shareholders of record as of the close of business on March 23, 2020, are entitled to vote during the meeting. Shareholders may vote through the virtual meeting site until the polls close. You'll need a valid 16-digit control number to vote. If you voted prior to the meeting, there is no need to vote those shares, unless you wish to change your vote. We suggest that you vote on each matter as it is presented. The window for shareholders to submit questions will remain open throughout the course of the meeting. Again, I direct shareholders to our rules of conduct for instructions on how to submit questions. You must have a valid 16-digit control number to submit a question. Only questions relating to the meeting will be answered during the question-and-answer portion subject to the 30-minute time limit. Rules provide additional information about the Q&A session. Finally, in the unlikely event we experience technical issues today, we ask you to stand by while we try to resolve the issue and resume the meeting or otherwise provide an update on the status. So with that introduction, Brandt, please present our meeting documents.

Thanks, Tom. I present, together with the affidavits of mailing, a copy of the Notice of Meeting, form of proxy, proxy statement as supplemented in an annual report, which includes financial statements for the fiscal year ended December 31, 2019. 86% of Altria's common stock is presented here today, so a quorum is present.

Thank you. Please file the documents with our meeting records. Altria has appointed Broadridge Financial Services to act as inspector of election. Ms. [indiscernible] has taken the oath of inspector of election and will be tabulating the vote for this morning's meeting. Inspector's responsibility is to determine the number of shares represented at the meeting and then to certify the votes. All proxies and ballots are confidential unless shareholders have commented on them. Let's please welcome our Board of Directors, all of whom have joined us virtually. It is an extraordinary and committed group that provides strong leadership and thoughtful oversight for the company. We value their skills, experience and perspectives they bring to the boardroom. Brandt, please announce the names of the nominees for Director.

The nominees are John Casteen; Dinyar Devitre; Thomas Farrell; Debra Kelly-Ennis; Leo Kiely; Kathryn McQuade; George Muñoz; Mark Newman; Nabil Sakkab; and Virginia Shanks, each to hold office until the next annual meeting of shareholders and until his or her successor has been duly elected and qualified. As we note in our supplemental proxy materials, Howard Willard retired from Altria and the Board of Directors last month and informed us that he will not stand for election to the Board at this meeting. Consequently, no votes will be counted for his election.

Thank you. Under our bylaws, the nominations are closed. Board recommends shareholders vote in favor of each nominee for Director. Our next item is the ratification of the selection of PricewaterhouseCoopers LLP as Altria's independent registered public accounting firm for 2020. We welcome Russ Moore from PWC and who has also joined us virtually this morning. Brandt, please present the matter.

I move the adoption of the following resolution, resolved that the selection of PricewaterhouseCoopers LLP as Altria's independent registered public accounting firm for the fiscal year ending December 31, 2020, be ratified.

Thank you. The Board recommends that shareholders vote in favor of this proposal. We'll now move to the advisory vote to approve the compensation of our NEOs. While this vote is nonbinding, the compensation and talent development committee will consider its outcome when making future decisions. The Board recommends that shareholders vote in favor of this proposal. Our next matter is the vote on the 2020 performance incentive plan. Board believes that the 2020 performance incentive plan is an important part of Altria's overall compensation program and recommends a vote in favor of this proposal. We will now turn to shareholder proposals and if properly presented vote on. Board recommends a vote against both proposals for the reasons explained in the proxy statement. We encourage all shareholders to read each proposal and our responses. Operator, please open the line for Sister Nora Nash, who will be presenting the shareholder proposal regarding disclosure of lobbying policies and practices on behalf of Trinity Health. Welcome to the meeting, Sister Nora. Please proceed, Sister.

Good morning, can you hear me?

Yes, ma'am.

Yes. Good morning. I am Sister Nora Nash, representing Trinity Health and Altria's shareholder. I ask for your vote in favor of proposal 5. The proposal asks for a report on Altria's policy and procedures governing direct and indirect lobbying, Altria's payments for such lobbying, Altria's membership and payments to any tax-exempt organization that endorses model legislation and a description of our company's oversight of this activity. As noted in the proposal, Altria and JUUL together spent more on lobbying in 2019 as of September than the rest of the tobacco industry combined. We appreciate the dialogues in which we have engaged the company regarding this issue. We think that they have led to recent improvements in disclosure of state-by-state lobbying expenses and additional information about Board committee's oversight of Altria's legislative, political and regulatory engagements. We know and appreciate these improved disclosures. However, disclosure regarding trade associations is limited to those where Altria serves in a leadership role. The company does not disclose a complete list of its membership in trade associations or advocacy groups. There is no disclosure on the nondeductible portion of trade association payments that goes into lobbying. Such disclosure is needed in order for shareholders to better understand the risks and benefits of the company's lobbying activities and trade association memberships. Altria discloses membership in some trade association where a company representative sits on a Board or committee, but this is an incomplete picture. The company does not disclose how much it pays the trade associations and the percentage of the payments spent on the lobby. For example, Altria sits on the Board of the U.S. Chamber of Commerce, which spent $77.2 million on lobbying in 2019. And yet Altria's level of funding of the chamber is not disclosed. We believe Altria's undisclosed trade association memberships and payments used for lobbying could pose reputational risks. Improved disclosure of the company's lobbying expenditures will ensure board and management oversight to safeguard that lobbying is being done in shareholder and Altria's best interest. For these reasons, we urge you to vote for proposal #5, the shareholder proposal requesting a report on the Altria's lobbying expenditures. Thank you.

