Altria Group, Inc.

Good day, everyone, and welcome to the Altria Group 2024 Second Quarter and First Half 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. 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 Mac Livingston, Vice President of Investor Relations for Altria Client Services. Please go ahead, sir.

Thanks, Savannah. 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 2023. Our remarks contain forward-looking and cautionary statements and 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 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 Billi.

Thanks, Mac. Good morning and thank you for joining us. Altria's momentum continues to build as we pursue our vision to responsibly lead the transition of adult smokers to a smoke-free future. In the second quarter, our company's innovative smoke-free products delivered strong share and volume performance, and we hit meaningful milestones that we believe set us up for future success. ENJOY received the first and only marketing-granted orders from the FDA for menthol e-vapor products, and we submitted PMTA applications to the FDA for next-generation ENJOY and ON products. Our traditional tobacco businesses remained resilient despite a challenging operating environment. Our Harley cash-generative businesses supported continued investments in our innovative products efforts, and we return significant value to shareholders during the first half of the year, with more than $5.8 billion delivered to shareholders through share repurchases and dividends. And we believe our dedicated teams have us on track to deliver against full-year financial guidance. This morning, my remarks will focus on ENJOY's encouraging second quarter results, the state of the eVapor category, illicit market activity, and enforcement actions, and strong second quarter results from ONN. I'll then turn it over to Sal, who will provide further detail on our financial results, including the outlook, the performance of our traditional tobacco businesses, and capital allocation. Let's begin with the eVapor category. In June, we celebrated the one-year anniversary of welcoming Enjoy into the Altria family of companies. Since that time, we've combined our industry-leading capabilities with Enjoy's competitive product offering and are thrilled with the progress we've made. Let me briefly recap some of our accomplishments. We strengthened Enjoy's supply chain to enable our expansion plans, tripled Enjoy's retail footprint to over 100,000 stores, secured premium positioning at retail in more than 80% of contracted stores through Enjoy's first trade program, launched a variety of trial-generating activities with compelling results, and introduced a new brand equity campaign with impactful consumer messaging. As a result of these efforts, Enjoy saw continued traction at retail during the second quarter and first half as evidenced by volume momentum and share growth. Enjoy consumables shipment volume was approximately 12.5 million units for the second quarter, and 23.4 million units for the first half. And device shipment volume was approximately 1.8 million units for the second quarter and 2.8 million units for the first half. Both consumable and device shipment volumes increased sequentially, with consumables increasing by 14.7% and devices by 80%. To generate trial in the second quarter, Enjoy paired equity messaging about its attractive product proposition with promotional support and saw compelling results at retail. For the second quarter, Enjoy's retail share of consumables was 5.5 share points, up 1.3 share points sequentially. Enjoy's retail share of consumables grew in each of the past nine months. We're also encouraged by ENJOY's device share, which we believe is an important indicator of trial and a potential leading indicator of longer-term adoption. As a result of trial-focused investments, in the second quarter, ENJOY expanded its share of devices in the multi-outlet and convenience channel to 25.4 share points, more than doubling its share of devices sequentially. We plan to continue investing behind Enjoy's value proposition and equity to build awareness and generate trial. At retail, approximately two-thirds of fixture resets are now complete, and we've amplified Enjoy's visibility and secured premium positioning through its trade program. ENJOY is also reaching increased numbers of adult consumers through its events infrastructure and digital marketing programs. Through these engagements and ENJOY's equity campaign, we can continue to position ENJOY as a competitive alternative for adult smokers and vapers to responsibly grow ENJOY over the long term. On the regulatory front, in June, ENJOY received marketing-granted orders from the FDA for four menthol evapor products. ENJOY has the first and only menthol evapor products authorized by the FDA, a significant accomplishment for the ENJOY team and a testament to the quality of ENJOY's robust science and evidence-based applications. Under the terms of our acquisition of ENJOY, upon receiving these authorizations, we made cash payments totaling $250 million in July. Now, all in-market ENJOY products are covered by marketing-granted orders from the FDA. In addition, ENJOY submitted a supplemental PMTA to the FDA to commercialize and market the ENJOY ACE 2.0 device. which incorporates access restriction technology designed to prevent underage use. ENJOY also resubmitted PMTAs for blueberry and watermelon pod products that work exclusively with the 2.0 device. These submissions mark further milestones in pursuit of our vision. And ENJOY looks forward to responsibly providing flavored evapor options for adult smokers and vapors once authorized. ENJOY's momentum and the results are even more encouraging in the context of the broader evapor category, which continues to be overrun by illicit disposable products due to a lack of effective regulation and enforcement. At the end of the second quarter, we estimate the evapor category included approximately 19 million vapors, up over 3 million vapors versus a year ago. During the same period, disposable vapors increased by 4 million to approximately 12 million vapors. Through the first half of 2024, we estimate the category grew by approximately 40% driven by illicit flavored disposable products, which we believe now represent more than 60% of the category. We estimate pod-based volumes declined by approximately 15% in the first half of 2024, and now represents approximately 15% of