The paragraph is an introduction to the Altria Group, Inc. 2025 First Quarter Earnings Conference Call, detailing that the call will last about an hour and include remarks by Altria's CEO and CFO, followed by a Q&A session. Mac Livingston, Vice President of Investor Relations, introduces the session and notes that the company's results have been released in a press release available on their website. The call will discuss the first quarter business results with comparisons to the same period in 2024. It highlights that the remarks will include forward-looking statements and clarifies that financial results will be presented both on a reported and adjusted basis, with explanations and reconciliations available on their website.

The paragraph discusses the performance of various tobacco segments, focusing on ON!, a nicotine pouch brand. The traditional tobacco business, particularly Marlboro, performed well despite a challenging environment. The Oral Tobacco Products segment saw continued momentum with ON!, as Helix strategically invested in the brand. In the first quarter, oral nicotine pouches contributed significantly to a 10% increase in tobacco industry volume over six months, with ON! experiencing an 18% growth in shipment volume and expanding its market share within the oral tobacco category and the nicotine pouch category.

Helix has increased ON!'s market share and consumer impressions significantly, attributed to brand-building investments and an effective promotional campaign, despite higher retail prices. The ON! brand awareness among oral nicotine pouch consumers rose to over 60%. Concurrently, the e-vapor category has grown, largely driven by illicit flavored disposable products, which now account for over 60% of the market. To combat this, Helix is advocating for regulatory reforms and engaging with legislators and federal bodies to enforce strict measures against illicit e-vapor products. Additionally, two states have enacted legislation to address illicit vapor, with more states considering similar measures.

State Attorneys General (AGs) are increasingly active in addressing illicit e-vapor products, with actions that include lawsuits and investigations. In April, a coalition of Republican state AGs urged the Trump administration to combat illicit e-vapor imports from China. The e-vapor market, including legitimate manufacturers like NJOY, has been negatively impacted by the lack of FDA-authorized flavored options, driving consumers to illicit products. NJOY faces further challenges due to the ITC's exclusion and cease and desist orders, which stopped imports and shipments of NJOY ACE. These orders limit consumer choices and harm public health. NJOY plans to appeal the ITC decision while developing a product solution addressing patent issues. Moving forward, NJOY aims to strengthen its e-vapor product portfolio by leveraging its acquisition capabilities and adapting to evolving consumer expectations. The company believes in the potential of a fully regulated e-vapor industry.

The paragraph discusses the first quarter business results for the smokeable products segment, highlighting a 2.7% increase in adjusted operating company's income and a 4.2 percentage point rise in adjusted OCI margins, supported by a 10.8% net price realization. Despite these gains, domestic cigarette volumes decreased by 13.7%. After adjustments for calendar differences and inventory movements, this decline is estimated at 12%, while the industry as a whole saw a 9% decline. Factors contributing to the drop in cigarette volumes include the rise of illicit flavored e-vapor products and economic pressures from inflation outpacing wage growth, particularly affecting low-income consumers. Consequently, there is an increased demand for discount cigarette products, with this segment gaining a 1.8 share point increase.

The paragraph discusses Marlboro's performance in the retail market, noting a decline in its overall share but an increase in its share within the premium segment. Marlboro's success is attributed to brand loyalty and PM USA's data-driven management. PM USA has decided not to report Marlboro's price gap in its quarterly metrics anymore. In cigars, shipment volume decreased, but the Black and Mild brand performed well. In the Oral Tobacco Products segment, despite over $400 million in adjusted OCI and strong margins, shipment volume decreased by 5%, and retail share declined by 3.1 percentage points, as gains in ON! were insufficient to counteract declines in MST brands.

The company is optimistic about its oral tobacco products, with ON! gaining volume and share, and Copenhagen leading in the moist smokeless tobacco market. Despite a significant noncash impairment charge related to the NJOY ACE due to ITC orders, the company sees potential in the NJOY acquisition for future e-vapor development. The company recorded a decline in adjusted equity earnings from ABI, following a partial sale of its ABI stake but aims to maximize long-term value for shareholders. In the first quarter, $1.7 billion in dividends were paid, and shares worth $326 million were repurchased, with $674 million remaining for repurchase by year-end. The company's balance sheet is strong, with a total debt to EBITDA ratio of 2.1 times, consistent with its target.

The paragraph discusses the 2025 financial guidance for adjusted diluted EPS, projected at $5.30 to $5.45, indicating a 2% to 5% growth from the 2024 base of $5.19. The company adjusted its treatment of amortization expenses related to definite-lived intangible assets, excluding it from adjusted results to more accurately reflect business performance. The guidance assumes minimal impact from enforcement on e-vapor products and that the NJOY ACE product will not return this year. It also factors in cost savings from an optimization initiative, lower net periodic benefit income, and limited tariff impact. The earnings release, non-GAAP reconciliations, and additional metrics are available on their website. The paragraph concludes by opening the floor for a Q&A session with investors, analysts, and media.

The paragraph features an exchange between Matt Smith from Stifel and Billy Gifford regarding Altria's perspective on the consumer amidst macroeconomic pressures. Matt inquires about the impact of inflation on consumer behavior, particularly in relation to cigarette volumes and cross-category movements. Billy acknowledges the ongoing inflation pressure on consumers, noting it as a cumulative effect over time. He points out that while flavors and variety remain significant factors, pricing is becoming a more prominent concern, especially with illicit e-vapor. Matt further asks about Altria's confidence in maintaining robust pricing in the cigarette category, given a recent price increase, and the possibility of reinvesting in Marlboro to sustain its premium segment performance.

