Altria Aktie

Good day, and welcome to the Altria Group 2026 First Quarter Earnings Conference Call.

[Operator Instructions] I would now like to turn the call over to Mac Livingston, Vice President of Investor Relations. Please go ahead, sir.

Thanks, [ Alani ]. Good morning, and thank you for joining us. This morning, Billy Gifford, Altria's CEO; and Sal Mancuso, our CFO, will discuss Altria's 2026 first quarter business results.

Earlier today, we issued a press release providing our results. The release, presentation and quarterly metrics are all available at altria.com. During our call today, unless otherwise stated, we're comparing results to the same period in 2025.

Our remarks contain forward-looking statements, including projections of future results. Please review the forward-looking and cautionary statements section at the end of today's earnings release for various factors that could cause actual results to differ materially from projections. Future dividend payments and share repurchases remain subject to the discretion of our Board of Directors. We will report our financial results in accordance with U.S. generally accepted accounting principles.

Today's call will contain various operating results on both a reported and adjusted basis. Adjusted results exclude special items that affect comparisons with reported results. Descriptions of these non-GAAP financial measures and reconciliations to the most comparable GAAP financial measures are included in today's earnings release and on our website at altria.com.

Finally, all references in today's remarks to nicotine consumers or consumers within a specific nicotine category or segment refer to existing adult nicotine consumers 21 years of age or older.

With that, I'll turn the call over to Billy.

Thanks, Mac. Good morning, and thank you for joining us.

We delivered a strong start to the year, growing adjusted diluted EPS by 7.3% in the first quarter. Our highly cash-generative businesses supported significant returns to shareholders through dividends and share repurchases, while we continue to invest in support of our vision. Our smokeable products segment generated strong income growth. Marlboro strengthened its position in the premium segment and PM USA continued to execute its total portfolio strategy with discipline.

In the oral tobacco products segment, on! performed well in a highly competitive marketplace and Helix expanded on! PLUS nationwide.

My remarks this morning will focus on first quarter performance from on! and an update on the state of the e-vapor category. I'll then turn it over to Sal, who will provide further detail on our business results and financial outlook.

Let's begin with on! and the nicotine pouch category. Over the past 6 months, oral nicotine pouches drove the estimated 9.5% increase in total oral tobacco industry volume. In the first quarter, the nicotine pouch category grew 9.1 share points and now represents more than 58% of total oral tobacco. Against this backdrop, Helix delivered solid results in a highly competitive environment. Reported shipment volume for the total on! portfolio grew nearly 18% and to over 46 million cans in the first quarter, reflecting continued demand for on! Classic and the pipeline shipments for the on! PLUS national expansion. At retail, on! and on! PLUS together represented 7.8% of the total oral tobacco category, down 0.8 share points year-over-year and up 0.2 share points sequentially.

We began shipping on! PLUS nationwide in March. And at the end of the first quarter, it was available in approximately 100,000 stores, representing 85% of nicotine pouch category volume. On1 PLUS is the first and only product authorized under the FDA's pilot program, I think that streamlining PMTA reviews for certain oral nicotine pouches. The brand is currently available in 3 flavors across 2 nicotine strengths and features our proprietary NICOSILK technology.

To support the on! PLUS expansion, Helix recently launched a new retail trade program to strengthen execution across the full on! portfolio. The program is focused on increasing visibility and securing incremental fixture space to support on! PLUS today and future innovations over time. Today, the Helix trade program has secured premium retail positioning in contracted stores, representing approximately 90% of Helix volume. Additionally, on! PLUS is prominently featured across key retail touch points with coordinated signage from curb to counter.

On! PLUS is supported by marketing that highlights the product experience, including visuals that showcase the pouch itself, communicate comfort and reinforce its positioning as the softest pouch on the planet. These materials are designed to give nicotine consumers a clear understanding of how the pouch looks, feels and fits. This messaging is complemented by initiatives such as in-person events, brand partnerships, paid social media and streaming audio that aim to increase awareness, drive trial and further strengthen on! brand equity. Importantly, these efforts are grounded in responsibility with safeguards to limit reach to underage audiences and with a strong focus on regulatory compliance. Through these actions, we believe we can position on! PLUS as a differentiated offering for adult nicotine consumers and responsibly grow the brand over the long term.

On the regulatory front, the FDA is reviewing applications for on! PLUS Mint, Wintergreen and Tobacco and 12-milligram strengths under its pilot program. And we have submitted applications for 6 additional varieties across 3 nicotine strengths. We believe the science and evidence supporting all of these applications is compelling and provides a basis for FDA authorization within the 180-day statutory time line.

Let's now turn the e-vapor category. While illicit flavored disposable products remain prevalent, after several years of rapid growth, we began to see signs of moderation in the back half of 2025. We believe increased enforcement activity and supply-related marketplace disruption have slowed demand for these products, and those dynamics continued into the first quarter. At the end of March, we estimate there were approximately 20.5 million adult vapors in line with the year ago period. Over the same time frame, the estimated number of disposable e-vapor consumers declined modestly. Taken together, we believe these developments suggest early indications that the category's prior growth trajectory driven largely by illicit flavored disposable products may be evolving.

From an enforcement perspective, we continue to see signs of a commitment from enforcement agencies and incremental progress. During the quarter, federal agencies worked alongside local law enforcement to combat illicit products, including a large-scale enforcement action in Northern Virginia supported by the Drug Enforcement Administration. In addition, in states where product directories are in place and properly enforced, we are seeing evidence that these frameworks are helping to reduce the presence of illicit products in tracked channels.

In our view, consumer demand for e-vapor products demonstrates the potential for the category's role in tobacco harm reduction in the U.S. However, progress continues to be constrained by the limited number of FDA-authorized products. We see a clear pathway to restoring order and advancing harm reduction, anchored in a more efficient and predictable authorization process that supports reasonable responsible innovation and establishes a compliant legal marketplace of e-vapor products. When combined with sustained enforcement, we believe this would allow compliant manufacturers to provide adult nicotine consumers with authorized high-quality products that are appropriate for the protection of public health.

Overall, we delivered a strong start to the year. Our results this quarter reflected disciplined execution across our businesses, continued smoke-free progress amid a dynamic regulatory and competitive environment and our commitment to returning substantial capital to shareholders.

Lastly, as you know, this will be my final earnings call as CEO. It has been a privilege to lead this company alongside so many talented colleagues and friends. And I'm proud of the progress we've made together. I've also thoroughly enjoyed engaging with the investment community along the way, and I thank you for your trust and support. As I step away, I do so with full confidence in our leadership team and the strategy in place going forward.

I'll now turn it over to Sal to provide additional details on our business and financial results.

Thanks, Billy. The smokeable products segment delivered strong financial performance in the first quarter, reflecting the continued resilience of our smokeable business. Segment adjusted OCI grew by 6.3% with adjusted OCI margins expanding to 65.1% and an increase of 0.7 percentage points. This performance was supported by solid net price realization of 6.3%. Additionally, we saw the decline in our smokeable volumes continue to moderate. In the first quarter, reported domestic cigarette volumes declined by 2.4%. When adjusted for trade inventory movements, we estimate domestic cigarette shipment volumes declined by 4%.

At the industry level, when adjusted for trade inventory movements, we estimate domestic cigarette industry volumes declined by 5%, marking the fourth consecutive quarter of sequential year-over-year moderation. This trend was driven primarily by reduced cross-category movement between cigarettes and illicit flavored disposable e-vapor products for consumers, the macroeconomic environment remains challenging. Elevated everyday expenses and higher gas prices later in the quarter continued to weigh on discretionary income among more price-sensitive at the old smokers. Although higher-than-normal tax refunds provided some short-term relief, these pressures were primarily -- were the primary driver of year-over-year discount segment retail share growth of 2.4 share points.

This trade down dynamic impacted Marlboro's overall retail share. which declined 1.4 share points versus the year ago period and 0.1 share point sequentially. However, in the highly profitable premium segment where smoker purchasing behavior reflects higher levels of brand loyalty, Marlboro will continue to demonstrate its competitive strength. In the first quarter, Marlboro expanded its share of the premium segment to 59.5%, up 0.1 share point versus the prior year and 0.2 share points sequentially. A expanding its long-standing leadership position. Basic continued to capture share in the discount segment, reflecting PM USA's data-driven total portfolio approach to meeting a broad set of consumer needs. Basics retail share grew 0.5 share points sequentially and 2.4 share points year-over-year. Total PM USA retail share grew 0.1 share point sequentially and 0.4 share points versus a year ago, demonstrating the strong execution of PM USA's total portfolio approach.

In cigars, reported shipment volume was down slightly by 0.2%. The Middleton continued to outperform the large industry behind the strength of Black & Mild.

Let's turn now to the oral tobacco products segment. which delivered over $400 million in total adjusted OCI in the first quarter. Adjusted OCI margins remained strong at 67.4% and down 1.8 percentage points from a year ago and were impacted by Helix marketing investments for in-person events and digital advertising as well as product mix between traditional MST and nicotine pouches. Total segment reported shipment volume decreased 3.1% as growth in on was more than offset by lower MST volumes. When adjusted for trade inventory movements, we estimate that first quarter Oral Tobacco Products segment volumes declined by approximately 8.5%.

Year-over-year trade inventory comparisons were impacted primarily by on plus pipeline volume in the first quarter and elevated competitor volume in 2025. Oral Tobacco Products segment retail share declined by 5.5 percentage points. Overall, we remain encouraged by the performance of our oral tobacco businesses. as Copenhagen continued to lead in MST and Helix expanded its portfolio in the growing nicotine pouch category.

Turning to our investment in ABI -- we recorded $160 million in adjusted equity earnings in the quarter, up 9.6% versus the prior year. We continue to view our ABI stake as a financial investment and our goal remains to maximize the long-term value of the investment for our shareholders. We remain committed to returning significant value to shareholders and maintaining a strong balance sheet. In the first quarter, we paid approximately $1.8 billion in dividends and repurchased 4.5 million shares for $280 million. At the end of the quarter, we had $72 million remaining under our current share repurchase program, which expires at the end of the year.

In addition, our balance sheet remains strong. We retired just over $1 billion of debt that matured in February and our total debt-to-EBITDA ratio as of March 31 and was 1.9x, in line with our target. Finally, on guidance. We reaffirm our expectation to deliver 2026 full year adjusted diluted EPS and in a range of $5.56 to $5.72, representing a growth rate of 2.5% to 5.5% and from a base of $5.42 in 2025. As a result of the strong first quarter performance, we now expect 2026 adjusted diluted EPS growth to be more balanced between the first half and the second half of the year. Our reaffirmed guidance range now contemplates the impact of moderated labor industry growth on combustible and e-vapor product volumes and increased macroeconomic uncertainty facing adult nicotine consumers.

Before we wrap up, I'd like to thank Billy for his leadership over his decades of service to Altria. I have enjoyed the privilege of working closely with Billy for many years, and he has positioned us well to succeed in the future. We are committed to building upon the strong foundation he's fostered and accelerating progress toward our vision.

With that, Bill and I will be happy to take your questions. While the calls are being compiled, I'll remind you that today's earnings release and our non-GAAP reconciliations are available on altria.com. We've also posted our usual quarterly metrics, which include pricing, inventory and other items.

Operator, let's open the question-and-answer period.

[Operator Instructions] Our first question comes from Faham Baig with UBS.

Brilliant. I have 2, please. The first one, I guess, is on your performance. At the full year stage, you spoke about a second half weighted performance this year, but Q1 came in seemingly stronger than expected. What were the areas that surprised you positively relative to the guidance in February. And I guess given the stronger-than-expected quarter, why have you chosen not to raise or narrow the guidance for the full year? So that's the first question.

And the second question is on cigarette volumes. Clearly, over the last 6 months, there has been an improvement in volumes. But it seems to be entirely driven by the deep discount segment. So I guess what are the key drivers that are helping this particular segment? And why may not be sort of supporting the premium segment too?

Yes. So thank you for the questions. So look, we do a terrific job of forecasting the year I would say, though, is the first quarter played out, what you saw was stronger volume performance, and that's primarily driven in the smokeable category by a moderation of the cross-category movement that I talked about in my opening remarks. So as the year plays out, we see growth being more balanced between the first half and the in the second half of the year. So that was the primary driver that we're seeing. We thought it was prudent to reaffirm guidance. We're a quarter into the year.

Obviously, the macroeconomic environment remains challenging and uncertain. Gas prices have increased at the end of the quarter significantly. There's been some maybe short-term offsets to that as we've seen tax refunds higher than we have seen in the -- in past years, and that may be somewhat short term if you think about it. So we'll see how the rest of the year plays out. Obviously, if there's any updates as the year progresses to our guidance, we would communicate that. But we feel really good about our ability to reaffirm guidance for the year. As far as cigarette volumes go, again, I mentioned the cross-category moderation that we've seen played out, but the consumer does remain under pressure, and that's been a driver of the growth in the discount category.

We are really happy with PM USA's total portfolio strategy, which allows Basic to capture share of that discount category. So we feel really good about PM USA's performance for the quarter and very pleased with Marlboro's performance where it grew its share of premium sequentially and year-over-year.

Our next question comes from Matt Smith with Stifel.

And Billy, first off, I just want to wish you well in your retirement in the upcoming weeks here. Just wanted to dig into smokeable OCI a bit. The performance was quite strong in the quarter. And on a per pack basis, operating costs were below the level from the second half of last year. I think less volume deleverage was likely a benefit. But can you provide some more color on the other factors in smokable seems like double the duty drawback grew in size? And did you see that drop through profit more efficiently in the quarter? .

Yes. So as you stated, we had really strong first quarter performance from our smokeable segment. So just a great job by PM USA and John Middleton in that segment. As far as spending goes, as we've stated earlier, we do have some investments in our import export business. which are more weighted to the first half. So I wouldn't overread a particular quarter, but the per pack controllable costs, obviously, were -- they did receive a benefit from the higher volume as well as the export volume that we've broken out for you in our financial statements. So -- but I would say the overall OCI was driven primarily through pricing and the stronger cigarette volume performance that you saw play out through the year. And again, that's primarily driven by the moderation of the cross-category movement between vapor and the cigarette category.

And as a follow-up to the full year guidance question, there's a lot of reinvestment this year, whether it's behind on us or the carryover from basic repositioning and some other upcoming activities in smokeable. If you continue to see resiliency in the consumer, how do you balance the earnings growth potential against leaning more heavily into reinvestment this year given some of the flexibility you have.

Yes. I think you have to think about it in totality, Matt. When you think about investment, we don't feel like we're under-investing in any of our growing categories. And so we'll continue to invest appropriately with those I think from the strength of the consumer, it's the wild card with the economic outlook, the way it is with higher gas prices and stuff. And as Sal mentioned, there were certainly offsets. We'll see as those offsets play out throughout the year. and how gas prices continue to trend and we'll make any changes when it's appropriate.

Our next question comes from Bonnie Herzog of Goldman Sachs. Please go ahead.

All right. And congratulations again, Billy and Sal, and Billy, I also wish you all the best in your retirement, and it's really been great working with you. I -- some of you guys can hear me. I have a question on the double Okay, good. I have a question on the double duty drawback. I guess I was hoping for some more color on the expected phasing of the benefits you now expect this year? I believe you did start to import in the quarter, and I do see the stepped-up benefit in Q1 versus Q4. And -- so just curious, should we expect a steady increase in the benefit each quarter as the year progresses? And then did this activity play a role in any way in your updated guidance phasing to be more evenly split between 1H and 2H. I guess I'm just trying to think if there was any type of pull forward in the quarter that we should be aware of?

Bonnie, thank you for the question. You will see increases in the export volume and the benefit of the duty drawback as the year progresses. So you are right in your assumption. I would tell you that the more balanced growth -- diluted EPS growth first half to second half is more driven by the fact that you've seen this moderation in cross-category movement and the benefit of the volume in the smokeable segment. And then, of course, we're paying close attention to the economic conditions that our consumers are facing -- they are under significant economic pressure, again, from the cumulative impact of inflation, rising costs of everyday items, including gas. So we'll pay close attention to that. But I would say that's the main driver of the balance between first half and second half.

Yes. Thanks for the kind words, Bonnie. The only thing I would add is I think it's important to Think about the 2 drivers that are driving that interaction between smokeable and e-vapor. If you think about the 2 drivers, 1 is certainly enforcement. So as the product is not available for the consumer, they go back to their total considerations make tisions. But it's also -- and you heard in my remarks, saturation of the marketplace with e-vapor products and a slowdown in that transition over. And so it's hard to predict exactly when that saturation point is going to hit, and we think we're starting to see signs that we hit that. That's why we've been after and really pushing the FDA to think of not only enforcement but authorization, and we think they can achieve much faster authorization by publishing product.

