Q1 2024 Altria Group Inc Earnings Call

Mac Livingston: Subject to the discretion of our board, we report our financial results in accordance with U.S. generally accepted accounting principles. Today's call will contain various operating results on both a reported and adjusted basis. Adjusted results exclude special items that affect comparisons with reported results. Descriptions of these non-GAAP financial measures and reconciliations are included in today's earnings release and on our website at altria.com. Finally, all references in today's remarks to tobacco consumers or consumers within a specific tobacco category or segment refer to existing adult tobacco consumers 21 years of age or older. With that, I'll turn the call over to Bill.

Ward.

We report our financial results in accordance with U S generally accepted accounting principles.

Today's call will contain various operating results on both a reported and adjusted basis.

Adjusted results exclude special items that affect comparisons with reported results.

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

With that I'll turn the call over to Billy.

Bill: Thanks, Mac. Good morning, and thank you for joining us. We have made meaningful progress in pursuit of our vision, and our highly profitable traditional tobacco businesses continue to perform well in a challenging environment. In spite of the absence of an effective regulatory environment, we saw continued early momentum from NJOI and believe our businesses are on track to deliver against full-year plans. We also demonstrated our continued commitment to maximizing the return on our investments and delivering strong shareholder returns with the sale of a portion of our investment in ABI and the subsequent expansion of our share repurchase program in March.

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

Billy: We made meaningful progress in pursuit of our vision.

Billy: Our highly profitable traditional tobacco businesses continued to perform well in a challenging environment.

Billy: In spite of the absence of an effective regulatory environment. We saw continued early momentum from enjoy and believe our businesses are on track to deliver against full year plans.

Billy: We also demonstrated our continued commitment to maximizing the return on our investments and delivering strong shareholder returns.

Billy: With the sale of a portion of our investment in Abi and the subsequent expansion of our share repurchase program in March.

Bill: My remarks this morning will focus on the continued early momentum behind InJoy's commercialization, the state of the e-cigarette category and enforcement progress, encouraging first-quarter results from ONN, and our financial outlook. I'll then turn it over to Sal, who will provide further detail on our financial results and additional information on the partial sale of our ABI investment.

Billy: My remarks, this morning will focus on that.

Billy: The continued early momentum behind enjoys commercialization.

Billy: This state of the E vapor category and enforcement progress.

Billy: Encouraging first quarter results from on.

Billy: And our financial outlook.

Billy: I'll, then turn it over to Sal, who will provide further detail on our financial results and additional information on the partial sale of our ABR investments.

Bill: Let's begin with our e-cigarette business. After three full quarters of ownership, we remain excited about Enjoy and its potential in the legal U.S. e-paper market. In the first quarter, we broadened Injoy's distribution to over 80,000 stores, and we expect to expand it to approximately 100,000 stores by year-end.

Sal: Let's begin with our E vapor business.

Sal: After three full quarters of ownership, we remain excited about enjoy and its potential and the legal U S E vapor market.

Sal: In the first quarter, we broadened enjoys distribution to over 80 stores and we expect to expand to approximately 100000 stores.

Billy: By year end.

Bill: We also continue the rollout of NJOY's first retail trade program, which we believe will help NJOY achieve optimal visibility and product fixture space at retail. Today, more than 70% of contracted stores have chosen options that secure premium positioning in the e-vapor fixture for enjoy. And we expect the majority of picture resets to be completed in the first half of this year.

Billy: We also continued the rollout of enjoyed first retail trade program, which we believe will help enjoy achieve optimal visibility and product fixture space at retail.

Billy: Today more than 70% of contracted stores have chosen options.

Billy: <unk> premium positioning in the E vapor fixture for enjoy.

Billy: And we expect the majority of fixture resets.

Billy: Be completed in the first half of this year.

Bill: To generate trial of Enjoy, we expanded promotional offers at retail in the first quarter and saw promising results. Enjoy's retail share of consumables grew in each of the past six months and was 4.3 SharePoints in the quarter, up 0.6 SharePoints sequentially. And we have seen early signs of longer-term adoptions from smokers and vapors that have tried Injoi. Late last year, we tested a variety of promotional offers in a limited number of retail accounts.

Billy: To generate trial of enjoy we expanded promotional offers that retail in the first quarter and saw promising results.

Billy: Enjoys retail share of consumables grew in each of the past six months.

Billy: <unk> was four three share points in the quarter.

Billy: 0.6 share points sequentially.

Billy: And we have seen early signs of longer term adoptions from smokers and Vapers.

Billy: <unk> tried to enjoy.

Billy: Late last year, we tested a variety of promotional offers and a limited number of retail accounts.

Bill: Diving into one retail account example, share grew by over nine percentage points versus the pre-promotional period. In the first quarter, we reduced promotions in the account, and Enjoy retained over 50% of the shared gains during the trial period, settling at 5 percentage points higher than the pre-promotion period.

Billy: Diving into one retail account example share grew by over nine percentage points versus the pre promotional period.

Billy: In the first quarter, we reduced promotions in the account and enjoy retained over 50% of the share gain during the trial period.

Billy: Settling five percentage points higher than the pre promotion period.

Bill: We believe these results speak to NJOY's appeal once consumers try the product. We are also inspecting a variety of other metrics to better evaluate trial and adoption of ENJOY in the early stages of its expansion. One such metric that we believe is an important indicator of trial in the e-cigarette category is retail share of device, as we believe it's a measure of vapor and smoker trial and a potential leading indicator of longer-term adoption.

Billy: We believe these results speak to enjoys appeal once consumers try the product.

Billy: We are also expecting a variety of other metrics to better evaluate trial and adoption of enjoy in the early stages of its expansion.

Billy: One such metric that we believe is an important indicator of trial and the EBIT per category as retail share of devices as.

Billy: As we believe it's a measure of vapor and smoker trial, and a potential leading indicator of longer term adoption.

Bill: In the first quarter, NJOY's share of devices in the multi-outlet and convenience channel was 11.5 SharePoint, an increase of 2.4 SharePoint sequentially and 6.4 SharePoint since the third quarter of 2023, our first full quarter of ownership. Turning to shipments, Enjoy Consumables' shipment volume was approximately 10.9 million units, and enjoy. The vice-chairman's line was approximately one million years old.

Billy: In the first quarter enjoy share of devices in the multi outlet in convenience channel was 11 five share points.

Billy: An increase of two four share points sequentially.

Billy: And six four share points since the third quarter of 2023, our first full quarter of ownership.

Billy: Turning to shipments enjoy consumables shipment volume was approximately $10 9 million units.

Billy: And enjoys the.

Billy: <unk> shipment volume was approximately 1 million units.