Thank you very much, Sister Nora. Operator, please open the line for Mr. Tom McCaney, representing the Sisters of St. Francis of Philadelphia who will be presenting the shareholder proposal regarding report on the company's underage tobacco prevention policy.

Thank you. Good morning, Mr. Chairman, members of the Board and fellow shareholders. My name is Tom McCaney, and I'm on to present proxy item #6 on behalf of the Sisters of St. Francis of Philadelphia and 4 co-filers, all members of the Interfaith Center on Corporate Responsibility. The shareholder proposal requests the company report on its adherence to its policies and principles designed to discourage the use of nicotine delivery products to young people. Although progress has been made in limiting access to tobacco and other nicotine products for youth, the number of kids, under 18, using these products is still alarming. According to the CDC, 31.2% of high school students and 12.4% of middle school students used the tobacco product of some kind in 2019. Regardless of previous year's totals, this is unacceptable. Millions of American middle and high school students using addictive destructive products that they are prohibited from purchasing is no reason for celebration. It's been well documented that e-cigarettes have become popular among teens and adolescents over the past 10 years. Meanwhile, the vaping industry has come under scrutiny for marketing practices that may target youth. Altria's investment in JUUL, by far, the leading e-cigarette company, has raised questions about our company's commitment to restricting access to -- of its products to those too young to legally consume. The Altria website claims that "As the nation's leading tobacco companies, we have an important role in reducing under-age tobacco use." We agree and believe that an in-depth review of your performance in this realm is needed. We ask shareholders to support this proposal. Thank you.

Thank you, Mr. McCaney. All matters to be voted on have now been presented. Since all shareholders have had the opportunity to vote, I declare the polls now closed. Brandt, please summarize inspector's report.

The inspector of election has completed the preliminary count of the vote. The preliminary voting results are as follows. Shareholders have elected each of the nominees for Director with more than 93% of the shares voting for their election. The selection of PricewaterhouseCoopers LLP as Altria's independent registered public accounting firm for the fiscal year ending December 31, 2020, has been ratified with more than 97% of the shares voting, voting in favor. For the advisory vote on the compensation of Altria's NEOs, 49% of the shares voting voted in favor and 51% voted against. Shareholders have approved the 2020 performance incentive plan with more than 95% of the shares voting, voting in favor. Proposal 5 has been defeated with 69% of the shares voting on the proposal voting against and 31% voting in favor. Proposal 6 has been defeated with 63% of the shares voting on the proposal voting against and 37% voting in favor. That concludes the report.

Thank you, Brandt. Please file the inspector's report and the proxies with our meeting records. We'll post the final voting results on Altria's website and file them with the SEC on a Form 8-K in the next few days. This concludes the business portion of the meeting, and that portion of the meeting is now adjourned. Billy Gifford will now present a business update, which will be followed by a question-and-answer session. With that, I turn the meeting over to Billy.