Okay. That's helpful. And then just 1 other question, if I may, on Marlboro. You're rolling out cabo cuts soon. So maybe hoping for a little color on the rollout and maybe expected state allegations. And then could you provide a little color on how you're going to manage Kiboycut relative to say Marlboro Black in terms of pricing? And ultimately, I guess, how we should think about the contribution to profitability, how you're going to manage versus Marble Black, et cetera.

Sure, Bonnie. Yes, Cow Boyd Cut, we will expand distribution later in the year, specifically later in the second quarter. You should think of a cowboy cut a couple of ways. One is it's a tool within our RGM toolbox. It provides price-sensitive Marlboro consumers with an option, and we believe that's important. So you should expect it to be competitively priced. But of course, with RGM, you may see different price points depending on what where you're going. And also Cowboy Cut allows us to build on Marlboro's heritage during a time when the country celebrating its 250th anniversary. So it's also a benefit to Marvell's overall equity strength that you see in the marketplace. So we're really excited about. It's a terrific product, and you will see broader distribution as the quarter plays out.

Next question comes from Andrei Andon with Jefferies.

Three for me, please. Number one, could you please tell us a bit more about the factors that drove the improvement for Marlboro within the premium combustible segment? And then 2 questions on oral nicotine purchase, please. I know it's early days for on! PLUS. There's been a shipment benefit -- shipment benefit for Q1 volumes. But is there any color you could give us around the consumer, the early consumer offtake for the new product for on! PLUS? And perhaps, finally, just a clarification, the 6 new flavors that you've submitted applications for with the FDA? Are they also part of the Fast Track nicotine pouch pilot program?

Yes. I'll try to unpack those 3 questions, if I miss any, please follow up. I think when you think about the Marlboro brand within the premium segment, I think there are really 2 factors there. Marlboro still the aspirational brand in the cigarette category. And so with the tools that we have in data analytics with revenue growth management, it allows us to, on a store-by-store basis, make it very competitive, but remain very profitable. And I think that's what's really driving the Marlboro growth in premium. I think when you think about oral nicotine pouches, early on, it is very, very early. You remember that we went national towards the end of March. And so we're excited about that. But we know that flavors are going to play an important role in the future of the nicotine pouch category, and that ties into your third question about flavors. And they are not part of the pilot program at this point.

But this is why we believe that it's very easy for the FDA to go through the authorization process. The science is the same in those pouches as what they've already authorized. It's from moving a grass, which stands for in the FDA lingo, generally recognized as safe. So you're removing 1 grass flavor and putting in a new grass flavor. And so they've already reviewed the science on everything else related to the product. Their only focus would really be the flavors. And that's why we believe that it can be achieved within the 180-day statutory requirement.

Our next question is from Eric Serotta with Morgan Stanley.

Great. Can you give us a little bit of color of how you're thinking about the potential macro impact from the low end -- from the low-end consumer. Since the conflict began, we're now, call it, 8 weeks or so into it, a lot of noise with weak consumer confidence overall, but higher tax refunds -- what are you seeing? And I guess, in past times of sharp spikes in gas prices, what has sort of been the typical lag based on your research for an impact on your takeaway?

And then second question, you certainly see understandably more favorable about the e-vapor elicit vapor enforcement. How is that impacting your thinking about your broader e-vapor strategy -- for the past year or so, you seem to be working behind the scenes on resolving the IP issues, but sort of not going to rush to get into -- get back on to a market that was clearly had its challenges. Is that evolving with the improved enforcement that you're an improved performance of the market that you're talking about?

Yes. I'll let Sal kick us off with the macroeconomic and then I'll take e-vapor.

Sure. Eric, I think you framed a macroeconomic situation quite well in your question, right? So later in the quarter, you did see a significant increase in gas prices. And obviously, that has an impact on discretionary spending that the consumer does have and been under pressure for quite a while, just as everyday items continue to be at elevated prices. But there are some shorter-term tailwinds, I guess, you would call it, related to some of the higher levels of tax refunds that we are seeing based on the data coming out of the IRS. So obviously, we have to pay close attention to that. You are seeing a growth in the discount category within the cigarette business or cigarette segment. and that is driven by the macroeconomic difficulties that the consumer is facing.

And you've seen us using the RGM, the revenue growth management, data analytics and tool set that we do have. And that's why you see basic in heavily discounted stores where we can capture consumer purchases that may have gone to other discount brands and we can capture those purchases in basic. And then we talked earlier about Cowoboy cut being a competitively priced product that will engage with Marlboro that are under economic pressure. So we believe we have the tools to manage through this situation. But obviously, we're going to pay close attention to the consumers' economic condition as the year progresses.

And I think related to e-vapor, while we were just as excited as you are, some of the green shoots you're seeing in enforcement, I think it's important to can still look at the context, the e-vapor category in total. So it's very large, but it's still, call it, approximately 70% of the volume is illicit flavor disposables. And so it's still upside down in the marketplace.

Now we're excited. We're making significant progress on the ITC issue that you described related to the patent infringements. We feel good about that. We're excited to be able to bring that product back to the marketplace at the appropriate time, but we'll still do it in a disciplined fashion while the marketplace is still upside down. And that's, again, going back to our earlier point, it's why we are really pushing the FDA. They think about both enforcement, but authorizations so that we can keep those consumers in the e-vapor category with products that are authorized.

[Operator Instructions] Our next question comes from Damian McNeela of Deutsche Bank.

Just 1 question for me. I think in your prepared remarks, you mentioned that on! PLUS was getting allocated additional shelf space in the 100,000 or so stores that it's got listings in. Can you just sort of give an indication of where that shelf space is coming from? Is it -- are you winning it back off of the nicotine pouch brands? Or is it coming from traditional oil tobacco products, please?

Yes, it's a good question. We feel very excited about what our sales force was able to achieve. You can think of that category primarily as its own category within the retail space. And so that is achieving that outlook within the nicotine pouch space.

Our next question comes from Callum Elliott of Bernstein. .

Hopefully, you can hear me and just adding my congratulations on the World as a retirement believe best of luck with the endeavors? So my first question is on your nicotine pouch strategy. One of your tobacco peers has been rolling out a nicotine pouch product under a legacy world tobacco brand -- so my question is, do you have any thoughts about maybe trying to do the same thing with Copenhagen or Skol? Or do you think that your initiatives with on are sufficient to get the sort of the consumer response that you're hoping for?

Then my second question is about ASIC and its interaction with Marlboro. I think the data you showed shows discount share gain of 240 basis points year-on-year in Q1 and basic is also going 340 basis points. So it seems like all of the discount sector share gain is coming from basic -- and as we all know, we sort of annualize the repositioning quite soon. So should we be expecting that discount share gains slow as a whole as basic starts to slow and maybe Marlboro can start doing a bit better. Would you expect other discount brands to start doing better once basically annualizes the launch?

Yes. I'll take the first question and then pass it on to Sal for the basic question. In the nicotine oral category, USSTC was the only smokeless company to have signed a master settlement agreement. So that prevents us from using those tobacco brands in a product that does not contain tobacco. So we feel very good about on! and on! PLUS and the way it's positioned from an equity standpoint. We feel like we can compete very well in the nicotine pouch space.

And Callum,we're very pleased with basics performance. Remember, basics, promotions were in limited retail distribution. And it's really being driven, that distribution is being driven by the data analytics that we have so that basic is being promoted in stores that over-index discount. And that allows PMUSA to capture consumer purchases that would have otherwise gone to other discount brands and not having an overnet impact on Marlboro. So that's why we believe you're seeing Marlboro continue to grow share in the premium category and performed quite well there. Basic is able to capture the discount share that it's been able to capture. So we feel really good with the strategy. It's really driven by data analytics and it allows us to use the revenue growth management tools across the PM USA's portfolio.

Maybe I can just ask a follow-up, if that's okay, Sal the sort of stronger-than-expected performance in Q1. Does that give you the possibly to sort of further extend distribution for basic beyond the sort of the plateau that we seem to have originally found given that you seem to have this sort of increased flexibility now within the 2026 guidance? Or is that not something that we should be expecting?

Well, I don't think the strong performance is what drives that. It really is the data. And if there's opportunistic retail locations to promote basic and limit the impact on Marlboro, then that decision, but it's not driven by the financial performance necessarily. It's being driven by the data analytics Sure.

Our next question comes from Dave with Richmond Times Dispatch.

I was hoping you could talk a little bit more about the enforcement for the disposable vapes. You probably know that here in Virginia, the legislature has passed the new permitting and enforcement legislation for vape shops. And I'm wondering if this is something that brings enforcement to a new front? Is it something that might be significant in terms of other states being interested in this kind of thing. Have you been monitoring that?

We have been. I think when you think about it, all the efforts that we try to get both at the state level and the federal level, or exactly what you're after is making sure that the consumer in the vape category has authorized products that the FDA, an independent party has looked at what's in them and what comes from them. And so that's what we're driving. I think when you look across the U.S., you see a number of tools available at the state level. You've mentioned the permitting in Virginia. Other states have directories. It all is driven by how well they enforce it. Where we see enforcement take place, we see that the consumer goes back to their total consideration set.

So we've seen some go to nicotine pounds. We've seen some come back in cigarettes. And then we've seen in some states where I'll call it a gray area where their vape products that have applications in front of the FDA and are awaiting a decision. So they're able to stay in the marketplace. So Again, that's why we've been really pushing the FDA to think about both enforcement but also making authorization more readily available.

Could the Virginia legislation be a model for other states?

We've seen that across states. Some states have used model legislation that drives more, if you will, enforcement and have only authorized products in the marketplace, but it's really driven by how well it's enforced.

There appears to be no further questions at this time. I would like to turn the call back over to Mac Livingston for any closing remarks.

Thanks, everybody, for joining today's call. Please reach out to Investor Relations if you have further questions. Have a great day.

This concludes today's call. Thank you for your participation. You may disconnect at any time.

Well, we're excited to welcome back the management team of Altria, long-time supporters of CAGNY. For decades, they've been leaders in the tobacco industry with iconic brands led by Marlboro. Today, they're leaders in moving beyond smoking. This includes exciting new products like on! PLUS and advocating for improved enforcement against illicit markets in the U.S., all while supporting strong cash returns to shareholders through the traditional businesses. We also note this is CEO, Billy Gifford's final CAGNY before he retires and transitions leadership to Sal Mancuso, who we're fortunate to have with us as well. That will happen in May. Billy, congratulations. Welcome and take it away.

Thanks very much.

Good afternoon, and thank you for joining us. We're excited to be back at CAGNY once again this year. I'm joined on the stage by Sal Mancuso, our Chief Financial Officer; and following our presentation, Heather Newman, our Chief Strategy and Growth Officer; and Bob McCarter, our General Counsel, who also leads Regulatory Affairs, will join us for the breakout session next door. Before we begin, we ask that you carefully review the safe harbor statement in today's presentation and the forward-looking and cautionary statements section in today's press release.

These documents are available on altria.com, along with the reconciliations and further explanations of the non-GAAP financial measures we will discuss today. Future dividend payments and share repurchases remain subject to the discretion of our Board. And all references in today's remarks to nicotine consumers or consumers within a specific nicotine category or segment refer to existing adult nicotine consumers 21 years of age or older. At Altria, we are responsibly transitioning smokers to a smoke-free future, competing vigorously for existing smoke-free nicotine consumers and exploring new growth opportunities beyond the U.S. and beyond nicotine.

We've been leaders in the U.S. nicotine space for decades. Our iconic tobacco brands, including Marlboro, Black & Mild and Copenhagen have built durable competitive advantages and created significant value for our shareholders. In recent years, the U.S. nicotine space has been rapidly evolving. Accelerated smoke-free adoption and shifting consumer preferences have made the long-term growth and profit potential of smoke-free categories clear. These dynamics have created an unprecedented opportunity for our businesses. We believe we have the potential to both advance harm reduction and to extend Altria's historic track record of creating long-term value.

We continue to evolve our businesses and capabilities to capture these opportunities to lead the U.S. nicotine space into the future. Today, I'll start with an update on the U.S. nicotine space, nicotine consumers and the portfolio we are building to capture the growing smoke-free opportunity. Next, I'll highlight some of our enhanced capabilities and strategy enablers that we expect will provide greater flexibility and strengthen our execution. Sal will then discuss our smokeable products business, our ambition to expand beyond U.S. nicotine and our continuing commitment to create substantial value for our shareholders. Let's dive in. The U.S. nicotine space is evolving and innovative smoke-free products are driving that change. In 2025, growth in e-vapor and oral tobacco more than offset cigarette industry volume declines.

As a result, total equivalized nicotine volumes grew by approximately 2.5% last year and by 2% over the past 5 years on a compounded annual basis. Over the same period, nicotine consumers have shifted meaningfully towards smoke-free options. Of the 55 million U.S. nicotine consumers, we now estimate that more than half use smoke-free products and more than 1/3 use them exclusively. The growing adoption of smoke-free products is encouraging and reflects real progress in harm reduction. More than 10 million former smokers have fully transitioned away from cigarettes. Just under half of the remaining 30 million smokers are interested in smoke-free options, underscoring that we are still in the early stages of the harm reduction opportunity.

Our strategy is grounded in a deep understanding of today's nicotine consumers. Over decades, we've built a robust understanding of our consumers, including the role nicotine products play in their lives and why they choose brands and products across different usage occasions. We've identified three distinct consumer groups, each defined by what consumers seek from their nicotine experience and the factors that drive their behaviors or product choices. These groups inform our total portfolio strategy, enabling us to meet consumers where they are with our traditional brands and our innovative smoke-free products.

The first group, the Traditionalists consists of consumers who want to stick with what they know. They demonstrate strong brand and format loyalty, preferring familiar products that fit long-standing routines. Their behavior reinforces the strength and resilience of established brands like Marlboro and Copenhagen and the importance of maintaining high-quality experiences in traditional tobacco. And while many smokers in this group acknowledge reasons they could switch to smoke-free alternatives, a persistent core remains unmotivated to make a change. The second group, the transitioners, is open to switching between product platforms. These consumers are willing to transition from cigarettes to smoke-free alternatives and move between smoke-free categories when products effectively deliver nicotine satisfaction, have less social friction and have a value or harm reduction proposition.

They are a key driver of category movement and contribute significantly to the ongoing adoption of smoke-free products. This group reinforces the role that nicotine pouches, e-vapor and heated tobacco can each play for smokers or dippers seeking innovative smoke-free alternatives. The third group, the variety seekers, actively seek different product forms, flavors and experiences. They are early adopters of innovation and often set emerging trends within the nicotine space. Many use multiple product categories and have already transitioned from cigarettes, making them a highly dynamic group. Innovation is critical to meet the needs of this group. We believe that new products in the pouch category, such as on! PLUS and our e-vapor products under development will be positioned to meet their rapidly evolving preferences.

We believe that no single product format, flavor or nicotine strength can adequately meet the full spectrum of consumer preferences. And it's foundational to why we remain committed to providing high-quality traditional tobacco products for loyal consumers while advancing an innovative smoke-free portfolio across oral nicotine pouches, heated tobacco and e-vapor. Let's now turn to the smoke-free categories and our portfolio. The oral tobacco category grew by 12.5% last year. Nicotine pouches drove category growth and volumes grew by over 40%. Nicotine pouches now comprise over half of the total oral category. All category consumers increased to over 8 million and nicotine pouch consumers more than doubled over the past two years.

Our oral tobacco product strategy is to maximize profitability over time in MST through the strength of Copenhagen and responsibly grow the on! portfolio while investing in a pipeline of innovative oral nicotine products. This approach aligns with our consumer groups, serving loyal, routine traditionalists through Copenhagen while meeting the needs of transitioners and variety seekers with innovative smoke-free options with on! and On!PLUS. We believe we are successfully executing against this strategy. Our oral tobacco products segment grew adjusted OCI by a CAGR of 1.3% over the past 5 years. Over the same time, we built a competitive nicotine pouch brand with on! and grew annual volumes to nearly 178 million cans in 2025, representing a CAGR of nearly 58%. In 2025, USSTC continued to lead in MST with Copenhagen.

In the highly profitable premium segment, USSTC's share was 61% and has steadily grown over the past 5 years, illustrating the strength of our premium MST brands. And Helix delivered another year of volume share growth in a highly competitive category while improving profitability. With the recent FDA authorizations for certain on!PLUS products, Helix is poised for another strong year in 2026. We believe on!PLUS is a premium and differentiated product, featuring our proprietary NICOSILK technology and is designed to appeal to both adults who dip and competitive pouch consumers. on! PLUS is currently distributed in Florida, North Carolina and Texas. Together, these states represent approximately 16% of total nicotine pouch volume. Early consumer insights have been encouraging. Approximately 95% of consumers surveyed said that they are very likely or somewhat likely to repurchase on!PLUS. And it's no surprise.