Bill: While shipment volume was essentially flat sequentially, recall that 2023 fourth quarter in-joy shipment volume included building pipeline inventory at wholesale and retail to support the increased demand we anticipated in the first quarter. Moving forward, our plan aims to broaden the awareness of Enjoy and grow Grand Affinity, who enjoys improved positioning at retail, a new equity campaign that emphasizes Enjoy's unique attributes and exceptional vaping experience, a new adult-only event marketing infrastructure, which NJUI expects to activate this summer, and our Adult Tobacco Consumer Database, which allows us to communicate to millions of age-verified U.S. adult tobacco consumers through various marketing channels

Billy: While shipment volume was essentially flat sequentially recall that 2023 fourth quarter enjoyed shipment volume included building pipeline inventory at wholesale and retail to support the increased demand we anticipated in the first quarter.

Billy: Moving forward our plan aimed to broaden the awareness of enjoying and grow brand affinity.

Billy: <unk> enjoys improved position and at retail.

Billy: New equity campaign that emphasizes injuries unique attribute and exceptional they've been experience.

Billy: Our new adult only marketing infrastructure, which enjoy expects to activate this summer.

Billy: And our adult tobacco consumer database.

Billy: Which allows us to communicate to millions of the age verified U S adult tobacco consumers through various marketing channels.

Bill: We also continue to expect that NJOI will submit PMTA filings for Flavored Enjoy Ace Products with age-gated Bluetooth technology by the end of the second quarter. Android's early success is encouraging in the context of broader trends in the e-cigarette marketplace, where a lack of FDA-authorized products and the continued proliferation of illicit disposal products threaten the harm reduction opportunity in the United States. As it relates to enforcement, we believe that a comprehensive approach is needed to address this issue, and we continue to actively engage with regulators, state and federal lawmakers, our trade partners, and other stakeholders to build awareness and drive marketplace enforcement. There's still significant work ahead, but we saw some encouraging actions in the first quarter.

Billy: We also continue to expect that enjoy will submit pmk filings for flavored enjoy AC products.

Billy: With age gated Bluetooth technology by the end of the second quarter.

Billy: <unk> early success is encouraging in the context of a broader trends in the E vapor marketplace.

Billy: We're in WAC of FDA authorized products and the continued proliferation of illicit disposal products.

Billy: The harm reduction opportunity in the United States.

Billy: As it relates to enforcement, we believe that a comprehensive approach is needed to address this issue and we continue to actively engage with regulators.

Billy: <unk> federal lawmakers.

Billy: Our trade partners and other stakeholders to build awareness.

Billy: And drive marketplace enforcement.

Billy: There is still significant work ahead, but we saw some encouraging actions in the first quarter.

Bill: In the first quarter alone, the FDA, in collaboration with U.S. Customs and Border Protection, issued over 450 e-cigarette-related import refusals, up from 348 during all of last year. The agency also continued to levy civil monetary penalties and send warning letters to manufacturers, retailers, and wholesalers of illicit products. While these actions represent signs of progress, we believe they are wholly inadequate.

Billy: In the first quarter alone the FDA in collaboration with the U S customs and border protection issued over 450 E vapor related import refusals.

Billy: Up from 348 during all of last year.

Billy: The agency also continued to levy civil monetary penalties and send warning letters to manufacturers retailers and wholesalers of illicit products.

Speaker Change: While these actions represent signs of progress we believe they are wholly inadequate.

Billy: Illicit markets are a threat to public health and.

Bill: Illicit markets are a threat to public health, and we believe the FDA's enforcement approach is not of the scale or scope needed to bring about fundamental change in the market. As a result, we identified to the agency specific steps we believe they can take to build a more effective, compliant, and enforcement program to address the illicit market, including imposing direct liability on the large manufacturers, importers, and distributors of a list of products, focusing on import prevention, and clearing widespread confusion in the marketplace about the FDA's enforcement priority.

Billy: And we believe the Fda's enforcement approach does not have the scale or scope needed to bring about fundamental change in the marketplace.

Billy: As a result, we identified to the agency specific steps, we believe they can take to build a more effective compliance and enforcement program to address the illicit market.

Billy: Including in closing direct liability on the large manufacturers importers and distributors of illicit products.

Billy: Focusing on important prevention.

Billy: And clearing up widespread confusion in the marketplace about the Fda's enforcement priorities.

Bill: Earlier this month, we sent a letter to the FDA highlighting these recommendations and reinforcing their commitment to work collaboratively on solutions that can restore order in the e-cigarette marketplace. We also continue to work with state legislatures that have passed or are considering legislation requiring manufacturers to certify that they are compliant with FDA requirements. As of April 19th, eight states have passed such legislation, and 12 states are considering it.

Billy: Earlier this month, we still a letter to the FDA highlighting these recommendations and reinforcing our commitment to work collaboratively on solutions that can restore order and the ease of our ebay for a marketplace.

Billy: We also continue to work with state legislatures that have passed or are considering legislation requiring manufacturers to certify that they are compliant with FDA requirements.

Billy: As of April 19, eight states have passed such legislation and 12 states are considering it.

Bill: And we've seen increased legal action against entities that are enabling the illicit market. As we've previously disclosed, we initiated litigation in the United States District Court in California relating to the sale of unlawful products. Due to some procedural challenges, we voluntarily dismissed this litigation earlier this year. We have subsequently filed a new lawsuit against five manufacturers. Four brick-and-mortar retailers and three online retailers of illicit Elf Bar e-vapor products in February in federal court in California. And earlier this month, the city of New York filed a lawsuit against 11 wholesalers for their part in the sale of a legal, disposable e-cigarette product.

Billy: And we've seen increased legal action against entities that are enabling the illicit market.

Billy: As we've previously disclosed we initiated litigation in the United States District Court in California relating to the sale of unlawful products.

Billy: Due to some procedural challenges we voluntarily dismissed this litigation earlier this year.

Billy: We subsequently filed a new lawsuit against five manufacturers.

Billy: For brick and mortar retailers.

Billy: And three online retailers of illicit <unk> E vapor products in February in Federal Court in California.

Billy: And earlier this month the city of New York filed a lawsuit against 11 wholesalers for their part in the sale of a legal disposable E vapor products.

Bill: We continue to believe in the promise of a responsible e-cigarette category, but a strong course correction is needed to protect the tobacco harm reduction opportunity for millions of adult smokers in the U.S. We've learned from past experience that complex issues like this require the work of many stakeholders, and while we are starting to see some early signs of action, more impactful progress needs to be made.

Billy: We continue to believe in the promise of a responsible E vapor category, but a strong course correction is needed to protect the tobacco harm reduction opportunity for the millions of adult smokers in the U S.

Billy: We've learned from past experience that complex issues like this requires the work of many stakeholders.

Billy: And while we are starting to see some early signs of action more impactful progress needs to be made.

Bill: Let's now turn to the Old Tobacco category. All nicotine pouches grew 13.8 share points year over year and now represent over 40% of the oral tobacco category. All nicotine pouches were the primary contributor of the estimated 9.5% increase in oral tobacco industry volume over the past six months. Kelix grew its alarm-reported shipment volume to approximately 33 million cans during the first quarter, an increase of 32%, on Continued Momentum at Resale, growing its share of the old tobacco category by 0.7 share points to 7.1%.

