Altria Group, Inc.

Hey everyone and welcome to the Altria Group 2023 third quarter and nine months earning conference call. Today's call is scheduled to last about one hour including remarks by Altria's management and question and answer session. In order to ask a question, please press star 1 followed by star 2 to remove yourself from the queue. 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 for Altria Client Services. Please go ahead.

Mack Livingston Thanks, Ashley. 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 nine 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 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. Our highly profitable traditional tobacco businesses were resilient in a dynamic operating environment during the third quarter and first nine months, providing fuel for a business transformation and significant cash returns to our shareholders. We grew adjusted diluted earnings per share by 3.3% for the first nine months and returned more than $5.7 billion to shareholders through dividends and share repurchases. We continue to balance maximizing profitability from our smokable and moist smokeless tobacco businesses with investments to realize our vision of responsibly leading the transition of adult smokers to a smoke-free future. This morning, I will focus on our progress within Joy, the state of the eVapor category, and the encouraging third quarter results from ON. I'll then turn it over to Sal, who will provide an update on consumer and industry dynamics, further detail on our financial results, and outlook for the remainder of the year. Let's begin in the eVapor category. In our first full quarter of ownership, our teams executed ENJOY's business plans with speed and focus to lay the foundation for ENJOY's long-term success. Today, ENJOY ACE remains the only pod-based evapor product with a marketing authorization from the FDA. We're actively working to bring this compelling smoke-free alternative to more smokers and vapors across the United States. We believe that the long-term success in eVapor will be influenced by our actions in the near term, and we're executing in the marketplace to grow the business responsibly and sustainably. First, while already strong, strengthening Enjoy's supply chain was a necessary step to begin the initial phase of our expansion with ACE. Our teams worked diligently to solidify the entire supply chain, from sourcing direct materials through the shipment to retail. As a result, we do not anticipate capacity constraints as we execute our initial expansion plan. Next, during the third quarter, our teams prioritized closing inventory gaps at retail and expanding distribution of ACE. Prior to the acquisition, Enjoy had a small-scale sales force. which resulted in inventory volatility and significant distribution gaps at retail. Upon completion of the Enjoy transaction, we immediately unleashed our sales force to focus on closing the inventory gaps in stores that already had distribution. We improved inventory conditions in stores and are actively working to close remaining gaps at retail. For expansion, ACE distribution grew to approximately 42,000 stores during the third quarter and is now distributed in all of the top 25 convenience store chains by eBay per volume. In addition, we began to amplify visibility with new point of sale and fixture signage at retail. During the fourth quarter, we continue to expect ACE expansion to reach a total of 70,000 stores by year end. representing approximately 70% of e-vapor volume and 55% of cigarette volume sold in the U.S. multi-outlet and convenience channel. As we continue to expand distribution and close inventory gaps, we expect to further enhance visibility and product fixture space at retail. Last month, Enjoy unveiled its first retail trade program, Retail partners can sign up for the program at various levels with merchandising options designed to position Enjoy strategically and responsibly to tobacco consumers while creating further awareness of the brand. And as we move to our next phase of eVapor consumer engagement, we're beginning to test a variety of promotional plans and anticipate more disruptive execution at retail in the fourth quarter. Moving into 2024, we will continue to refine our promotional plans, implement ENJOY's retail trade program, further expand distribution, and evolve our consumer engagement strategy. Our strategies will focus on informing adult vapers and smokers of the attributes of ACE, such as battery capacity and pod size relative to other leading brands, generating trial and growing brand loyalty. In addition, plans for a new brand equity campaign are well underway. We expect the equity campaign to further amplify the brand's presence at retail and drive consumer engagement with the brand. We're excited to share more on this campaign and the next phases of our growth plans in the near future. Looking more broadly at the eVapor category, the current state of the market is intolerable. for both legitimate manufacturers and consumers. As we have noted repeatedly for months, the regulated market is being overrun by illegal flavored disposable e-vapor products made and distributed by companies violating virtually every rule and guidance FDA has issued since 2016. Regulation not enforced is indistinguishable from no regulation at all. Illegal evaper products circumvent the actions of regulators, responsible manufacturers, and retailers by evading scientific review, quality and manufacturing controls, marketing oversight, and legal aids or purchase restrictions. Despite recent actions by the FDA, enforcement has been inadequate and ineffective. We believe the FDA has the tools necessary to bring order to the markets. For our part, we're actively engaged with regulators, state and federal lawmakers, trade partners, and other stakeholders to build awareness of these serious issues and drive marketplace enforcement. We have also taken more targeted but necessary action and initiated litigation in the United States District Court in California against 34 organizations, including manufacturers, distributors, and online retailers, related to the sale of unlawful products. A strong course direction is needed to protect the tobacco harm reduction opportunity for the 30 million adult smokers in the U.S. Turning to oral tobacco, the nicotine pouch category experienced sizable growth once again, resulting in an estimated 5% increase in total U.S. oral tobacco volumes over the past six months. Oil nicotine pouches grew nearly 10 share points year-over-year and now represent more than 32% of the U.S. oil tobacco category. Oren participated in the category growth as third quarter reported shipment volumes increased nearly 37% versus the year-ago period. During the quarter, Helix focused on continued volume growth while improving profitability. Felix applied its evolving analytical resources to be more flexible with its promotions in the marketplace. As a result, Thorne's retail price increased 33% per can sequentially and 52% versus the prior year, closing the gap to Zen by over $1 year over year. Encouragingly, we continue to see increasing levels of both trial and adoption of the brand. with repeat purchases up more than 35% year-over-year, despite the substantial increase in retail price. In addition, Oren's retail share of the old tobacco category was 6.9%, up 1.7 share points versus the prior year, and stable sequentially. Internationally, Oren Plus began its test launch in Sweden, one of the largest modern old tobacco markets in the world. And consumers are engaging with the brand through both e-commerce and select retail locations. While still early days, we're encouraged by the feedback we've received from consumers. Initial consumer data show that ON PLUS performed well in the areas of comfort, flavor, and overall satisfaction. We believe that ON PLUS's long-lasting flavor system and proprietary soft food material are differentiators in the category. We're at an exciting period in our history. We have an unprecedented opportunity to responsibly lead the transition of adult smokers to our smoke-free future. Our smoke-free portfolio is compelling, and I am encouraged by our initial progress with Enjoy and On's strong performance. I believe we have the appropriate strategies and people in place to execute our growth plans. I continue to believe that we can achieve our vision and create long-term value for our shareholders. I'll now turn it over to Sal to provide more detail on the business environment and our results.