After all, on!PLUS Onus is the softest pouch on the planet. Helix is quickly preparing to expand on!PLUS beyond its initial distribution. Its national launch is slated to begin next month with broad retail distribution expected by the end of the first half. In support of this expansion, Helix recently announced a new trade program to strengthen retail positioning for the entire on! portfolio, including enhanced merchandising, distribution and assortment. At retail, on!PLUS will stand out with premium signage and elevated positioning that highlights the product's differentiated high-quality proposition. Innovation in pouch formats is driving category growth. We believe the differentiated product attributes of on!PLUS position it to meet transitioner and variety seeker preferences. It's authorized mint and wintergreen varieties in 6- and 9-milligram strengths aligned with the preferences of roughly 60% of pouch consumers.

We believe this gives the brand a strong foundation. At the same time, we recognize growing consumer interest in additional flavors and higher strengths. Last year, flavor forward varieties gained share. Interest in strengths 9 milligrams and above also continues to rise and higher nicotine strengths appeal to certain dippers. Helix has already filed PMTAs for additional on! PLUS products to meet these consumer preferences. The FDA is reviewing applications for on! PLUS mint, wintergreen and tobacco in 12 milligrams, along with 6 additional flavor varieties across 3 nicotine strengths. While the new flavor applications are not included in the FDA's pilot program, we are optimistic that the FDA will apply similar efficiencies and methodology. on! and on! PLUS! will be supported by amplified marketing strategies and activations led by our consumer experience organization. As nicotine categories have developed over time, so have the ways consumers engage with brands. Our data show a significant opportunity for on! and on! PLUS to responsibly engage with adult consumers through previously unused marketing channels.

By embracing these modern channels for our smoke-free brands, we believe we can more than double the reach of our traditional marketing efforts. Importantly, these efforts are grounded in responsibility with safeguards to limit reach to unintended audiences and with a strong focus on regulatory compliance. These new channels include high-impact in-person events, strategic partnerships with well-known brands, paid social media and streaming audio, among others. We already see this approach building brand affinity. Last year, our teams participated in events that drew 3 million attendees and had over 260,000 one-on-one interactions with adult consumers, driving significant awareness for the brand. Helix will engage consumers with on! PLUS marketing content through a variety of paid media channels, including online video. Let's take a look.

[Presentation]

We're excited to bring a truly differentiated product to consumers this year with engaging marketing content that we expect to generate awareness, drive trial and build on existing brand equity. Let's now turn to heated tobacco.

While the category remains nascent in the U.S. today, some smokers are seeking inhalable alternatives that reduce the social friction associated with cigarettes, yet provide a satisfying real tobacco taste. These attributes align with the needs of some traditionalists and transitioners. These consumers are looking for inhalable smoke-free options but did not have an interest or find satisfaction in e-vapor.

We believe Ploom, paired with the familiar Marlboro brand, offers smokers an inhalable smoke-free option that feels recognizable, credible and satisfied. Last August, Horizon, our joint venture with JT Group, completed a key milestone on its path to bring Ploom to the U.S. Horizon filed a combined PMTA and MRTPA with the FDA for Ploom and Marlboro heated tobacco sticks. We believe the science and evidence supporting these applications are compelling. Evidence from a large consumer use study among adult smokers shows that 31% of those who use Ploom switched completely and an additional 42% reduced their cigarette consumption by half or more. Given the low risk of underage use and the strong benefits of switching for smokers, we believe Ploom represents a strong case for FDA authorization. Let's now turn to e-vapor, a category that strongly appeals to transitioners and variety seekers.

We estimate the e-vapor category grew approximately 15% in 2025, with illicit flavored disposable products representing approximately 70% of the category. At year-end, we estimate there were more than 20 million vapers, including nearly 15 million using disposable products. In 2025, we began to see signs of a slight moderation in e-vapor growth following years of rapid expansion. We believe 3 primary factors are driving this: increased enforcement, pricing and a slowdown in organic category growth. First, enforcement is improving. We have long advocated for stronger enforcement against illicit products. These products, mostly imported from China, are produced with no FDA oversight of ingredients, how they are made, marketed or sold. In 2025, we saw increased engagement and action from federal agencies and government officials. Our research with adult disposable vapers suggests that enforcement efforts are gaining traction with over half of those surveyed reporting out-of-stocks for their preferred brand.

Second, we are also seeing enforcement-related supply shortages, together with tariffs on Chinese manufactured goods impacting pricing dynamics. In tracked channels, we observed significant price increases for certain illicit brands. Our data showed that retail prices increased for one leading brand -- leading illicit disposable brand by more than 20% in the second half of 2025. In addition, there are early indications that growth in the total number of disposable vapers is moderating. In 2025, the number of disposable vapers slowed, rising approximately 8% versus the more than 40% in 2024. Further, disposable e-vapor volumes grew approximately 30% last year compared to over 50% in 2025. While this is early progress, more action is needed. Consumers deserve products that have been rigorously reviewed by the FDA.

At a minimum, they should know what's in their products. The prolonged growth of illicit e-vapor continues to jeopardize the harm reduction opportunity. The entire industry needs to operate within a fully enforced science-based regulatory environment. We're hopeful that 2026 will bring consistent enforcement and further improvements to the regulatory process. Long term, it's important to compete in e-vapor with flavored products that meet evolving consumer preferences. We are working on a pipeline of products to drive to that future. The proliferation of illicit disposable products, slow pace of FDA authorizations and the intellectual property landscape remain significant headwinds. We intend to maintain a measured approach to our investments in e-vapor until the regulatory framework is functioning as intended and enforcement actions meaningfully address the illicit market.

As we advance our smoke-free portfolio, we're also strengthening the capabilities and enablers that accelerate progress toward our vision. We are creating additional operational and financial flexibility through our Optimize and Accelerate initiative, expanding our import and export capabilities and enhancing our RGM infrastructure. And our industry-leading sales force continues to be a critical enabler of our success. We're modernizing the way we work through our Optimize and Accelerate initiative, which we first announced in late 2024. From the start, we said our goal was to generate at least $600 million in savings to reinvest in our vision while also increasing our organization's speed and effectiveness. We're just over a year into our initiative, and we are already seeing the benefits. In our marketing services organization, we've reduced the time required to create and execute content by as much as 50%. We're leveraging automation and generative AI, enabling us to move closer to the consumer at a faster pace than ever before.

We're also scaling an AI tool across AGDC, our sales and distribution company to strengthen execution and create capacity for our teams. Our sales managers capture images in every store they visit. AI converts these photos into structured insights such as opportunities to improve product assortment, pricing or signage on the back bar. What used to take days will happen almost instantly once we scale this new technology. Next, we are expanding our import and export capabilities and building operational expertise that supports our broader international aspirations. We believe this provides greater financial flexibility for PM USA and the Enterprise. PM USA began making foundational investments to support international product specifications last year, and our CapEx range for 2026 includes further investments. We expect import and export activity to ramp up throughout the year, and we have contracted export volumes with multiple partners that support a return on investment in less than one year.

We're also enhancing our RGM infrastructure to optimize growth, sharpen resource allocation and accelerate progress towards our vision. Traditionally, each operating company used RGM based on its own priorities and stage of maturity. This model has delivered tremendous results, and we expect it will continue to do so. Enterprise RGM expands beyond an operating company approach and applies an enterprise-wide view. It enables us to evaluate cross-category dynamics and allocate resources more efficiency. While early, our small-scale test show encouraging results. Using enterprise RGM, we can analyze large data sets to understand pricing, retail, consumer and cross-category trends at a granular level. For example, these insights may inform decisions like reducing promotional support for a brand like Marlboro Menthol and instead increasing support for on! to grow total Altria nicotine share and encourage consumer transition to our smoke-free brands.

And finally, AGDC remains focused on creating the best in-store experience for our consumers and delivering the highest quality service to the trade. When surveyed last year, retailers ranked AGDC personnel better than all other CPG manufacturers for both account management and store level personnel. Our sales organization and trade relationships are strong and remain a critical enabler of our growth aspirations. As you can see, we are moving closer to our consumers, advancing our smoke-free portfolio and improving our capabilities. Our talented employees bring deep expertise, a strong sense of ownership and a commitment to responsibility. They give me confidence that we are moving closer to achieving our vision.

With that, I'll turn it over to Sal to discuss our highly profitable smokeable products segment, progress toward our 2028 enterprise goals and our continuing commitment to shareholder returns.

Thanks, Billy. Let me begin with our smokeable products segment. We manage our smokeable business for the long term, which means that PM USA seeks to maximize profitability while maintaining Marlboro's strength over time. We believe we have effectively executed this strategy despite elevated cigarette volume declines in recent years. Over the past 5 years, the smokeable products segment has grown adjusted OCI by more than $950 million, representing a CAGR of 1.8%. Over the same time, adjusted OCI margins have expanded by 7 percentage points to 63.4%. In 2025, we saw a slight moderation in cigarette industry volume declines with volume gradually improving throughout the year. For the full year, the industry decline rate of 8% was 1% better than 2024, driven by the reduced impact from macroeconomic factors and cross-category movement.

As part of our fourth quarter results, we updated our estimate of cross-category impacts, which are primarily driven by illicit flavored disposable e-vapor products to a range of 2% to 3%. PM USA's primary focus remains on the premium segment, where the largest profit opportunity exists. Despite discount segment growth in recent years, the premium segment represented approximately 85% of cigarette manufacturer industry profit in 2025. Over time, PM USA has invested in Marlboro to reinforce the brand's leadership and strengthen the relationship we've built with the loyal routine-driven traditionalists that Billy described earlier. Those investments continue to pay off as Marlboro's share of premium expanded once again in 2025. And over the past 5 years, Marlboro outperformed other premium brands, growing its share of the highly profitable premium segment to 59.4%. This performance was supported by Marlboro smokers who remained highly loyal with brand loyalty rates above 95% in 2025.

Adult smokers have been under macroeconomic pressure from a variety of headwinds in recent years, including the cumulative impacts of inflation. Over time, PM USA has used RGM and certain Marlboro packings to meet the needs of value-sensitive Marlboro smokers. RGM informs the geographies and promotional rates where support is most effective, allowing PM USA to optimize promotional investments and portfolio architecture to support the smokeable products segment's overall strategy. PM USA's capabilities continue to evolve, and the next iteration of this approach is Marlboro Cowboy Cut. Cowboy Cut rides on the back of the brand's American heritage and delivers a classic Marlboro experience. We believe that provides a premium Marlboro option at the right price to retain value-sensitive smokers within the franchise, and we expect to begin expanding distribution later this year.

Historically, PM USA has maintained a presence in the discount segment and has effectively grown profitability through its discount brands over time. Last year, PM USA used RGM to reposition Basic, deploying discount strategies used in the past, but now with far greater precision. Today, Basic is strategically positioned in approximately 30,000 stores, which represents about 12% of PM USA's volume. This compares to the 290,000 store coverage of Marlboro. In addition, Basic is positioned in stores and geographies where discount brands are over-indexed, while Marlboro and other premium brands typically under-index relative to the industry. We believe Basic's 2025 performance reflects the effectiveness of PM USA's refined discount strategy. In the fourth quarter, basic retail share grew to 2.1%, an increase of 1.9 share points year-over-year. At the same time, the growth rate in the deep discount tier has moderated, while Basic has been the primary beneficiary of growth in branded discount.

As a result, we believe PM USA captured share it otherwise would have lost to competitive discount brands while limiting incremental impact to Marlboro. Basic retail footprint and brand investments are not static, and PM USA continues to make data-driven adjustments with the segment's long-term strategy in mind. Altogether, PM USA's total portfolio approach delivered in 2025. Marlboro grew share in premium, Basic gained traction in discount and total PM USA share declines moderated. In the fourth quarter of 2025, PM USA share decline was only 0.2 percentage points versus a 1.4 percentage point decline in the fourth quarter of 2024. These results reinforce our confidence in our smokeable strategy and its ability to support sustained long-term financial performance.

Let's now turn to our long-term adjacent growth opportunities. Billy outlined the U.S. smoke-free opportunity directly ahead of us. Outside of our U.S. nicotine efforts, we believe that international and non-nicotine opportunities can deliver incremental top line growth. We are investing with discipline to strengthen our competitive position, expand our product portfolio and achieve our long-term growth goals. Internationally, we are expanding our position in the fastest-growing smoke-free category, nicotine pouches. Last year, on!, on! PLUS, and FUMi competed across attractive and growing markets through e-commerce and targeted retail distribution. As we move closer to international consumers, we are sharpening our understanding of who they are, their usage occasions and preferred product attributes. Our research supports that FUMi has strong potential to connect with international pouch consumers.

Last year, we expanded nicotine pouch products to 7 markets and increased retail distribution by over 5x to more than 40,000 stores. In addition, we strengthened our international product portfolio with 3 new FUMi flavors, increasing the brand to 12 offerings across multiple nicotine strengths. As we scale our execution abroad, we are gaining valuable insights that we can apply to the evolving U.S. nicotine pouch category. U.S. nicotine presents another opportunity to drive incremental revenue growth over the long term. We are taking a disciplined test-and-learn approach to this space. In 2025, we tested more than 30 non-nicotine products across a range of formats. While we explored several areas, our research shows that energy is the most sought-after functional benefit for consumers. We continue to believe there is potential to disrupt the energy category in convenience stores, which we estimate to be a more than $19 billion opportunity.

We are advancing this strategy through our collaboration with Proper Wild. AGDC supported the expansion of Proper Wild's energy shots to more than 25,000 retail stores, where the brand is generating buzz. The product was recently recognized by Convenience Store News as the best new energy shot for 2025. And now we are expanding the Proper Wild portfolio and expect to begin distributing its energy gummies to test markets in the first half of this year. We believe Proper Wild Gummies stand out for their clean ingredients and our research shows strong consumer enthusiasm. Among convenience store shoppers, 70% intend to repurchase the product after trying it. This year, we expect to add two more differentiated products to further strengthen our non-nicotine portfolio. These products put us on pace to achieve our goal to commercialize and broadly distribute at least 5 non-nicotine products by 2028.

While we invest in our future, our traditional tobacco businesses continue to fuel the significant cash returns we've delivered for decades. In 2025, we hit two major milestones. In August, our Board increased our quarterly dividend by 3.9% to $1.06 per share, marking our 60th increase in 56 years. Since the 2008 PMI spin-off, we have provided over $100 billion in cash returns to shareholders, which approximates our current market capitalization. These achievements reinforce the resilience of our businesses and our long history of delivering shareholder value. We believe our consistent cash returns and earnings growth have positioned us as a compelling investment from a total shareholder return perspective. Over the past 5 years, our TSR has outperformed the S&P 500 and by a wide margin, the consumer staples sector and the S&P 500 food, beverage and tobacco industry group. On average, our businesses have annually produced more than $1 billion of cash in excess of dividend payments.

As we consider future excess cash generation, we expect to continue balancing share repurchases with investments in our vision. At the end of 2025, we had $1 billion remaining under our current $2 billion share repurchase program, which expires at the end of 2026. Our balance sheet remains strong with manageable debt maturity towers. None of our annual maturities exceed $2 billion through 2038. And at the end of last year, our debt-to-EBITDA ratio was 2x. Our balance sheet is bolstered by our investment in ABI. At the end of last year, the fair value of our investment was $10.3 billion. And in 2025, ABI delivered over $200 million in dividends, up nearly 50% versus the prior year. We continue to view the ABI stake as a financial investment, and our goal remains to maximize the long-term value of the investment for our shareholders. We remain committed to our 2028 corporate goals and believe we are on track to achieve them.

We also continue to reassess our smoke-free goals and expect to provide updated goals when we have more clarity on how the legitimate e-vapor market may evolve. In summary, the U.S. nicotine space is growing and smoke-free categories represent a substantial long-term opportunity. We are building our position with compelling smoke-free products and advancing the capabilities needed to lead U.S. nicotine into the future and capture the harm reduction opportunity. Our smoke-free strategy is anchored and funded by the strength of our traditional tobacco businesses. Our smokeable and oral tobacco products segments continue to deliver robust margins and significant cash flow, which support disciplined capital allocation, including an attractive dividend and ongoing share repurchases.

With a strong balance sheet and our 2028 enterprise goals as a clear road map, we believe we are well positioned to drive long-term value creation. My confidence in the road ahead is grounded in our talented employees who passionately execute with purpose, embrace change and are central to advancing our vision. Thank you for your time and interest in Altria.

I'll now invite Billy back to the podium, and we'll take your questions.

