The Altria Group is holding their 2023 fourth quarter and full year earnings conference call, with remarks from the CEO and CFO. The call will last about an hour and will include a question-and-answer session. The company has issued a press release with their results and has made various financial documents available on their website. The call will also include forward-looking statements and will report both reported and adjusted financial results.

The paragraph discusses Altria's progress in the U.S. nicotine space, including their focus on smoke-free products and their efforts to bring heated tobacco products to market. They also mention their acquisition of NJOY and their launch of on! PLUS in Sweden. The company's vision guides their actions and they believe their portfolio of smoke-free products will position them well in the evolving nicotine market. The paragraph ends by mentioning upcoming updates from Sal on consumer and industry dynamics, as well as business and financial results.

The industry estimates a 3% increase in total nicotine volumes due to the growth of illicit flavored disposable e-vapor products. This estimate is a change from previous estimates of a decline in nicotine volumes. The industry is making informed assumptions and equivalizing e-vapor volume to better reflect market dynamics. The estimate only includes usage among consumers over the age of 21. Cigarette volumes declined by 8% due to the historical decline, growth of illicit vapor products, and macroeconomic pressures. However, the industry is encouraged by the transition of adult smokers to smoke-free alternatives, which now make up 40% of the total nicotine space.

The e-vapor category has seen a 35% growth in 2023, driven by illicit flavored disposable products. Pod-based products have declined by 50% and make up 15-20% of the category. The company has taken steps to strengthen NJOY's supply chain and expand distribution of their ACE product. They have also closed inventory gaps at retail and introduced a retail trade program to improve product visibility and fixture space.

NJOY has implemented a program for retailers to position their products strategically and responsibly to tobacco consumers. Approximately 70% of stores have chosen options to secure premium positioning and the e-vapor fixture for NJOY. The company has seen positive results in their business, with a 3.7% retail share in the fourth quarter and an increase in retail share in November and December due to trial generating bundle offers. They plan to expand promotions and marketing for NJOY in the first quarter and submit a PMTA for their age restricted Bluetooth device. The company believes that the current state of the e-vapor market is unacceptable for both manufacturers and consumers.

The total nicotine space grew in 2023 due to the distribution of illegal flavored disposable e-vapor products. The company is actively engaging with various stakeholders to address this issue, including regulators, lawmakers, and trade partners. Some progress has been made, such as the seizure of unauthorized products and the passage of legislation requiring manufacturers to comply with FDA regulations. The company has also initiated litigation against manufacturers, distributors, and online retailers. A collaborative effort is necessary to protect the tobacco harm reduction for adult smokers.

The oral tobacco category has seen significant growth, with nicotine pouches accounting for over 35% of the total U.S. oral tobacco market. On! has contributed to this growth, with a 33% increase in shipment volumes in the fourth quarter and a focus on volume growth and profitability. The brand has also seen success in Sweden and has introduced new flavors and strength variants in the e-commerce channel. Plans are in place to expand the brand to additional retail accounts and submit a PMTA.

In the first half of this year, Helix expects to see significant growth from its PLUS product upon FDA authorization. They also plan to bring heated tobacco products to the US market through their joint venture with JT and are on track to submit a PMTA for Ploom in 2025. Helix is committed to becoming a leader in smoke-free categories and achieving long-term shareholder returns. They have introduced their 2028 enterprise goals and will provide updates annually. They will also discuss their exploration of non-nicotine and international markets at CAGNY. In 2024, Helix plans to balance earnings growth and shareholder returns with investments in marketplace activities, smoke-free product research and development, and regulatory preparations. They will closely monitor the external environment, including inflation, tobacco consumer dynamics, vapor enforcement, and regulatory developments.

The company expects to deliver a 1% to 4% growth in adjusted diluted EPS in 2024, with a focus on the second half of the year. They also announce the retirement of their General Counsel, Murray Garnick, and the appointment of Bob McCarter as his replacement. The macroeconomic environment has put pressure on discretionary income levels for U.S. tobacco consumers.

In the fourth quarter, slightly lower gas prices provided some relief, but overall inflation and higher consumer debt levels led to lower discretionary income for tobacco consumers. Research shows that smokers are still feeling economic pressure and are more likely to search for deals when purchasing tobacco products. Despite these challenges, the tobacco business performed well, with adjusted operating income remaining steady and margins expanding. Net pricing also remained strong, with Marlboro maintaining its share in the market and growing its share in the premium segment. PM USA used RGM tools to invest in Marlboro Black and support its share performance in 2023.

The investments in Marlboro Black have provided a stable option for consumers during economic downturns, leading to increased brand loyalty and profitability for PM USA. Despite a decline in domestic cigarette volumes, Marlboro remains the top brand in the category. Cigar shipment volumes decreased slightly, but Black & Mild maintained its leadership in the machine-made cigar segment. The oral tobacco products segment had a strong fourth quarter, with increased adjusted OCI and OCI margins, as well as growth in retail share. This was aided by lower promotional investment for on!, resulting in higher net price realization.

The segment saw a 5.5% growth in adjusted OCI and an increase in adjusted OCI margins for the full year. However, there was a 2% decrease in shipment volume for the fourth quarter and a 2.2% decrease for the full year. The decline in volume was due to a decrease in MST volume, partially offset by the growth of on!. The company's investment in ABI resulted in $628 million in adjusted equity earnings for the full year. The company also recorded $74 million in adjusted losses in the all other operating category. They paid $6.8 billion in dividends and repurchased 22.7 million shares. The company's balance sheet remains strong, with a debt-to-EBITDA ratio of 2.2x. They issued $1 billion in debt and plan to retire $1.1 billion in maturing debt in the first quarter. The Board has authorized a new $1 billion share repurchase program to be completed by the end of 2024.