Billy: Let's now turn to the oral tobacco category.

Billy: All nicotine pouches grew 13 eight share points year over year and now represent over 40% of the oral tobacco category.

Billy: All nicotine pouches were the primary contributor of the estimated nine 5% increase in oral tobacco industry volume over the past six months.

Billy: <unk> grew alarmed reported shipment volume to approximately 33 million cans during the first quarter an increase of 32%.

Billy: <unk> continued its momentum at retail.

Billy: Growing its share of the oral tobacco category by zero seven share points to seven 1%.

Bill: Hewlett's delivered these impressive results as Bourne's retail price increased by 26%. This spring, Helix introduced a new trade program that secures premium positioning for on and over 80% of contracted stores, creating broader visibility of the brand. Helix is continuing its focus on strategically investing behind the brand as the category growth accelerates. Helix is also making final preparations for following its PMTA for Orin Plus, which we expect to submit in the first half of this year.

Billy: <unk> delivered these impressive results as bonds retail price increased by 26%.

Billy: This spring helix introduced a new trade program that secures premium positioning.

Billy: And over 80% of contracted stores.

Billy: Creating broader visibility of the brand.

Billy: Helix is continuing its focus on strategically investing behind the brands as the category growth accelerates.

Billy: Helix is also making final preparations for following its pmk for oil plus which.

Billy: Which we expect to submit in the first half of this year.

Bill: Upon FDA authorization, we believe it will contribute meaningfully to Helix's growth. We continue to aggressively pursue efforts to create the conditions for tobacco harm reduction success in the U.S. To the benefit of Aquaconsumers Society and Their Shareholders. I am confident in Altria's ability to lead the way in harm reduction, with our exciting portfolio of smoke-free products and our talented and dedicated employees. With our smoke-free progress and the strength of our traditional tobacco businesses in mind, we reaffirm our guidance to deliver 2024 four-year adjusted diluted EPS in the range of $5.05 to $5.17, representing a growth rate of 2% to 4.5% from a base of $4.95 in 2023. I'll now turn it over to Sal to provide more details on the business environment and our results.

Billy: Upon FDA authorization, we believe it will contribute meaningfully to helix is growth.

Billy: We continue to aggressively pursue efforts to create the conditions for tobacco harm reduction success in the U S to benefit tobacco consumers.

Billy: <unk> and our shareholders.

Billy: Im confident in <unk> ability to lead the way and harm reduction with our exciting portfolio of smoke free products.

Billy: And our talented and dedicated employees.

Billy: With our smoke free progress and the strength of our traditional tobacco businesses in mind, we reaffirm our guidance to deliver 2020 for full year adjusted diluted EPS in the range of $5 <unk> to.

Billy: To $5 17.

Billy: Representing a growth rate of 2% to four 5%.

Billy: From a base of $4 95 and 2023.

Billy: I'll now turn it over to Sal to provide more details on the business environment and our results.

Sal: First quarter adjusted diluted earnings per share declined by 2.5%. As we previously noted, we expect that 2024 adjusted diluted EPS growth will be weighted to the second half of the year, resulting from two main factors. The first relates to the timing of the Enjoy acquisition in 2023.

Sal: Thanks Billy.

Sal: First quarter adjusted diluted earnings per share declined by two 5%.

Sal: As we previously noted we expect that 2024 adjusted diluted EPS growth will be weighted to the second half of the year, resulting from two main factors.

Sal: The first relates to the timing of the enjoy acquisition in 2023.

Sal: Since we closed the transaction on June 1st of last year, we are lapping quarters in the first half of the year that do not include the impact of amortization or investments behind the brand. The second factor is the impact of two additional shipping days in the smokable segment, each of which occur in the second half of the year. Turning now to our first quarter business results, the smokable product segment delivered over $2.4 billion in adjusted operating company income with robust net price realization of 8.5%.

Sal: Since we closed the transaction on June <unk> of last year, we are lapping quarters in the first half of the year that do not include the impact.

Sal: Both amortization or investments behind the brand.

Sal: The second factor is the impact of two additional shipping days in the Smokable segment.

Sal: Each of which occur in the second half of the year.

Sal: Turning now to our first quarter business results.

Sal: Smokable products segment delivered over $2 4 billion and adjusted operating company's income with robust net price realization of eight 5%.

Sal: And Marlboro maintained its longstanding leadership in the cigarette category. Adjusted OCI margins were 60.2% for the quarter, down slightly from a year ago. However, year over year margin comparisons were impacted by higher per unit settlement charges and some elevated manufacturing costs. Year-over-year MSA and manufacturing cost-per-pack increases were higher in the first quarter than we expect for the remainder of the year. However, these higher costs were partially offset by lower SG&A costs in the quarter.

Sal: And Marlboro maintained its long standing leadership in the cigarette category.

Sal: Adjusted OCI margins were 62% for the quarter down slightly from a year ago.

Sal: Year over year margin comparisons were impacted by higher per unit settlement charges and some elevated manufacturing costs.

Sal: Year over year, MSA and manufacturing cost per pack increases were higher than in the first quarter than we expect for the remainder of the year.

Sal: These higher costs were partially offset by lower SG&A costs in the quarter.

Sal: We also expect this segment to benefit from lower SG&A costs as the year progresses. Total smokeable product segment reported and adjusted cigarette volumes declined by 10% in the first quarter. When adjusted for trade inventory movement and other factors, we estimate that industry volumes declined by 9% over the same period.

Sal: We also expect this segment to benefit from lower SG&A cost as the year progresses.

Sal: Total smokable products segment reported and adjusted cigarette volumes declined by 10% in the first quarter.

Sal: When adjusted for trade inventory movements and other factors, we estimate that industry volumes declined by 9% over the same period.

Sal: We believe that industry volume trends have been negatively impacted by the proliferation of illicit disposable E vapor products and continued pressures on tobacco consumer discretionary income.

Sal: We believe that industry volume trends have been negatively impacted by the proliferation of illicit disposable e-cigarette products and continued pressures on tobacco consumer discretionary income. At retail, the discount segment grew 0.8 share points in the first quarter. We believe these results were driven, in part, by macroeconomic pressures on adult smokers.

Sal: At retail the discount segment for 0.8 share points in the first quarter.

Sal: We believe these results were driven in part by macroeconomic pressures on the adult smokers.

Sal: We continue to see increased competitive activity in the discount segment, including multiple branded discount offerings priced at deep discount levels. Meanwhile, Marlboro continues to show its resilience, retaining its retail share of 42% in a challenging environment. Marlboro also grew its share of the highly profitable premium segment to 59.3%, an increase of 0.7 share points. We believe Marlboro's strong consumer loyalty and position as the aspirational brand in the category are driving its continued outperformance in the premium segment. And cigars. The reported cigar shipment volume decreased by 6.1% in the first quarter.