Thanks, Tom. Before I begin, please review the safe harbor statement in today's presentation and the forward-looking and cautionary statements section in today's published remarks for important information. They're available on altria.com, along with reconciliations and further explanations of the non-GAAP financial measures will be discussed. Shareholders are familiar with their results through various means, including our 2019 annual report and our first quarter earnings release. All those materials are available at altria.com. I'll briefly recap our results before moving to a discussion of our new 10-year vision, corporate responsibility priorities and environmental, social and governance or ESG efforts. Altria's 2019 was characterized by 2 distinct stories. The outstanding performance of our core tobacco businesses and significant progress advancing our noncombustible business platform, alongside disappointing performance from our JUUL investment. In a rapidly evolving tobacco category with opportunities and challenges, our employees accomplished more with less and responsibly delivered outstanding results. We grew adjusted diluted earnings per share and continue to reward our shareholders with growing cash dividends. Recast or a change in how we define special items related to our AB InBev investment, we grew adjusted diluted EPS by 4.7% in 2019. And we paid more than $6 billion in dividends to shareholders and increased the dividend for the 54th time in 50 years. Our core tobacco businesses delivered strong financial performance with each of the smokable and Oral Tobacco Products segments, delivering high single-digit adjusted OCI growth, significantly expanding their adjusted OCI margins and maintaining strength on their leading premium brands. Turning to 2020. We took important steps during the first quarter to help our employees, businesses and communities navigate a coronavirus pandemic. We approached the challenges of COVID-19 by focusing on the health and welfare of our employees. We implemented remote working and social distancing protocols. After suspending operations at our Richmond manufacturing center, we've since reopened under enhanced safety protocols. And currently, all of our manufacturing facilities are producing products for our adult consumers. For our communities, we've committed approximately $7 million to date to support relief efforts for our employee and grower communities as well as our valued nonprofit partners who have been hit hard by the pandemic. Additionally, we've donated supplies, and we ran an Employee Giving Campaign to support nonprofits on the front lines of the pandemic. Our employees raised more than $200,000 for this campaign. At the same time, Altria delivered strong first quarter performance, grown its adjusted diluted EPS by 18.5%. The core tobacco businesses again delivered strong adjusted OCI growth and cash flow. Of course, COVID-19 brings increased uncertainty to the macroeconomic environment. We believe this uncertainty may persist and continue to impact Altria, our investees and our respective adult consumer populations. As a result, we recently withdrew our 2020 earnings guidance. Our businesses are highly cash generative, and we've taken steps to strengthen our liquidity and balance sheet to increase our financial flexibility. We're committed to returning value to shareholders through dividends. We remain committed to maintaining our dividend payout ratio target of approximately 80% of adjusted diluted EPS. For 2020, while we've withdrawn our adjusted diluted EPS guidance, we plan to recommend a dividend to our Board that reflects our strong cash flow generation and balance sheet. Earlier this year, we announced our 10-year vision to responsibly lead the transition of adult smokers to a noncombustible future. We believe the foundation for tobacco harm reduction in the U.S. is firmly set. Adult smokers are increasingly seeking alternatives to combustible products, and we have a federal regulatory framework that has established pathways to bring new tobacco products to market and communicate about their relative risk. To achieve our vision, we will pursue a number of strategies, including leading the industry and operating responsibly and preventing underage use of adult products; developing and expanding our portfolio of FDA authorized noncombustible products and actively converting adult smokers to them; maximizing the profitability of our combustible products, while appropriately balancing investments in Marlboro with funding the growth of our noncombustible portfolio and seizing leadership in the external environment through communications, engagement, science-based policy and regulatory solutions. We're excited to pursue our vision by making investments for the future while profitably growing our business and rewarding our shareholders. We know that shareholders expect us to deliver strong results while making progress against our corporate responsibility priorities and increased environmental, social and governance expectations. For more than 2 decades, operating responsibly has been core to our success as a business and has earned us our license to operate. Today, however, the tobacco industry is facing increased scrutiny. Altria must continue to build credibility and trust every day with a diverse stakeholders to achieve our vision, understanding their expectations, informs our responsibility priorities and business practices. Since 2014, we pursued 4 focus areas: reducing the harm of tobacco products; marketing responsibly; managing our supply chains responsibly; and developing our employees and culture. We also know it's important to invest in our communities, protect our natural resources and reduce our environmental footprint. Let's discuss a few of these. First, the primary expectation of our tobacco companies is to address the harm associated with their products. This means offering less harmful products to adult consumers and communicating about the risk and relative risks, preventing underage use and helping those who decide to quit. In 2019, we strengthened our competitive position with potentially reduced harm products for adult smokers by building a more diversified, noncombustible product platform. And we're seeking FDA authorization to provide tobacco consumers with truthful, accurate information about reduced risk products. In fact, we've launched the IQOS, heated tobacco system in Atlanta, Georgia and Richmond, Virginia, and we're awaiting the decision from FDA on Philip More's international's modified risk tobacco product application that seeks to communicate about the relative risk for