I think we have time maybe for one question. And then we'll have plenty of time in the breakout room.

Bonnie?

I just had a question on the new Marlboro Cowboy Cut. Could you help frame for us how you're going to be positioning that maybe from a price perspective relative to some of the other Marlboro SKUs. Ultimately, what the objective is. I'd love to hear a little bit more from you on that. And I don't recall, did you say you've already been testing it? I'm just curious how incremental you expect this to be to the Marlboro brand family or a lot of cannibalization.

Sure. I think when you think about it, it's both an equity and a safe haven for consumers that are under pressure but want to stay in the Marlboro brand. It's the 250th anniversary of the U.S. and what's more Americana than Marlboro and the Cowboy. So it has that from an equity play. But certainly, as we see our consumer under pressure, think of it as it could be at discounted to the place of Marlboro Black. It's not to layer on top of Marlboro Black, but it allows different price adjustments to be made across the entire portfolio of the Marlboro brand. It's no different than we use special blend or other packings within Marlboro in the past. Thanks.

Great. Well, that's all the time we have. Please join me in thanking the management team of Altria for a great presentation. And we'll take the rest of the questions in the breakout room.

Good day, and welcome to the Altria Group 2025 Fourth Quarter and Full Year Earnings Conference Call. Today's call is scheduled to last about one hour, including remarks by Altria's management and a question-and-answer session. [Operator Instructions] I would now like to turn the call over to Mac Livingston, Vice President of Investor Relations. Please go ahead, sir.

Thanks, Chloe. Good morning, and thank you for joining us.

This morning, Billy Gifford, Altria's CEO; and Sal Mancuso, our CFO, will discuss Altria's 2025 fourth quarter and full year business results.

Earlier today, we issued a press release providing our results. The release, presentation, quarterly metrics and our latest corporate responsibility reports are all available at altria.com. During our call today, unless otherwise stated, we're comparing results to the same period in 2024.

Our remarks contain forward-looking statements, including projections of future results. Please review the forward-looking and cautionary statements section at the end of today's earnings release for various factors that could cause actual results to differ materially from projections. Future dividend payments and share repurchases remain subject to the discretion of our Board of Directors.

We report our financial results in accordance with U.S. generally accepted accounting principles. Today's call will contain various operating results on both a reported and adjusted basis. Adjusted results exclude special items that affect comparisons with reported results. Descriptions of these non-GAAP financial measures and reconciliations to the most comparable GAAP financial measures are included in today's earnings release and on our website at altria.com.

Finally, all references in today's remarks to nicotine consumers or consumers within a specific nicotine category or segment refer to existing adult nicotine consumers 21 years of age or older.

With that, I'll turn the call over to Billy.

Thanks, Mac. Good morning, and thank you for joining us.

2025 was a year of continued momentum for Altria marked by strong financial performance, strategic progress across our smoke-free portfolio, new relationships in support of our long-term growth goals, and significant cash returns to shareholders. Our leading brands and talented teams enabled our core tobacco businesses to deliver solid income growth and margin expansion while we invested in our vision.

For the full year, we grew adjusted diluted earnings per share by 4.4% and returned $8 billion to shareholders through dividends and share repurchases combined. As the year progressed, we achieved meaningful milestones that we believe advance our smoke-free portfolio and position us for sustained success in the U.S. nicotine space and for long-term adjacent growth.

In 2025, Helix received marketing granted orders from the FDA for certain on! Plus products. Horizon submitted a combined PMTA and MRTPA to the FDA for Ploom and Marlboro heated tobacco sticks. We entered into a strategic collaboration with KT&G to advance international modern oral, U.S. non-nicotine growth and traditional tobacco operating efficiencies. And we continue to advocate for a responsible and well-regulated marketplace.

My remarks this morning will focus on our latest view of the U.S. nicotine space our smoke-free progress and our earnings guidance for 2026. I'll then hand it over to Sal, who will provide further details on our business and financial results. Let's begin with our view of the U.S. nicotine space.

Over the past year, the estimated number of adult consumers in the e-vapor and oral tobacco categories, grew to almost 30 million, nearly as large as the adult smoker population and a reflection of the potential for tobacco harm reduction in the U.S. Total nicotine industry equivalized volumes increased for the third consecutive year and grew by approximately 2% over the past 5 years on a compounded annual basis. And we estimate that smoke-free alternatives represented more than 50% of the total nicotine space, up 5 percentage points from the prior year. However, the primary driver of industry and smoke-free growth continues to be the widespread availability of illicit flavored disposable e-vapor products invading the regulatory process, which jeopardizes the long-term tobacco harm reduction opportunity.

We estimate the e-vapor category grew approximately 15% in 2025 with illicit products representing approximately 70% of the category. At year-end, we estimate there were more than 20 million vapors with nearly 15 million using disposable products. We have long advocated for stronger enforcement against illicit products and an acceleration of FDA market authorizations for smoke-free products. In 2025, we saw increased engagement and action from federal agencies and government officials, including fourth quarter legislation requiring the FDA to allocate at least $200 million of tobacco user fees to enforcement activities.

Early signs suggest that these efforts, together with tariffs of Chinese manufactured goods, are beginning to impact the illicit marketplace. We are also seeing early indication that growth in the total number of disposable vapors is moderating. In 2025, disposable e-vapor volumes grew approximately 30% compared to over 50% in 2024. Growth in the number of disposable vapors also slowed, rising approximately 10% in 2025 versus over 40% in 2024.

Additionally, the FDA's pilot program to streamline PMTA reviews for certain oral nicotine pouches could be a meaningful step toward improved regulatory speed and clarity required to deliver products that meet adult consumer preferences and regulatory standards. While we are encouraged by this early progress, additional action is needed to accelerate product authorization decisions and ensure a level playing field for all manufacturers. We are hopeful that 2026 will bring consistent enforcement and further improvements to the regulatory process.

We continue to believe that responsible participation in the e-vapor category with products that meet consumer preferences supports our vision and our broader smoke-free strategy. We're making progress against our product pipeline and are executing with discipline and intention. The proliferation of illicit disposable products, pace of FDA authorizations and the intellectual property landscape remain significant headwinds. Accordingly, we intend to maintain a measured approach to our investments in e-vapor until the regulatory framework is functioning as intended, and enforcement actions meaningfully address the illicit market.

Let's now turn to the nicotine pouch category. Nicotine pouches continue to drive overall oral tobacco volume growth, which increased an estimated 14% over the past 6 months. In the fourth quarter, oral nicotine pouches grew 10.4 share points versus the prior year and now represent nearly 57% of the total oral category. Competitor promotional activity remained elevated during the fourth quarter. Average retail prices for category competitors in the fourth quarter declined 3% sequentially and 12% year-over-year. In contrast, Helix remained focused on balancing profitability with retaining loyal on! consumers. At retail, on!'s price increased by approximately 4% sequentially and 3% versus the prior year.

For the full year, Helix successfully delivered against its plans and contributed profitable growth to our oral tobacco products segment. In this environment, Helix was relatively stable in the fourth quarter, growing on! reported shipment volume to more than 44 million cans. For the full year, Helix grew on! reported shipment volume by approximately 11% to more than 177 million cans. on!'s retail share of the total oral tobacco category was 7.7% for the fourth quarter and 8.2% for the full year.

While Helix carefully stewarded going through disruptive second half market conditions, the team also prepared to bring on! Plus to the market. In December, the FDA authorized on! Plus Mint, Wintergreen and Tobacco in 6 and 9-milligram nicotine strengths with the 12-milligram variant still in the review process. Following authorization, Helix resumed shipments of on! Plus in Florida, North Carolina and Texas.

Innovation in pouch formats, including wet pouches, broader flavor variety and higher nicotine strength offerings is driving nicotine pouch growth. We believe on! Plus is a premium differentiated product that is well positioned to meaningfully participate in this growth. Early consumer feedback indicates that its innovative pouch material with smooth flavor proposition is a competitive advantage in the marketplace. In recent research, on! Plus Mint achieved higher overall purchase intention scores than the leading nicotine pouch brand and distinguished itself with superior pouch comfort and mouth feel, critical attributes in the nicotine pouch category.

In the fourth quarter, Helix began laying the foundation to expand on! Plus nationally. Our teams made strategic investments in retail merchandising fixtures and equity to prepare for the on! Plus national launch planned for the first half of this year. In 2026, Helix plans to focus on generating trial for on! Plus and retaining adopters for on! classic. We anticipate Helix will continue to be profitable for the full year 2026.

Looking to the future. Helix strategy remains focused on innovation, and responsibly delivering on consumer preferences. In November, Helix submitted PMTA applications for on! Plus products in 6 additional flavor varieties across 3 nicotine strengths. Helix looks forward to bringing these new products to the U.S. market.

Turning to our international smokefree efforts, we continue to focus on the fast-growing nicotine pouch category. In 2025, on!, on! Plus and our newly added FUMi brand competed across select international markets through e-commerce and targeted retail distribution. FUMi appeals to the 80% of consumers interested in slim, [indiscernible] pouch products. Early performance has been encouraging, supporting our expansion to 40,000 retail locations in 7 markets. In addition, we added 3 new line extensions bringing the brand to 12 unique flavor offerings.

Our broadened nicotine pouch portfolio has accelerated international expansion and is generating valuable consumer insights that will inform future product development. While these are early days, we believe our expanded international portfolio and the momentum from our efforts in 2025, put us on a path towards accomplishing our long-term international smoke-free growth goals.

Moving to our 2026 financial outlook. We expect to deliver 2026 full year adjusted diluted EPS in a range of $5.56 and to $5.72. This range represents a growth rate of 2.5% to 5.5% from a $5.42 base in 2025. We expect growth to be weighted to the second half of the year, reflecting a progressive increase in cigarette import and export activity over the course of the year. Our guidance contemplates planned investments to support our contract manufacturing capabilities, limited impact on combustible and e-vapor product volumes from illicit enforcement efforts, and NJOY ACE not returning to the marketplace in 2026.

We remain committed to our ambition and to building a portfolio of FDA-authorized smoke-free products for adult smokers and nicotine consumers who use smoke-free products. Our planned investment areas include marketplace activities in support of our smoke-free products and continued smoke-free product research, development and regulatory preparations.

In summary, Altria continued to build momentum in 2025. Our core businesses remain resilient. We advanced our smoke-free portfolio and we opened new pathways for long-term growth in international modern oral and non and U.S. non-nicotine innovation. These efforts support our vision and enterprise goals. I am confident in our strategy, energized by the opportunities ahead and grateful for our employees' commitment to delivering long-term shareholder value.

I'll now turn it over to Sal to provide additional details on our business and financial results.

Thanks, Billy. Our core tobacco businesses delivered solid financial performance again this year in a dynamic external environment. The smokeable products segment delivered over $11 billion in adjusted OCI for the full year and expanded adjusted OCI margins by 1.8 percentage points to 63.4%. This performance was supported by robust net price realization of 8.4%. For the fourth quarter, adjusted OCI declined by 2.4% and adjusted OCI margins contracted by 0.8 percentage points to 60.4%.

Year-over-year cost per pack comparisons were impacted by higher manufacturing costs driven by investments to build PM USA cigarette import and export capabilities. Smokable Products segment, domestic cigarette volumes declined by 7.9% in the fourth quarter and 10% for the full year. When adjusted for calendar differences and trade inventory movements, domestic cigarette volumes declined by 7% in the fourth quarter and 9.5% for the full year.

At the industry level, when adjusted for trade inventory movements, calendar differences and other factors, we estimate domestic cigarette volumes declined by 8% for the full year and by 6.5% for the fourth quarter, representing a sequential improvement of approximately 1.5 percentage points. As Billy described, illicit flavor disposable e-vapor growth moderated slightly in 2025 compared to the prior year. We have closely monitored this trend and its impact on cigarette industry decline rates.

Based on our latest data, we are updating our cigarette category decomposition. We now estimate that cross-category impacts primarily driven by illicit flavored disposable e-vapor contributed approximately 2% to 3% and to the cigarette industry decline over the past 12 months versus our prior estimate of 3% to 4%. In the discount segment, persistent discretionary income pressures remain the primary driver of growth. We also believe that the discount cigarette segment was most affected by the change in cost category impact.

For the fourth quarter and full year, discount retail share grew by 2.6 share points and 2.2 share points, respectively. Continued discount segment growth pressured Marlboro's retail share, which declined 1.5 share points in the fourth quarter and 1.2 share points for the full year. In the premium segment, competitive dynamics during the fourth quarter contributed to Marlboro's share premium decreasing 0.1 share points to 59.2%.

For the full year, Marlboro remained the undisputed leader in the highly profitable premium segment, growing its share to 59.4%, up 0.1 share point versus the prior year. Basic continued to capture share in the discount segment, reflecting PM USA's data-driven total portfolio approach to meeting a broad set of consumer needs. In the fourth quarter, Basic retail share grew by 0.6 share points sequentially and 1.9 share points year-over-year. Basic strong performance demonstrates PM USA's ability to deploy advanced RGM capabilities to effectively compete in the most price-sensitive stores, while minimizing incremental impact to Marlboro.

In cigars, Middleton continued to outperform in the large mass cigar industry. For the fourth quarter and full year, Middleton reported shipment volume increased 4.2% and 1.8%, respectively.

Let's turn now to the oral tobacco products segment. Strategic investments behind on! and on! Plus contributed to a 4.6% decline in adjusted OCI for the fourth quarter. Over the same period, segment adjusted OCI margins contracted by 5 percentage points to 64.5%. For the full year, adjusted OCI increased by 1.3% and adjusted OCI margins expanded modestly by 0.1 percentage points to 67.9%.

Total segment reported shipment volume decreased 6.3% for the fourth quarter and 5.5% for the full year as growth in on! was more than offset by lower MST volumes. When adjusted for trade inventory movements and calendar differences, we estimate that fourth quarter and full year oral tobacco products segment volumes declined by 6% and 4.5%, respectively. Oral Tobacco Products segment retail share was 29.6% for the fourth quarter and 31.9% for the full year.

Let's turn to an update on our e-vapor reporting unit. As Billy mentioned, while enforcement activity has increased, efforts thus far have not meaningfully reduced illicit e-vapor volumes to date. We now believe that effective sustained enforcement will develop over time at a more gradual pace. Given this dynamic, we performed impairment assessments of the e-vapor definite-live intangible assets and goodwill in the fourth quarter. Based on these assessments, we recorded noncash impairment charges of $1.3 billion. We continue to believe we gain valuable assets and capabilities in the NJOY acquisition that can be applied to a future e-vapor pipeline to meet consumer preferences over the long term.

Before moving on from e-vapor, I'd like to point out a reporting change you will see in our 2025 financials. In accordance with accounting standards, we updated our reportable segments for the full year 2025, and to also include the e-vapor products segment, which consists of our Njoy business.

Turning to ABI's financial results. we recorded $161 million of adjusted equity earnings in the fourth quarter, up 1.3% versus the prior year. We continue to view the ABI stake as a financial investment, and our goal remains to maximize the long-term value of the investment for our shareholders.

Before I conclude, I'd like to highlight that as we continue to invest for the long-term success of the business, we are, at the same time, returning significant value to shareholders. In 2025, we paid $7 billion in dividends, and our Board raised our dividend by 3.9% in August, marking our 60th increase in the last 56 years. We also repurchased more than 17 million shares for $1 billion under our $2 billion share repurchase program. At the end of the fourth quarter, we had $1 billion remaining under the current program, which expires at the end of 2026.

We effectively balanced our capital allocation priorities during the year. and our balance sheet remains strong. Our total debt-to-EBITDA ratio as of December 31 was 2x, in line with our target.

With that, we'll wrap up and Billy and I will be happy to take your questions. While the calls are being compiled, I'll remind you that today's earnings release and our non-GAAP reconciliations are available on altria.com. We've also posted our usual quarterly metrics, which include pricing, inventory and other items. Operator, let's open the question-and-answer period.

[Operator Instructions] Our first question comes from Matt Smith with Stifel.

Billy, the fiscal 2026 outlook ranges, you know the benefit from import export activity building in the second half. Can you provide any color on the scope of the program? We calculate today that the percent of packs with the FET benefits around 3%. And if the second half benefits are more weighted towards cost normalizing associated with the initiative versus increased volume throughput that would unlock greater tax efficiency?

Yes. It's a little bit of both, Matt. We're a bit reluctant to share any of the specifics there, but certainly, there are some upfront investments that are moderate as we go through the year. We think those investments are wise. Not only are we able to make those investments and afford ourselves the opportunity of the duty drawback, but it also sets the manufacturing center that we have here in Richmond up to be available to produce for any market internationally, with some of the changes and differences in international markets versus the U.S. market.