The speaker concludes the earnings call and reminds listeners that the earnings release and non-GAAP reconciliations are available on the company's website. They also mention that the question-and-answer period is now open. The first question is from Matt Smith of Stifel, who asks about the company's EPS guidance for the year. The speaker explains that the growth will be weighted towards the second half, mainly due to the recent acquisition of NJOY and investments in the first half. They also mention the impact of two extra shipping days in the back half of the year. Matt Smith asks a follow-up question.

The speaker discusses the price realization in the smokeable business, which has decelerated year-over-year and was particularly low in the second half of 2023. This is due to a combination of trade down mix within the Marlboro brand and increased promotional spending. The company has used these tools to cater to consumers under economic pressure and maintain their loyalty to the Marlboro brand. The speaker encourages looking at price realization over the long-term and taking into account timing and costs. The next speaker, Pamela Kaufman, will now ask a question.

Pamela Kaufman congratulates Murray and thanks him for his help over the years. She asks about the guidance for low-single-digit earnings growth in 2024 and if the longer-term targets are still achievable. Billy Gifford responds that the growth algorithm calls for mid-single-digit earnings growth on a compounded annual basis, but there will be variability due to investments and changes in profitability. They aim to be a leader in each category and have been successful in increasing margins. Pamela then asks about the negative sales and OCI growth in the smokeable segment and if they anticipate growth in 2024. Billy points to the overall industry volume and factors affecting it as a reference.

The company is facing challenges in the macroeconomic and illicit base, which are affecting both the combustible and e-vapor segments. They are focused on keeping consumers in the e-vapor market responsibly, and are seeing competition from both premium and deep discount cigarette segments, as well as from the illicit base. Marlboro has been successful in growing its share in the premium segment.

The company is confident in their e-vapor product and plans to continue engaging with consumers throughout 2024. They have seen an increase in promotional spending from competitors as they expand distribution of NJOY. The company does not provide specific EPS growth guidance for their smokeable segment, but balances investments in different categories to maximize long-term profitability. They are focused on their smoke-free vision and expect to make progress by the end of the year.

The speaker addresses a question about NJOY and the Navy, providing more information about their joint venture with JTI and discussing the expected investments in 2024. They mention the strong performance of their core businesses and the expected increase in investments for NJOY.

Callum Elliott from Bernstein asks about the company's pricing strategy and whether they will continue to diverge from their peers. Billy Gifford responds that they have made investments in certain areas to remain competitive, but overall they have been able to effectively use data and analytics to target individual consumers. Sal Mancuso adds that they have used the breadth of Marlboro's brand family and different SKUs to interact with consumers under economic pressure.

During difficult economic times, Altria has seen a divergence in consumer behavior, with some switching to cheaper brands like Special Blend and then returning to mainline Marlboro as the economy improves. However, macroeconomic pressures have lessened this quarter, but there are still headwinds such as gas prices and debt load affecting discretionary income. Altria has been working with legislators in Louisiana to clamp down on illegal sales of disposable vaping products, and they have seen some impact from these efforts. There is potential for other states to follow suit.

The speaker is discussing Louisiana's regulations for e-cigarette manufacturers and the early signs of success in removing illicit products from the market. They also mention that other states are considering similar legislation. When asked about NJOY's sell-through trends, the speaker shares that they have seen a 3.7% share and are preparing for full distribution in the US this year. They also mention that the industry has seen an 8% decline in volume, with minimal impact from modern oral products.

The speaker explains that in California, the overall cigarette industry sales have declined more steeply than the country overall, but Marlboro's retail share has increased. This is due to a combination of factors, including the menthol ban causing some consumers to stop smoking or switch to other products, but also an increase in black market activity from neighboring states and Mexico. This black market activity is not included in the reported 15% decline in sales.

The speaker is responding to a question about the impact of a menthol cigarette ban on their sales in California. They mention that some consumers have moved to other products, such as vapes, and that there has been an influx of illegal menthol cards in the state. They also note that their sales in California have decreased in line with the overall industry. The speaker is unable to predict the impact of a national ban on menthol cigarettes without more information about the proposed rule and enforcement activities.

The speaker believes that the FDA should consider the unintended consequences of a menthol ban, such as black market activity and illicit products. They are unsure if they would legally challenge a final rule, but anticipate others will. The speaker also believes that modern oral nicotine products could be a risk to young people if not marketed and sold responsibly, and urges the FDA to issue marketing guidelines for the category. They state that their approach to the marketplace has minimal interaction with underage users.

In this paragraph, Billy Gifford discusses Altria's stance on marketing guidelines for vaping products and their ongoing monitoring of court cases challenging the FDA's marketing denial orders for some vapes. He also mentions Altria's unique position as the only cloud-based product to receive FDA authorization and their belief that they should receive a marketing order for their menthol product. Additionally, he briefly addresses a question about the sustainability of Altria's financial model for their smokeable segment.

The speaker, Billy Gifford, discusses the use of pricing increases to offset volume declines in the industry. He mentions that this has become more difficult due to down trading and a promotional environment. He also talks about the company's strategy to maximize profitability in the long-term and expresses confidence in their ability to continue executing this strategy. The moderator then announces that there are no further questions and turns the call back over to Mac Livingston for closing remarks.

The paragraph invites readers to contact the Investor Relations team for any additional questions and thanks them for participating in the call, which has now concluded. The operator also reminds readers that they can disconnect at any time.

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