The Altria Group is holding their 2023 third quarter and nine months earnings conference call, where the CEO and CFO will discuss the company's results. The call will last about an hour and include a question-and-answer session. The company has issued a press release and made various materials available on their website. The call will contain forward-looking statements and financial results will be reported in accordance with U.S. GAAP. Adjusted results will also be provided, excluding special items.

The speaker, Billy Gifford, begins by clarifying that all references to tobacco consumers in the speech are for adults 21 years and older. He then discusses the company's profitable traditional tobacco businesses and their resilience in a changing market. He mentions their focus on transitioning adult smokers to a smoke-free future and their investments in this goal. He then moves on to discuss their progress with NJOY, a pod-based e-vapor product that has received FDA authorization, and their efforts to bring it to more consumers. He emphasizes their responsible and sustainable approach to growing the e-vapor business.

The company has worked on strengthening the NJOY supply chain and does not expect any capacity constraints as they expand with ACE. They have focused on closing inventory gaps and expanding distribution of ACE, which is now available in 42,000 stores and is expected to reach 70,000 by the end of the year. The company has also improved visibility at retail through new point of sale and fixture signage. They have recently launched a retail trade program to strategically position NJOY and create awareness among tobacco consumers.

NJOY is planning to implement new promotional plans and a retail trade program to increase consumer engagement and brand loyalty for their e-vapor product, ACE. They also have plans for a new brand equity campaign. However, the e-vapor market is currently facing challenges due to the presence of illegal flavored disposable products. NJOY is working with regulators and other stakeholders to address this issue and promote proper regulation and enforcement in the market.

The company has taken legal action against 34 organizations in the US for the sale of unlawful products. The oral tobacco category has seen growth, with nicotine pouches representing over 32% of the market and on! experiencing a 37% increase in shipment volumes. The company has focused on increasing profitability and saw a 33% increase in retail price for on!. The brand also launched in Sweden and initial consumer data is positive.

PLUS' unique flavor system and proprietary software set them apart from competitors. The company is in a good position to lead the transition to smoke-free products and has seen success with NJOY and on! Sal Mancuso provides an update on consumer and industry dynamics, noting that cigarette industry volume continues to decline due to macroeconomic factors and the growth of illegal flavored disposable e-vapor products. The company is working to refine their estimates on the impact of these products on the industry. In terms of results, the Smokeable Products segment is focusing on maximizing profitability in combustibles while also investing in Marlboro and smoke-free products.

The Smokable Products segment of the company saw an expansion in adjusted OCI margins and growth in retail share for Marlboro during the third quarter. However, adjusted OCI declined due to industry volume declines and higher promotional investments. Net pricing remained strong and Marlboro's retail share grew sequentially, while promotional investments in Marlboro Black contributed to its strong performance. The total discount segment share also grew, but has remained stable since the first quarter. Domestic cigarette volumes for the segment declined in the third quarter and first nine months.

Adjusted domestic cigarette volumes declined by an estimated 10% in the third quarter and for the first nine months. The industry as a whole saw a decline of 8%. Cigar shipment volume increased by 4.2% in the first nine months. The Oral Tobacco Products Segment reported strong results with a 7.1% increase in adjusted OCI and a 69.3% adjusted OCI margin. Total segment shipment volume decreased by 3.3% and 2.3% for the third quarter and first nine months, respectively. The decline was driven by declines in MSP volumes but partially offset by the growth of on!. The Oral Tobacco Products Segment retail share declined by 4.2 percentage points in the third quarter. The company continues to return cash to shareholders through capital allocation.

In the third quarter, the company paid dividends, raised the dividend by 4.3%, and repurchased shares. Their balance sheet remained strong and they are expecting to complete their share repurchase program by the end of the year. They also narrowed their full year guidance and announced the creation of a connect and transform open innovation system. They have published 11 innovation briefs and the earnings release and non-GAAP reconciliations are available on their website. The company then opened the question-and-answer period for the call. The first question came from Pamela Kaufman with Morgan Stanley.

In this paragraph, Pamela Kaufman asks about the outlook for the cigarette category and if high single digit industry volume declines are expected to continue. Sal Mancuso responds by saying that they are happy to provide more transparency in narrowing their guidance for the year, and they feel good about their ability to deal with any changes in the marketplace. However, they do not provide forward-looking guidance. Billy Gifford adds that the consumer is still under macroeconomic pressure and that the impact of illicit vapor on the cigarette industry is estimated to be 1.5 to 2.5, but there are information gaps that they are working to fill.

The company used various data sources to track the impact of their efforts on adult vapors, which showed a significant increase in the past nine months. They are also focusing on enforcement activities and working on getting FDA authorization for their products. The company believes they can successfully grow the NJOY brand in the pod-based market, despite competition from unregulated e-ciggs. They have been working on building a strong foundation for NJOY, including improving the supply chain and visibility in stores, and plan to expand to 70,000 stores by the end of the year. They are also implementing a trade program to secure a sustainable position on retail fixtures.

