Q3 2023 Altria Group Inc Earnings Call

Mac Livingston: President of Investor Relations, for Altria Client Services, please go ahead. Thanks, Ashley. Good morning, and thank you for joining us.

At Altria client services. Please go ahead.

Thanks, Ashley good morning, and thank you for joining us this morning, Billy Gifford, <unk>, CEO and Sal Mancuso, our CFO, who will discuss <unk> third quarter and first nine months business results.

Mac Livingston: This morning, Billy Gifford, Altria 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 report, 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 contained forward-looking and cautionary statements and projections of future 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 <unk> Dot 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.

Mac Livingston: 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 accept this 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.

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.

Mac Livingston: Descriptions of these non-gap financial measures and recommendations 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.

Descriptions of these non-GAAP financial measures and reconciliations are included in today's earnings release and on our website at <unk> Dot com.

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

William Gifford: With that, I'll turn the call over to Bill. Thanks, Mack. Good morning and thank you for joining us. Our highly profitable, produced 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 continued to balance maximizing profitability from our smokeable and moist smokeless tobacco businesses with investments to realize our vision of responsibly leading the transition of adult smokers to a smoke free future.

With that I'll turn the call over to <unk>.

Thanks, Matt Good morning, and thank you for joining us our.

Our highly profitable traditional tobacco businesses were resilient in a dynamic operating environment during the third quarter and first nine months <unk>.

Providing fuel for our business transformation and significant cash returns to our shareholders.

We grew adjusted diluting diluted earnings per share by three 3% for the first nine months.

We 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.

William Gifford: This morning, I will focus on our progress with Enjoy, the state of the evapour category and the encouraging third quarter results from on.

This morning, I will focus on our progress with enjoy the state of the E vapor category and the encouraging third quarter results from AWN.

William Gifford: I'll then turn it over to Sal, who will provide an update on consumer and industry dynamics for the detail on our financial results and outlook for the remainder of the year. Let's begin in the evapour category and our first full quarter of ownership are teams executed, enjoys business plans with speed and focus to lay the foundation for enjoys long term success. Today, Enjoy A's remains the only pod based evapour product with a marketing authorization from the FDA.

Ill, then turn it over to Sal, who will provide an update on consumer and industry dynamics.

Other detail on our financial results and outlook for the remainder of the year.

Let's begin in the E vapor category and our first full quarter of ownership our teams executed enjoys business plans with speed and focus.

Lay the foundation for enjoys long term success.

To date enjoy ace remains the only pod based E vapor product with a marketing authorization from the FDA.

William Gifford: We're actively working to bring this compelling smoke free alternative for more smokers and vapors across the United States. We believe that the long term success in e-vapor 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 supply chain was a necessary step to begin the initial phase of our expansion with eggs. Our teams worked diligently to solidify the entire supply chain from sourcing direct materials through the shipment to retail.

We're actively working to bring this compelling smoke free alternative for more smokers and vapers across the United States.

We believe that the long term success and ebay <unk>.

Be influenced by our actions in the near term and we're executing in the marketplace to grow the business responsibly and sustainably.

William Gifford: 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 eggs. Prior to the acquisition, enjoy at 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 and stores that already had distribution.

First while already strong strengthening enjoy 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 prioritize closing inventory gaps that retail and expanding distribution of ace.

Prior to the acquisition from Joy had a small scale sales force, which resulted in inventory volatility and significant distribution gaps at retail.

Upon completion of the injury transaction, we immediately unleashed our sales force to focus on closing the inventory gaps and stores that already had distribution.

William Gifford: We improved inventory conditions and stores and are actively working to close remaining gaps at retail. For expansion, base distribution grew to approximately 42,000 stores during the third quarter and is now distributed in all of the top 25 convenient store chains by e-vapor volume. In addition, we began to amplify visibility with new corner sale and picture signage at retail. During the fourth quarter, we continued to expect ace expansion to reach a total of 70,000 stores by year end.

We improved inventory inventory conditions in stores and are actively working to close remaining gaps at retail.

Four expansion Ace distribution grew to approximately 42000 stores during the third quarter and is now distributed in all of the top 25 convenience store chains by E vapor volume.

In addition, we began to amplify visibility with new point of sale and fixture signage at retail.

During the fourth quarter, we continued to expect ace expansion to reach a total of 70 stores by year end.

William Gifford: Representing approximately 70% of e-vapor volume and 55% of cigarette volume sold in the US multi outlet and convenience channel. As we continue to expand distribution and close inventory gaps, we expect to further enhance visibility and product picture space at retail.

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.

William Gifford: Last month, enjoy until its first retail trade program. Retail partners can sign up for the program at various levels with merchant diving 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 e-vapor consumer engagement, we are beginning to test a variety of promotional plans and anticipate more disruptive execution at retail in the fourth quarter.

Last month enjoy unveiled its first retail trade program.

Retail partners can sign up for the program at various levels with Merchandizing options designed to position enjoy strategically and responsibly, so tobacco consumers, while creating further awareness of the brand.

And as we move to our next phase of E vapor consumer engagement, we are beginning to test a variety of promotional plans.

And anticipate more disruptive execution at retail in the fourth quarter.

William Gifford: Moving into 2024, we will continue to refine our promotional plans, implement enjoy retail trade program, further expand distribution and involve our consumer engagement strategy. Our strategies will focus on informing adult vapors and smokers of the attributes of ace, such as battery capacity and pod files relative to other leading brands. Grant, Generating trial and growing brand loyalty.

Moving into 2024, we will continue to refine our promotional plans.

Implement enjoys retail trade program.

Further expand distribution and evolve our consumer engagement strategy.

Our strategy will focus on informing adult papers 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.

William Gifford: 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.

In addition plans for a new brand equity campaign are well underway.

We expect to equity campaign to further amplify the brand's presence at retail and drive consumer engagement with the brand.

William Gifford: We're excited to share more in this campaign and the next phases of our growth plans in the near future.

Excited to share more on this campaign and the next phases of our growth plan in the near future.

William Gifford: Looking more broadly at the eBay for 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 eBay 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. The illegal eBay for products circumvent the actions of regulators, response manufacturers, and retailers by a fading scientific review, quality of manufacturing controls, marketing oversight, and legal aids or purchase restrictions.

Looking more broadly at the E vapor category.

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 E vapor products circumvent the actions of regulators.

What's more manufacturers and retailers by invading scientific review.

Quality and manufacturing controls.

Marketing oversight and legal age of purchase restrictions.

William Gifford: 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 market. For our part, we're actively engaged with regulators, state and federal lawmakers, and 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.

Despite recent actions by the FDA enforcement has been an adequate and ineffective.

We believe the FDA has the tools necessary to bring order for the market.

For our part we are actively engaged with regulators state and federal lawmakers, our trade partners and other stakeholders to build awareness of the 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.

William Gifford: A strong course direction is needed to protect the tobacco-farm reduction opportunity for the 30 million adult smokers in the US. Turning to oral tobacco, the nicotine powder category experienced sizable growth once again, resulting in an estimated 5% increase in total US oral tobacco volumes over the past six months. Whole nicotine pouches grew nearly 10 share points year over year, and now represent more than 32% of the US oral tobacco category. Foreign participated in the category growth, as third quarter reported ship-adliant increased nearly 37% versus the year-ago period.

A strong course correction 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.

All nicotine pouches grew nearly 10 share points year over year, and now represent more than 32%.

The U S bold tobacco category.

<unk> participated in the category growth.

Third quarter reported shipment volumes increased nearly 37% versus the year ago period.

William Gifford: During the quarter, healers focused on continued volume growth while improving profitability. Healers applauded involving analytical resources to be more flexible with its promotions in the marketplace. As a result, Warren's retail price increased 33% per can sequentially and 52% versus the prior year, closing the gap to 10 by over one dollar year over year. Incidentally, we continue to see increasing levels of both trial and adoption of the brand. With repeat purchases of more than 35% year-of-year, despite the substantial increase in retail price. In addition, Owen's retail share of the old tobacco category was 6.9% up 1.7 share points versus the prior year and stable sequentially.