Sal: We continue to see increased competitive activity in the discount segment.

Sal: Including multiple branded discount offerings.

Sal: Just at deep discount levels.

Sal: Meanwhile, Marlboro continues to show which resilience.

Sal: Retaining its retail share of 42% and a challenging environment.

Sal: Marlboro also grew its share of the highly profitable premium segment to 59, 3%.

Sal: An increase of 0.7 share points.

Sal: We believe <unk> strong consumer loyalty and position as the aspirational brand in the category is driving its continued outperformance in the premium segment.

Sal: In cigars.

Sal: Portage cigar shipment volume decreased by six 1% in the first quarter.

Sal: Middleton continued to contribute to Smokable Products' segment financial results, and Black & Mild remains the leader in the highly profitable machine-made large cigar segment. Moving to the oral tobacco product segment, adjusted OCI grew 4.6% in the first quarter, and adjusted OCI margins expanded by 0.2 percentage points to 69.5%. Total segment reported shipment volume decreased 3.1%, as growth and on was more than offset by lower MST volumes. When adjusted for calendar differences in trade inventory movements, we estimate that first quarter oral tobacco product segment volumes declined by approximately 4%.

Sal: Middleton continued to contribute to smokable products segment financial results and Black <unk> Milds remains the leader in the highly profitable machine made large cigar segment.

Sal: Moving to the oral tobacco products segment adjusted OCI grew four 6% in the first quarter and.

Sal: And adjusted OCI margins expanded by <unk>, two percentage points to 69, 5%.

Sal: Total segment reported shipment volume decreased three 1%.

Sal: <unk> group.

Sal: Which more than offset by lower MST volumes.

Sal: When adjusted for calendar differences and trade inventory movements, we estimate that first quarter oral tobacco products segment volumes declined by approximately 4%.

Sal: Oral tobacco product segment retail share declined 7.1 percentage points, as the kinds in our MST brands were partially offset by the growth of bond. However, we remain encouraged by the performance of our oral tobacco products, as ON! continues to grow share, and Copenhagen remains the leading moist, smokeless tobacco brand.

Sal: Oral tobacco products segment retail share declined <unk> seven one percentage points.

Sal: As declines in our MST brands were partially offset by the growth demand.

Sal: We remain encouraged by the performance of our oral tobacco products as on continued to grow share in Copenhagen remained the leading moist smokeless tobacco brands.

Sal: Moving to capital allocation, in March, we sold a portion of our investment in ABI and expanded our share repurchase program to $3.4 billion. In expanding our repurchase program, we implemented a $2.4 billion accelerated share repurchase program under which we received 46.5 million shares in March, representing 85% of the ASR program. These repurchases are reflected in our weighted average number of shares outstanding for the quarter. We expect to receive shares representing the remaining 15% of the ASR program by the end of the second quarter. After the completion of the ASR program, we anticipate having $1 billion remaining under the currently authorized share repurchase program, which we expect to complete by year-end.

Speaker Change: Moving to capital allocation.

Speaker Change: In March we sold a portion of our investment in Abi.

Speaker Change: <unk> expanded our share repurchase program to $3 4 billion.

Speaker Change: And expanding on our repurchase program, we implemented a $2 $4 billion accelerated share repurchase program under which we received 46 5 million shares in March.

Speaker Change: Representing 85% of the ASR program.

Speaker Change: These repurchases are reflected in our weighted average shares outstanding for the quarter.

Speaker Change: We expect to receive shares representing the remaining 15% of the ASR program by the end of the second quarter.

Speaker Change: After the completion of the ASR program, we anticipate having $1 billion remaining under the currently authorized share repurchase program.

Speaker Change: Which we expect to complete by year end.

Sal: Turning to ABI's financial results, we recorded $165 million of adjusted equity earnings for the quarter, down 8.3%. As a reminder, we use the equity method of accounting for our investment in ABI and report our share of ABI's results using a one-quarter lag. Accordingly, our first quarter adjusted equity earnings represent our share of ABI's fourth quarter earnings. Following the ABI transaction, our ownership of ABI is approximately 8.1%, with a tax basis of approximately $1.2 billion.

Speaker Change: Turning to <unk> financial results, we reported $165 million of adjusted equity earnings for the quarter down.

Speaker Change: Down eight 3%.

Speaker Change: As a reminder, we.

Speaker Change: We use the equity method of accounting for our investment in Abi and report our share of Abi's results using a one quarter lag.

Speaker Change: Accordingly.

Speaker Change: Our first quarter adjusted equity earnings represent our share of Abi's fourth quarter earnings.

Speaker Change: Following the Abi transaction and our ownership of <unk> is approximately eight 1% with the tax basis of approximately $1 2 billion.

Sal: We continue to view the ABI stake as a financial investment, and our goal remains to maximize the long-term value of the investment for our shareholders, turning to other capital allocation activities. We paid approximately $1.7 billion in dividends and retired $1.1 billion of notes that came due in the first quarter. And as of March 31st, our debt to EBITDA ratio was 2.1 times. With that, we'll wrap up, and Billy and I will be happy to take your questions.

Speaker Change: We continue to view the abi's stake as a financial investment.

Speaker Change: And our goal remains to maximize long term value of the of the investment for our shareholders.

Speaker Change: Turning to other capital allocation activity.

Speaker Change: We paid approximately $1 7 billion in dividends.

Speaker Change: And retired $1 $1 billion of notes that came due in the first quarter.

Speaker Change: And as of March 31.

Speaker Change: Our debt to EBITDA ratio was two one times.

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

Sal: While the calls are being compiled, I'll remind you that today's earnings release and our non-GAAP reconciliations are available on altria.com. We've also posted our usual quarterly metrics, which include pricing, inventory, and other items. Now, we open the question and answer period. Operator, do we have any questions?

Speaker Change: The calls are being compiled I'll remind you that today's earnings release, and our non-GAAP reconciliations are available on <unk> Dot com.

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

Speaker Change: Let's open the question and answer period.

Operator: Operator, do we have any questions.

Operator: Thank you, and once again, as a reminder, if you would like to ask a question, please press the star key followed by the number one on your touch-toned phone at this time. Investors, analysts, and media representatives are now invited to participate in the question and answer session. We will take questions from the investment community first. Our first question will come from Pamela Kaufman with Morgan Stanley.

Operator: Thank you and once again as a reminder, if you would like to ask a question. Please press the star followed by the number one on your Touchtone phone at this time.

Speaker Change: Analysts and media Representatives are now invited to participate in the question and answer session.

Speaker Change: We will take questions from the investment community first.

Speaker Change: Our first question will come from Pamela Kaufman with Morgan Stanley. Please.

