Altria Group, Inc.

Good day and welcome to the Altria Group 2025 third quarter and nine months 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. In order to ask a question, please press star followed by the number one on your touchtone phone at any time. 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 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 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 continued to make meaningful progress across our smoke-free portfolio and toward our long-term adjacency goals. One held steady in a highly competitive environment, and Helix announced plans to launch One Plus, its innovative next-generation oral product. Horizon also made important regulatory followings for a joint venture in 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 US 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+, updates on our heated tobacco and evapor 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 six 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 percent versus the prior year. For the first nine 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, Oren's retail share of the total oral tobacco category was 8.7% for the third quarter and first nine months, demonstrating stability for the quarter and an increase of 0.8 share points for the first nine months. Oren'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 one 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 product segment adjusted OCI stability and adjusted OCI margin expansion in the third quarter. KELIX is positioning itself for long-term sustainable success. KELIX recently launched OM 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. OrnPlus launched with three flavors and three nicotine strengths, which we believe are complementary to the current Orn portfolio. We believe OrnPlus is a premium and differentiated product that we expect to appeal to both adults who dip and competitive nicotine pouch consumers. OrnPlus uniquely delivers on three desirable attributes for pouch consumers. comfort, nicotine delivery, and flavor satisfaction. In recent research, we compared Orem Plus Mint against several leading competitive brands. While a small sample size, Orem Plus outperformed all competitive brands in the sample. Orem Plus achieved the highest purchase intent score driven by the comfort of the pouch. In addition, innovation and consumer preferences remain at the forefront of Helix's strategy. Helix continues to build a pipeline of new OnePlus 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 Plume to the U.S. In August, Horizon filed a combined PMTA and MRTPA with the FDA for plume and Marlboro heated tobacco sticks. We believe the science and evidence supporting Horizon's applications are compelling and present a strong case for FDA authorizations. Our teams are working diligently on plumes go-to-market plans, and we look forward to engaging smokers with this innovative product. Moving to our eVapor business and ENJOY. We believe we have completed the product design of a modified ENJOY ACE solution that addresses all four 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 one another. JUUL initiated litigation in federal court and before the ITC against Enjoy asserting 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, asserting claims of patent infringement based on the sale of certain Juul products. As we assess our path forward with ACE and work diligently on our innovative product pipeline in eVapor, the market remains saturated with flavored disposable evapor products, the majority of which we believe have evaded the regulatory process. At the end of the third quarter, we estimate the evapor 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 signal progress. For some time, we have advocated for stronger enforcement against holistic products as well as for an acceleration in FDA market authorizations for smoke-free products. During the third quarter, we observed notable enforcement efforts targeting illicit products and welcomed positive plans from the FDA regarding the pace of authorizations within the oral nicotine pouch category. On the enforcement front, we continued to see elevated engagement and action from federal agencies and government officials. These actions included coordinated raids executed by the Federal Multi-Agency Task Force across the U.S., resulting in the seizure of hundreds of thousands of illicit 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 illicit 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 establish a responsible marketplace for smoke-free products. Regulatory speed and clarity are also essential to delivering innovative options that meet adult consumer preferences and advance harm reduction. In September, the FDA launched a pilot program to streamline PMTA reviews for oral nicotine pouches, and Helix was notified by the FDA that applications for OrmPlus are included in the program. We're encouraged by this development from the FDA, and we're 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 ORN 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 snooze factory, the manufacturer of the Loop nicotine pouch 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+, and FUMI to effectively compete across all modern oral product segments. Second, our collaboration includes the exploration of opportunities in U.S. , specifically in the energy and wellness space with KT&G's Korea Ginseng 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 in 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 their smoke-free portfolio, and we opened new pathways for long-term adjacent growth in international modern oil 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.