During the quarter helix focused on continued volume growth, while improving profitability.

Helix supplied its evolving analytical resources to be more flexible with its promotions in the marketplace.

As a result, Barnes retail price increased 33% per cans sequentially and 52% versus the prior year.

The GAAP discern by over one dollar 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, <unk> retail share of the old tobacco category was six 9% up one seven share points versus the prior year and stable sequentially.

Internationally on plus began its test launch in Sweden, one of the largest modern oral tobacco markets in the world.

William Gifford: Internationally, Owen Plus began its test launch and sweet 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 Owen Plus performed well in the areas of comfort, flavor, and overall satisfaction. We believe that Owen Plus's long-lasting flavor system and proprietary soft material are differentiators in the category.

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 <unk>, plus performed well in the areas of comfort flavor and overall satisfaction.

We believe that bond pluses long lasting flavor system.

<unk> proprietary software material are differentiators in the category.

William Gifford: 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 Owen's strong performance. I believe we have the appropriate strategies on 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.

We are at an exciting period in our history.

Have an unprecedented opportunity to responsibly lead the transition of adult smokers to a smoke free future.

Our smoke free portfolio is compelling and I'm encouraged by our initial progress with enjoying and <unk> strong performance.

I believe we have the appropriate strategies and people in place to execute our growth plan.

I continue to believe that we can achieve our vision and create long term value for our shareholders.

Salvatore Mancuso: I'll now thread over the style to provide more detail on the business environment and our results. Thanks, Billy.

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

Thanks Billy.

Salvatore Mancuso: Let's begin with an update on consumer and industry dynamics. During the third quarter, cigarette industry volume declines continued to be elevated from their historical levels, due in part to macroeconomic factors and the growth of illegal flavor disposable e-vapor products. By design, illicit products are largely distributed through non-traditional, untracked channels, requiring us to refine our ability to estimate their impacts on the industry. With the information we have today, we believe that there is more cross-category movement than previously assumed.

Let's begin with an update on consumer and industry dynamics.

Salvatore Mancuso: And we now estimate that growth of illegal flavor disposable e-vapor products contributed to industry, cigarette industry declines in a range of 1.5% to 2.5% over the last 12 months. These updated estimates have been reflected in our decomposition of cigarette industry decline rates. We will continue to monitor this dynamic trend and are actively pursuing better data sources to enhance our estimates in the space.

During the third quarter cigarette industry volume declines continue to be elevated from their historical levels due in part to macroeconomic factors and the growth of illegal flavored disposable E vapor products.

By design illicit products are largely distributed through non traditional untracked channels, requiring us to refine our ability to estimate their impact on the industry.

With the information we have today, we believe that there is more cross category movement than previously assumed.

And we now estimate that growth of illegal flavor disposable E vapor products contributed to industry cigarette industry declines in the range of one 5% to two 5% over the last 12 months.

These updated estimates have been reflected in our decomposition of cigarette industry decline rates.

We will continue to monitor this dynamic trend and are actively pursuing better data sources to enhance our estimates in this space.

Salvatore Mancuso: Turning to results for the quarter, the smokeable product segment continued to deliver on its strategy of maximizing profitability and combustibles over the long term, while appropriately balancing investments in marble with funding the growth of smoke-free products. In fact, during the third quarter, the Smokable Product Segment expanded adjusted OCI margins, while Marvel grew which retail shares sequentially in the cigarette category and within the premium segment. The adjusted operating company's income declined by 2.5% in the third quarter but grew by 0.2% for the first nine months.

Turning to results for the quarter. The smokable products segment continued to deliver on our strategy of maximizing profitability in combustibles over the long term.

Appropriately balancing investments in Marlboro with funding the growth of smoke free products in.

In fact during the third quarter, the smokable products segment expanded adjusted OCI margins, while Marlboro grew which retail share sequentially in the cigarette category and within the premium segment.

Adjusted operating company's income declined by two 5% in the third quarter, but grew by 0.2% for the first nine months.

Salvatore Mancuso: The adjusted OCI decline during the third quarter was primarily driven by elevated industry volume declines due to the factors I mentioned and higher promotional investments. As a reminder, there was also one fewer shipping day in the third quarter of 2023 compared to the third quarter of 2022. Adjusted OCI margins expanded by 7 tenths and 9 tenths in the third quarter and the first nine months respectively. Net pricing remained robust and net price realization for the segment was 8.6% in the third quarter and 9.8% for the first nine months.

The adjusted OCI declined during the third quarter was primarily driven by elevated industry volume declines due to the factors I mentioned and higher promotional investments.

As a reminder, there was also one fewer shipping day in the third quarter of 2023 compared to the third quarter of 2022.

Adjusted OCI margins expanded by seven tenths and nine tenths in the third quarter and the first nine months respectively.

Net pricing remained robust and net price realization for the segment was eight 6% in the third quarter and nine 8% for the first nine months.

Salvatore Mancuso: Marvel was resilient during the quarter and its retail share of the cigarette category grew 3 tenths sequentially to 42.3% while declining 3 tenths versus the year ago period. Promotional investments across the Marvel portfolio such as investments in Marvel Black supported the strong share performance for the quarter. Additionally, Marvel grew its share within the stable premium segment to 58.9%, an increase of 3 tenths sequentially and 4 tenths year over year while other brands seated share in the premium segment sequentially and year over year.

Marvel was resilient during the quarter and its retail share of the cigarette category grew three 2% sequentially to 42, 3%, while declining three tenths versus the year ago period.

Promotional investments across the Marlboro portfolio, such as investments in Marlboro Black supported the strong share performance for the quarter.

Additionally, <unk> grew its share within the stable premium segment to 58, 9%.

An increase of three tenths sequentially and four tenths year over year, while other brands ceded share in the premium segment sequentially and year over year.

Salvatore Mancuso: Total discount segment share grew 1.1 percentage points year over year to 28.2% but has been flat since the first quarter of 2023. We believe the recent stability and discount is an encouraging sign considering the adverse macroeconomic conditions impacting smokers in the premium position of our portfolio. Smokeable product segment reported domestic cigarette volumes declined by 11.6% in the third quarter and 10.5% for the first nine months. When adjusted for calendar differences and trade inventory movements, third quarter domestic cigarette volumes declined by an estimated 10%.

Total discount segment share grew one one percentage points year over year to 28, 2%, but it's been flat since the first quarter of 2023.

We believe the recent stability in discount is an encouraging sign considering the adverse macroeconomic conditions impacting smokers and the premium position.

Although our portfolio.

Smokable products segment reported domestic cigarette volumes declined by 11, 6% in the third quarter and 10, 5% for the first nine months.

When adjusted for calendar differences and trade inventory movements third quarter domestic cigarette volumes declined by an estimated 10%.

Salvatore Mancuso: For the first nine months, adjusted domestic cigarette volumes declined by an estimated 10.5%. At the industry level, we estimate that adjusted domestic cigarette volumes declined by 8% in the third quarter and for the first nine months.

For the first nine months adjusted domestic cigarette volumes declined by an estimated 10, 5%.

At the industry level, we estimate that adjusted domestic cigarette volumes declined by 8% in the third quarter and for the first nine months.

Salvatore Mancuso: In cigars, John Middleton reported exceptional performance through the first nine months and cigar shipment volume increased 4.2%. The oral tobacco product segment reported strong results during the quarter as adjusted OCI and OCI margins increased while on continue to grow its retail share of the oral tobacco category year over year. The third quarter adjusted OCI grew 7.1% and the segment expanded adjusted OCI margins to 69.3% in increase of nearly 3 percentage points versus the prior year.

In cigars, John Middleton reported exceptional performance through the first nine months and cigar shipment volume increased four 2%.

The oral tobacco products segment reported strong results during the quarter.

As adjusted OCI, and OCI margins increased while on continue to grow which retail share of the oral tobacco category year over year.

For the third quarter adjusted OCI grew seven 1% in the segment expanded adjusted OCI margins to 69, 3% in.

An increase of nearly three percentage points versus the prior year.

