Altria Group, Inc. Q4 FY2025 earnings call

• U.S. Nicotine Space: Estimated 30 million adult consumers in e-vapor and oral tobacco categories. Smoke-free alternatives over 50% of nicotine space. Illicit flavored disposable e-vapor products a major headwind. FDA actions needed for better regulatory clarity.
• Nicotine Pouch Category: Oral tobacco volume up 14% past 6 months. ON! grew shipment volume. ON PLUS launched, with plans for national rollout in first half of 2026. Positive consumer feedback on ON PLUS's pouch material and flavor.
• International Smoke-free Efforts: ON PLUS and Fumi in international markets, expanding to 40,000 retail locations in seven markets. Added new line extensions for Fumi.
• 2026 Financial Outlook: Expect 2026 full-year adjusted diluted EPS in range of $5.56 to $5.72, weighted to second half, reflecting planned investments and NJOY ACE not returning to market.

Smokeable Products Segment: Full year adjusted operating income (OCI) exceeded $11 billion, with adjusted OCI margins expanding 1.8 percentage points to 63.4%. In the fourth quarter, adjusted OCI declined 2.4% and margins contracted 0.8 percentage points to 60.4%. Domestic cigarette volumes decreased. Discount segment growth impacted Marlboro's retail share, while Marlboro remained leader in premium segment. Cigars: Middleton outperformed.

Oral Tobacco Products Segment: Fourth quarter adjusted OCI declined 4.6%, with margins contracting 5 percentage points to 64.5%. Full year adjusted OCI increased 1.3%, with margins modestly expanding 0.1 percentage points to 67.9%. Total segment reported shipment volume decreased, but ON! growth partially offset declines.

E-vapor Reporting Unit: Impairment charges of $1.3 billion recorded in Q4 due to lack of meaningful reduction in illicit e-vapor volumes despite increased enforcement. Reporting segments updated to include e-vapor products segment (NJOY business).

• 2026 full-year adjusted diluted EPS expected in range of $5.56 to $5.72, representing 2.5%-5.5% growth from 2025's $5.42 base.
• Growth weighted to second half, reflecting progressive increase in cigarette import and export activity.
• Guidance contemplates planned investments, limited impact from illicit enforcement on combustible/e-vapor volumes, and NJOY ACE not returning in 2026.

• Proliferation of illicit flavored disposable e-vapor products jeopardizing tobacco harm reduction opportunity.
• Pace of FDA market authorizations for smoke-free products remains a concern.
• Intellectual property landscape poses challenges to product development and market entry.

Q: Can you provide color on the scope of the import-export program for 2026?

A: A bit reluctant to share specifics, but upfront investments are moderate, allowing duty drawback and setting up manufacturing for international markets.

Q: Is the elevated CapEx in 2026 a one-time increase?

A: Primary driver is investments for import-export business, not a one-time increase, with investments preceding volume and related to long-term vision.

Q: Thoughts on aggressive promotional strategy behind Basic weighing on net price realization?

A: Basic deployed in ~30,000 stores, targeting consumers under economic pressure, with revenue growth management analytics applied, and not seen as competitive to Marlboro strategy.

Q: Any commentary on increased smoking incense among younger legal-aged users?

A: No specific trends seen, and focus is on expediting FDA authorization of smoke-free products to inform consumers.

Q: Why start ON PLUS distribution in three states initially?

A: Initially started in three states as Salesforce had existing distribution, with plans for national rollout in first half of 2026.

Q: Clarification on pricing of competitors in nicotine pouches?

A: Significant competitor promotions in third and fourth quarters, including free cans with purchases, impacting competitive pricing, while ON Classic saw price increases.

Q: Payback time for import-export investment?

A: Payback is less than a year, with strong return on investment. Elevated investments upfront as volume increases through import-export process