Pamela Kaufman: Hi, good morning. Good morning, Pamela. I wanted to ask about the modest raise to your full-year guidance following the ABI share sale, despite your plans to repurchase an incremental 3% of your stock. What considerations went into that? And is it a reflection of weaker than expected underlying performance relative to your outlook at the beginning of the year?

Pamela Kaufman: Please go ahead.

Pamela Kaufman: Hi, good morning, good morning Pamela.

Pamela Kaufman: I wanted to ask about the modest up our full year guidance following the Abi share sale despite their plans.

Pamela Kaufman: An incremental three first anchor to your stock.

Pamela Kaufman: Yeah.

Pamela Kaufman: And what consideration.

Pamela Kaufman: And is it a reflection of.

Pamela Kaufman: Weaker than expected underlying performance validates your outlook at the beginning of the year.

Bill: Good morning, Pamela. Thanks for the question.

Speaker Change: Good morning, Pamela. Thanks for the question, we were really happy to be able to revise our guidance and take up the bottom end of the guidance by a full percentage point.

Bill: You know, we were really happy to be able to revise our guidance and take up the bottom end of the guidance by a full percentage point. We took the top end of the guidance up by about half a percentage point. I would read into that confidence in our core businesses, but it also provides us with flexibility as we go throughout the year to manage not only our overall business but to make investments behind our innovative tobacco products. So we feel really good about being able to provide that guidance. This reflects the accretion of the ABI transaction.

Speaker Change: We took the top half the top end of the guidance up about a half a percentage point I would read into that the confidence in our core businesses, but also provides us with flexibility as we go throughout the year to manage not only our overall business, but to make investments behind our innovative.

Speaker Change: Tobacco products. So we feel really good about being able to provide the guidance. It reflects the accretion of the Abi transaction.

Pamela Kaufman: Okay, thanks. And the second question is a bit more philosophical.

Pamela Kaufman: Okay.

Speaker Change: And then secondly, my second question.

Pamela Kaufman: Philosophically.

Pamela Kaufman: Historically, your strategy has been to maximize operating profit by taking price in excess of cigarette volume declines. Given that this is becoming increasingly difficult because of the magnitude of volume declines and the need to reinvest behind alternatives, do you think that this strategy is sustainable in the changing operating backdrop, and have you considered other approaches to maximizing profitability?

Pamela Kaufman: Historically your strategy and maximize operating profit by taking price and access.

Pamela Kaufman: Volume declines.

Pamela Kaufman: Given this is becoming increasingly difficult because of the magnitude of volume declines and the need to reinvest behind alternative.

Pamela Kaufman: Using that this strategy is sustainable and the changing operating backdrop and have you considered other upheld to maximizing profitability.

Bill: Yeah, we always look at our strategies, Pam.

Speaker Change: Yes, we always look at our strategies Pamela, but we feel like that is the right strategy I would phrase it a little bit differently than you did this to maximize profitability over the long term, while making appropriate investments in Marlboro and the growth segments. So when you think about that I think when you think about the pricing and we've talked about the factors that go into the <unk>.

Bill: I don't know if that's the right strategy, Pamela, but we feel like that is the right strategy. I would phrase it a little bit differently than you did.

Bill: It's to maximize profitability over the long term while making appropriate investments in Marlboro and the growth segment. So when you think about that, I think when you think about pricing, and we've talked about the factors that go into pricing decisions, certainly we've highlighted for you that our consumer is under economic strain, both from the cumulative impact of inflation as well as debt loads and high interest rates. And so we're going to continue to maximize profitability over the long term.

Speaker Change: <unk> decisions certainly we've highlighted for you.

Speaker Change: That our consumer is under economic strength both from the.

Pamela Kaufman: Accumulative impact of inflation as well as debt loads and high interest rates and so we're going to continue to maximize profitability over the long term, we feel good about the price realization that we had in the quarter. It was eight 5%.

Pamela Kaufman: I think it's important to step back and think about that what the consumer felt that retail and so when you think about that that was just shy of 6%. So there is still competition out there, but our consumers under pressure and we're going to make appropriate investments and be there for them I think if you look back through history.

Bill: We feel good about the price realization we had in the quarter; it was 8.5%. But I think it's important to step back and think about what the consumer felt at retail. And so when you think about that, that was just shy of 6%. So there's still competition out there, but our consumer is under pressure, and we're going to make appropriate investments and be there for them.

Pamela Kaufman: <unk> proven to be a.

Pamela Kaufman: <unk> strategy.

Speaker Change: Okay. Thank you. Thank you.

Pamela Kaufman: Yeah.

Pamela Kaufman: Our next question will come from Bonnie Herzog with Goldman Sachs. Please go ahead.

Bonnie Lee Herzog: Alright, thank you reminding everyone.

Bonnie Lee Herzog: Maybe a bit of.

Bonnie Lee Herzog: A follow up question Pamela.

Bonnie Lee Herzog: One thing I certainly saw in the quarter was your controllable costs medical ball.

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

Bonnie Lee Herzog: <unk> were up quite a bit I think.

Operator: Our next question will come from Bonnie Herzog with Goldman Sachs. Please go ahead.

Pamela Kaufman: So hoping you could touch on the drivers of that.

Pamela Kaufman: How we should think about that moving forward.

Bonnie Lee Herzog: And then honestly, just ultimately your expectations for improved dollar profit growth and smokable in the back half. I guess I'm trying to understand, you know, can you guys hit the mid to high end of your EPS guidance this year if dollar profits don't recover? Again, kind of a little bit of what Pamela was asking, but just trying to understand how much flexibility you have.

Pamela Kaufman: And then honestly is it ultimately buy wholesale or improved dollar profit growth will come on the back half I guess.

Pamela Kaufman: Dan.

Pamela Kaufman: Yep.

Pamela Kaufman: The high end of year.

Pamela Kaufman: Thanks.

Speaker Change: Dollar profit, Great Hi, Brian again kind of a little bit of like patents with Apple.

Speaker Change: How much flexibility you have.

Bill: Good morning, Bonnie. I'm going to unpack that question a little bit. Hopefully, I touch on all aspects of it. If I don't, please follow up.

Brian: Good morning, Bonnie.

Bonnie Lee Herzog: I'm going to unpack that question, a little bit hopefully I touch on all aspects of it if I don't please follow up.

Bill: As we talked about in our opening remarks, I think the first quarter has a couple of items that I would point out. It's really about comparisons to the prior year that impact the first quarter at a higher level than we think will impact the rest of the year. A couple of adjustments, if you will, accounting adjustments as you think about. One is within the MSA cost per pack.

Speaker Change: As we talked about in our opening remarks, I think first quarter Theres a couple of items that I would point out it's really about comparisons to prior year that impacted first quarter at a higher level than we think will impact the rest of the year.

Pamela Kaufman: A couple of adjustments if you will accounting adjustments as you'd think about one is within the MSA.

Pamela Kaufman: Cost per pack.