Salvatore Mancuso: This performance was supported by robust net price realization, due in part, to the more efficient on promotional investments, Billy described earlier. For the first nine months, the segment grew with adjusted OCI by 4.1% with adjusted OCI margins of 68.9% up nearly 1 percentage point. Total segment reported shift in volume decreased by 3.3% and 2.3% for the third quarter and for the first nine months respectively. The segment's volume decline was driven by declines in MSK volumes partially offset by the growth of on.

This performance was supported by robust net price realization due in part to the more efficient on promotional investments Billy described earlier.

For the first nine months the segment grew adjusted OCI by four 1% with adjusted OCI margins of 68, 9% up nearly one percentage point.

Total segment reported shipment volume decreased by three 3% and two 3% for the third quarter and for the first nine months respectively.

The segment's volume decline was driven by declines in MSP volumes, partially offset by the growth of the bond.

Salvatore Mancuso: When adjusted for calendar differences in trade inventory movements, segment volumes declined by an estimated 2% and 2.5% for the third quarter and first nine months respectively. World tobacco product segment retail share declined 4.2% points in the third quarter. As declines in on MSK brands were partially offset by the year over year growth of on.

When adjusted for calendar differences and trade inventory movements segment volumes declined by an estimated 2% and two 5% for the third quarter and first nine months respectively.

Oral tobacco products segment retail share declined four two percentage points in the third quarter as declines in on MST brands were partially offset by the year over year growth of AWN.

Salvatore Mancuso: Turning to capital allocation, we continue to return significant cash to shareholders in the third quarter. We paid approximately $1.6 billion in dividends and raised our dividend by 4.3% in August in line with our new progressive dividend goal. This increase marked our 58th increase in the last 54 years and repurchased 5.9 million shares for $260 million. As at the end of the quarter, we had $268 million remaining under our current share repurchased program which we expect to complete by the end of the year. In addition, our balance sheet remained strong through the quarter. As at the end of the third quarter, our debt to EBIT ratio was 2.1 times.

Turning to capital allocation, we continue to return significant cash to shareholders.

In the third quarter, we paid approximately $1 6 billion in dividends and raised our dividend by four 3% in August in line with our new progressive dividend goal.

This increase marked our 58th increase in the last 54 years.

And repurchased five 9 million shares for $260 million.

As of the end of the quarter, we had $268 million remaining under our current share repurchase program, which we expect to complete by the end of the year.

In addition, our balance sheet remained strong through the quarter.

As of the end of the third quarter, our debt to EBITDA ratio was two one times.

Salvatore Mancuso: Let's turn to our financial outlook for the remainder of the year. We are now wearing our full year 2023 guidance range and now expect to deliver adjusted deluded earnings per share in a range of $4.91 to $4.98. This range represents a growth rate of 1.5% to 3% from a base of $4.84 in 2022.

Let's turn to our financial outlook for the remainder of the year.

We are narrowing our full year 2023 guidance range and now expect to deliver diluted adjusted diluted earnings per share in a range of $4 91 to.

To $4 98.

This range represents a growth rate of one 5% to 3% from a base of $4 84.

In 2022.

Salvatore Mancuso: Finally, at our investor day, we announced the creation of our Connect and Transform Open Innovation System which is focused on partnering externally to leverage subject matter expertise, new technologies, and disruptive innovations to augment our internal capabilities and support our innovation strategies, as part of this system. Today, we are publishing 11 innovation briefs. More information is available on Altria.com.

Finally at our Investor Day, we announced the creation of our connect and transform open innovation system.

Which is focused on partnering externally to leveraged subject matter expertise, new technologies and disruptive innovations to augment our internal capabilities and support our innovation strategies.

As part of this system today, we are publishing 11 innovation briefs.

More information is available on <unk> dot com.

Mac Livingston: With that, we'll wrap up and Billi and I will be happy to take your questions.

With that we'll wrap up and Billy and I will be happy to take your questions.

Mac Livingston: Love a close or being compiled. I'll remind you that today's earnings release in our non-gap reconcilations 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.

While the clothes are being compiled I'll remind you that today's earnings release, and our non-GAAP reconciliations are available on <unk> Dot com.

We've also posted our usual quarterly metrics, which include pricing inventory and other items.

Let's open the question and answer period.

Unknown Executive: Operator, do we have any questions? Thank you.

Operator, do we have any questions.

Thank you once again as a reminder, if you would like to ask a question. Please press the star key followed by the number one and you touched on the phone at this time investors analysts and media Representatives are now invited to participate in the question and answer session. We will take a question from the investment community first and first question comes from Pamela Kaufman with Morgan Stanley. Please go.

Unknown Executive: Once again, as a reminder, if you would like to ask a question, please press the start key followed by the number one on your touch phone at this time.

Unknown Executive: Investors in media representatives are now invited to participate in the question and answer session.

Pamela Kaufman: We will take a question from the investment community first. Our first question comes from Pamela Kaufman with Morgan Stanley. Please go ahead. Hi, good morning. Good morning, Grandma. Can you talk about the puts and takes influencing the outlook for the figure at category as you look over the next few quarters? How are you thinking about the category and do you view high singles that get industry volume declines as the new normal?

Go ahead.

Hi, good morning, good morning Pamela.

Can you talk a assets I can't take influencing the outlook for the cigarette category as you look over the next few quarters. How are you thinking about a category do you view high single digit industry volume declines as the new normal.

William Gifford: Pamela, first good morning and I'll start. I'll start the answer. This is very typical of us to narrow guidance as the year plays out and we're through the reporters and we were happy to provide a more transparency in narrowing our guidance to one and a half percent to three percent growth off of last year's adjusted EPS. We feel really good about the guidance we've been able to provide. Of course, across the plan, there's always puts and takes.

<unk> first good morning, and I'll start I'm sure the answer so.

This is very typical of us to narrow our guidance as the year plays out and we are through three quarters, and we were happy to provide a more transparency and narrowing our guidance to one 5% to 3% growth off of last year's adjusted EPS, We feel really good about the guidance we've been.

To provide.

Of course across the plan, there's always puts and takes we feel that we have enough levers to deal with.

William Gifford: We feel that we have enough levers to deal with any changes in the marketplace, but we feel good about the narrowing of the guidance. I think that's, as I said, pretty typical of how we manage guidance as the year progresses. Okay. I was also curious about how you're thinking about the outlook for the figure at category and if you expect high single-digit industry volume declines to continue going forward. Pamela, as you know, we don't provide good look for guidance, but I think when you think about volume and it's important to look at the geek comp, we try to highlight for you that look at consumers still under macroeconomic pressure both the cumulative impact of inflation but even gas prices moving around.

Any changes in the marketplace, but we feel good about the narrowing of the guidance and.

I think thats as I said pretty typical of how we manage guidance as the year progresses.

Okay.

Also curious about how you're thinking about the outlook for that category.

If you expect high single digit industry volume decline to continue.

Got it going forward yes.

Yes, Panama as you know, we don't provide look forward guidance, but I think when you think about volume and it's important to look at the E comp. We tried to highlight for you that look our consumers still under macroeconomic pressure, both the cumulative impact of inflation, but even gas prices moving around but more importantly, what we're seeing is an influence of the illicit E vapor and the impact that's having on the cigarette.

William Gifford: But more importantly, what we're seeing is an influence of the elicity vapor and the impact that's having on the figure at industry. And you see that we're estimating that to be about one and a half to two and a half. The reason that's such a broad range is the nature of the elicit product. It's going through distribution channels that we feel like we have some information gaps on it. We're going to be looking to fill those information gaps.

History, and you see that we're estimating that to be about one five to $2. Five the reason that such a broad range is the nature of the illicit product that's gone through distribution channels that we felt like we have some information gaps on and we're going to be looking to fill those information gaps but.

William Gifford: But we wanted to highlight that, too, that as we discovered it. What we did is we used the data sources we had and were able to try and formulate it. You know, I would point you to our quarterly metrics that we shared. And you see the significant jump up and adult vapors just over the nine months thus far in 2023. So we think that's having an impact considerate buying too. We talked about some of the enforcement activities, some of those things the FDA could do, some of the things we're doing. And we would look to get that enforcement active in the market.