In addition, as we've said previously, with the duty drawback, we're looking to not be at a competitive disadvantage regarding that, and we'll continue to look for opportunities to expand.

I appreciate that perspective. And as a follow-up before I pass it along, the 2026 CapEx guide is elevated. I think that's associated with the investments you're talking about to unlock the double duty drawback efficiency. The $300 million to $375 million investment level, is that -- should we think of this as a onetime increase in CapEx? Or do you expect kind of a multiyear higher CapEx level as we look forward?

Yes, Matt, thanks for the question. You are correct. The primary driver of the increase is the -- are the investments for our import export business. I'll repeat what Billy said, it not only provides us the ability to participate in the duty drawback, but it does provide us with capabilities for our longer-term vision. I would say obviously, we're not going to guide for future CapEx, but we are making investments today. They generally proceed the volume, if you think about it for the import export, but we're also making investments in our smoke-free portfolio.

Obviously, we want to have the appropriate manufacturing capability for products like on! Plus and future pipeline products. We believe that for a company of our size, it's still a relatively low level of capital expenditures, but we're going to be disciplined and diligent when we make those capital investments.

We'll move next to Bonnie Herzog with Goldman Sachs.

I guess I also had a couple of questions on the double duty drawback. I guess first, is it fair to assume your aggressive promotional strategy behind Basic, which is weighing on your net price realization and dollar OCI growth in smokeable? I mean, has that been implemented with the idea that these pressures can be offset this year as you ramp your import/export activity with KT&G? And then I guess without a pretty big step-up of this activity, it does seem like your smokeable dollar profit growth will likely remain negative, which could put you at the low end of your full year EPS guidance, right? So just any thoughts on that would be appreciated.

Yes. I would disaggregate those two. Everyone wants to keep combining those two decisions, and we see them as independent of one another. Certainly, we're not going to be at a competitive disadvantage for the duty drawback, as we discussed earlier. I think when you think about the strategy around Basic, remember that's only deployed in, call it, roughly over 30,000 stores. So it's not a nationwide type effort. What we saw there were a number of stores where the consumer has been under severe economic pressures. And that's really the major cause of that has been the cumulative inflation that the consumer has been experiencing.

And we felt that while it was prudent to invest behind Basic, not much different than if you go back in history, Basic before and then [indiscernible] other times, now we're repositioning Basic. And so in those 30,000 stores, we are able to apply the revenue growth management analytics that we have invested in and you see the superb performance of Basic, what it does is it captures consumers that would have gone to a deep discount. And it allows us to capture it with latent equity and as the economic situation changes for our consumers adjust accordingly.

All right. And then any thoughts on just this notion of if you don't get a lot more activity to import export, just thinking about the EPS range you put out there, which is pretty wide.

Not any wider, Bonnie, if you go back, we typically open the year with about a 3% range. And then we [indiscernible] accordingly as we move through the year and have more insight to how the year is going to play out. We feel very pleased to be able to provide the range that we provided and look forward to continuing through the year.

Okay. And then maybe just a little bit of a follow-up, it just as we're talking about Basic, but -- so then it does beg a question on Marlboro. Your retail share on the brand did drop below 40% for the first time, I think, ever. So how are you thinking about your strategy behind Marlboro? And then how much of your promotional strategy on Basic is maybe cannibalizing Marlboro? So I guess, Billy, maybe I'd love to hear whether or not you might consider changing your strategy on Marlboro? And are you maybe rethinking your strategy to balance share with the goal of driving profitability?

Yes. I think it's important, Bonnie, to remember the strategy we used to manage the smokable stuff. It's to maximize profitability over the long term while making appropriate investments in Marlboro in the growth categories and we feel like we're executing against that. And so when you think about Marlboro overall, we feel very good about the strength of the brand. Certainly, in the fourth quarter, you saw product availability in the e-vapor related to enforcement. And I think it's intuitive that the consumer was feeling some price break when they moved over to e-vapor, as that product availability is no longer available.

And I don't want you to think that the consumer is moving back and forth. It's primarily dual consumers, those that are using cigarettes and those that are using e-vapor and they decide on the occasion which product to use. As product availability was much less due to enforcement, and they went back to more cigarette occasions in their day, it's intuitive that discounts brands benefited from that. I think through time, we'll see if that holds true or not. I think from a standpoint of your question related to Marlboro versus Basic, we feel like with our analytics, we feel comfortable that it's not impacting our cannibalizing Marlboro in the marketplace.

Certainly, from a mathematical standpoint, the more Basic grows, its share grows and it affects the brands in the marketplace, but we don't feel like it's having any outsized impact on Marlboro.

We'll take our next question from Eric Serotta with Morgan Stanley.

Just wondering, first, if you have any commentary or color around some of the articles and kind of popular press lately about increase in smoking incidents among younger 20-something legal-aged nicotine users? We don't really seem to see it in the data yet, but you guys have better data on this than anyone. So wondering if you're seeing any increased incidents among any of the younger legal cohorts?

And then a separate question. Looking at on! Plus, could you talk a bit about the pricing strategy there? Where you plan to position it sort of as you get past the initial introductory and trial periods? Do you think that, that could command a premium to the classic and what you're thinking about in terms of pricing there?

Yes, thanks for the questions. I think related to your first one, I would refer you to the vision, which is to move consumers in a responsible fashion to smoke-free products. Nothing in the trends that I would point to. I've seen some of the same stories you have. And that is why we've been asking the FDA for an expedited authorization process, so you can get smoke-free products in the marketplace and inform consumers about the risk of the various forms of nicotine in the marketplace.

As far as on! Plus pricing, while I'll be careful not to play out our whole strategy, that we do believe on! Plus is a differentiated product and commands a premium in the marketplace and I would really direct you to go on nicotine.com. And what you can see is the price differential where e-commerce now is live on a national basis, you'll see the price differential that on! Plus is listed at there versus on! classic. So we feel good about the strategy.

Certainly, as we introduce the retail, we'll have various introductory price promotions, and that can vary state by state. So we'll continue to use our analytics, but we feel very excited about the differentiation we have and the consumer feedback related to that differentiation.

Great. And then just one follow-up on the double duty drawback, not to beat a dead horse here. But just in terms of sizing the potential here, can you talk or provide any color on what you're doing here that may be apart from the KT&G partnership or relationship? Are there things that are already in place, things that are set to ramp, I guess, separate from KT&G.? Just looking for to see if there was any scope apart from one partnership here and how you're thinking about adding capacity?

Yes, I think when you think about it, the capital in that opportunity is truly the matching of exports with imports. And as much as you can match on those, that is the -- if you will, the cap through time, related to what's the opportunity. As far as specifics around individual companies or partners that we have relationships with, I'm not going to get into the detail there. Know that we are continuing to seek opportunities because we're not going to be put at a competitive disadvantage related to those other competitors that have both foreign or international manufacturing capacity and U.S.-based. So we'll continue to seek opportunities as we go through time.

We'll take our next question from Faham Baig with UBS.

A couple of questions from me as well. If I could come back to the controllable costs, I calculate they were up 14.5% in the quarter, and that sort of compares to a 9-month run rate of 9.5%. Was the investment behind this import and export the sole reason behind the different outcome in the fourth quarter? Or would there be any other factors that you would point to? I would think the former is one-off in nature, but it would be good if you could clarify that as well.

And I guess, secondly, I have a few clarifications on nicotine pouches. Do I understand that you will be national with on! Plus in the first half of this year? Or you plan to start the national rollout? And I presume as you've sort of passed this comment, there aren't any sort of supply chain issues that you would be worried about? And then the second clarification is on the momentum in on! Plus. I know it's been in the market for a few weeks now. Are you able to provide any in-state data from a market share perspective that you may have seen in the early readings that we can try and extrapolate from, please?

Yes, so we'll try to unpack all of those. I'll let Sal start with controllable costs, but if we miss any, please follow up.

Yes. Faham, you are correct. It is predominantly the investments we are making around our manufacturing process for import export. If you think about it, there were different pack configurations, as an example. There are different capabilities we need for international markets. An example would be track and trace capabilities. So those investments precede really the volume and revenue you get from the export volume. So that is the driver that you are seeing.

Yes. As far as nicotine pouches, you're correct, we'll be national through the first half of this year, 2026. As far as momentum, while I would love to be able to share exact volumes or exact shares, it was a bit messy. You'll recall, we launched in 3 states. Then we halted shipments to those 3 states related to the pilot program that was kicked off by the FDA. We have now launched back into those 3 states or resumed shipments. And again, we'll be national through the first half of this year.

What we can share is the positive feedback anecdotally we received from consumers. It really supported some of the research we had where the consumer really sees differentiation in the mouth feel and the softness of the pouch paired with great flavor. And so we're excited to be able to bring that national as we progress through the first half of this year.

We'll move next to Pallav Mittal with Barclays.

I have three of them. Firstly, just a follow up. So on this on! Plus distribution, if I could just ask, I mean, why are you starting with these three states and not go out national from the start because we do have the distribution in place already? And this [indiscernible], is there any inventory benefit from on! Plus in the Q4 numbers?

Yes. So from a standpoint, really no benefit in Q4. Remember, we had just initially started distribution in the 3 states, and then we halted that as we progressed through the end of the year. So we had very minimal and it was a bit messy. I think when you think about why the 3 states versus national, it was easy. The sales force had already sold it into retailers, it was easy to turn those shipments back on and they're in the process of doing that on a national basis. So that will follow as we progress through the first half of 2026. I think that got all of your questions, but if I missed one, please follow up.

That was the first one. Sir, secondly, if I can ask in your comments, you said that the pricing from competitors in nicotine pouches was down 3% sequentially and 12% Y-o-Y. But that is not what I think Scanner data suggests, and it seems pricing is rather up for the larger players. So can you just help us understand what we are missing there? Is there anything in terms of promotions or trade margins or some other factors?

Yes, so you're correct. We did say down 3% sequentially 12% for the year from a competitive standpoint. That's all competitors combined. I think what you saw was a significant competitor promotion that took place in the third quarter into the fourth, where free cans were distributed for any nicotine purchase. That had a significant impact on competitive pricing in the marketplace. As far as -- and we're excluding, if you will, on! classic. From on! classic, we were up in price, both sequentially and total year.

So that was the comparison we were trying to draw that there's significant promotional activity in nicotine pouch both in the third quarter and the fourth quarter.

[Operator Instructions] We'll take our next question from Damian McNeela with Deutsche.

The first question is just on the basic strategy. And can you clarify or confirm that the 30,000 stores that you targeted is kind of the ceiling? Or are there any potential stores that you may consider entering into during the course of '26? This is the first question. The second question is just, are you able to sort of indicate the payback time from the investment that you're making in manufacturing facilities to help import exports? And then the last one is just on the step-up in costs that you saw in Q4, are they likely to repeat in Q1 and Q2? Or are they done now? And it's the second half will see an improvement because you're seeing improved import export volumes?

Yes. So I'll take the first 1 and then I'll turn it over to Sal. As far as basic again, slightly over 30,000 stores currently. We'll continue to monitor the situation. We want to be there for our consumer that's under economic pressure. We feel like it's prudent, Basic has performed very well. As I mentioned earlier, L&M used to play that role for us, and we've increased profitability on L&M. And it allows us, as the economic situation changes, we're still in connection and the consumers in our portfolio of brands.

We're able to have conversations with them through time. And as that economic situation changes, you can look to see us adjust price [indiscernible] in the marketplace. So we feel like it's good as far as number of stores, it will make adjustments around the fringes, but we feel like we're in the right group of stores, but we'll continue to monitor that as we go through 2026.

Sure. And Damian, into your other 2 questions, the return on investment for the import export is very strong. The payback is less than a year. As far as continued spending, as Billy pointed out earlier, the back half weighted nature of our EPS growth guidance really is both volume and costs. So there are some incremental costs that continue to happen before you realized revenue, and that happens when you enter different markets or different partnership arrangements. So yes, we expect some elevated investments upfront as you get more volume through the import export process.

There appears to be no further questions at this time. I would like to turn the call back over to Mac Livingston for any closing remarks.

Thanks, everybody, for joining us today. Have a great day. And if you have further questions, please feel free to reach out to Investor Relations.

This concludes today's call. Thank you for your participation. You may disconnect at any time.

Good day, and welcome to the Altria Group 2025 Third Quarter and 9 Months Earnings Conference Call. Today's call is scheduled to last about 1 hour, including remarks by Altria's management and a question-and-answer session. [Operator Instructions].

I would now like to turn the call over to Mac Livingston, Vice President of Investor Relations. Please go ahead, sir.

Thanks, Angela. Good morning, and thank you for joining us. This morning, Billy Gifford, Altria's CEO; and Sal Mancuso, our CFO, will discuss Altria's third quarter and first 9 months business results. Earlier today, we issued a press release providing our results. The release, presentation, quarterly metrics and our latest corporate responsibility reports are all available at altria.com.

During our call today, unless otherwise stated, we're comparing results to the same period in 2024. Our remarks contain forward-looking statements, including projections of future results. Please review the forward-looking and cautionary statement section at the end of today's earnings release for various factors that could cause actual results to differ materially from projections. Future dividend payments and share repurchases remain subject to the discretion of our Board of Directors. We report our financial results in accordance with U.S. generally accepted accounting principles.

Today's call will contain various operating results on both a reported and adjusted basis. Adjusted results exclude special items that affect comparisons with reported results. Descriptions of these non-GAAP financial measures and reconciliations to the most comparable GAAP financial measures are included in today's earnings release and on our website at altria.com.

Finally, all references in today's remarks to tobacco consumers or consumers within a specific tobacco category or segment refer to existing adult tobacco consumers 21 years of age or older.

With that, I'll turn the call over to Billy.

Thanks, Matt. Good morning, and thank you for joining us. Altria continued to build significant momentum in the third quarter with exciting progress across our businesses. For the third quarter, we delivered strong financial performance growing adjusted diluted earnings per share by 3.6%, and we continue to make meaningful progress across our smoke fruit portfolio and toward our long-term adjacency girls.

On held steady in a highly competitive environment, and Helix announced plans to launch on! PLUS its innovative next-generation oral product. Horizon also made important regulatory filings for a joint venture and heated tobacco products.

Looking at our long-term adjacent growth opportunities -- we announced a collaboration with KT&G to explore opportunities in international innovative smoke-free products and U.S. non-nicotine products. And importantly, we continue to demonstrate our commitment to returning value to our shareholders.

In August, we announced our 60th dividend increase in 56 years -- and yesterday, our Board authorized an expansion of our share repurchase program. My remarks this morning will focus on results from ON and the launch of on! PLUS, updates on our heated tobacco and e-vapor portfolio, the state of the regulatory environment and our strategic relationship with KT&G. I'll then turn it over to Sal, who will provide further details on our business results, 2025 outlook and our continued commitment to providing significant cash returns to shareholders.

Let's begin with ON and the nicotine pouch category. Oral nicotine pouches continue to be the primary driver of the estimated 14.5% increase in oral tobacco industry volume over the past 6 months. In the third quarter, nicotine pouches grew to 55.7 share points an increase of 11.1 share points year-over-year. Competitor promotional activity was highly elevated during the third quarter, particularly during September. Driving incremental growth for nicotine pouches.

We continue to monitor how this elevated promotional activity influences longer-term brand adoption. Despite this competitive landscape, Helix was steady in the third quarter, growing on reported shipment volume to over 42 million cans, representing an increase of nearly 1% and versus the prior year. For the first 9 months, Helix grew on reported shipment volume to over 133 million cans, representing an increase of approximately 15% versus the prior year.

While third quarter shipment volumes for on! were influenced by trade inventory dynamics driven by promotional activity in the category we remain encouraged by the steady consumer demand reflected in our estimated retail takeaway. In fact, One's retail share of the total oral tobacco category was 8.7% for the third quarter and first 9 months, demonstrating stability for the quarter and an increase of 0.8 share points for the first 9 months.

On's retail price increased by approximately 1.5% in the third quarter versus the prior year. In contrast to the balance of the nicotine pouch category, where average retail prices for the category declined 7% nationally and more than 70% in 1 major retail chain. A clear reflection of the intense promotional activity during the quarter.

Yet, Helix's year-over-year results continue to be a meaningful contributor to the oral tobacco products segment adjusted OCI stability and adjusted OCI margin expansion in the third quarter.

Helix is positioning itself for long-term sustainable success. Helix recently launched on! PLUS in Florida, North Carolina and Texas, and we are encouraged by the recent actions from the FDA that signal progress toward a more efficient and transparent authorization process for nicotine pouches, which I'll discuss later in my remarks.

On! PLUS launched with 3 flavors and 3 nicotine strengths, which we believe are complementary to the current own portfolio. We believe On! PLUS is a premium and differentiated product that we expect to appeal to both adults who dip and competitive nicotine pouch consumers.

