Altria Group, Inc. Q2 FY2025 earnings call

• on! Performance: on! nicotine pouches were the primary growth driver of the oral tobacco industry, growing 10 share points year-over-year and representing over half the category. Helix's activations and digital marketing boosted on!'s brand awareness.
• NJOY Update: Completed product design of a modified NJOY ACE solution addressing disputed patents, and is developing a broader vapor portfolio. Still exploring next steps with JUUL's patent outcome.
• Regulatory Advocacy: Pressed for enforcement against illicit e-vapor products and acceleration of FDA market authorizations. Noted recent actions by stakeholders but called for more consistent enforcement.
• Value to Shareholders: Returned over $4 billion in the first half through dividends and share repurchases, with $400 million remaining under the share repurchase program.

Smokeable Products Segment

• Adjusted operating companies income grew 4.2% to $2.9 billion in the second quarter and 3.5% to $5.5 billion in the first half. Domestic cigarette volumes declined, but Basic was strategically expanded into ~30,000 targeted stores, with its retail share growing 0.4 sequentially. Marlboro maintained a 59.5% share in the premium segment. Cigar shipment volume increased 3.7% with Middleton outperforming.

Oral Tobacco Products Segment

• Adjusted OCI grew 10.9% in the second quarter and 5.5% in the first half. on! was the primary growth driver, but MST volumes declined. Retail share was 33.1% in the second quarter and 33.9% in the first half. on! nicotine pouches grew 10 share points year-over-year and represented over half the category.

ABI

• Adjusted equity earnings were $130 million in the second quarter, down 10.3% due to a lower ownership interest from the sale of a portion of the ABI investment last year.

• Raised the lower end of the 2025 adjusted diluted EPS guidance range to $5.35 to $5.45, reflecting strong performance of core businesses and investments in smoke-free products.
• Expect EPS growth to moderate due to lapping the 2024 accelerated share repurchase program and MSA legal fund expiration.
• Balance sheet remains strong with a debt-to-EBITDA ratio of 2.0x as of June 30.

• Illicit E-vapor: Difficulties in fully stemming illicit e-vapor imports due to misdeclarations, despite recent enforcement actions.
• Regulatory Delays: Slow FDA product authorizations, with some applications waiting over 5 years for decisions.
• Macroeconomic Uncertainties: Inflation and changing consumer purchasing behaviors pose risks to sales and profitability.

Q: Could you talk about expectations for the second half of the year and the uncertain consumer environment?

A: Salvatore Mancuso noted monitoring adult tobacco consumer behaviors, inflation as an unknown variable, and dynamic macroeconomic environment. Happy with first half results and narrowed guidance by lowering the bottom end.

Q: Update on NJOY e-vapor product development and FDA application timeline?

A: William F. Gifford said they completed product design of a modified NJOY ACE addressing disputed patents, but couldn't give exact date for FDA application. Excited to bring NJOY back when appropriate.

Q: Impact of import restrictions on vapes and federal excise tax?

A: William F. Gifford said enforcement momentum seen but too soon to call trend. Salvatore Mancuso mentioned tariffs have been contemplated in guidance but are not material, with supply chain monitoring but no significant impact on cost.

Q: Thoughts on on!'s share position and future activations?

A: William F. Gifford said on!'s success is sustainable, emphasizing brand equity and long-term brand building. Salvatore Mancuso noted guidance contemplates support for on! and smoke-free product pipeline.

Q: Tariffs impact on packaging and consumer behavior?

A: Salvatore Mancuso said tariffs affect packaging materials like tin cans, but not material to overall business. Monitors impact on consumer purchasing behaviors due to cost of everyday items.