We wanted to highlight that to you that as we discovered at what we did is we use the data sources, we had and we were able to triangulate it.

Point, you to our quarterly metrics that we shared and you see the significant jump up in adult Vapers just over the nine months, thus far in 2023 so.

We think thats, having an impactful cigarette volume too.

We talked about some of the enforcement activities some of the things the FDA to do some of the things we're doing and we would look to get that enforcement active in the marketplace.

William Gifford: Thanks, and also one area that I was kind of surprised about in the quarter was just the limited amount of enjoy investments than that appear to flow through the P&L. So can you elaborate on how you're thinking about enjoy investment over the coming quarter? And do you think that the Android brand can be successful and grow in an environment where illicit e-figs are unregulated? We believe we can grow the enjoy through the Android brand.

Thanks.

One area that kind of surprised that adding a quarter I would like.

Ed and now Angela and Beckman spend that appear to flow through the P&L. So can you elaborate on how you're thinking about enjoying beckman over the coming quarters and do you think that the annualized plan can be successful and grow in an environment, where electric E. Cigs are unregulated.

We believe we can grow the enjoy brand remembering it competes in our focus there is in the pod based.

William Gifford: Remember, it competes and our focus is in the pod base. The FDA still needs to get through with authorizations and we believe that is going to cause transition in the marketplace as well. I try to step you through the plan with enjoy as we progress through what we did in the third quarter as we progress through the fourth quarter, but I'll just highlight it. We really wanted to make sure we had the foundation built.

The FDA still needs to get through its authorizations and we believe that is going to cause transition in the marketplace as well.

I've tried to step you through the plan with enjoy as we progress through what we did in the third quarter as we progress through the fourth quarter, but I will just highlighted we really wanted to make sure. We have the foundation built and so the focus was on making sure that the supply chain with support the increased volume and we feel good about that we wanted to fill the inventory gaps and improve visibility.

William Gifford: And so the focus was on making sure that the supply chain would support the increased line and we feel good about that. We wanted to feel good. We feel the inventory gaps and improve visibility in the stores that injury was already present. And we made significant progress on that. Then we're going to expand to 70,000 stores by the end of the year. Really with some destruction at retail, we feel like the visibility will continue to improve.

The stores that injury was already present and.

<unk> made significant progress on that then we're going to expand to 70000 stores by the end of the year really with some disruption at retail we felt like the visibility to continue to improve but we are in the midst of selling in our trade program, which we think is a sustainable position on the retail fixed retail battle.

William Gifford: But we're in the midst of selling in our trade program, which we think is a sustainable position on the retail fixture at retail. That'll take place as we progress into the year. And I highlighted the equity campaign as well. We're really establishing the brand equity for enjoy and being able to unveil that as we progress into the new year for the consumer.

Place as we progressed into the new year and I highlighted the equity campaign is really establishing the brand equity for enjoying and being able to unveil that as we progress into the new year for the consumer.

Pamela Kaufman: Thank you. I'll pass it on. Thank you.

Thank you.

Thank you and we will take our next question from Bonnie Herzog with Goldman Sachs. Please go ahead.

Bonnie Herzog: And we will take our next question from Bonnie Herzog and Ms. Goldman Sachs. Please go ahead. All right. Thank you. Good morning, everyone. Good morning. I had a question on your guidance. You narrowed it, but essentially lower your EPS growth. This year. And then, you know, your new EPS guidance this year is below your mid-single digit algo. So I guess I'm trying to understand, you know, how much of this is due to, you know, planned investments as you build, you know, your smoke free vision versus maybe greater than expected headwinds.

Alright, Thank you for mining underlying good morning, Brian.

Good morning question Guy.

Guidance, you narrowed it but essentially lowered your EPS growth this year.

And your new EPS guidance. This year is below your mid single digit out, though so I guess I'm trying to understand.

How much of this data.

Land investment as you build your smoke free vision versus maybe greater than expected headwind. If you could touch on that perhaps it would help yes I. Appreciate your question Bonnie I think this is very typical as we progressed through the year, we are able to narrow guidance thats. What we did I think when you think about the.

Bonnie Herzog: If you could touch on that for us, it would help. Yeah, I appreciate your question, Bonnie. I think this is very typical as we progress through the year. We are the scenario guidance. That's what we do. I think when you think about the enterprise goals of mid-single digit growth, that's really on a compounded annual basis. And we suggested when we did that, we were going to invest in the businesses as we feel like that we need to invest.

Rise goals of mid single digit growth Thats really on a compounded annual basis and we.

Suggested when we did that we were going to invest in the businesses as we feel like that we need to invest and thats exactly what were doing so as we progressed through the year certainly the enforcement I referred to earlier.

Bonnie Herzog: And that's exactly what we're doing. So as we progress through the year, certainly the enforcement I referred to earlier as that steps up, that should affect multiple categories in the in our portfolio. And so I think it's very typical. As we progress through the year to be able to narrow it, we brought up the bottom and brought down the top. So that's what we've brought it to you. Bonnie, I'll also remind you that when we restated guidance upon the enjoy deal, there is amortization.

Has that stepped up that should affect multiple categories in the in our portfolio and so.

How do you think it is very typical as we progress through the year to be able to narrow it.

We brought up the bottom end brought down the top so that's what we've provided to you Bonnie I'll also remind you that when we restated guidance upon the enjoy deal there is.

Amortization is noncash.

Bonnie Herzog: It's a non-cash expense drag on the year over your comparison. Okay, that's helpful. And then I guess just my next question, beyond your smokeable segment, despite the expense of margins in the quarter, your dollar profits didn't increase. And then your price utilization, I guess, wasn't as robust as I would have thought, given the three-fig price increases this year, we announced a fourth. And then your control costs per pack were up mid-teens.

Expense drag on the year over year comparison.

Okay. That's helpful. And then I guess just my next question would be on.

Smokable segment.

Despite expanding op.

Margins in the quarter your Euro dollar profit increase.

And then your price realization I guess why isn't as fast as I would have thought given the three big price increases announced.

Alright.

And then your controllable cost per pack.

Good.

Bonnie Herzog: So in the context of all that, could you just talk about some of these drivers as well as your expectations for the rest of the year as it relates to those items? Yes, certainly, you saw the overall industry volume at an increased rate of decline, and we tried to highlight that in a decomposition and the impact that the elicity baked was having on the cigarette category. I think when you think about it, look, we're very pleased that margins overall would step up.

No.

In the context of all of that could you just.

Talk about some of these dry Barry you know.

As long as your expectation for the rest of the year as it relates to the data.

Yes, certainly certainly you saw the overall industry volume at an increased rate of decline and we tried to highlight that in the decomposition and the impact that the illicit ebay plus having on the cigarette category I think when you think about it look we're very pleased that margins overall step up I wouldn't get hung up in eight quarters price really.

Bonnie Herzog: I wouldn't get hung up in a quarter price realization, we really think about it through time. So, you know, we highlight it as we progressed into the year that there are a couple of pockets that we needed to invest in, and I think you see the benefit of those investments with model share. And so, but again, I wouldn't get hung up on a particular quarter. I would we tend to look at it over a bit longer terms and just quarter to quarter.

<unk>, we really think about it through time.

We highlighted as we progressed into the year that there are a couple of pockets that we needed to invest in and I think you see the benefit of those investments with mobile share and so again I wouldn't get hung up on a particular.

Quarter end.

And to look at it over a bit longer term than just quarter to quarter and so thats. The way we manage the business I think when you think about the.

Bonnie Herzog: And so that's the way we managed the business. I think when you think about the cost, as you have fluctuations, again, in a quarter, as you have fluctuations in volume, that's going to gyrate that at a considerable cost per per time. All right. Thank you. Thank you, Bonnie. Thank you.

<unk> cost as you have fluctuations again in a quarter as you have fluctuations in volume that's going to gyrate that controllable cost per ton.