The paragraph discusses the equity campaign for NJOY and how it will establish brand equity for the company. The speaker also mentions their guidance for the year and how it has been narrowed, but still falls below their mid single digit growth goal due to planned investments and potential headwinds. The restatement of guidance also takes into account non-cash expenses related to the NJOY deal.

The speaker, Billy Gifford, responds to a question about the company's expenses and profit margins in the quarter. He explains that the overall industry volume has declined due to the impact of illicit e-vapor on the cigarette category. He also mentions that the company's investments have led to an increase in Marlboro share. When asked about the price increases, Gifford says that the company thinks about it over a longer term and that fluctuations in volume can affect the controllable cost per pack.

The question is whether we can expect higher prices from tobacco companies as volumes decrease due to macro factors. Billy Gifford advises not to focus on one price increase, but rather on the overall factors that influence pricing. He also mentions the stability of Marlboro's market share and the industry's price elasticity. The company has filed litigation against illicit vapor manufacturers, but it's difficult to predict how long this process will take. The goal is to obtain an injunction against these illegal products.

The speaker discusses the lack of enforcement by the FDA and the need for action to protect harm reduction and informed choices for smokers. They also mention the positive trend of adult smokers moving towards reduced harm products and the importance of regulation based on science. The questioner then asks about the healthy margin improvement in smokeless products and the speaker credits both traditional smokeless and oral tobacco products for contributing to this strength.

The paragraph discusses the net pricing increases for the company and the 30 basis point improvement in Marlboro market share. The launch of Marlboro Black Gold is seen as a positive tool to retain consumers during economic strain. The company is pleased with the results and the rounding out of the portfolio. The Nevada menthol share fell off in the third quarter, potentially due to illicit activity in California.

The speaker is optimistic about the possibility of meaningful action from the FDA regarding disposable vapor products in the next six to 12 months. They suggest four steps that the FDA could take to improve enforcement, including providing a list of authorized and denied products and conducting retail inspections. The speaker also mentions that the FDA has previously taken similar actions in the cigarette category.

The speaker believes that the FDA has the tools and authority to take action against illegal products in the e-vapor space. They suggest four steps for the FDA to take, including issuing maximum penalties and adopting comprehensive border programs. They are open to statutory changes, but believe the FDA can act now. The speaker also mentions the difficulty in tracking the volume of illicit products due to their distribution channels.

The speaker discusses the impact of cigarette volume and provides data estimating a 1.5 to 2.5 increase over the last 12 months. They mention data gaps and the need for a better understanding of the market through distribution channels. When asked about the industry's sequential volume increase in the second quarter, the speaker is unable to provide a concrete answer due to the presence of illicit products. They also mention the importance of enforcing regulations and point out that the illicit products contain flavors that do not comply with regulations. They then thank the questioner and take the next question.

Matthew Smith asked about the impact of cross-category dynamics and the 2% drag on cigarette volumes. He wanted to know how current users of illicit products will behave once enforcement removes those products from the market. Billy Gifford stated that they want youth out of the category and adults to stay on reduced risk products, such as the NJOY product. He mentioned that historically, when the FDA eliminated flavors and pods, some consumers went back to cigarettes. He also noted that they will do their best to keep consumers in the e-vapor space with the NJOY product. Smith then asked about the distribution opportunity for NJOY, and Gifford stated that their first quarter of ownership will focus on the supply chain.

During a conference call, NJOY's CEO Billy Gifford was asked about the company's plans for expanding distribution in light of potential FDA enforcement against illicit products. Gifford stated that they have a target of 70,000 stores by the end of the year and will continue with their distribution plans regardless of FDA enforcement. Another question was raised about the impact of modern oral products on cigarette volumes, to which Gifford responded that they estimate a 1.5 to 2.5% cannibalization impact from disposable e-cigarettes on cigarettes, separate from the impact of novel oral products.

The speaker is asking about the prevalence of cigarette use among consumers with a BMI greater than 27, and the potential impact of GLP-1 drugs on this population. The speaker also asks about the timeline for the menthol cigarette rule-making process and the company's strategy for managing its upcoming January maturity. The speaker also mentions the company's recent filing of an updated shelf.

The speaker discusses the management of the company's debt portfolio and their flexibility in handling upcoming maturities. They also mention that interest rates have risen, but they have strategies in place to manage this and have provided guidance on their debt to EBITDA targets. They are confident in their ability to handle the situation due to strong cash generation and flexibility in managing maturities.

During a Q&A session, an analyst from Redburn Atlantic asks a question about the future of NJOY, a brand that is not allowed to use flavors including menthol. The company's CFO responds by saying that they believe there is still demand for tobacco-based products, and they are currently working on filing for additional flavors with access control to prevent underage use. The analyst also asks about the company's oral business and the potential shift towards nicotine pouches, to which the CFO responds by saying that the biggest shift is coming from traditional MST consumers, but they have plans to participate in the market through their on! brand and are excited to file a PMTA for on! PLUS.

The speaker discusses consumer engagement in Sweden and the potential for a new product to be brought to market once authorization is received. The operator then announces the end of the call and thanks participants for their participation. The speaker encourages further questions to be directed to the Investor Relations team.

This summary was generated with AI and may contain some inaccuracies.