category volumes. We are beginning to see the robust supply chains and lack of enforcement that supports the illicit evaper market enable increased illicit activity across multiple tobacco categories, including nicotine pouches and cigarettes that are available to U.S. consumers. In fact, we've identified more than 350 illicit nicotine pouch skews across both retail and e-commerce, with new brands launching every month. This illicit market echoes the beginning of the illicit evaper market several years ago. In addition, we believe illicit cigarettes are becoming more prevalent in the U.S. and are evading regulation and taxation. We periodically conduct discarded pack studies in select geographic markets. One such study in California found more than 25% of discarded cigarette packs were non-domestic products, originating primarily from duty-free channels and China. The FDA's inaction, lack of enforcement, and slow pace of smoke-free authorizations continues to enable bad actors who are blatantly disregarding regulations. For our part, we continue to actively engage with regulators, federal and state lawmakers, our trade partners, and other stakeholders to build awareness of these issues and drive marketplace enforcement. This month, we sent the FDA data that supports our increasing concern that illicit market actors are expanding into the nicotine pouch category. Our hope is that this information demonstrates the need for the FDA to direct enforcement actions against illicit nicotine pouch products in addition to illicit evapour products. We believe it is critical that the FDA acts decisively to regain control over the oral nicotine pouch category to prevent another widespread illicit market from taking hold. At the federal level, we saw some positive actions in the second quarter. For example, in June, the Justice Department and the FDA announced the creation of a federal multi-agency task force which is expected to coordinate and streamline efforts to bring all available criminal and civil tools to bear against the illegal distribution and sale of eVapor products. We have been advocating for multi-agency collaboration and view this announcement as a much needed course correction for enforcement efforts. In addition, we continue to see other actions at the federal level, including eVapor related import refusals, civil monetary penalties, and warning letters issued to manufacturers, retailers, and wholesalers of a list of products. In the absence of effective FDA enforcement today, many states are stepping up to address this issue. As of today, 11 states have passed legislation requiring manufacturers to certify that they are compliant with FDA requirements, and four states are considering similar legislation. Enforcement has started in four states with the balance set to begin in the second half of 2024 and 2025. When properly implemented and comprehensively enforced, we believe state registry bills can be effective. We continue to believe in the promise of a responsible and fully regulated tobacco industry. As we stated in the past, regulation without enforcement is indistinguishable from no regulation at all. We're hopeful to see more meaningful action and enforcement activity over the next year. Let's turn back to the oral tobacco category, where oral nicotine pouches grew 12.3 share points year over year and now represent nearly 42% of the category. Oil nicotine pouches were the primary contributor of the estimated 9% increase in oil tobacco industry volume over the past six months. Helix participated in the category growth, growing on reported shipment volume by 37% to 41 million cans during the second quarter. Helix continues to invest strategically and responsibly behind ONN. This spring, Helix launched a new trade program that secured the number one retail fixture position for nearly 80% of ON's volume, creating broader visibility of the ON brand. And in June, Helix introduced a fresh new look for ON packaging and a new equity campaign, It's ON, to further differentiate the brand. Encouragingly, we saw consistent bond share momentum throughout the quarter. Bonds retail share grew in each of the past three months to 8.1% for the quarter, an increase of 1.2 share points versus the prior year and a one share point sequentially. Helix remains focused on long-term profitability and delivered these impressive results while reducing ON promotional spending year over year. We are very excited about the prospects and potential for ON+, an innovative pouch product made using a proprietary soft film material which is designed for adults who dip and dual users with cigarettes. Early international results continue to show that ON is a growing competitive player in the nicotine pouch space in Sweden and the United Kingdom. In both markets, ONPLUS has been incremental to our total portfolio, sourcing mainly from competitive brands with minimal cannibalization. In Sweden, levels of trial are increasing, and e-commerce repurchase rates are strong, above 30%. Supported by these results, we expanded OrmPlus distribution beyond e-commerce into 2,000 key retail accounts in Sweden, including Circle K and ICA. In the UK, following the launch of OrmPlus, the Orm portfolio is the number two brand in e-commerce. And Helix recently secured OrmPlus distribution in 1,000 retail stores. Consumer feedback indicates that consumers enjoy the innovative OM Plus pouch and view it as a unique point of differentiation in the category. Turning back to the U.S. market, Helix submitted PMTAs to the FDA for OM Plus in June. The PMTAs were submitted for three varieties, tobacco, mint, and wintergreen. each in three different nicotine strength options. We believe our innovation in the nicotine pouch space can be a meaningful contributor to our smoke-free goals once authorized in the U.S. In summary, it was an exciting quarter for Altria. We made significant progress toward our vision with in-market products and achieved important milestones to prepare for future success. We're confident in the long-term outlook for our smoke-free portfolio, and we have a significant opportunity to responsibly lead the transition of adult smokers to a smoke-free future. I believe we have the appropriate strategies in place to execute our growth plans, and I want to thank all of our employees who continue to work tirelessly to make our vision become a reality. I'll now turn it over to Sal to provide more detail on the business environment and our results.