Alright. Thank you. Thank you Bonnie.

Thank you and we will take our next question from Andrew <unk> with UBS. Please go ahead.

Andrea Condrea: And we will take our next question from Andrea Condria with EBS. Please go ahead. Thank you for taking my question and good morning, Billy. Good morning, Sal. One from me, please. When thinking just about your price increases, obviously, the one you took in Q4 was a bit larger than your previous increases over the past two years.

Thank you for taking my question good morning <unk>.

One for me please.

When thinking.

And just about your.

And your price increase is obviously the one you took.

In Q4 was.

<unk> appears to be larger than your previous increases over the past two years.

Should basically my question is should we kind of expect this high and higher level of price taken from you and your peers.

William Gifford: Should, basically, my question is, should we kind of expect this higher and higher level of price taking from you and your peers as wardens come under pressure from market factors. So it was a long winded and I think I followed it. Did you have any more there? I didn't want to cut you off. Yeah, I got another one after that. Yeah, I'll be careful not to talk about future pricing, but I think when you think about it, again, I would give this in advice that I gave to Bonnie.

As volumes come under pressure from macro factors.

So long winded.

I think I followed it did you have any more that I didn't want to cut you off.

<unk> got another one after that somebody if it's okay.

Yes, I'll be careful not to talk about future pricing, but I think when you think about it again I would give the same advice that I gave the Bonnie is I wouldn't get hung up on one price increase that took place we really look at the factors that go into pricing and we've mentioned those before but I think youll see with the stability of marvell share in the marketplace. We feel good about the strength of the brands and.

William Gifford: I wouldn't get hung up on one price increase that took place. We really look at the factors that go into pricing and we've mentioned those before, but I think you see what the stability of model sharing the marketplace. We feel good about the strength of the brand and we have been able to take those price increases. I would remind you that price will last just before the industry is a negative 0.35 core spacious factor.

We have been able to take those price increases.

I would remind you that price elasticity for the industry as a negative three five cost efficient factor.

William Gifford: We haven't seen anything that would determine that that would need to move and we feel good about that. So I think when you think about pricing, again, typically we look at it as price realization versus specific list price and remember price realization is made up of two pieces. One is list price that you saw us take and the other is promotional spend in the marketplace and that can drive it one way or the other on any given order and then through time.

We haven't seen anything that would determine that that would need to move and we feel good about that so I think when you think about our pricing again typically we look at it as price realization versus specific list price and remember our price realizations made up of two pieces. One is list price that you saw us take and the other is.

William Gifford: Thank you, that makes sense.

<unk> promotional spend in the marketplace and that can drive it one way or the other on any given quarter and then through time.

Thank you.

That makes sense and secondly, we saw obviously you filed a lot of litigation.

William Gifford: And secondly, we saw obviously you filed a lot of litigation versus elicit vape manufacturers and will be able to do the same just by another avenue. Probably what would be looking for is any inkling on how long this would take to crystallize one way or the other. Yeah, certainly the legal system will be the legal system so it's hard to predict how that will transpire. I think there what we're looking for is an injunction.

Versus illicit Vapes manufacturers.

Low <unk>.

Did the same adjustment by another Avenue, probably what we'd be looking for any inkling on how long this would take to crystallize one way or the other.

Yes.

Certainly the legal system will be the legal system. So it's hard to predict how that will transpire I think there of what we're looking for is an injunction. These products are illegal and with a lack of enforcement has taken place by the FDA. We felt like we needed to take action on it. So we did that with litigation and we've done that in other ways with communications for the FDA meeting with.

William Gifford: These products are illegal. And with the lack of enforcement that's taken place by the FDA, we felt like we needed to take action. And so we did that with litigation and we've done that in other ways with communications to the FDA, meet with government officials to really show the intolerable nature of what's taking place in the marketplace. Again, you heard in my remarks, but regulation without enforcement is truly indistinguishable from any from having no regulation.

Government officials.

It really shouldnt intolerable nature of what's taken place in the marketplace.

Again, you heard in my remarks, but.

Regulation without enforcement is truly indistinguishable.

Any perhaps from having no regulation if you don't enforce it basically works on paper. So we want to protect harm reduction and the opportunity for the 30 million smokers in the U S. So we really need to have enforcement, where the smokers can make informed choices as they are moving across categories. I think if there is an underlying positive.

William Gifford: If you don't enforce it, it's basically words on paper. So we want to protect harm reduction in the opportunity for the 30 million smokers in the US. So we really need to have enforcement where the smokers can make informed voices as they are moving across categories. I think that there's an underlying positive is that we see adult smokers moving over. So they're ready to have potentially reduced harm products. We just need them to be regulated and based on science to be in the marketplace.

Is that we see adult smokers moving over so they are ready to have potentially reduced harm products, we just need them to deregulated and based on science to be in the marketplace.

William Gifford: Very clear. Thank you. I'll pass it on. Thank you so much. Thank you.

Very clear thank you I'll pass it on thank you very much.

<unk>.

Thank you we'll take our next question from Vivien <unk> with TV Cowen. Please go ahead.

Vivian Azer: We'll take our next question from Vivian Azer with TV toe and please go ahead. Hi. Thank you. Good morning. Good morning, Vivian. So I wanted to talk about your smokeless margins just to start very healthy margin improvement. I was wondering if you could just dimensionalize the magnitude of this. The benefits that you guys saw from the reduction in promo spend on on versus kind of the normalize operating leverage that you get from from pricing on MSD.

Hi, Thank you and good morning.

Good morning Vivien.

So I wanted to talk about your.

Douglas margins.

Very helpful. Martin improvement I was wondering if you could dimensionalize the magnitude of the benefit that you guys saw from.

The reduction in <unk>.

Almost bang on on versus kind of the normalized operating leverage that you get from from pricing on MST.

Vivian Azer: Thanks. Good morning, Vivian. And thank you for the question. And yeah, we're really happy with the OTP margins. And I would say both traditional smokeless and oral TDN are contributing to the strength of those margins. So you're right to point out the strength of in particular Copenhagen in the MSD category. And then as we discussed in our opening remarks, the net pricing increases for on both on a year over a year basis and a sequential basis.

Good morning, Vivien and thank you for the question and yes, we're really happy with the Otp margins.

And I would say both.

Traditional smokeless and oral TVN are contributing to the strength of those margins. So.

You're right to point out the shrink in.

In particular, Copenhagen, and the MST category and then as we discussed in our opening remarks, the net pricing increases for on both on a year over year basis, and a sequential basis.

Okay understood and then on Marlboro market share, helping 30 basis point improvement sequentially is the premium segment.

Vivian Azer: Okay, understood. And then on the market here, healthy 30 basis point improvement, so potentially is the premium segment health care, which is certainly good to see. Given the continued macro pressures, you guys have called out on the consumer. We're wondering if you could comment at all on kind of the impact that Marble Black gold had on that potential and present. Thanks. Yeah, we're certainly pleased with the Marble Black gold wants. We're certainly pleased with the utilization that the PMUS 18 has put on Marble Black and using it in the marketplace to give consumers that are under economic strain of place to stay with Marble because that's what the consumer wants.

Alastair.

Certainly.

Given the continued macro pressures you guys have called out on the consumer I was wondering if you could comment at all on kind of the <unk>.

Tack that Marlboro black coal pad on that perpetual improvement.

Yes, we're certainly pleased with the marble Black go launch, we're starting to pleased with the <unk>.

Utilization that the PM USA team has put on mobile black and using it in the marketplace to to give consumers that are under economic strain a place to stay with Marvel because thats, what the consumer wants and I think when you think about overall Marlboro black it represents about 10% of the mobile franchise.

Vivian Azer: I think when you think about overall Marble Black, it represents about 10% of the Marble franchise. It's very similar in as far as being used as a tool. You'll recall this baby in the back when we use special blend and the other downturn that we saw in 0809. And so when you think about it, it's being able to utilize a tool where very pleased with the rounding out of the portfolio and Marble Black gold and very pleased with the results, in place.

It's very similar.