On! PLUS uniquely delivers on 3 desirable attributes for pouch consumers. Comfort, nicotine delivery and flavor satisfaction. In recent research, we compared On! PLUS mint against several leading competitive brands. While a small sample size -- On! PLUS outperformed all competitive brands in the sample. Forms achieved the highest purchasing temp score driven by the comfort of the pouch. In addition, innovation and consumer preferences remain at the forefront of Helix strategy. Helix continues to build a pipeline of new on-us flavors and looks forward to bringing them to the U.S. market.

In heated tobacco, Horizon completed a key milestone on its path to bring Ploom to the U.S. In August, Horizon filed a combined PMTA and MRTPA with the FDA for Ploom and Marlboro heated tobacco sticks. We believe the science and evidence supporting horizons applications are compelling and present a strong case for FDA authorizations. Our teams are working diligently who includes go-to-market plans and we look forward to engaging smokers with this innovative product. Moving to our e-vapor business and enjoy. We believe we have completed the product design of a modified Enjoy a solution that addresses all 4 disputed patents. Our teams are evaluating the potential pathways to bring the modified ACE product to market.

During the third quarter, both Enjoy and JUUL initiated new litigation against 1 another. JUUL initiated litigation in federal court and before the ITC against Enjoy a certain claims of patent infringement based on sales of enjoy daily and on any other products enjoy may be developing that would infringe JUUL's patents. We do not expect a final determination from the ITC before early 2027, and intend to vigorously defend our positions in this litigation. In addition, Enjoy initiated litigation against JUUL in Federal Court and before the ITC are certain claims of patent infringement based on the sale of certain deal products. As we assess our path forward with ACE and worked diligently on our innovative product pipeline in e-vapor, the market remains saturated with flavored disposable e-vapor products the majority of which we believe have abated the regulatory process.

At the end of the third quarter, we estimate the e-vapor category included approximately 21 million vapors up nearly $2 million versus a year ago. During the same period, disposable vapors increased by an estimated $2.4 million to nearly $15 million. We believe that flavored disposable e-vapor products continue to represent over 60% of the category. This remains a significant issue, but we are encouraged by the recent enforcement actions and constructive regulatory dialogue that signaled progress.

For some time, we have advocated for stronger enforcement against the list of products as well as for an acceleration in FDA market authorizations for Smokefree products. During the third quarter, we observed notable enforcement efforts targeting the listed products and welcomed positive plans from the FDA regarding the pace of authorizations within the nicotine oral nicotine pouch category.

On the enforcement front, we continue to see elevated engagement and action from federal agencies and government officials. These actions included: Coordinated rates executed by the federal multi-agency task force across the U.S., resulting in the seizure of hundreds of thousands of enlisted vapor products from retailers and wholesalers and the potential for further legal action.

Ongoing seizures of illicit products including seizure by HHS and U.S. Customs and Border Protection of more than 4 million units of illicit vapor products with an estimated retail value over $86 million the largest seizure of this kind and a targeted nationwide operation led by the Drug Enforcement Administration, focused on the list of activity at vape shops.

These federal actions alongside efforts at the state and local level are signs of progress. However, we believe sustained and coordinated enforcement is necessary to materially impact the state of the market. We remain steadfast in our commitment to supporting a well-functioning regulatory system.

It is critical to unlock the full potential of tobacco harm reduction. These ongoing enforcement efforts are essential to provide adult consumers with access to regulated products that are supported by science and are aligned with public health goals.

Beyond enforcement, we have been advocating for the FDA to accelerate product authorizations and established a responsible marketplace for smoke-free products. Regulatory speed and clarity are also essential to delivering innovative options that meet adult consumer preferences and advanced [ Harmoduction. ] In September, the FDA launched a pilot program to streamline PMTA reviews for all nicotine pouches and Helix was notified by the FDA and that applications for ARMs are included in the program. We're encouraged by this development from the FDA, and we are actively engaging with the FDA on these product applications.

While the pilot only applies to certain nicotine pouches, we hope it signals broader FDA efforts to increase the speed of regulatory decisions across all smoke-free platforms. As we pursue the smoke-free opportunity within the U.S., we remain committed to our long-term adjacent growth goals. In September, we took another step forward when we announced a new collaboration with KT&G.

First, we are jointly exploring opportunities to grow global demand for nicotine pouch products. including the potential expansion of the own portfolio into select international markets. As part of our initial steps in international modern oral, we entered into an agreement with KT&G to acquire an ownership interest in another snus factory, the manufacturer of the Loop Nitin Couch brand.

Loop is currently available in a range of strengths with unique flavors. Our research shows that complex flavors are driving growth for modern oral in international markets, and we are pleased to add our investment in ASF to complement our portfolio of ON, On! PLUS and Tumi to effectively compete across all modern oral product segments.

Second, our collaboration includes the exploration of opportunities in U.S. non-item, specifically in the energy and wellness space with KT&G's Korea Jensen Corporation, leveraging their product expertise and our commercial capabilities.

In addition, as part of our relationship with KT&G, we're exploring ways to improve operational efficiency in traditional tobacco with the potential benefits for both companies and our respective home regions. We believe this collaboration further supports our enterprise goals and may strengthen our capabilities relevant to international nicotine products.

We're excited about our new relationship with KT&G and look forward to providing updates on our joint efforts.

In summary, Altria continued to build momentum in the third quarter. Our core tobacco businesses remained resilient. We advanced our smoke-free portfolio -- and we opened new pathways for long-term adjacent growth in international modern gold and U.S. non-nicotine innovation. These efforts support the commitment to our vision and enterprise goals.

I'm confident in our strategy, energized by the opportunities ahead and thankful for our team's continued dedication to delivering long-term shareholder value.

I'll now turn it over to Sal to provide more detail on the business environment and our results.

Thanks, Billy. Altria delivered strong third quarter and first 9 months financial performance. Adjusted diluted earnings per share increased 3.6% in the third quarter and by 5.9% for the first 9 months.

In the smokeable products segment, adjusted operating company's income grew by 0.7% to nearly $3 billion in the third quarter and by 2.5% to $8.4 billion for the first 9 months. Adjusted OCI margins expanded to 64.4% for the third quarter and first 9 months, representing impressive margin growth of 1.3 percentage points and 2.7 percentage points, respectively.

Smokeable Products segment reported domestic cigarette volumes declined by 8.2% in the third quarter and 10.6% for the first 9 months. When adjusted for trade inventory movements and calendar differences, the segment's domestic cigarette volumes for the third quarter declined by an estimated 9%, slightly above the estimated 8% volume declines at the industry level.

For the first 9 months, when adjusted for calendar differences and trade inventory movements, the segment's domestic cigarette volumes declined by an estimated 10.5% and and by 8.5% at the industry level.

PM USA continues to execute on its strategy of maximizing profitability over the long term. While maintaining its focus on Marlboro and the premium segment, PM USA recognizes the opportunity to compete within the discount segment, guided by data-driven strategies. Within the highly profitable premium segment, Marlboro maintained its long-standing leadership in the category.

In the third quarter, Marlboro expanded its share of the premium segment by 3/10 to 59.6% versus the prior year and by 1/10 sequentially. At the same time, PM USA continued to strategically invest behind basic, appealing to a price-sensitive cohort of adult smokers within the discount segment. Many adult smokers continue to face discretionary spending pressures resulting from a variety of macroeconomic headwinds, including the compounding effects of inflation.

Leveraging PM USA's data analytics and robust RGM tools, basic grew 0.9 share point sequentially and 1.4 share points year-over-year for the third quarter. The discount segment of the industry expanded by 2.4 share points year-over-year with basic capturing over half of that growth.

Importantly, our data show that most of basic share gains came from adult smokers already within the discount segment, with limited impact on Marlboro. As a result of the combined efforts across the PM USA portfolio of brands, cigarette retail share increased sequentially for the second consecutive quarter to 45.4%, growing 0.3 share points in the third quarter.

Cigars also continued to be a meaningful contributor to our smokeable products segment results. For the third quarter and the 9 months, Middleton reported shipment volume increased 2% and and 1.1%, respectively, as Middleton outperformed in the large mass cigar industry.

Let's turn now to the Oral Tobacco Products segment. In the third quarter, adjusted OCI declined by less than 1%. Over the same period, the segment saw improved profitability through impressive adjusted OCI margin expansion of 2.4 percentage points to 69.2%. For the first 9 months, adjusted OCI increased by 3.3%, with adjusted OCI margin expansion of 1.8 percentage points to 69%.

Calix' year-over-year performance was a meaningful contributor to the stability of adjusted OCI in the third quarter and to the adjusted OCI growth for the first 9 months. Total segment reported shipment volume decreased 9.6% for the third quarter and 5.2% for the first 9 months. As growth in AN was more than offset by lower MST volumes. When adjusted for calendar differences and trade inventory movements, we estimate that third quarter and first 9 months, oral tobacco products segment volumes declined by an estimated 5.5% and 3.5%, respectively.

Oral Tobacco Products segment retail share was 31.1% for the third quarter and 32.9% for the first 9 months. In the highly profitable moist smokeless tobacco segment, Copenhagen continued to maintain its long-standing premium leadership.

Turning to ABI's financial results. We recorded $157 million of adjusted equity earnings in the third quarter, up 9% and versus the prior year. As Billy mentioned, our businesses performed well in a dynamic environment during the first 9 months of the year, and we effectively maintained the strength of our core tobacco businesses while investing toward our vision.

As a result, we raised the lower end of our 2025 guidance range. We now expect to deliver adjusted diluted EPS in a range of $5.37 to $5.45, representing a growth rate of 3.5% and to 5% from a base of $5.19 in 2024. We expect EPS growth to moderate in the fourth quarter as we lap the lower share count associated with the 2024 accelerated share repurchase program and the benefit of the MSA legal fund expiration.

We are also mindful of the challenged state of tobacco consumers and will continue to closely monitor the purchasing behaviors. Our strong financial performance for the first 9 months enabled us to return nearly $6 billion to our shareholders, including $5.2 billion in dividends and $712 million in share repurchases.

We remain committed to providing significant cash returns to our shareholders. as demonstrated by our recent dividend increase and share repurchase announcement. In August, our board increased our regular quarterly dividend by 3.9% to $1.06 per share, marking our 60th dividend increase in 56 years. This milestone underscores our legacy of delivering consistent shareholder value and highlights the resilience of our businesses through decades of change.

And today, we announced that our Board authorized the expansion of our existing share repurchase program from $1 billion to $2 billion, which now expires on December 31 and 2026. Lastly, our balance sheet remains strong. Our debt-to-EBITDA ratio as of September 30 was in line with our target of approximately 2x. With that, we'll wrap up, and Billy and I will be happy to take your questions.

While the calls are being compiled, I'll remind you that today's earnings release and our non-GAAP reconciliations are available on altria.com. We've also posted our usual quarterly metrics, which include pricing, inventory and other items.

Operator, let's open the question-and-answer period.

[Operator Instructions]. We will take questions from the investment community first. Our first question comes from Matt Smith with Stifel.

Sal, you raised the low end of the guidance again, which is nice to see here, but the fourth quarter implies a deceleration in the earnings growth. You called out lapping the share repurchase and the MSA legal fee expiration. Are there any other key puts and takes as we think about the fourth quarter and more importantly, the path to growing smokeable OCI again?

Thank you, Matt. No, as you mentioned, we did talk about the share repurchase and the MSA legal funnel. I'll also say we continue to monitor consumer spending, the marketplace remains dynamic. So I would really focus on that, but we feel really good about the ability to narrow guidance by raising the bottom -- we're very pleased with the first 9-month financial performance.

And then smokable profitability, again, we feel really good about PM USA's performance their ability to expand margins for Marlboro remains strong within the premium segment. So we feel really good about the smokable business and happy to be able to provide the guidance.

And as a follow-up, you called out the underlying cigarette industry rate of decline moderating on a sequential basis. Billy, I know you provide the 12-month bridge that shows the macroeconomic factor. But with -- sometimes that 12-month bridge can not move as much on a quarter-to-quarter basis. So when we think about the moderation that we saw sequentially, can you talk about the drivers that you think are leading to that?

Yes. Thanks for the question, Matt. I think when you step back and look at it, you're right, the 12-month doesn't move quite as quickly. I think what you're seeing in the marketplace -- and look, our consumer is still under pressure. Again, they don't need improvement. They just need consistency. And we've seen a bit of consistency around gas prices, inflation, things of that nature, and we'll see how that continues through the year.

And I think we're starting to see some of the -- and I talked about it in my remarks, some of the stepped-up enforcement in e-vapor, it puts consumers back at play -- we would love to be able to keep them in the smokeless category, but when enforcement happens, it certainly puts them at play and they consider other nicotine categories.

And we'll take our next question from Bonnie Herzog with Goldman Sachs.

All right. I guess I have a question first on the nicotine pouch category. The competitive environment has really intensified. So could you touch on what you're seeing and whether I guess you've been happy with the performance and positioning of on! considering the moderating growth. And then could you talk about some of your initiatives that you're implementing, I guess, to maybe turn the performance around. I guess I'm kind of wondering, do you feel that you need to step up promotional spend.

And then finally, could you maybe share early feedback on the rollout of On! PLUS and I guess, assuming it's positive, should we assume you'll roll out that brand nationally.

Yes, thanks for the question, Bonnie. You're right. The competitive environment significantly stuff. I mean we try to dimensionalize it. On was moving up, call it, 1.5% at retail from a price perspective. while the entire category was down 7% on a national basis, but as much as 70% in a major retail.

So it was a significant shift in promotional spending by competitors. We had that early on with the On in the marketplace when we launched, and we've talked about how we're bringing the revenue growth management tools over to the category. So we're extremely pleased with the performance where we were moving up in retail price and the category was moving down significantly.

I know people get hung up on some of the shipment volume. I think the encouraging aspect that we see is on the retail takeaway volume. And when you look at that, that's the true demand by the consumer, and that was steady even in that highly competitive environment. Much too early on On! PLUS n to really mention we are certainly excited about the differentiation that product has and research, and we're excited to be able to bring that to market and expand it when it's appropriate.

All right. And then I just wanted to also ask about your KT&G partnership, it was recently expanded and you touched on this, but just hoping for a little more color on the operational efficiencies you see, especially as it relates to opportunities to maybe take advantage of the double duty drawback.

Also, could you give us a little more color on I guess, opportunities for alternative revenue streams as well as further expansion internationally given this partnership?

Yes. Thanks, Bonnie. And you touched on 2 of the 3. We really see it as 3-pronged. Certainly, the moderate oral initiative, being able to expand on and On! PLUS in international markets is something that we'll be exploring. Rounding out our portfolio with the inclusion of loop into that, so we feel like that completes the portfolio, and we look forward to continuing discussions with them on how to think about expanding internationally into other markets.

The second point is certainly the non-nicotine opportunities. And I tried to highlight a little bit where we would explore working with them. They have certainly the product expertise in the Korean red ginseng and we would look to work with them based on our commercial distribution strength in the U.S. of what are the opportunities there and certainly, we'll share more when it's appropriate.

And the third was the operational efficiencies. And what we saw there was it was the ability to adapt our manufacturing center for cigarettes for items that are specific to international markets, whether that be pack size or trace and tracking and things of that nature. It certainly, to your point, allows us to take advantage of due to drawback. That's a benefit of it.

But it also opens up the door for us to think about international opportunities in the future.

[Operator Instructions]. We'll go next to Eric Serotta with Morgan Stanley.

Billy, starting on us, I realize it's the very early days, but you did mention it as premium positioning. Could you talk a bit about the price point as you launch in the 3 states where you did a [indiscernible] only a matter of weeks or less. But how are you thinking about the relative price point of on relative to On! PLUS and relative to competitors, which I realize are moving target at the moment.

And then Sal, controllable costs and smokables were up pretty significantly year-on-year, realize they were down in a year ago. So there was perhaps a comparison issue. But how are you thinking about controllable costs going forward? Or is there any additional color you could talk about in the quarter? And the smokeable OCI growth was relatively muted at less than 1%. Was that really the controllable cost, or are there other factors that you'd point to that constrain the OCI growth in the quarter?

Yes. Thanks, Eric. So I'll kick off and then Sal can follow up with the question for him. I think when you think about on! PLUS, we certainly see that as a premium-priced product because of the differentiation and the satisfaction we think it brings in the experience to the consumer. In our research, the consumers choose that as the top product in there from a total experience standpoint, and we think it can demand the premium price at retail.

Certainly, in any introduction, you have introductory price promotions. We know as soon as we get it in consumers' hands, they experience that differentiation that I'm trying to highlight to you. And so we'll certainly have introductory price promotions as we look to expand when appropriate.