adult smokers who switched to the IQOS system from cigarettes. In nicotine pouches, on! is now available in 28,000 stores. We're on track to submit premarket tobacco applications for on! this month and are encouraged by the evidence that would support its FDA authorization. And we've conducted hundreds of engagements with policymakers, FDA, scientists and other stakeholders on topics, including tobacco harm reduction, regulatory compliance and Tobacco 21. We know that the tobacco harm reduction opportunity for adults simply cannot be achieved if underage tobacco prevention is not a priority for all stakeholders. Today, underage use of conventional tobacco products is at the lowest levels in a generation. In fact, the 2019 monitoring the future study estimates used smoking rates to be 3.7%, an 87% reduction from its 1997 peak. However, underage use of e-vapor continued to rise in 2019. Tobacco manufacturers, regulators and policymakers must act collaboratively and with urgency to do more to reverse this trend. And Altria is committed to being part of the solution. In 2019, we announced our plan to spend an incremental $100 million towards -- toward underage tobacco prevention over the next several years. Our activities to date have included: supporting legislation to raise the legal age purchase for all tobacco products to 21 at the state and federal levels, which was enacted nationwide and in 25 states today; creating a new retailer trade program to reward responsible retailing through technology that validates age at the point of purchase; supporting retailer compliance with Tobacco 21 laws through training and move to 21 signage kits; and funding the expansion of our Success360, prevention and cessation partners programming into new geographies and beyond middle schools and the high schools. Lastly, we provided access to information through QuitAssist for those who have decided to quit. Since 2015, we've had more than 120% increase in site visits to the QuitAssist website, exceeding our 2018 target to increase annual visits by 20%. We continue to aggressively pursue a comprehensive harm reduction strategy that will drive success against our 10-year vision. Successfully converting a significant portion of adult smokers to noncombustible products represents a substantial opportunity for our adult tobacco consumers, our business, society and our shareholders. Let's move now into supply chain responsibility and our environmental goals. Our companies work hard to develop a strong, sustainable supply chain by partnering with thousands of suppliers from growers to manufacturers. Our supply chain partners deliver high-quality goods and services, and we value those relationships greatly. We promote a strong culture of compliance when selecting and managing suppliers. We work with suppliers who respect workers' rights, help protect the environment and comply with their contracts and laws. In 2019, we continue to expand our diverse supplier spending to nearly 9%, and we're approaching our 2023 goal up 15%. We completed 100% of our planned good agricultural practice or GAP, assessments on domestic growers, and we communicated with more than 1,800 tobacco growers to highlight our expectations on topics like using registered farm labor contractors and respecting workers' rights to join or not join a union. We understand the effect of nature, including changes to our climate and water quality and availability may have on our companies and their supply chains. We work with our suppliers to find ways to reduce costs and their environmental footprint. And we're making good progress. Altria was identified by CDP as a global leader for engagement with suppliers on climate change. Altria was also commended as a global leader in sustainable water management and achieved a place on CDP's most recent 2019 water security A list. Yet external stakeholders' expectations continue to rise, which call for companies to achieve more ambitious environmental progress. We agree that more can be done, and Altria recently established more aggressive goals for 2030. These include cutting absolute scope 1 and 2 greenhouse gas emission by 55% off a 2017 base; a scope 3 goal to reduce our carbon footprint by 18% throughout our value chain; achieving 100% renewable electricity, reducing waste into landfill by 25% compared to 2017; and an annual goal of achieving 100% water neutrality. And in April, we submitted our new scope 1, 2 and 3 emissions reduction targets for official validation by the scientific-based targets initiative. Let's move now to developing our employees and culture. Altria could not be as successful as we've been without investing in our employees, culture and communities. To achieve our 10-year vision, we need to inspire all employees to perform their best. With our talent and culture initiatives, we're trying to enable the right environment so that employees can reach their maximum potential. We also recognize that if we're going to achieve our vision, we must be a more inclusive place to work and a more diverse company with more diverse leadership. To this end, we've established 10-year inclusion and diversity aiming points that will measure progress against price annually. And while we have work to do, we're proud of the progress we've made. One example of this progress is that Altria continues to be recognized as one of the best places to work for LGBTQ equality. Lastly, we also recognize the importance of strong governance practices. With Howard's retirement in April, the Board separated the roles of Chairman and CEO, naming Tom Farrell, previously presiding Director, Chairman of the Board. This creates a more independent board structure. The long-term sustainability of our business depends on our ability to deliver comprehensive solutions to critical environmental, social and governance challenges, impacting a broad range of stakeholders, including our shareholders, employees, adult tobacco consumers, partners across our value chain and those in the communities we impact. My remarks today don't reflect the full depth of our commitments to responsibly operating our business or the progress we've made. In June, we'll release our 2019 corporate responsibility progress report, and I invite you to learn more. Credit for all the achievements we've described belongs to our deeply talented employees. I'm extremely proud of their efforts, and I'm honored to lead this company into the future. Thank you, and let's now move to our question-and-answer session. Mac Livingston, President of Investor -- Vice President of Investor Relations, will present the questions you pose at site. Let's begin.