As far as being used as a tool youll recall this vivien that back when we use special blend and the other downturn that we saw in <unk> and so when you think about it it's being able to utilize it so.

We're very pleased with the rounding out of the portfolio on Marlboro Black with mobile Black gold and very pleased with the results we're seeing in the marketplace.

Vivian Azer: So that's great. Thanks for that. I'll just please in one last once you don't mind. On the last slide of the presentation, you guys highlighted the Nevada mental share, which did fall off to the country in the third quarter. Can you offer any color on why you think that is? Thanks. I think it really highlights the enlisted activity that takes place in California. You're called previously. So some of it was cross-border.

Alright, that's great. Thanks for that I'll, just squeeze in one last one if you don't mind.

On the last slide of the presentation.

You guys highlighted the Nevada, menthol, Sara which did fall off sequentially in the third quarter can you offer any color on why you think that is.

Vivian Azer: But as an enlisted activity takes place in California, whether that be mental cards that we highlighted the last time or even mental finding mental cigarettes running their way into the state of California. Again, it's another example where prohibition doesn't work. You don't have enforcement and that it's illegal activity takes place to get the consumer what they're desiring. And that's what we're seeing in California. Perfect. Absolutely. Hopefully. Thank you for that. Thank you.

I think it really highlights the illicit activity that takes place in California, you'll recall previously so some of it was cross border, but as illicit activity takes place in California, whether that be nimble cards that we highlighted last time or even menthol funding menthol cigarettes, finding their way into the state of California and again, it's another example, where prohibition doesn't work.

You don't have enforcement and that.

Illegal activities take place to get the consumer what they are desiring and Thats what were seeing take place in California.

Perfect. That's really helpful. Thank you for that.

Thank you.

Thank you we'll take our next question from Alan <unk> with Jefferies. Please go ahead.

Owen Bennett: We'll pick our next question from O&Bnet with Jeffrey. Please go ahead. Morning, Jain. Topo. Well, I had a couple of questions around that you pick again. And first one is coming back to disposable enforcement. So realistically ignoring the actions by yourself and BAT and looking at SBA specifically. You actually see kind of any chance of meaningful measures in the next six to 12 months given obviously in the middle of last year, the SBA spoke that are now working with other government agencies to address this.

Good morning, Jan Topol, Wow, and I had a couple of questions.

Around again and Thats, one is coming about disposable enforcement so.

Owen Bennett: And then they also flag the possibility of possible federal statutory changes to address this. So just to get your thoughts around this, we could see kind of any meaningful action in the start to tell you perspective or the SBA in the next six to 12 months. Yeah, it's a good question, O&Bnet. I'm very optimistic. I mean, if you think about it, I can think of four simple steps that the SBA could take to really reign and improve the enforcement.

Acknowledging the options by yourselves and <unk> and looking at CHP equally.

VC kind of any challenge and meaningful measure used in the next six to 12 months given obviously in the middle of last year.

It is not working they will have a government agency to jazz.

And then they also flat the possibility of band possible federal statutory changes to address these stages.

To get your thoughts on if we could see kind of any meaningful action.

The stats you kind of your perspective on the FDA in the next six to 12 months.

Yes, it's a good question Alan I am very optimistic.

Think about it I can think of four simple steps that the FDA could take to really rein and improve the enforcement.

Owen Bennett: One, they could help the trade be able to identify products that are not compliant. When you think about that, that's just a providing a list that's clear. Either the ones that are authorized for those that have been denied so that they're not in the marketplace. Once they do that, conduct a broad-based retail inspection program. They've done that. They did that in the cigarette category. They can do that in the VVAPer space.

One make it helped the trade be able to identify projects that are out of compliance.

When you think about that as just a providing a list that's clear either the ones that are authorized for those that have been benign so that theyre not in the marketplace.

Once they do that conduct a broad based retail and.

Spectrum program, they've done that they did that in the cigarette category that can do that in the E vapor space and once they do that issue maximum penalties and then bring injunction actions against manufacturers and distributors that are openly defying FDA regulation and then I think adopting comprehensive.

Owen Bennett: And once they do that, issue maximum penalties and then bring injunction actions against manufacturers and distributors that are openly defying FBA regulations. And then I think adopting comprehensive water programs to prevent importation. A lot of these products are imported. They're imported illegally and then they're sold illegally. So they seem to be very, very simple. That's why I'm optimistic that the FBA will take action and be able to work to bring order to the retail environment.

Of border programs to prevent importation of lot of these products are imported.

They are imported illegally and then theyre sold illegally.

Seem to be very very simple thats why I am optimistic that the FDA will take action and be able to work to bring order to the retail environment.

Owen Bennett: And then when they spoke about statutory changes, you see any possibility about me? They have the tools in the authority now for illegal products in the marketplace. So certainly we would be open to statutory changes. But I mean when you think about it, they have the ability to do that now. Oh, and so it seems like and then I highlighted those first couple of steps. They have the tools and they have the authority to do it today.

And then when they spoke about statutory change did you see any possibility that harmony.

They have the tools and the authority now for illegal products in the marketplace. So.

Certainly we would be open to statutory changes, but I mean, when you think about it.

Have the ability to do that now Owen so.

It seems like.

I highlighted those four simple steps they have the tools and they have the authority to do it today.

Okay and then just my second question on the quality metric.

Owen Bennett: Okay, thanks. And then just my second question on the course of the metric, you show the slide highlights in the spike in the number of adult vapors. This has replaced the slide. You showed historically that we showed estimated industry rate volumes. You maybe talk about what the volume number was for the court. I just want to get a better idea of what the vape impact will be on cigarettes from an absolute volume perspective.

He showed a slide highlighting the spike in the number of idle.

They replaced the slide you showed historically actually showed estimated industry volumes can you maybe talk about what the volume number was for the quarter. So I just wanted to add that idea of what the impact will be on.

<unk> taken some absolute volume perspective, thank you.

Owen Bennett: Thank you. Yeah, what we try to do the reason we went with the vapors as we had previously, but didn't show the volume is the nature of this listed marketplace. It's hard to track. That's the nature of it being a listed. It's going through different distribution channels than what typical products go through, because it's illegally getting to the marketplace. I think when you think about the impact of the cigarette volume, what we tried to do on the decont page is show you that we estimated to be between one and a half to two and a half over the last 12 months.

Yes, what we tried to do that.

The reason, we went with the vapors as we had previously but it didn't show the volume has been nature of this holistic marketplace.

It's hard to track, but that's the nature of it be in a listen it's going through different distribution channels than what typical products go through because it's illegally getting to the marketplace. I think when you think about the impact of the cigarette volume what we tried to do on the default page is show you that we estimated to be between one and a half to two and a half over the last two.

12 months. So we tried to provide you with that data again as I mentioned earlier I know thats a bit of a wide range. We're trying to fill what we feel like there's some data gaps. So that we have a better read of what's taken place in the marketplace through distribution channels that are different than typical product.

Owen Bennett: So we tried to provide you with that data again, as I mentioned earlier, I know that's a bit of a wide range. We're trying to fill what we feel like there's some data gaps so that we have a better read of what's taken place in the marketplace through distribution channels that is different than typical products. Okay. And then any broad guess is what the sequential volume increase was industry wise in the second quarter, given kind of the copies big variance.

Okay, and then any broad gas as well as sequential volume increase was industry wide in the second quarter, given kind of the coffee make variance.

Owen Bennett: Yeah, it's again, it's tough just because of the nature, all of the growth we feel like most of the growth that occurred in the evapour space, what we saw was pod industry was down slightly. Overall, evapour was off and that growth was coming from the illicit disposable that are in the marketplace. Yeah, again, with the inability to be able to estimate the total market space because of the illicit product in the marketplace, we didn't want to put an overall growth.

Yes, it's again, it's tough just because of the nature all of the growth we felt like most of the growth that occurred in the E vapor space. What we saw was part industry was down slightly overall E vapor was up and that growth was coming from the illicit disposables that are in the marketplace.

And then.

Overall it was it <unk>.

Yes, again with the inability to be able to estimate the total market space because of the the illicit product in the marketplace.