As far as controllable costs go, I guess I'd start by saying that I would not look at controllable costs quarter-by-quarter. I think -- I really believe you need to look at the cost over the long term exactly for the reasons you highlighted in the question. There are some comparison issues.

Costs are not linear. There's timing within a quarter. So you touched on that in the question. I think you are right to point that out. As far as controllable costs going forward, I'm going to be careful not to kind of lean into future guidance and things like that. But I would tell you how we think about costs. Obviously, in a declining category like smokeable and cigarettes in particular, cost management is an important part of the growth algorithm along with pricing. We do manage our overall costs.

Obviously, we've shared with you the Optimize and Accelerate program that, that program is not just about effective cost management and cost reductions. It's also about better performance and speed to market. And we are taking those cost savings and reinvesting that in our future.

I'll also share that we spend a lot of time continuing to hone our data analytics in our revenue growth management tools, and that has been extremely helpful. And while it manifests itself as price realization in the P&L, I look at that as productivity because we are better able to use promotional investments to support our brands and PM USA and data analytics team continue to do a terrific job of using data analytics and those RGM tools extremely effectively. So we're very happy about that.

And then OCI for smokeable, I really would look at that over a longer term, again, not a particular quarter smokable is up 2.5% on a year-to-date basis. Very pleased with its performance, especially when you see the strength of Marlboro within the premium segment.

We'll go next to Faham BaigFaham Beg with UBS.

A couple from me as well. Firstly, if I could come back on the duty drawbacks. If we take a bigger look at the at the picture. Altria is likely to make around $3 million in federal excise tax payments this year. Should this be the amount that we think about the potential benefit from the duty drawbacks. And is this likely to be the sort of key engine that drives group EPS growth to high single digits over the next couple of years to meet the mid-single-digit EPS CAGR to 2028. So that's the first question.

The second one, going back to the pilot program that the FDA is running. Does this -- or could this impact your decision to go ahead with the national launch on on! PLUS, i.e., you may wait for the decision on this? Or or you may take a decision irrespective of the program?

And the second one on that is why do you think it's possible for the FDA to accelerate this process on nicotine pouches, but it's not possible to do so in vapor, which is arguably a much larger category and reviews there began much earlier.

Yes. So quite a few things in that question. So if I don't touch on one, please follow up. I think when you think about the duty drawback, I wouldn't jump to a conclusion at this point in time. It's really about a relationship with international players. How do we think about producing cigarettes for international, some of the other benefits that we get certainly drawback is an additional benefit to that.

When you think about the pilot program, I want to be clear that we want a functioning regulatory system. So we're going to always make our decisions based on what's the long-term best interest of the company with an eye towards what is best to get a functioning regulatory system. I think your question related to pouches versus vapor, I think from comments from them, but just the interpretation of it being called a pilot program, they wanted to start where it made sense to start, and that's in nicotine pouch.

It's a fairly set category, even though we've seen some players maybe enter the marketplace illicitly. It gives them a way to thinking about the category in total and then differentiated products and what's different between individual products in the marketplace, which should speed up their review of that.

I think when you think about vapor, the marketplace is a mess right now. And so I think the nature of a pallet program is to learn. They will learn manufacturers, including us, will learn -- it's been a very collaborative process with constant engagement through the application review process, which is very different and very encouraging from the FDA we experienced under the previous administration.

So I think once you have those learnings, we would hope and encourage the FDA to expand it to other categories.

I guess just a quick follow-up. Could you clarify that the EPS growth is suggested to accelerate to high single digits over the next couple of years in order to meet your mid-single-digit EPS CAGR. Is that still the ambition?

Our ambition is the goal. We haven't changed our goals from an overall CAGR that we stated previously. And that's been our stated goal. So yes, that's the way I would think about how we're going to manage the business going forward.

There appears to be no further questions at this time. I would now like to turn the call back over to Mac Livingston for any closing remarks.

Thanks, everybody, for joining us today, and have a great day.

This concludes today's call. Thank you for your participation. You may disconnect at any time.

Good day, and welcome to the Altria Group 2025 Second Quarter and First Half Earnings Conference Call. Today's call is scheduled to last about 1 hour, including remarks by Altria's management and a question-and-answer session. [Operator Instructions].

I would now like to turn the call over to Mac Livingston, Vice President of Investor Relations for Altria Client Services. Please go ahead, sir.

Thanks, Leo. Good morning, and thank you for joining us. This morning, Billy Gifford, Altria's CEO; and Sal Mancuso, our CFO, will discuss Altria's second quarter and first half business results. Earlier today, we issued a press release providing our results. The release, presentation, quarterly metrics and our latest corporate responsibility reports are all available at altria.com.

During our call today, unless otherwise stated, we're comparing results to the same period in 2024. Our remarks contain forward-looking statements, including projections of future results. Please review the forward-looking and cautionary statements section at the end of today's earnings release for various factors that could cause actual results to differ materially from projections. Future dividend payments and share repurchases remain subject to the discretion of our Board of Directors. We report our financial results in accordance with U.S. generally accepted accounting principles.

Today's call will contain various operating results on both a reported and adjusted basis. Adjusted results exclude special items that affect comparisons with reported results. Descriptions of these non-GAAP financial measures and reconciliations to the most comparable GAAP financial measures are included in today's earnings release and on our website at altria.com. Finally, all references in today's remarks to tobacco consumers or consumers within a specific tobacco category or segment refer to existing adult tobacco consumers 21 years of age or older.

With that, I'll turn the call over to Billy.

Thanks, Mac. Good morning, and thank you for joining us. In the second quarter, we continue the pursuit of our vision while maintaining our strong and profitable core businesses. In oral tobacco, on! delivered strong performance and with these substantial driver of the segment's growth in the quarter. We continue to press for actions that will shape a fully regulated industry and provide expanded product choices for adult nicotine consumers. And we returned significant value to our loyal shareholders during the first half of the year with more than $4 billion delivered through dividends and share repurchases.

Our operating companies delivered strong financial results in a dynamic marketplace, allowing us to raise the lower end of our 2025 guidance range. My remarks this morning will focus on second quarter and first half results from on!, next steps for NJOY and the state of the regulatory environment. I'll then turn it over to Sal, who will provide further detail on our business results and 2025 outlook.

Let's begin with on! and the nicotine pouch category. Oral nicotine pouches continued to be the primary growth driver of the estimated 11% increase in oral tobacco industry volume over the past 6 months. In the second quarter, oral nicotine pouches grew 10 share points year-over-year and now represent more than half of the category. Within this increasingly competitive environment, Helix continued to grow volume and share with on! reported shipment volume increasing by 26.5% to 52.1 million cans versus the year ago period.

On!'s retail share of the total full tobacco category was 8.7%, an increase of 0.7 share points versus the prior year. Last year, Helix launched its [ own ] campaign to differentiate the on! brand from competitive products, build emotional connections with its target audience and drive greater brand awareness. As part of the campaign rollout, the team used in-person activations to engage directly with adult consumers at action-packed events such as music festivals, NASCAR races and premier golf garments. These one-to-one interactions allow consumers to connect with brand representatives, gain deeper insights into the product and experience the brand in a tangible, memorable way.

In the first half of 2025 Helix reached over 170,000 adult tobacco consumers through these in-person activations. Helix's digital marketing channels amplify these experiences, reinforcing on!'s unique brand positioning across multiple touch points.

In the second quarter, digital impressions more than doubled to approximately $190 million. As a result of these combined efforts and continued strong presence at retail, on! brand awareness among adult tobacco consumers increased 7 percentage points in the first half of 2025 versus a year ago.

Helix will continue to focus on driving trial, building long-term equity and increasing profitability. In fact, on!'s improving financial performance drove the majority of the oral segment's substantial profit growth for the quarter.

Moving to our e-vapor business and NJOY. In June, the patent trial and appeal board did not agree with our argument to invalidate JUUL's patent. While this is not the outcome we hoped for, we're actively exploring all potential next steps, including an appeal. Meanwhile, we completed the product design of a modified NJOY ACE solution that we believe addresses all 4 dispute patents. Additionally, our product development teams are actively building a broader vapor portfolio of products that align with evolving expectations of today's consumers.

Let's now turn to the state of regulation in the U.S. nicotine market where we continue to believe significant progress needs to be made to fulfill the promise of tobacco [ harmoduxion ]. For some time, we've been advocating for enforcement against products that have completely evaded the regulatory process and for an acceleration in FDA market authorizations to create a responsible marketplace of smoke-free products for all adult consumers. As it relates to enforcement, the flavored disposable market continues to drive e-vapor category growth. At the end of the quarter, we estimate that e-vapor category included more than [ 20.5 million ] vapors, up over [ 1.9 million ] versus a year ago. During the same period, disposable vapors increased by an estimated [ 2.7 million ] to approximately [ 14.4 million ].

We continue to estimate that flavored e-vapor disposable products, the majority of which we believe have abated the regulatory process represent more than 60% of the category. While this issue remains significant, we see signs that enforcement actions have picked up momentum. Key government officials at the Department of Health and Human Services and the FDA have publicly acknowledged the severity of the issue and there is bipartisan support in Congress for urgent action across government agencies. We're encouraged by recent actions by Customs and Border Protection, FDA, State Legislatures and State Attorneys General to prevent the importation of a listed e-vapor products abating the regulatory system. Key actions from these stakeholders this year include FDA strengthening its import policy, reducing the possibility of imported vapor products bypassing FDA review, tighter border controls, which have resulted in a higher percentage of rejections of properly declared e-vapor shipments from China than ever before.

FDA issuing warning letters to 24 importers responsible for importing illicit products. And State Attorneys General issuing warnings and bringing civil litigation addressing illicit Chinese vapor, importers and distributors. The net effect of these recent actions is that it is becoming more difficult to import illicit e-vapor products. In fact, some wholesalers have recently reported supply shortages of some of the most popular disposable brands, citing enforcement at the ports and tariffs. We believe these changes have prompted e-vapor importers to misdeclare their shipments resulting in illicit products entering the country undetected.

While we're seeing some progress, more consistent action needs to be taken to deliver sustainable long-term results. We continue to advocate at the federal and state levels for more coordinated and decisive actions against the illicit factors. Illicit e-vapor enforcement is only one area where the regulatory system is failing. The FDA must accelerate product authorizations across all tobacco categories. By law, the FDA is required to review and decide PMTAs within 180 days. We have waited over 5 years for a decision on some product applications. We continue to urge FDA to implement a workable process that results in timely decision-making to meet their statutory requirement and promotes public health.

We believe these steps are critical to establish a nicotine marketplace that offers adult smokers expanded choices and smoke-free products and gives consumers comfort in the oversight of the products available to them.

In summary, we remained encouraged by the strong performance of our operating companies in a challenging marketplace conditions. Our [ highly ] cash generative core businesses supported continued investments in our smoke-free products and the increased focus by key stakeholders when cleaning up the illicit market reinforces our confidence in the long-term outlook for our smoke-free portfolio.

I'll now turn it over to Sal to provide more detail on our business results.

Thanks, Billy. As Billy described in his opening remarks, Altria delivered strong second quarter and first half financial performance. Adjusted diluted earnings per share increased 8.3% to $1.44 in the second quarter and increased by 7.2% for the first half, driven by robust adjusted OCI growth and the benefit of share repurchases over the past year.

In the smokeable products segment, adjusted operating company's income grew by 4.2% to $2.9 billion in the second quarter and by 3.5% to $5.5 billion in the first half. Adjusted OCI margins expanded to 64.5% for the second quarter and the first half. This performance was supported by strong net price realization of 10% for the quarter and 10.4% for the first half.

Total smokeable products segment reported domestic cigarette volumes declined by 10.2% in the second quarter and 11.9% for the first half. When adjusted for calendar differences and trade inventory movements, the segment's domestic cigarette volumes for the second quarter and first half declined by an estimated 10.5% and 11%, respectively. At the industry level, we estimate that domestic cigarette volumes declined by 8.5% in the second quarter and for the first half when adjusted for trade inventory movements, calendar differences and other factors.

While our smokable business is focused on Marlboro in the premium segment, adult smokers continue to face macroeconomic pressures. The compounding effects of inflation exceeding overall wage growth, especially among low-income consumers contributed to the discount segment growing 1.9 share points year-over-year and [ 4x ] sequentially.

To better compete in the discount segment and informed by our data analytics, PM USA strategically expanded basic into approximately 30,000 targeted stores. In the second quarter, Basic's retail share grew [ 4% ] sequentially with limited impact on Marlboro. As a result, total PM USA cigarette retail share increased [indiscernible] sequentially to 45.2% in the second quarter. The targeted launch of Basic demonstrates how PM USA is using its broad toolkit of portfolio brands and sophisticated data analytics to provide the right value to the right consumer, while preserving the strength of the Marlboro brand.

Within the highly profitable premium segment, Marlboro maintained its long-standing leadership in the category. In the second quarter, Marlboro expanded its share of the premium segment by [ 0.2 ] to 59.5%. In cigars, reported shipment volume increased 3.7% as Middleton continued to outperform in the large mass cigar industry.

Let's turn now to the oral tobacco products segment. Adjusted OCI grew by an impressive 10.9% in the second quarter and 5.5% in the first half. Adjusted OCI margins increased by 3.1 percentage points for the second quarter and 1.4 percentage points for the first half. As Billy mentioned, these results were mainly driven by on!'s strong performance in the second quarter. Total segment reported shipment volume decreased 1% for the second quarter and 2.9% for the first half as growth in on! was more than offset by lower MST volumes. When adjusted for calendar differences and trade inventory movements, we estimate that second quarter and first half, oral tobacco products segment volumes declined by approximately 4% and 2.5%, respectively.

Oral Tobacco Products segment retail share was 33.1% for the second quarter and 33.9% for the first half, as declines in our MST brands were not fully offset by share gains from on!. In the highly profitable moist smokeless tobacco segment, Copenhagen continued to maintain its long-standing premium leadership.

Turning to ABI's financial results. We recorded $130 million of adjusted equity earnings in the second quarter, down 10.3% versus the prior year. This decline was driven by a lower ownership interest compared to the year ago period, reflecting the sale of a portion of our ABI investment last year. We continue to view our ABI stake as a financial investment, and our goal remains to maximize the long-term value of the investment for our shareholders.

As Billy mentioned, our businesses performed well in a dynamic environment during the first half of the year. As a result, we raised the lower end of our 2025 guidance range. We now expect to deliver adjusted diluted EPS in a range of $5.35 to $5.45, representing a growth rate of 3% to 5% from a base of $5.19 in 2024. We expect EPS growth to moderate as we lap the lower share count associated with the 2024 accelerated share repurchase program and the benefit of the MSA legal fund expiration. We are also mindful of the challenged state of tobacco consumers, and we'll continue to closely monitor their purchasing behaviors.

Before turning to Q&A, I'd like to highlight the significant value we returned to shareholders during the first half of the year. We paid approximately $3.5 billion in dividends and repurchased 10.4 million shares for $600 million. At the end of the second quarter, we had $400 million remaining under our current share repurchase program, which we expect to complete by the end of the year.

In addition, our balance sheet remains strong. Our total debt-to-EBITDA ratio as of June 30 was 2.0x, in line with our target of approximately 2x.

With that, we'll wrap up, and Billy and I will be happy to take your questions. While the calls are being compiled, I'll remind you that today's earnings release and our non-GAAP reconciliations are available on altria.com. We've also posted our usual quarterly metrics, which include pricing, inventory and other items. Let's open the question-and-answer period. Operator, do we have any questions?

[Operator Instructions] Our first question comes from Matthew Smith of Stifel.

I wanted to first talk about the raising of the lower end of the guidance range. You've had a really nice performance in the underlying OCI growth here in the second quarter even when you strip out the lower legal settlement benefit. But it looks like the second half doesn't require as strong of an underlying OCI performance, at least at the higher end of the range. You laid out the dynamics here in terms of EPS phasing when you lap the MSA and -- the MSA benefit and the share repo. But on an underlying basis, can you talk about your expectations in the second half of the year? And how you're thinking about what could be an even more uncertain consumer environment given some of the inflationary pressure, which may pick up as we get further into the back half of the year?

Sure. Let me start by saying we're really pleased with our first half results in our updated EPS guidance range. And I think you've summarized well -- the items we highlighted in our opening remarks, lapping of the 2024 accelerated share repurchase program, the expiration of the legal fund, which occurred in the fourth quarter of last year. And then you rightly highlight that it's a dynamic market, and we're going to continue to monitor the state of the adult tobacco consumer and their purchasing behaviors.