The paragraph discusses how Marlboro's flexibility and data-driven resource management strategies have positively impacted its market share. Billy Gifford responds to a question from Gaurav Jain about the repositioning of the Basic brand. Gifford clarifies that it's not a strategic shift but a common practice to adjust positioning based on market conditions. They tested lowering Basic's price to capture consumers who couldn't afford price increases on L&M and were satisfied with the results, leading to expansion this year. However, the company remains focused on the premium segment and is not interested in expanding its presence in the discount market.

The paragraph is a discussion between Gaurav Jain and Billy Gifford about the performance and strategy for Marlboro and ON! in the market. Marlboro's market share in terms of dollar value surpasses its volume share. ON! has shown robust year-over-year growth of 18%, though growth is slowing due to increased competition, particularly from synthetic nicotine products. Billy Gifford states they are pleased with ON!'s performance and are excited about launching ON! PLUS, targeting consumer demand for a larger pouch. Additionally, regarding the e-cigarette market, they acknowledge shipment restrictions after March 30 and imply a need to reassess their strategy.

The paragraph discusses a company's strategy regarding e-vapor products, highlighting their long-term commitment to the sector due to its success in converting adult smokers to smoke-free options. The speaker points out that over 60% of the market consists of illicit e-vapor products, bypassing regulations, and calls for faster authorizations and enforcement. The company is focusing on understanding consumer preferences, particularly for disposable products, and is investing in its product pipeline. Despite ongoing legal challenges related to patent infringements, the company plans to reintroduce pods, acknowledging the growing disposable market. They express excitement about bringing NJOY back to the market. The paragraph concludes with a transition to the next speaker, Bonnie Herzog from Goldman Sachs.

In the conversation, Bonnie Herzog asks for insights on the challenges of shipment loss and retail share, questioning if Altria's guidance accounts for further share gains. Despite volume and share pressures, Altria managed to achieve OCI growth in smokable products, mainly due to lower legal fees. Billy Gifford acknowledges the questions and highlights the company's long-term strategy of maximizing profitability in the combustible segment by balancing investments in Marlboro and smoke-free products. He emphasizes that they focus on long-term trends rather than quarter-to-quarter changes, expressing satisfaction with Marlboro's performance under challenging economic conditions. Gifford also mentions the importance of RGM tools to support consumers facing economic pressures and notes the significance of monitoring tariff impacts. Overall, he expresses contentment with the first quarter results. Bonnie then implies a follow-up question.

In the paragraph, Billy Gifford addresses a question about why the company is no longer providing the relative price gap in their metric sheet. Gifford explains that the company focuses on price gaps at the store level rather than the national average because that's how they manage their business. He mentions that publishing the national price gap caused confusion since it wasn't aligned with their management approach. Therefore, they decided to remove it from their quarterly metrics. Bonnie Herzog acknowledges the explanation and passes the conversation on to the next questioner.

In the discussion, Faham Baig asks about the impact of new tariffs on Chinese imports, specifically disposable vapes, and if it has affected their availability and pricing. Billy Gifford responds that it's too early to assess the impact, but there's hope for increased enforcement at the borders due to the revenue from tariffs. Baig also inquires about the company's stance on synthetic disposable vapes, noting a competitor's recent acquisition in this area. Gifford explains that their view on synthetic vapes has evolved, and they are now considering opportunities given the FDA's enforcement discretion. Lastly, Baig asks Sal about the decline in settlement payments, which decreased by 20% or $170 million in the quarter.

Sal Mancuso explains that the company's guidance accounts for the impact of tariffs but highlights that as a U.S.-focused company, the effect on their costs is limited compared to other industries, particularly affecting materials like tin and aluminum in packaging. While there has been no significant material cost impact from tariffs so far, consumer confidence is affected by broader economic pressures like sustained inflation. Emma Rumney questions whether tariffs have had a discernible impact on U.S. consumer sentiment, and Mancuso acknowledges overall economic pressures on consumers, with tariffs playing a role in affecting consumer confidence.

The paragraph discusses the impact of inflation on everyday items and consumer pressure, with the company preparing for various scenarios to guide investment decisions. Emma Rumney inquires about the company's approach to tariffs, specifically on materials like aluminum, in their long-term planning. Sal Mancuso responds, emphasizing that he won't provide specific numbers but assures that most costs for their products, like cigarettes, are driven by factors such as federal excise tax rather than material costs, which are relatively low. He mentions the company's strong supply chain group and its focus on long-term management. Mancuso also highlights the early stage of the situation and the company's ability to adjust as necessary, ensuring close monitoring of consumer impact. Emma Rumney then asks about unauthorized vapes.

In the paragraph, Billy Gifford discusses the potential positive impacts of the Trump administration's policies, specifically regarding increased enforcement at the borders and changes at the FDA and CTP. He expresses hope that these changes will lead to better regulation and authorization of products, particularly with regard to illicit vapes, and emphasizes the importance of enforcing the regulatory process established by Congress. Gifford also mentions early actions, such as the removal of proposed rules for menthol in cigarettes and flavored cigars, as promising signs that they hope will continue. Emma Rumney thanks him, and the call concludes with Mac Livingston offering closing remarks.

The paragraph informs participants that they can choose to leave or disconnect at any time and thanks them for their participation.

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