We didn't want to put our overall growth we have an estimate but we don't want to put on overall growth.

Owen Bennett: We have an estimate, we wouldn't want to put an overall growth. Hey, oh, and this is salto, I would also point out not only is it flavors in this illicit disposable category of flavors are really not in line with regulations. They're flavors like delicious candy and cotton candy. I mean, I agree with Billy, the need for enforcement is very important and we need it to happen. We'd like it to happen as soon as possible. Okay, fun. It's very helpful to take it. I do. And what's it as a reminder that is star one for your questions.

Hey, Alan this is <unk>.

<unk>.

I would also point out.

Not only is it flavors in the solicit disc.

Disposable category of flavors, we're really not in line with regulations their flavors like by delicious Cotton Candy I mean the.

I agree with Billy the need for enforcement.

It is very important and we need it to happen, we'd like it to happen as soon as possible.

Okay. Thanks, Jan say household PKK.

Thank you.

And once again as a reminder that is star one for your questions. We will take our next question from Matt Smith with Stifel. Please go ahead.

Matt Smith: We look at our next question from Matt Smith with Steve. Well, please go ahead. Thank you operator and good morning all. Good morning, Matt. I want to ask a follow-up question around the change in the impact of cross category dynamics. And now the 2% drag you're seeing on cigarette volumes. Can you talk about your expectations for how these consumers that are using the illicit products that are generating that higher drag. How do you expect them to behave once you do see enforcement in the category and these products that they're using today are removed from the marketplace.

Thank you operator, and good morning all.

Good morning, Matt.

I wanted to ask a follow up question around the change in the impact of cross category dynamics and now the 2% drag you're seeing on cigarette volumes.

Matt Smith: Do you expect those current users to shift into lawful smoke free products including vapor and then do you then expect the drag to be less and going forward given the removal of the flavor products. Or do you expect the vapor category to continue to grow through the illicit the enforcement of illicit products.

Can you talk about your expectations for how these consumers that are using the illicit products that are generating that higher Greg how do you expect them to behave once you do see enforcement in the category and these products that they are using today are removed from the marketplace do you expect those current users to shift into.

Lawful smoke free products, including vapor and then do you then expect the drag to be lessened going forward given the removal of the flavor products or do you expect the vapor category to continue to grow through the illicit correct the enforcement of illicit products.

William Gifford: Yeah, it's a great question. I think when you think about it, certainly the youth that are using the evapour, we want them completely out of the category just to be clear on that. I think when you think about the adults that are moving over, we would want them to stay in reduced risk products. That's why we're excited about the Android product and being able to have the distribution and have it readily available for them.

Yes, it's a great question I think when you think about it certainly the use that are used in the E. Vapor we want them completely out of the category just to be clear on that I think when you think about the adults that are moving over.

We would want them to stay and reduced risk products. That's why we're excited about the Android product can be in order to have the distribution and have it readily available for them, it's authorized and have it readily available for them to choose I think if you look historically youll recall when the FDA eliminated flavors and pause we did see some consumers go back to cigarettes and so.

William Gifford: It's authorized and have it readily available for them to choose. I think if you look historically, you recall when the FDA eliminated flavors and pods we did see some consumers go back to cigarettes. And so that that's the best estimate, but it's ultimately up to the consumer and we'll do our best to keep them in the evapour space with the Android product. Thank you for that, Billion.

That's best estimate, but it's ultimately up to the consumer and we will do our best to keep them in the E vapor space with the enjoy product.

Thank you for that $1 billion, just as a quick follow up I wanted to ask about the distribution opportunity around and join you understand that you laid out the priorities in your first quarter of ownership focusing on the supply chain, but I was curious if there is any prioritization of expanding distribution for.

William Gifford: Just as a quick follow up, I wanted to ask about the distribution opportunity around and join you, understand that you laid out the priorities in your first quarter of ownership, focusing on the supply chain. But I'm curious if there is any prioritization of expanding distribution for if and when FDA actually picks up its enforcement against illicit products. Do you need to see a more proactive FDA before you expand the distribution of Android to take advantage of the disruption in the marketplace?

If and when FDA actually picks up its enforcement against illicit products do you need to see a more proactive FDA before you expand the distribution of enjoy to take advantage of the disruption in the marketplace.

William Gifford: We do not. We have the target of 70,000 stores by the end of the year. We feel good about getting it to those stores. Certainly we would appreciate FDA enforcement more so for the being able to protect the harm reduction opportunity in the U.S. But now we will move forward with our distribution plans as we laid out. Thank you, Billion. I'll pass it on. Thanks. Thank you.

We do not we have the target of 70000 stores by the end of the year, we feel good about getting into those stores certainly we would appreciate FDA enforcement more so for the.

Being able to protect the harm reduction opportunity in the U S. But now we will move forward with our distribution plans as we've laid out.

Thank you Billy I'll pass it on.

Thanks.

Thank you we'll take our next question from garage Jain with Barclays. Please go ahead.

Gerard Jane: I'll pick our next question from Gerard Jane with Barclays. Please go ahead. Hi. Good morning, Willie. Good morning, Sal. Good morning. A few questions from me. So first is on these, you know, the cannibalization impacts that you are sharing from e-cigarettes. So, you know, even the on the modern oral front, it seems that the cannibalization has stepped up on cigarettes because the oral tobacco volumes are much better than what would have taught.

Hi, good morning, really good morning Soph.

Good morning.

Two questions from me so firstly on these.

Gerard Jane: So isn't it that modern oral is about a one person cannibalizing impact on cigarette volumes and then the e-cigarette cannibalization impact is probably lesser than what you are highlighted? Yeah. I understand your question, Laura. I think when we look at the information, certainly we're having some impact and we try to highlight that from a sourcing perspective with novel oral products. What we highlighted for disposable is what we feel is what's taking place from the disposable.

The cannibalization impacts that you are sharing from E cigarettes. So.

Even the modern oral front it seems that the cannibalization has stepped up on cigarettes, because the oral tobacco volumes, how much better than what would have taught us entered that modern oral is about of unquestioned cannibalizing impact on cigarette volumes and.

Then the E cigarette cannibalization impact is probably less so than what you had highlighted.

Yes.

I understand your question Gaurav I think when we look at the information certainly we are having some impact.

We tried to highlight that from a sourcing perspective with novel oil products.

What we highlighted for disposable is what we feel is what has taken place from the disposables, So thats separate and distinct from novel oral so no. We feel like what we've estimated that one five to $2 five and I explain why it's a range is really the impact of disposable E cigarettes.

Gerard Jane: So that's separate and distinct from novel oral. So now we feel like what we've estimated that one and a half to two and a half and I explain why it's arranged is really the impact of disposable e-cigarettes on cigarettes. Sure. Thank you. And then, you know, second question is in a clearly GLP one drug, you know, big focus of investors right now across tables. Would you have any indication of what's the cigarette prevalence amongst consumers whose BMI is greater than 27 versus prevalence amongst consumers with BMI less than 27?

Cigarettes.

Sure. Thank you.

And then second question is going to clearly DLP, one drug or notebooks focus of investors right now cross Staples would you have any indication of what's the cigarette prevalence amongst consumers, whose BMI is greater than 2007 versus prevalence amongst consumers with BMI less than 27 and <unk>.

Gerard Jane: And that 27 number is where I believe we get prescribed for consumers with comorbidity. So that's why I'm referencing that 27 number. Yeah, I understand the theory that you have regarding that. I think when you look at the science, you look at the trends and you look at the facts of even what's taken place today related to GLP-1 drugs, we see no indication of that. We'll certainly continue to monitor it but we don't see any indication.

Seven numbers, there I believe VW gets prescribed for consumers with Comorbidities about five.

The difference in that 'twenty seven number.

Yes, I understand the theory that you have regarding that I think when you look at the science. If you look at the trends and you look at the facts, maybe even what's taken place to date related to <unk>, one drugs recent no indication of that.

We continue to monitor, but we don't see any indication.

Sure.

Final question is around the menthol cigarettes rulemaking process.