Thank you. Billy will try to answer all of your questions this morning. We will take questions in the order in which they are received. To conserve our time, we make group questions submitted by multiple shareholders on the same topic. The rules of conduct explain how we will handle questions if we run out of time.

Your first question comes from Ann Gurkin at Davenport. Congratulations, Billy, on your new role as CEO. Please comment on the strategy behind Marlboro? Marlboro lost 50 basis points of market share in the first quarter versus last year. Is the company in a harvest mode on Marlboro? On the first quarter call, the company withdrew its compounded financial year outlook. Is there a change in the financial algorithm for the company? And what is the approach to capital allocation? Thank you.

Thanks, Ann, for the congratulations. And thank you for the question on Marlboro. Look, we're extremely proud of the strength of Marlboro. I think when you listen to the first quarter call, and we described that share lost on Marlboro, it was really what we felt related primarily due to older adult smokers that had previously moved over to the e-vapor category. What the product restrictions came in place on flavor and availability of products, we saw some of those consumers moving back, the older adult consumer moving back to the cigarette category. And we think this had an adverse effect on premium brands because we know that the older adult smoker has a higher infinity to deep discount brands. And so that was the major impact that we saw in the first quarter of Marlboro. As far as harvest mode, certainly, we're not in a harvest mode on Marlboro. We're actually -- I'll remind you the strategy we have for the cigarette category, which is to maximize profitability over the long-term of that category while keeping the Marlboro brand strong. As far as the algorithm, we feel very confident about the algorithm. Pricing plays an important part of that algorithm. And I mentioned in the first quarter that -- and you mentioned it as well that we did pull our financial guidance, and that's really related to the uncertainty around the macroeconomic environment. Until we get past some of this COVID and have more certainty around where unemployment settles out, we know that there'll be pressure on our consumer base for down trading. We feel like we have the right tools in place to guard against that, and we're ready. We had those tools in place in 2008, 2009, and I think you see we fared that recession very well. We've enhanced those tools now with much deeper analytical information and data analytics to really support the usage of those tools in the marketplace. So we feel really good about being able to deploy those, if necessary. As far as the capital allocation approach, we're very disciplined about it. It really is -- we look at capital expenditures, but they're very tiny for a company of our size. They usually follow depreciation to a large extent, year-to-year. And if you think about that after that, it's the 80% dividend target payout ratio, and that on a typical year leaves about $1 billion in excess cash. And you can see in our history, we deployed that in a number of ways. We've, at times, bought shares back. We've had debt management, whether that be straight debt tenders, paying off debt that matures or at times debt tender refis. Again, Ann, thank you for the congratulations and thank you for the question.

Your next question comes from Amber Updike. It reads, if the company encourages transparency when it comes to lobbying activities, then why do you recommend against sharing the company's spending involving these activities?

Yes. When it comes to lobbying activities, we agree that our shareholders and the public should have access to this information. And we actually provide a significant amount of information on our engagement, our contributions and the oversight of such activities, and that's all available on altria.com. In fact, our transparency in this has led to recognition as a leader in disclosure of political activities. When you step back from that, we truly believe that participation and the political and public policy process is vital to our business and really serves in the best interest of our shareholders. But if you have any questions regarding that, I encourage you to look at our website for all of the information we disclose there. Thank you very much.

Your next question comes from Elsa Rogers. It reads, science shows that menthol flavors like are in Marlboro Bold Ice, enhance the addictive qualities of tobacco products. Research also shows that these menthol-flavored tobacco products are marketed towards teens and minorities. You agree with these statements and knowing this, why is menthol not put on the same playing field as other flavors in regards to tobacco and nicotine products?

I think when you bring up the topic of menthol flavors, it's important to remember that all of these products are now regulated by the FDA. And so they've gone through various studies on the science and evidence there. We made significant disclosures on our positions. We had an in-depth review. Those papers were filed with the FDA, and we make those all publicly available on altria.com, so you can see our positions there. The gist of that is we believe that banning the use of menthol and cigarettes is not supported by the way of scientific evidence. As far as youth, we would be in a complete agreement that no youth should use any tobacco products, whether it's flavored or not. And we have extensive efforts that we undertake to help decrease the use of tobacco products by underaged consumers. Thanks very much for your question.

Your next question comes from Eric Pearson. It reads, my question concerns the Board's priorities for the use of the company's free cash flow. Specifically, given that the company's shares now yield 9% to 10%, have management and the Board considered that only nominal dividend increases might be appropriate going forward and that the Board -- and that the company's cash might be better -- put to better uses by, for example, investing in existing brands or new alternative products or by reducing long-term debt and strengthening the balance sheet?

Yes. Thanks for your question on capital allocation. It is important, and we look at various scenarios, and we look at the market conditions that are in place when we make those decisions. I'll recap again how we think about allocating capital across the business. It really is capital expenditures, but they're very, very tiny. And then we are committed to the dividend. We know it's important to our shareholders. They greatly value it, and it's a top priority for us. And as I said earlier, in a typical year, that leaves about $1 billion in excess cash. And we look at the things that you mentioned here, whether that is debt management, whether that is share repurchase. And then we make those recommendations to the Board. We show them the various scenarios that we addressed and then they make the appropriate decisions. So thanks very much for your question on capital allocation.

Your next question comes from Darryl Warner from the counsel from Burley Tobacco. It reads, as a stockholder, tobacco contract grower for Philip Morris USA and Altria and also as a representative for the counsel for Burley tobacco growers, I would like to know if anyone on Altria's Board or an Altria's senior marketing team is aware of the fact that the price for U.S.-grown tobacco has not changed in 20 years? As a contract grower with PM USA, I am required to follow all labor laws, and I only hire labor that is legal and does not violate child welfare laws. Our operation meets all of Altria's good agricultural practice requirements even as we have watched the cost for this to rise each year. While I've stepped up my operation to meet the requirements set forth by Altria, the price paid to me and other U.S. contract growers for the key ingredient in your combustible cigarettes is barely sustainable. 2020 price has been called static compared to 2019 leaf contract price. Why are we the U.S. growers who are stepping up to meet all your requirements treated as a part of the food chain and not as a partner? We growers deserve better. We deserve to be at the table as partners with Altria leadership as we continue to provide the picture of social responsibility at the ground level for the Altria stockholders and Board members.