Bill: We've seen adjustments in the past. There are a lot of variables. It's a complex calculation when you develop the accrual for the MSA, and in the past, you've seen adjustments related to things like inflation. This quarter, we did make an adjustment that was really specific to industry profits. Specifically, one of our major competitors had lower profits than anticipated. And then on the cost side, you know, not to get too deep into the accounting, but we do account for inventory and the life-long methodology.

Pamela Kaufman: We've seen adjustments in the past there is a lot of variables. Its a complex calculation. When you when you develop the accrual for MSA and in the past you've seen adjustments related to things like inflation. This quarter. We did make an adjustment was really specific to industry profits.

Pamela Kaufman: Specifically one of our major competitors had lower profits than anticipated.

Pamela Kaufman: And then on the on the cost side, you know not to get too deep into the accounting but.

Pamela Kaufman: We do account for inventory in the LIFO methodology.

Bill: So when you revalue the inventory, it does impact the P&L, and it impacts the P&L in the first quarter at a higher level than it will impact the P&L in the remainder of the year. To your broader question, we feel very confident in our ability to continue to grow margins within the smokable product segment. And we're really happy with the performance of that segment, the performance of Marlboro, where we saw stable share performance and growth in the premium segment of the cigarette category.

Pamela Kaufman: So when you revalue the inventory it does impact the P&L and it impacts the P&L in the first quarter at a higher level than it will in the remainder of the year.

Pamela Kaufman: To your broader question, we feel very confident in our ability to continue to grow margins within the smokable products segment, and we're really happy with the performance of that segment. The performance of Marlboro, where you saw stable share performance and growth in the premium segment of the sugar.

Pamela Kaufman: Category.

Bonnie Lee Herzog: Okay, and I guess that's helpful. But I guess if I'm hearing you correctly, it's really maybe more of a timing issue and like the one-off that you mentioned shows we think about just honestly, the controllable cost if those moderate moving forward, especially in the back half, that's going to help to drive dollar profit growth. Is that part of the confidence you have?

Speaker Change: Okay, and I guess, that's helpful, but I guess, if I'm hearing you correctly, it's really maybe more of a timing and like the one off that you mentioned so as we think about just honestly that controllable cost.

Speaker Change: Moderate.

Speaker Change: Moving forward and especially in the back half.

Speaker Change: That's going to help to drive the dollar profit growth is that part of the confidence you have yes.

Bill: The year-over-year increase is higher in the first quarter. And then, finally, let me also point out that the smokable product segment did benefit from lower SG&A costs, and it'll continue to benefit from that throughout the year. So again, we feel very good about the smokable product segment going forward.

Speaker Change: The year over year increase was higher in the first quarter and then finally, let me also point out the smokable products segment did benefit from lower SG&A costs.

Speaker Change: And it will continue to benefit from that throughout the year.

Speaker Change: So again, we feel very good about the smokable products segment going forward.

Speaker Change: That helps.

Speaker Change: And maybe.

Speaker Change: Next question. Your final question is on <unk>.

Speaker Change: I think you guys have taken to increase the spend so far this year and im talking about pricing. So that's going to follow your typical quarterly cadence.

Speaker Change: Sounds reasonable given the unrelenting pressure on big volumes.

Bonnie Lee Herzog: But, you know, your peers don't seem to be following in terms of frequency or strength. And, you know, I guess I'm asking because how concerned are you about the price gaps and, you know, how much they've widened? And I'm asking, you know, especially in light of the downtrading pressures that we're seeing, which seem to be continuing to accelerate and, as you guys called out, the continued proliferation of illicit e-cigs. Yeah, I appreciate the question, Bonnie.

Speaker Change: Yes.

Speaker Change: Hey, Anthony following in terms of frequency of strength and.

Speaker Change: I guess I'm asking because how concerned are you about the price gap, how much they've widened and I'm asking in especially in light of the down trading pressures that we're seeing which seem to be continuing to accelerate and as you guys called out the continued proliferation of alyssa each day.

Speaker Change: How should we think about that and your ability to kind of manage these price gaps et cetera, and downgrading. Thank you.

Bill: I'll be careful not to talk about future pricing decisions, but I think when you step back and you look at how it's performed over time, I think what you see is the benefit of the investments we made in debt analytics, really from a standpoint of being able to bring revenue growth management where we started with traditional, more smokeless tobacco and brought it over to cigarettes. You see that Marlboro has a steady overall share and a growing share of premium.

Speaker Change: I appreciate the question Bonnie.

Speaker Change: Careful not to talk about future pricing decisions, but I think when you step back and you look at how it's performed over time I think what you see is the.

Speaker Change: Benefit of the investments we made in data analytics really from a standpoint of being able to bring revenue growth management, where we started and traditional moist smokeless tobacco and brought it over to cigarettes.

Speaker Change: You see that <unk> is steady overall share and growing share of premium you see a little bit of down trading, but I think if you look back through history, you see that occur when the consumers under economic pressure.

Bill: Yeah, you see a little bit of down trading, but I think if you look back through history, you see that happens when the consumer is under economic pressure. We feel good about the tools we have within Marlboro, and I think it shows in the strength of the performance of that brand. From a standpoint of the pressures on buy-in, we try to provide for you the decomposition, and you see from a secular decline in price elasticity holding steady, it's really the macroeconomic, and to your point, the proliferation of illicit e-cigarettes.

Speaker Change: Feel good about the tools, we have within marble and we think it shows the strength of the performance of that brand from a standpoint of the pressures on volume we try to provide for you the decomposition and you see from a secular decline in price elasticity holding steady its really the macroeconomic then to your point the proliferation of the <unk>.

Speaker Change: Listed E vapor and so we really need to see from an overall standpoint.

Bill: And so, we really need to see from an overall standpoint a regulatory environment that is effective and is both looking at authorizing smoke-free products that the consumer is demanding and enforcing against illicit e-cigarette products. Okay. Thank you.

Speaker Change: Regulatory environment, but it's been effective and is both looking at authorizing smoke free products that the consumers demanding and enforcement against the list of E vapor products.

Speaker Change: Okay. Thank you. Thank you.

Operator: Our next question comes from Paham Beg with UBS. Please go ahead.

Speaker Change: Our next question comes from Hamzah <unk> with UBS. Please go ahead.

Paham Beg: Hi guys, a couple of questions from me, both on the smokeables division. I just want to understand if the industry volume decline remains at minus 9% for the rest of the year, whether that still allows you to hit the bottom end of your EPS outlook. In other words, you still have some room to reduce SG&A costs further and raise prices higher. And the second question is whether you can share your estimate of the growth of the vapour category in Q1 and what impact this might have had on cigarette volumes in Q1. Yeah, I appreciate your question. I think from a standpoint of guidance.

Hamzah: Hi, guys a couple of questions.

Hamzah: From me.

Hamzah: Both on the Smokable Division.