What should we expect.

From here on in terms of timelines.

I think you saw that.

Gerard Jane: It went to the OMD, the Office of Management Budget on October 13th. It sits with them. The FDA has announced publicly that they anticipate issuing that by the end of the year, but I think it remains to be seen when that will be issued. So from that standpoint, if you've really seen our comments on this all, we don't think it's based on or supported by science and evidence. And so if it's issued, I think you could anticipate potential legal challenges from the industry. Sure. Thank you so much. Thank you.

It went to the OMB the office of management budget on October 13th it sits with them. The FDA has announced publicly that they anticipate issuing that by the end of the year, but I think it remains to be seen when that will be issued.

So from that standpoint, it really <unk> seen our comments on menthol, we don't think.

Based on our supported by science and evidence.

And so if it's issued I think you could.

Dissipate potential legal challenges from the industry.

Sure. Thank you so much thank.

Thank you.

Thank you we'll take our next question from Priya <unk> Gupta with Barclays. Please go ahead hi.

Priya O'Riguta: We'll pick an next question from Priya O'Riguta with Barclays. Please go ahead. Hi, thank you for taking our questions. This is August and for Priya. We saw that you just filed your updated shelf. How are you thinking about addressing the January maturity and lack of the current market backdrop? Thank you. Yeah. You know, as you think about debt coming due in maturities, we've done a really nice job, I believe the Treasury Department in managing our debt portfolio and the maturity cowers.

Hi, Thank you for taking my questions.

<unk> or guessing for Korea.

I'll, let you just filed your updated shelf how are you thinking about addressing the January maturity in light of the current market backdrop. Thank you.

Yes.

As you think about debt coming due in maturities, we've done a really nice job I believe the Treasury department and managing our debt portfolio in our maturity towers. So they do it's fantastic job of monitoring the market I think we have flexibility on how we handle that.

Priya O'Riguta: So they do a fantastic job of monitoring the market. I think we have flexibility on how we handle that. And so I really have nothing else to report at this time regarding our maturities early next year. Thank you.

And so I really have nothing else to report at this time regarding our maturities early next year.

Thank you.

Thank you we will take our next question from Jacob <unk> with Redburn Atlantic. Please.

Jacob DeClerc: We will pick our next question from Jacob DeClerc with Redburn Advantage, please. Jacob, your line is up. Please take your mute function.

Jacob Your line is open please check your mute function.

Steven Marascia: Lauren, we will continue on with Steve Marcia with Capital Security Management. Please go ahead. Thank you. Good morning, gentlemen. Just a sort of follow up. You know, looking at your consolidate statement of earnings, you guys reported interest in debt expense about 272 million. Given the current ongoing in the Treasury Department, rise and rates is do you anticipate that number remaining level? Or should we expect some type of bump up? And if so, any idea in terms of bump up towards what?

Alright, we will continue on with Steve <unk> with Capitol Securities Management. Please go ahead.

Thank you good morning, gentlemen, just a sort of a follow up looking at your consolidated statement of earnings you guys reported interest and debt expense of about $272 million given the.

Currently ongoing in the Treasury Department a rise in rates is do you anticipate that number remaining level or should we expect some type of bump up and if so.

Any idea in terms of pump up towards what.

Steven Marascia: Yeah, you know, we provide a guidance or an estimate on our depreciation and amortization. It's about $280 million for the year. You are right to point out that there are higher levels of interest rates in the capital in the debt market. Again, we believe we have appropriate flexibility as we think about refinancing or paying down debt in the future. We've also provided our debt to EBITDA corporate goals, if you will, our targets.

Yes.

Provide.

We provide a guidance or an estimate on our depreciation depreciation and amortization.

It's about $280 million for the year, you are right to point out that there are higher levels of interest.

Rates in the capital in the debt market, but again.

We believe we have appropriate flexibility as we think about refinancing or paying down debt in the future. We've also provided our debt to EBITDA.

Corporate goals, if you will our targets and it could fluctuate a little bit.

Steven Marascia: And it could fluctuate a little bit over time, depending on corporate needs and things like that. So, you know, we've dealt with high interest markets in the past. They are higher than that we've seen in recent past, but in recent past. But again, we have strong cash generation by our operating companies. And we have really good flexibility as we think about managing our maturities. Thank you. Sure.

Over time, depending on corporate needs and things like that so.

Unknown Executive: And once again, other wonder that is star one for your questions, we will pick our next question from Jacob Klerk with Fred Burnayland.

We've dealt with high interest.

Markets in the past.

They are higher than we've seen in recent past, but in recent past, but again, we have strong cash generation by our operating companies and we have really good flexibility as we think about managing our maturities.

Thank you.

Sure.

And once again as a reminder that is star one for your questions. We will take our next question from Jacob <unk> with Redburn Atlanta. Please go ahead.

William Gifford: Please go ahead. We believe there is. I think when you think about it, I wouldn't rule up mental. We feel good about the application, the current application in front of the FDA from a mental standpoint. I think if you look at some of the recent marketing denial orders, it was related to youth following. And as we pointed out when we made the Android transaction, there was virtually no youth following as far as additional flavors were excited and currently looking forward to being a bit of foul.

When you guys can you hear me now yes.

Yes, we can hear you.

Perfect.

Quick question on enjoy.

If all of the brands and on non large inflows, including mental do you think there is still enough demand for tobacco flowed back sort of a profitable business in the U S going forward.

We believe there is I think when you think about it I wouldn't rule out menthol, we feel good about the application. The current application in front of the FDA from a menthol standpoint, I think if you look at some of the recent marketing to now orders that was related to youth following.

And as we pointed out when we made the Android transaction there was virtually no youth following as.

As far as additional flavors, we're excited and currently.

Looking forward to being able to file in the near future and we'll come back to you. When we are able to do that of additional flavors with access control. We believe that allows for adult consumers to have it as an off ramp but not an on ramp for Android users. So we still see the potential for flavors, but to answer your question.

William Gifford: In the near future, and we'll come back to you when we are able to do that of additional flavors with access control. We believe that allows for adult consumers to have it as an off ramp, but not an on-ramp frondary. So we still see the potential for flavors, but the answer question we feel like the consumer wants alternative products. We've followed that previously, and they'll continue to want that.

We feel like the consumer wants alternative products, we followed that previously and they'll continue to want that.

William Gifford: So we're going to just a quick follow up on your oral business. How do you kind of stop the flow of consumers moving to nicotine pouch category? Now, you've got the on brand day. But is this is a structural shift you're seeing away from the traditional oral business to nicotine pouches? That certainly is the biggest outflow or inflow into nicotine pouches is coming from traditional MST consumers. Our plan's there, and we highlighted them is participate with on.

Perfect and then just a quick follow up on your oil business.

You're going to start to flow of consumers moving to nicotine pouch category and I know you've got the on brand day.

But it is a structural shift you're seeing away from institutional oil business.

Nicotine pouches.

That certainly is the.

Biggest outflow or inflow into nicotine pouches is coming from traditional MST consumers.

Our plans there and we highlighted them as participate with one and then we're excited to be able to file the <unk> for <unk>, plus and we highlighted wallets early.

William Gifford: And then we're excited to be able to follow the PMTA for on plots. And we highlighted while it's early, some of the consumer engagement that we're having over in Sweden. And we feel like that's a great product. And we're looking forward to be able to bring that to market once we receive authorization.

Unknown Executive: Thank you. And there appears to be no further questions at this time.

Some of the consumer.

Engagement that we're having over in Sweden, and we feel like that's a great product and we're looking forward to be able to bring that to market. Once we receive authorization.

Thank you.

And 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.

Mac Livingston: I would like to turn the call back over to Mac Livingston for any closing remarks. Thanks, Ashley. Thanks to all for joining us. Please contact the investor relations team if you have further questions. Thanks and have a great day. Thank you.

Thanks, Ashley and thanks to all for joining US please contact the Investor Relations team. If you have further questions. Thanks and have a great day.

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

Unknown Executive: And this concludes today's call. Thank you for your participation. You may disconnect at any time.

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