Well, Mr. Warner, thank you for coming to the meeting. I know it's virtual this year versus in person, and we welcome you to the meeting. I know that you and our other growers take great pride in what you do and delivering the finest tobacco in the world, and I thank you for that. I think when you think about tobacco prices in the U.S., we work on building relationships with our growers that promote our mutual success. And we're committed to U.S. growers and that quality of product that I mentioned that you produce. And I think you can see that commitment in the way we approach the U.S. market. We're committed to the U.S. growers, and we maintain that direct contracting model, which we feel like brings increased or greater revenue stream to growers versus other models. And we offer competitive tobacco pricing in the marketplace, and it's really a pricing package. From a base price, it's at the top of the market in the U.S. and then we have targeted programs to assist whether it's with a cost initiative or with social compliance initiatives. And a couple of examples of that would be like H2H -- H-2A assistance where we added $0.04 to the price per pound of tobacco to assist with that or whether it's -- another example would be grower certification initiatives. And so we do care for our growers. We know they play an important role in producing the quality products that we produce. And I thank you for being a grower.

Your next question comes from Edward Sweda. It reads, at last year's Annual Shareholders' meeting, I noted that multiple lawsuits have been filed against JUUL, including one by the North Carolina Attorney General and asked what specific steps Altria Group would take to make JUUL less vulnerable to lawsuits? In response, Howard Willard gave the standard assurance that Altria is very committed to helping address the increase in e-vapor use. Since then, more lawsuits have been filed against JUUL, including one by the state of California, which alleged that JUUL is filling nicotine products to youth. In Ohio, a mother's suit after her twin teen daughters became addicted to vaping. In September 2019, a federal lawsuit was filed in Indiana by a man who claims his 17-year-old son who started vaping at age 15 is addicted. Although in September 2019, a federal lawsuit in Wisconsin accuses JUUL and Altria of aggressively targeting young people for addiction. In December 2019, a mother in Connecticut suit, claiming that e-cigarettes caused her son seizures after he became addicted to nicotine. Just last month, a lawsuit filed in Georgia alleges that JUUL's conduct caused a former athlete to develop permanent lung damage. So my question today is as follows, what specific steps will Altria Group take this year to make JUUL less vulnerable to lawsuits? Thank you.

Mr. Sweda, thank you for coming to the meeting, and welcome. I think when you think about the steps we've taken for underage use of tobacco products, including e-vapor, the biggest step that we felt like would have the biggest impact on underage usage of tobacco products was advocating for the minimum age to purchase to 21. And as you know, that passed on the federal level last year. We also committed an additional $100 million to help address underage access to the use of e-vapor products. And I shared in my comments, some of the places we have spent that money, whether it's partnering with our retail partners to restrict access, make sure that they are complying with the 21 minimum age to purchase, putting up signage as a reminder that you have to be 21 or older to buy tobacco products at the retail environment, and we continue to take other actions. And so I thank you, it's an important issue, and we agree that the trend in underage e-vapor use needs to go down, and we all have to work together to have that happen. So thanks very much for your question.

Your next question comes from [ Tabitha Batu Thiago ]. It reads, asking whether or not your company plans on collaborating with the education system to educate the youth on and discourage underage tobacco usage?

Thanks very much for your question, and you bring up an important topic. And it is around education. And most of our moneys that we commit is for positive youth development. While we don't partner directly with the education system, we partner with third parties who have great success in positive youth development, whether that be the one I mentioned earlier, being Success360 or Big Brothers Big Sisters. And we give our moneys to them and make sure that they're committed to educating youth on making wise decisions and avoiding risk behaviors like tobacco usage or using tobacco products. And so that -- we feel like that's the best way to approach educating youth not to use tobacco. Thanks very much.

Your next question comes from Jonathan Chaffee. With more and more states, New York being the list as of May 18, 2020, to ban flavors in e-cigarettes and with the FTC suing to undo our investment in JUUL. My question is, does Altria plan on bringing back their own vaping products or looking into investing in new popular products like disposable e-cigarettes that can still contain flavors under the federal e-cigarette flavor ban?

Yes. You bring up an important topic and that be the FTC challenge. And we feel like we're focused on vigorously defending that investment. We believe that FTC complaint was based on a number of factual and legal errors, which, in fact, we look forward to demonstrating in the challenge process. I think if you step back from that and look at our position, because you asked a question about the portfolio, we are in a dynamic industry that's evolving rapidly, and it's really the consumer that used to use combustible products really looking for alternatives in the noncombustible space. And we do, in fact, employ a portfolio strategy. And that strategy is looking to position us to win in every category as the consumer makes different choices. Not everything works out the way we have planned, but it's -- what you should measure us on is truly how we adapt to those changes. And I like the way we're positioned with the portfolio of products and the management team we have in place. And the reason I say that is if you step back, we're #1 in the cigarette category with our brand Marlboro in the U.S. We're #1 in the most profitable segment of machine-made large cigars with our Black & Mild brand. We're #1 in traditional MST with our brands, Copenhagen and Skoal. We've now positioned ourselves to have a leading brand in oral nicotine pouches with our investment in on!. As you mentioned, we have an investment in the leading e-vapor brand, JUUL, and we also have exclusive rights in the U.S. to a leading heat-not-burn product in the world with IQOS. And in fact, we have what we feel is a first-mover advantage in the U.S., and we feel like we're excited to be able to do that while it's been delayed slightly with the COVID-19. We're excited to be able to get back on that. We were pleased with the results we were seeing in test markets. So when you step back and look at that total portfolio approach and the management team that positions us to have that portfolio of products, we feel very excited about making progress and succeeding against our 10-year vision. Thanks very much for your question.

