Altria Group, Inc.

Good day and welcome to the Altria Group 2023 First Quarter Earnings Conference Call. Today's call is scheduled to last about one hour, including remarks with Altria's management and a question and answer session. In order to ask a question, please press star followed by the number one on your touchtone phone at any time. Representatives of the investment community and media on the call will be able to ask questions following the conclusion of the prepared remarks. I would now like to turn the call over to Mack Livingston, Vice President of Investor Relations with Altria Client Services. Please go ahead, sir.

Thanks, Katie. Good morning, and thank you for joining us. This morning, Billy Gifford, Altria's CEO, and Sal Mancuso, our CFO, will discuss Altria's first quarter 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 2022. Our remarks contain forward-looking and cautionary statements and 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. 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 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. We are off to a strong start and believe our businesses are on track to deliver against full-year plans. Our tobacco businesses perform well in a challenging macroeconomic environment, and we announced exciting progress toward our vision. Highlights from our first quarter included strong adjusted diluted earnings per share growth of 5.4%. resilient in-market performance from our leading brands including Marlboro and Copenhagen and continued volume and share growth from on and announcements made at our investor day including updates on our pending acquisition of enjoy the unveiling of our exciting smoke-free products and development and the introduction of our 2028 enterprise goals let's now review first quarter results in more detail beginning with the macroeconomic environment and its impact on industry cigarette volumes. In the first quarter, consumer discretionary income levels remained under pressure due to the cumulative effects of higher inflation over the past year. As a reminder, the cigarette industry experienced a higher rate of volume decline beginning in the second quarter of 2022 as smokers shifted their purchasing behaviors. as a result of widespread inflation and the rapid increase in gas prices that were exacerbated by the Russian invasion of Ukraine. While gas prices began to recede in the second half of last year, higher inflation persisted across other goods and services, and cigarette volumes remained under pressure. Moving into the first quarter of 2023, the cumulative effects of inflation over the past several quarters continue to impact tobacco consumers' discretionary income and tobacco industry volumes. We will continue to monitor these factors and their impact on tobacco consumers as we progress throughout the year. Sal will provide additional color on industry volume in his remarks. Let's now turn to the oil tobacco category. We are excited by the continued growth of oil nicotine pouch products which grew their share of the total oral tobacco category for the 20th consecutive quarter. Oral nicotine pouches grew 7.1 share points year-over-year and now represent 26.2% of the oral tobacco category. Encouragingly, continued oral nicotine pouch growth was the primary contributor to the estimated 1% increase in total oil tobacco volumes over the past six months. Helix grew on reported shipment volume to 25.2 million cans during the first quarter, an increase of 38%. On continued its momentum at retail, growing its share of the total oil tobacco category by 2.4 share points to 6.5%. And ON continued to grow its share of the nicotine pouch category, reaching 24.6% in the first quarter, up 3.3 percentage points. Notably, ON outgrew ZEN sequentially on an absolute basis in 50,000 stores. Helix delivered these impressive results as ON's retail price grew 7% sequentially and 32% versus the year-ago period. We believe ON's ability to continue to grow share while effectively reducing its promotional investment demonstrates the strength of its product portfolio and brand equity. Felix is continuing its focus on strategically investing behind the brand as the category grows and remains committed to achieving profitability in 2025. Let's now move to eVapor, which has been the most successful category in the U.S. in transitioning smokers to alternative products. We believe the category is continuing to undergo a significant reset, and we estimate that first quarter eVapor volumes decreased 11% versus a year ago and 1% sequentially. We have observed a decline in traditional multi-outlet and convenience channel volumes, which we believe is primarily a result of the FDA marketing denial orders issued for Juul and MyBlue. This volume decline has been partially offset by increased volume in non-traditional channels such as e-commerce and vape stores. We are excited about our pending acquisition of InJuuling and its portfolio of evapor products. Enjoy is the only company to receive a marketing-granted order for pod-based products. We continue to believe the strength of our commercial resources can benefit smokers and vapers across the U.S. and expand smoke-free competition in stores where Enjoy Ace has not been distributed. The completion of the Enjoy transaction is subject to customary closing conditions and including clearance from the Federal Trade Commission. Moving to the regulatory environment, we remain optimistic about the future of harm reduction in the U.S., and we continue to encourage the FDA to make more progress for the benefit of the 47 million tobacco consumers. In February, the FDA provided a response to the Reagan-Udall Foundation's assessment of FDA's tobacco operations. We are encouraged that the agency recognizes some important areas for improvement, including developing and communicating a five-year strategic plan, improving transparency and defining more efficient product pathways, increasing enforcement of marketing denial orders, and exploring ways the agency can and should address nicotine misperceptions through communications. We look forward to learning more details on these efforts. In addition, FDA enforcement is critical to making continued progress toward reducing youth usage of eVapor products. The FDA has the necessary enforcement tools, and we encourage them to take the appropriate action against non-compliant manufacturers. We continue to believe that harm reduction, not prohibition, is the best path forward. And we have made this clear in the public comments we submitted in response to the FDA's proposed menthol ban. Our comments highlight the many unintended consequences of prohibition, including the adoption of adulterated and unregulated products and the development of illicit markets. Unfortunately, we believe a number of those consequences are playing out in California. where a ban on flavored nicotine products went into effect in late 2022. Our operating companies immediately ceased the shipment of products to California wholesalers that we determined were not compliant with the law. Their brands continue to perform well in this state, with Marlboro and Copenhagen growing retail share sequentially. However, we remain concerned with the lack of enforcement in the state as some flavored products remained in the market. We also believe some manufacturers have introduced new products or rebranded existing ones to sidestep the purpose of the law. In March, menthol cigarettes still represented nearly 40% of the volume sold in the multi-outlet channel in California. an increase of 1.3 percentage points from January. Additionally, we have seen evidence that some California smokers are self-methylating their cigarettes using alternative products such as flavor cards and menthol drops. We have also observed flavored evapor products in the market that appear to have been renamed to mislead state regulators. And trade dynamics in surrounding states suggest that some smokers are crossing state borders to purchase menthol products. For example, the share of menthol in Nevada increased 1.3 percentage points sequentially in the first quarter to 37.4%. We believe this is significant as the total share of menthol in Nevada has not been greater than 36.5% over the past four years. Compliance remains a top priority, and our government affairs teams are engaging with California government officials to encourage them to enhance enforcement and to hold all manufacturers to the same standard. Our goal is for policymakers to embrace harm reduction as the proper framework for tobacco and nicotine product regulation. In fact, public opinion strongly favors harm reduction over prohibition, and science shows a significant public health benefit of moving smokers away from combustible products toward a smoke-free future. As we described at our Investor Day, we are continuing our efforts to create the conditions for harm reduction to succeed through advocacy, engagement, and our actions. I believe we are well positioned for success in 2023 and beyond. And while the external environment remains dynamic, I am confident that we have the tools in place to succeed. We have amazing brands, sound strategies, and most importantly, talented and dedicated employees. With these things in mind, we reaffirm our guidance to deliver 2023 four-year adjusted diluted EPS in a range of $4.98 to $5.13. This range represents an adjusted diluted EPS growth rate of 3% to 6% from a $4.84 base in 2022 and excludes the potential financial impacts of the pending Enjoy transaction. I'll now turn it over to Sal to provide more detail on the business environment and our results.