Hamzah: Just wanted to understand if the industry volume decline remains at minus 9%.

Hamzah: For the rest of the year.

Hamzah: Whether that still allows you to hit.

Hamzah: The bottom end.

Hamzah: Of your EPS outlook.

Hamzah: You still have some.

Hamzah: Room to reduce SG&A costs further and raise pricing higher.

Hamzah: And the second question is whether you can share your estimate of the growth of the vapor category in Q1.

Hamzah: And what impact this might have had on cigarette volumes in Q1. Please.

Bill: Yeah, I appreciate your question. I think from a standpoint of guidance, we run a range of scenarios of what could be the outcomes as we progress through the year. We reaffirm that guidance and feel very good about the guidance that we have out in the marketplace. I think when you think about the estimated e-cigarette market, we believe that the overall e-cigarette category continues to grow, with the vast majority of that coming from illicit disposable e-cigarette products.

Speaker Change: Yes I. Appreciate your question I think from a standpoint of guidance look we run a range of scenarios of what could be the outcomes as we progress through the year.

Speaker Change: We reaffirm that guidance and feel very good about the guidance that we have.

Speaker Change: In the marketplace I think when you think about the Este E vapor, we believe that the overall E vapor category continued to grow with the vast majority of that coming from illicit disposable E vapor products.

Bill: While we started filling some of our information gaps, the nature of it being illicit is that it goes around the normal distribution chain. I think the best thing I can point you to, and we included this in our quarterly metrics, you saw the growth in the consumers engaged on the 12-month moving average, just shy of 18 million consumers now engaged, with a step-up of both those that are fully converted and those that are still using cigarettes and e-cigarette.

Speaker Change: While there.

Speaker Change: Started filling some of our information gaps and nature of it being in illicit as it goes around the normal distribution chain I think the best thing I can point you to and we included this in our quarterly metrics you saw the growth and the consumers engaged on a 12 month moving just shy of 18 million consumers now engaged with a step up of both those that are fully converted.

Speaker Change: And those that are <unk>.

Speaker Change: Still using cigarettes and E vapor and then going to the decomposition range estimate for the impact of E vapor in the cigarette category is one five to two and a half and again, we're looking to fill those information gas, but the nature of it being a listed.

Bill: And then going to the decomposition range estimate for the impact of e-cigarette vapor on the cigarette category is one and a half to two and a half. And again, we're looking to fill those information gaps, but given the nature of it being illicit, we feel good about that range. I know it's a bit of a wide range, but as we continue to fill those information gaps and try to get a read on the illicit marketplace, we'll provide those updates as appropriate. Thank you.

Speaker Change: We feel good about that range I know, it's a bit of a wide range, but as we continue to fill those information gaps and try to get a read on the illicit marketplace.

Speaker Change: We will provide those updates as appropriate.

Speaker Change: Okay. Thanks for that.

Speaker Change: Thank you.

Operator: Our next question comes from Matt Smith with Steeple. Please go ahead.

Speaker Change: Our next question comes from Matt Smith with Stifel.

Matthew Edward Smith: Please go ahead.

Matthew Edward Smith: There was a reacceleration in price realization in the combustible business in the quarter, with pricing per pack up eight and a half percent, that's above the five and a half percent in the fourth quarter. Can you talk about the factors behind the stronger price realization? And are you now lapping?

Matthew Edward Smith: Hi, good morning, good morning.

Matthew Edward Smith: Hey, Matt.

Matthew Edward Smith: It was a reacceleration in price realization in the combustible business in the quarter with pricing per pack up eight 5% that's above the five 5% in the fourth quarter.

Matthew Edward Smith: Can you talk about the factors behind the stronger price realization and our you know lapping some stepped up investments in the in the Barbara brand in response to the pressure on the <unk>.

Bill: stepped up investments in the Marlboro brand in response to the economic pressure on the consumer. Yeah, I think from a standpoint, I would encourage you to look at price realization over the longer term. I think that's exactly what you referred to.

Matthew Edward Smith: In response to the economic pressure on the consumer.

Speaker Change: Yes, I think from our standpoint, I would encourage you to look at price realization over the longer term I think it's exactly what you referred to we highlighted as we progress through 2023. There are some investments we wanted to make both on the menthol segment of mobile as well as some of the discount pressure, we're seeing in pockets I think it's important to remember that price gap that was shown in <unk>.

Matthew Edward Smith: We highlighted as we progress through 2023, there are some investments we wanted to make, both in the menthol segment of Marlboro, as well as some of the discount pressure we're seeing in the pocket. I think it's important to remember that price gap that we show on a national basis; we're managing that price gap down at the store level. So you can go from one side of a city to the other and see different price gaps in stores. And so being able to mine that data, I think you see it with the strength of Marlboro and, to your point, the strong price realization we experienced in the quarter. Thank you.

Speaker Change: <unk> basis, we're managing that price gap down at the store levels. So you can go from one side of the city to the other and see different price gaps in stores and so being able to mine that data I think you see it with the strength of Marlboro and to your point.

Speaker Change: Strong price realization, we experienced in the quarter.

Speaker Change: Thank you.

Bill: And my second question: R&D spending is shifting to all other segments. The impact from that shift did not seem meaningful in the first quarter, given the unique higher costs in smokable. Can you talk about the phasing of that R&D shift through 2024? Should we think of smokable profitability growth weighted to the second half in addition to the overall company EPS growth weighted to the second half?

Speaker Change: Second question R&D spending is shifting to the all other segment the impact from that shifted that seen meaningful in the first quarter given the unique higher costs and smokable can you talk about the phasing of that R&D shift through 2024 should we think of the smokable profitability.

Speaker Change: Growth weighted to the second half in addition to the overall company EPS growth weighted.

Speaker Change: The second half.

Bill: Matt, we don't, as you know, we don't dive at the segment level, but you are correct in that you are seeing a shift in R&D spending towards innovative products, and that's part of the SG&A benefit I talked about within the smokable segment earlier with Bonnie. The smokable segment will continue to benefit from those lower SG&A costs as the year progresses.

Speaker Change: Matt we don't.

Matthew Edward Smith: You know, we don't guide at the segment level, but you are correct in that you are seeing a shift in R&D spending towards the innovative products and thats part of the SG&A benefit I talked about within the Smokable segment earlier with Bonnie.

Matthew Edward Smith: The Smokable segment will continue to benefit from those lower SG&A costs as the year progresses.

Matthew Edward Smith: Thank you, Sal. I'll pass it on.

Speaker Change: So I'll pass it on.

Operator: And our next question will come from Gaurav Jain with Barclays. Please go ahead.

Speaker Change: And our next question will come from Gaurav Jain with Barclays. Please go ahead.

Gaurav Jain: [inaudible]

Gaurav Jain: Hi, good morning.