Your next question comes from [ Sharif Al Saleh ]. It reads, with the write-down the company has taken in regards to the JUUL investment, does that impact the future dividend increases? Or does the company still plan to increase the dividend at approximately the same rate it has done so previously? Thank you.

Yes. Thanks for asking about the dividend. We know it's important to our shareholders, and it remains a top priority for us. I would remind you that the write-downs or the impairments took against our JUUL investment were all noncash, so it did not affect our cash position. And as you heard earlier in our remarks, we're committed to our dividend target payout ratio of 80%. And then I shared with you this year because we had pulled guidance up some additional information of how we will approach the dividend in 2020. But we know it's valued by our stock -- shareholders, and it remains a top priority for us. Thanks for your question.

Your next question comes from Cameron Mitchell. Would you support a comprehensive apology from Philip Morris USA, expressing regrets for the company's past misconduct and inappropriate and harmful action, such as past advertising that made tobacco look safe, look healthy; tobacco was not addictive; tobacco was not harmful; and former CEO, James Morgan, comparing addition to liking gummy bears?

I think the gist of your question is that tobacco causes harm, and we agree with that. And we prominently put that on our website. I think the most important question regarding that is what we're going to do about it. And I would point to a couple of things. It's really -- our support of the FDA that allowed for the regulatory framework to be put in place to bring noncombustible and potentially reduce risk products to consumers and be able to communicate the relative risk of those products versus using cigarettes. I think it's about providing health information and the risk associated with using tobacco products on our website and elsewhere. It's about providing cessation, and I mentioned QuitAssist in my earlier remarks on our websites for those who have made the choice to quit. It's about helping reduce underage use of tobacco products, and I mentioned the success we've had with partnering with various third parties in reducing underage use of cigarettes, but there's always more we can do. And so it's really about the actions we're taking to try to reduce the harm associated with tobacco as we move forward into the future. And I hope you heard in my remarks and noted that we're really looking to move the consumer and transition the adult smoker to a noncombustible future. Thanks very much for your question.

Your next question comes from [ Yazmin ]. With IQOS being sold as a heat-not-burn product, how do the heating agents in the IQOS system differ from the ones in traditional products such as cigarettes?

Yes. It's a great question. And I point you to our website to get the most detail, but I'll explain it at a top level. When you utilize a cigarette, you're actually burning the tobacco. So you've lit it on fire and it's burning. On heated tobacco, it actually has heat stick that inserts into a device and a blade goes up into that heat stick. That blade heats the tobacco enough so that vapor can come off the tobacco, but it does not burn the tobacco and causing a great reduction in all the compounds that are associated with smoking. And so that's the biggest difference between using a cigarette and using a heat-not-burn. One, you're actually burning the tobacco and the other you're controlled heating it up to a certain level. Thanks very much for your question.

Your next question comes from Peter Daniel. It reads, I am more than a little concerned regarding the company's ill-timed and poorly researched investment in JUUL. When will we see support for the stock price from something other than assurances that dividend won't be cut?

As I mentioned earlier, it's about the evolution that's taking place in the tobacco industry. And what we're trying to do is position ourselves to continue to satisfy our consumer that's showing a desire to move from combustible to noncombustible products. And we're really looking to position ourselves to win in each of those categories as they make those additional decisions. However, not everything does work out the way we have planned and it's how we adjust to those changes that are important. And I think you can see in the first quarter, we had a very strong financial performance in the first quarter. And I personally like the way we're positioned. And again, both in the portfolio of products as well as the management team that has positioned us to have that portfolio of products. And I'll just recap again, we're #1 in cigarettes with the Marlboro brand; #1 in moist smokeless tobacco with our brands, Copenhagen and Skoal. And by the way, that's the most profitable noncombustible segment in the world. We've positioned ourselves to have a leading brand in the old nicotine pouch segment with our investment in on!. We have an investment in the leading e-vapor brand, JUUL, and then we have exclusive rights to the IQOS brand, which is the leading heat-not-burn category in the world, and we're excited to be able to continue our progress against that in the U.S. And as I mentioned earlier, we have a first-mover advantage there because that's been the only heated -- heat-not-burn tobacco product all the way through the FDA process. And so we're excited about that. So we feel like we're well positioned, and I think it will be success against their vision that will help drive the stock price. Thanks very much for your questions.

Your next question comes from Louis Drucker. It reads, with the drop in share prices and the overall decline in smokable tobacco product sales, we, shareholders, are always concerned about the survivability of our quarterly dividend. It is vitally important to us. Can you please comment?