Inflation is still an unknown variable going forward. There's been some green shoots, lower gas prices on a year-over-year basis. Even though they remain high, most recently, we have seen an uptick in consumer confidence. But again, the macro economic environment remains dynamic and somewhat unsettled trade deals are still being negotiated and what potential impact that could have on controllable spending for the consumer is something that we'll pay close attention to. But again, really happy with the first half results, happy that we were able to narrow guidance by lowering the bottom end of that range.

Thank you, Sal. And Billy, a question for you as a follow-up on NJOY e-vapor, you talked about working around or developing a new NJOY based device that seems to not -- it seems to work around the patents that we're in dispute with ITC. But if I heard you correctly, that product is still -- or has finalized product development. Can you give an update on the path from here as to when you think you could having an application to FDA for that updated advice and what kind of application that would be in terms of a more streamlined authorization process relative to just the traditional PMTA?

Yes. And don't forget, Matt, that we still have litigation routes that we can take, and we're investigating those. But from the standpoint of the patents, you're right, you'll recall that we had already filled 3 of those patent workarounds or taking care of any disputed facts related to patent infringement from the ITC. We've already filed those, the fourth patent. We're at product walk, and we'll be proceeding down that path. And -- and we're actually encouraged by the fact that we're excited to be able to bring that to market. It was making great strides when it was in market, the consumer liked the device and the experience they had with NJOY. The brand team had built a great brand around it, and so we're excited to be able to bring that back.

While I can't satisfy giving you an exact date, we'll continue to update you as we make progress against that. In addition to that, we wanted to really focus on the consumer. And as you heard in my remarks, really finding what the consumer likes and some of the devices that they're using, even though they may be coming to the U.S. illicitly, and have those, I guess, desirable traits in our pipeline of products. And so more to share in the future on that as well.

Our next question is from Bonnie Herzog of Goldman Sachs.

I had a follow-up question, I guess, on your guidance, especially, I guess, given the lapping of the legal fee elimination in Q4. I guess -- how are you feeling about your ability to deliver on your long-term EPS growth algo of mid-single digits through FY '28. I mean it does imply that growth will need to step up quite a bit in the next few years. So hoping maybe Billy to get your perspective on this and how confident you are that you're going to be able to deliver on that?

Yes. We still have that as a goal of the way we're managing our business, Bonnie. And when you think about it, it's a mid-single-digit CAGR across that period. You saw the results from the first half of this year. We're very pleased with the results, even in a challenging environment based on the -- as Sal had mentioned, the macroeconomics.

Look, our consumer is still under strain, economic strain. We feel like we made some very disciplined and smart moves in the marketplace to help the consumer with that. And from a standpoint of the consumer themselves, as Sal mentioned gas prices they stabilized and even slightly down, but they're at, call it, around $3 a gallon across the U.S., that's still fairly high. But what we're seeing is what we've seen historically is if things are stagnant for a period of time, they don't necessarily always have to decrease, our consumer can start getting comfortable with their situation. And because of the [indiscernible] in the tobacco industry, they'll make different choices.

Okay. maybe another question, a little bit along the lines of what you just mentioned about sort of your consumer and retaining them. I do want to ask about basic. Could you talk a little bit more about your strategy with the brand and the changes you've made to your promotions on the brand? I guess love to hear from you what your ultimate strategy is for Basic? And how are you thinking about possibly taking greater discount share versus trying to retain consumers in your total brand family?

Yes, I appreciate the question, Bonnie. With Basic, it's not abnormal for us. If you go back in history Basic, was there a discount play. We had priced it up and L&M was our discount play. Now we priced L&M up and repositioned Basic as a discount play. I think the difference being is that now with the amount of data we received from retail and the RGM analytics, the revenue growth management analytics that we have, we can be very precise and targeted. You saw the results from Basic in approximately 30,000 stores. And so a very targeted approach where the store itself skews heavy discount and be there for the consumers.

And to your point, we find it cheaper to keep the consumer in our portfolio as then we can market to them individually as their economic situation changes through time. So it's about keeping them in our portfolio of brands, being there for the consumer and have an open conversation with them through time.

Okay. That's helpful, Billy. And just to confirm. So your -- so far because these changes are relatively new, have you been pleased sort of with the results. It's kind of working out the way you were expecting and so you're going to continue some of these efforts behind Basic?

Yes. Well, I won't speak to the future because I don't want to give the competition of playbook to go by, we're very pleased with the results. And I think it shows that the quality of data analytics we have with our colleagues across Altria, being able to have those results in a short period of time with a very targeted approach.

Our next question is from Faham Baig of UBS.

A couple from me as well, please. I'll start with you're noticing crackdowns on a list of vapes and more restrictions at the border. I just want to understand whether the net impact of the import restrictions versus the product still coming through mislabeling is having a neutral impact or a positive impact and whether that could be driving some of the improvement in cigarette volumes we've seen over the last couple of months. So I want to try to understand that a bit better.

And then the second question, I noticed the federal excise tax per pack was $0.03 lower than normal. I appreciate there has been some commentary on drawbacks and imports. Anything you would highlight on this and how we should think about this line item going forward?

Sure. I appreciate your questions, and I'll try to take them in order, but if I missed anything, please follow up. I think when you think about enforcements, we certainly are encouraged by some of the momentum we're seeing. The new commissioner has been in place about 100 days, and we've seen significant momentum since he's taken over. But as he stated, I believe publicly, there's more to do there. And we look forward to him and the FDA and the other agencies doing more.

I think it's too soon to call it a trend one way or the other. Certainly, it's upstream, if you will, because that's part of the distribution is that to distribute a wholesaler and import. It's hard to say whether that's taking place and whether the consumer has felt it yet in the marketplace at retail. Certainly, with the mislabeling, that's just another step of illegality from a standpoint of mislabeling products to get them into the U.S. and circumventing [indiscernible] the FDA and now trying to evade the customs and border patrol.

So I think it remains to be seen. As you heard in my remarks, we need consistent action. And that's what we're looking forward and are hopeful with the new commissioner in place and the momentum we've seen pick up.

As far as FET, it's an interesting one. I think when you step back and look broadly, we're an American company with American manufacturing. And so we believe that policy, especially tax policy should support American manufacturing and that FET should be paid on cigarettes sold in the U.S. And this drawback policy actually goes against both of those. And we've seen a number of competitors taking advantage of this, some pretty large advantage of that. And so we're going to look for partnerships because we're not going to be at a competitive disadvantage in the marketplace.

I'm sorry, I missed the last comment.

Our next question is from Eric Serotta of Morgan Stanley.

Just to follow up on the last question around illicit vape. There have been several press stories about shortages for particular leading brands or products of illicit products over the past couple of months. Wondering if that's something that you've seen in the marketplace? Have you seen some of the illicit actors sort of adapting their brands or products? Or is it just too early to say overall?

Yes, it's a bit early, but what I can remark on that is because there is a plethora of these products in the marketplace, shutting down one brand just allows the consumers to make different choices if they desire a certain flavor or a certain type of device. So that's why we are calling for more consistent actions through time to really clean up the marketplace and get the progress for harm reduction moving forward on the right foot.

I think from a standpoint of have we seen the diversions? In the past, we've seen the same manufacturer change brand names and packaging, but it's exactly the same as what was before. And as I mentioned earlier, we're certainly seeing -- now that the Customs and Border Patrol is investigating everything declared appropriately, we have seen incidents of misdeclaration and calling it something else other than e-vapor.

Great. And then to follow up, coming back to NJOY. In the past couple of quarters, you seem to have had a little bit more of a cautious tone or a comment of, essentially, we're not going to rush a product back to market when the market is totally in disarray. Maybe I didn't really -- again, I'm paraphrasing, maybe I didn't catch it, but I didn't quite I didn't -- I don't know if I heard a similar comment this time -- in this quarter's prepared remarks and has your view in terms of the ability to compete in vape and sort of the timing of when you would be able to come back to market really changed at all?

Yes. I wouldn't see it as change. And if you took that from my remarks, let me just restate. We're certainly excited to be able to bring NJOY back to marketplace when it's appropriate. We were making great strides in capturing consumers. But the state of play in the e-vapor market hasn't changed. And you see total e-vapor consumers, call it about 20.5 million consumers and about 14.4 million of those are disposable vapors. And we believe a large portion of that is making it to the marketplace illicitly. And so when you see that state of play, remember disposables are increasing, that means that pod-based products are decreasing. And you can see that in takeaway and share at retail, if you include the disposable marketplace or an estimate of it.

And so certainly, when we bring it back to market, we're going to be disciplined about it. And we're excited when it's appropriate to be able to bring that back to market.

Our next question is from Gaurav Jain of Barclays.

Two questions from me. One is on this double duty drawback, the question which was asked earlier. So if I look at the price at which you are selling Basic and if I assume full excise tax, full MSA, then it is hard to conclude that there will be any EBIT left unless you are claiming this double duty drawback on Basic. So could you talk about how this works? And is it more focused on the discount cigarettes and [indiscernible]?

Yes. I wouldn't conflate those two, Gaurav. I would keep those 2 separate. Basic is being able to use and utilize our RGM analytics in the marketplace to continue to serve consumers and keep them in our portfolio of brands. This drawback is a totally separate issue. When you look at kind of the progress on the big beautiful bill, you saw when it was proposed by the house, they were removing that because they saw it as bad policy. When it went to the Senate side, there were a number of senators that removed that from it. And what you see is competition that has international manufacturing and domestic, they just flip flop production, and that allows them to basically import product into the U.S. without any FET paid.

And so certainly, with us being a domestic manufacturer, which you would think tax policy would support, we're certainly going to look to not be at a competitive disadvantage now that it's a parent law.

Okay. My second question is on this enforcement on e-cigarettes, which you alluded to is happening. If I look at cigarette volumes over the last 2 months, they have improved a bit. They are like minus 7.5%, the number we haven't seen in 2, 3 years. But if I look at the pod-based system shipments in Nielsen data, it is still continuing its same trend of minus 8%, 9% decline. So is it that this reduction in disposable e-cigarette is helping the cigarette industry more than it has helped in the pod-based industry?

I think when you look at it, Gaurav, I would say that -- when you look at the [indiscernible], you can see that the change in cigarette volume decline was really in that macroeconomic and cross category. I would say it's a bit of both, that's benefiting the cigarette industry. That's why we're pushing the FDA to authorize more products because the consumers made a choice for smoke free. If they authorize products that have gone through the science review, then we'll have consumers moving to products that are appropriate for public health. And so both from an enforcement standpoint and an authorization is where we need the FDA to move.

When you step back, Gaurav and look at it, it's a proof of concept that consumers will move exactly as we've been saying once they find products that satisfy them, and we can really make progress on [indiscernible].

Sure. And then last question is on NGP. So you are a U.S. manufacturer, you don't have an international business. But do you think there are some of these international markets now where you can have an NGP only business and make it profitable. And you have like -- as you mentioned, you are pursuing multiple e-cigarette options. You clearly have gone, which is there internationally. So are there some international markets where you think you can now create NGP-only basis?

We do believe that, Gaurav. And you'll recall as far as our corporate goals, that is one of them from a growth standpoint. You'll recall that from a nicotine pouch, we actually have that in distribution and call it the Nordic region and in the U.K., and we're pleased with the progress we're making there. And we do believe that we can be successful in NGP internationally through time. I think the way you should think about that is we're going to be disciplined about it as we move forward.

We'll take our next question from Damian McNeela of Deutsche Bank.

First question is just on -- and whether you can sort of provide any color on what your plans after second half in terms of whether you're expecting to accelerate activation for the brand. And also whether you could quantify how well distributed the brand is currently in the U.S.? And then my second question is just on Middleton. Can you sort of provide an explanation of what is behind that sort of pretty decent performance, please?

Yes. I think when you think about on!, I'll be careful not to lay out exactly what we're going to do in the second half. But you see the success that we've had through the first half, we believe that is sustainable. We're excited about being able to bring our pipeline of products to the marketplace when appropriate because we feel like some of the pipeline of products are very competitive with the existing products in the marketplace as we've shared before.

I think when you think about on! and the activations, certainly reinforcing the equity and what we feel like is a bit different than the rest of the industry, focusing on equity and building a sustainable brand through time for our own portfolio of products when we can bring others to market. I think as far as the -- remind me the second part of your question [indiscernible].

Yes. Middleton volume was up. It is the dominant cigar in the highly profitable large mass machine-made cigar category. And it's a dominant player. It's a very strong premium brand. I think when you look at volume, and you look within a quarter, there's always movement within the distribution channel in terms of inventory movements and things like that. But overall, Middleton continues to be a strong performer in the smokable segment.

Our next question is from Gerald Pascarelli of Needham & Company.

I just wanted to go back to on!, maybe ask it another way, but your volume growth of 26.5% was definitely higher than what we were expecting on a tougher comp. But you did lose share of the category. And so as the category continues to expand, becomes increasingly competitive, just maybe some of the initiatives you have in place to protect your share position? And then just in terms of the revised EPS guidance, does that any way contemplate maybe increased investment spending behind on! in the back half of the year?

I'll take the first half and Sal, you can pick up on the EPS. I think when you think about on!, it's really about reinforcing the equity. And I think the team has gotten very good about using RGM that we've perfected in some of our other categories of continuing to induce trial, but not having to oversubsidize world consumers of the on! brand. And it's about going out and reaching them where the consumer is, and you heard some of the comments, whether that's music festivals or NASCAR races or things of that nature and reinforcing the brand to the consumer so that they feel good not only about the product, but about the brand itself.

And so from that standpoint, you're right, competition is picking up. As far as a quarter shipment share in that nature, I would ask you to look over a longer period of time. Certainly, you're going to have shipments that are going through the distribution channel and things of that nature that can distort a quarter. I would look at both volume and share over a longer period.

And Gerald, as far as guidance, I'm not going to provide any information about promotional activity in the second half. But what I will say is that the guidance does contemplate our continued support of our vision and the development of product pipeline within the smoke-free innovative tobacco categories or nicotine categories. And of course, the continued support of the on! brand as it continues to -- we continue to drive a trial and awareness and conversion for that brand.

[Operator Instructions] Our next question is from Emma Rumney of [ Reuters ].

I wanted to ask about tariffs because the guidance statements that it accounts for increased tariff costs, given the NJOY -- actually on! market at the moment and isn't expected to return this year, could you talk me through specifically what parts of your business are affected by increased tariffs and on which countries?

Yes, sure. So first, what I would tell you is that while tariffs have had an impact on our cost, we don't view them as material to our overall business, and they have been contemplated in the guidance that we have provided you. As far as where they do impact, we do sometimes see the impact of tariffs in our supply chain, our direct materials as an example, in some of the packaging material we use because some of our supply chain is overseas or international base. So -- but again, I think what's more important for us is to monitor the impact of tariffs on the adult tobacco consumer. And the potential impact on cost of everyday items that they are purchasing and how that could impact purchasing behaviors of the consumers. So again, it's something we monitor closely, and we'll be watching as the year plays out.

Got it. And is that packaging for your cigarettes, oral tobacco or all of the above?

Yes, it's metal for oil aligners. It's tin cans, things like that. So you can see it there. And you see it in some other areas. But again, it's something that's been contemplated. And unlike many other CPG companies, it really has not had a material impact on our overall cost.

Yes. So not significant enough to sort of spark price increases or changes to the supply chain or anything?

I'm not going to talk about price increases, but no, nothing material on a cost basis.

Okay. And changes to the supply chain, would you look at those? Or again, is it not material enough to...

No. We always -- we're always looking at changes to supply chain. What I mean by that is we have an optionality across the supply chain with different vendors, different geographies, our ability to manage inventory levels as an example, our leaf is a multiple year crops that we're managing. So we do have flexibility in our supply chain folks, our procurement folks do a terrific job of managing the different variables that they face, maintaining a strong supply chain is important to us, of course, in high-margin business. So they did a terrific job. So we feel very comfortable with it.

And I think there are some tariffs on markets like Malaysia, for example, that weren't in place last time you updated the market, which would affect NJOY when you did want to start importing it again. Are you thinking about that and how you might be able to mitigate the impact once you are ready to start importing the device?

Yes. Look, we're always thinking about it. I'm not going to get into details of the supply chain, but we do have flexibility in the supply chain related to NJOY. But as you know, there are tariffs across the -- across the international market that are part of our consideration set. Right now, NJOY, as you said, is not in the market. We continue to work to bring it back into the market with some of the IP work that Billy talked about earlier. But again, we feel very comfortable with the optionality we have in our e-vapor category.

There appears to be no further questions at this time. I would like to turn the call back over to Mac Livingston for any closing remarks.

Thank you for joining us today. Everyone, have a great day.

This does conclude today's conference. You may now disconnect your lines, and everyone, have a great day.