Yes. And I mentioned earlier about the dividend, we know it is a value to our shareholders. And it's a top priority for us. I think you can see with our first quarter results, we came out to a strong start. We did caution in the first quarter with this macroeconomic environment that we pulled guidance just because of the uncertainty regarding it, but we feel like we have the right tools. And our core tobacco businesses, whether you want to mention Marlboro in cigarettes or Copenhagen and Skoal, in the moist smokeless tobacco category, are very strong. We feel like we have the right tools in place to weather and apply to any type of economic downturn, we had great success with those tools in the 2008-2009 recession, and we've enhanced those tools with our data analytics team. And so from that standpoint, we feel good about it. We know that the dividend is very important to our shareholders, and it's a top priority for us. Thanks very much for your question.

Your next question comes from Joseph Potter. With tobacco use being the #1 cause of preventable death in the United States, why are you able to get their hands on your products? And what are you doing to prevent or stop this from happening?

Yes. Again, I would repeat, underage usage is of importance to everyone. And we do not want any kids to have access or use tobacco products of any form. I think what's important is to look at what we've done. And I think what I would highlight again is the advocacy we have in place to move the legal age of purchase to 21, meaning that you have to be 21 to be able to purchase tobacco products. If you look at the statistics in the U.S., over 80% of teenagers become 18 in high school. And we know social access was the biggest way that underage users, meaning social accesses, I have aged friend buy it for me. And that was the biggest way that underaged consumers had access. So moving the legal age to 21 should greatly reduce that social access for underage users. And that became federal law last year and has now been passed in 25 states to date, and we're continuing to advocate in those states that have not. So it's an important issue. We agree that it needs to be reduced across the board with all tobacco products. And I think -- we think we've made great progress in moving the minimum age to purchase to 21. Thanks for your question.

Your next question comes from Michael Murphy. The recent performance of the Board and Altria's operating management does not justify compensation increases, was the decision to purchase JUUL a unanimous decision of the Board?

Yes. I think you -- I would refer us back. I think it's an important issue. When you look at the way the industry is evolving and most importantly, the consumer. When we look at any type of acquisition or investment, we go through a very disciplined analysis of that investment. That is presented to the Board, if it meets a certain criteria and the ones you mentioned do meet that criteria, and it was a unanimous decision. It really is stepping back from that and looking at how we're positioned, and I truly like the way we're positioned, both with the portfolio of products that we have now available for adult consumers in the U.S. as well as the management team and the Board that has positioned the company to be able to seize and have be successful against our 10-year vision. As I mentioned earlier, the consumer is truly showing a desire to move away from combustible to noncombustible products. And we believe over the 10 years, noncombustible could represent a majority of consumption of tobacco products in the U.S. And I mentioned the way we're positioned with those products -- that portfolio of products in the U.S. And so we're extremely excited about bringing those products to the consumer and being successful against our 10-year vision. Thanks very much for your question.

Your next question comes from Sister Nora Nash. Our view by public experts convened by the WHO on the 29th of April, found that smokers are more likely to develop severe disease with COVID-19 compared to non-smokers. The WHO stresses the importance of ethically approved high-quality systematic research. How is Altria addressing the seriousness of continuing to live by a product that is dangerous for smokers at the time of this pandemic?

Thank you very much for the question, Sister Nora. I think on matters of tobacco and health, the public really should be guided. And this is -- our policy should be guided by the conclusions of public health authorities. And we support a consistent voice on such matters. And as you mentioned, these products -- tobacco products do cause harm and cause serious diseases. And so the best thing, if someone wants to reduce the harm associated with those, is to quit. And so we provide that information on our website. And so anybody that's interested in quitting can access our website and have access to that information. Thanks very much for your question.

Your last question comes from Brett Dorendorf. How do you expect the business performs under depression-like conditions? Can you please evaluate the risk of consumers trading down from the premium Marlboro brand to discount products? How might it be mitigated?

Yes, it's a great question. And we're waiting to see where the end of unemployment is and how recovery out of this COVID, everybody stay-at-home process will take place. As I mentioned in our first quarter call that we believe there will be pressure for consumers to trade down. And we have various tools in place, and you saw us apply those very efficiently and effectively in that 2008-2009 Great Recession. We've enhanced those tools now because we have the same tools, but they're enhanced in the way we would allocate those across the U.S. based on deep data analytics with the advanced analytics team we have now in Altria. And so we have the tools ready. We have the information ready, and we'll deploy those as we see necessary around the U.S. And so those tools are special price promotions that we can do at a state level. They are especially marked packed that we can do now to the ZIP code level and their coupons where we have an extensive database of both our consumers and competitive consumers, and we can send those down to the individual. And so we feel like we have the right tools. We have the right data analytics and support for that. And so we'll deploy those as necessary. Thanks very much for your question. This concludes the question-and-answer session. Thank you all for your questions and for your continued interest in Altria. From all of us at Altria, please stay safe. The meeting is now adjourned.

That now concludes the meeting. Thank you for joining and have a pleasant day.