Bill: I wouldn't say it's stepped up for any purpose from a share standpoint. Really, what you see happening, Gaurav, is the data that we have, I mentioned the investments in advanced analytics, being able to bring that from both more smokeless tobacco and the smokable segment over to the nicotine pouch segment. And so you're going to have pulse promotions through time. The real goal there is to keep the converted consumer engaged with the brand but still induce trial, both from competitors and those that are making different choices in the nicotine space.

Gaurav Jain: Morning, two questions two questions from me so of Amazon on retail pricing I think.

Gaurav Jain: I'd say in Q1. It is 347 and then Q4. It was 377. So have you stepped up promotions on on the stemmed us shed lines that you have seen in oral nicotine pouches.

Gaurav Jain: I wouldn't say is stepped up for training purposes from a share standpoint, really what you see happening guar of AUC that the data that we have I mentioned the investments in advanced analytics bandwidth to bring that from both moist smokeless tobacco in the smokable segment over to the nicotine pouch segment, and so youre going to have pulse promotions through.

Gaurav Jain: Time, the real goal there is to keep the converted consumer engaged with the brand, but still induce trial, both from competitive and those that are making different choices and the nicotine space and so youre going to see variability.

Bill: And so you're going to see variability on a short-term basis. But over the long term, I think it's important to step back and see the volume growth that we experience with significant retail price growth year over year.

Gaurav Jain: A short term basis, but over the long term I think it's important to step back and see the volume growth that we experienced this significant retail price year over year.

Gaurav Jain: Sure. And my second question is on ABI stakes. So you're highlighting that the remaining stake has a 1.2 billion tax basis. So, you know, they have sold one tranche, and their jewel loss will expire in March 2028. Would we be fair in expecting a progressive exit from the rest of the stake over the next four years?

Speaker Change: Sure and my second question is on Abi's stake. So you are highlighting that the remaining stake has a $1 2 billion tax basis.

Speaker Change: Jeff One tranche June lots of expired in March 2028.

Speaker Change: So.

Speaker Change: Good.

Speaker Change: Fair and expecting a progressive exits from the rest of the stake over the next 40 years.

Bill: I want to make sure I'm answering your question, Gaurav. If I don't, please follow up.

Speaker Change: Now I want to make sure I'm answering your question, Florida, If I don't please follow up.

Bill: You are right that we provided you with the new tax basis, and tax is just one of the many variables that we consider related to the ABI investment and our capital allocation analysis. In the transaction that we executed earlier this year, the shares we sold were a mix of both restricted and unrestricted shares.

Gaurav Jain: You are right that we provided you with the new tax basis.

Gaurav Jain: And taxes, just one of many variables that we consider.

Gaurav Jain: Related to the Abi investment and our capital allocation analysis.

Gaurav Jain: The transaction that we executed earlier this year.

Gaurav Jain: <unk>.

Gaurav Jain: The shares we sold were a mix of both the restricted and unrestricted shares and what we shared with you is that the tax liability was less than $100 million. Our expectation is that we can offset that.

Bill: And what we shared with you is that the tax liability was less than 100 million dollars. Our expectation is that we can offset that in the future related to ABI losses. I'm sorry about the jewel losses. The other thing I'll just remind you is that if you think about the jewel losses, we took about half, let's call it just over half, as ordinary losses for cash tax purposes. But we fully reserved that on the P&L. We continue to wait to get feedback from the IRS. We hope to hear more as the year progresses.

Gaurav Jain: In the future related to Abi losses, I'm, sorry, two losses. The other thing I'll just remind you is that if you think about the two losses.

Gaurav Jain: We took about half let's call it just over half is.

Gaurav Jain: Ordinary losses.

Gaurav Jain: For tax.

Gaurav Jain: Cash tax purposes.

Gaurav Jain: But we fully reserve that on the P&L, we continue to.

Gaurav Jain: Wait to get feedback from the IRS, we hope to hear more as the year progresses.

Gaurav Jain: Short. Thank you so much. You're welcome.

Speaker Change: Sure. Thank you so much you are welcome.

Operator: Our next question comes from Callum Elliott with Bernstein.

Speaker Change: Our next question comes from Callum Elliot with Bernstein.

Callum Elliott: Hi, good morning, guys. A couple of slightly different questions from me.

Callum Elliott: Please go ahead.

Callum Elliott: Hi, good morning, guys.

Callum Elliott: Couple of slightly different questions for me.

Bill: On Enjoy, you call out the 60 basis points of ShareGain, which we can see in this candidate and sounds impressive and a nice improvement. But this candidate did also show us that retail sales for the brand are down double digits for the past few months. And so I guess my question is, this deterioration, is that just ongoing pressure from illicit products that is impacting the legal products in the market to cause this? Some heavy declines despite the share gain, or is there something else going on in the category? Yeah, I think what you say.

Callum Elliott: And enjoy your call it.

Callum Elliott: The 60 basis points of share gain which we can see in the candidates it sounds impressive and a nice improvement.

Callum Elliott: With this candidate to do is show us that the retail sales for the brand.

Callum Elliott: Double digits for the past few months.

Speaker Change: So I guess my question is this deterioration.

Callum Elliott: That just ongoing pressure from from illicit products.

Callum Elliott: Impacting the legal products in the market that caused this.

Callum Elliott: Heavy declines despite the share gainer was there something else going on in the category.

Speaker Change: Yes, I think what you see is exactly what you're pointing out column is that the overall disposable specifically the illicit bakes in the marketplace continued to grow while pod segment, thats part or replaceable capsules.

Bill: Yeah, I think what you're seeing is exactly what you pointed out, Callum, is that the overall disposable, specifically illicit baits in the marketplace, continue to grow, while pod, that segment that's pods, or replaceable capsules, continue to shrink in the marketplace.

Speaker Change: Continue to shrink in the marketplace.

Callum Elliott: Okay, thank you. And then my second question is about oral tobacco. We touched on this a little bit earlier with, I think, Farhan's question, but just building upon it. I think, based on the numbers in your release, your share of total oil is now 33%, and volumes are declining slightly. I've got Zin share based on some numbers from PMI at 28% on an apples-for-apples basis and growing 80% year-on-year. So it seems pretty clear that you guys are on the cusp of losing your leadership position now in oil and tobacco as a whole.

Speaker Change: Okay. Thank you and then my second question is on the oral tobacco.

Speaker Change: You touched on this a little bit of Hollywood.

Speaker Change: I think <unk> question, but just building upon that I think based on the numbers in your relationship with your share of total is now 33% and volumes declining slightly Zane.

Speaker Change: Zane share based on some of that was from PMI.

Speaker Change: 28% on an apples for apples basis, and growing 80% year on year. So it seems pretty clear that you guys are on the cusp of losing your leadership position now in tobacco as a whole.

Callum Elliott: So I guess my question is, does losing the leadership position change your mindset about how you're going to approach this category? Can you maybe be freed, in a sense, to come at this from a slightly more challenging mindset relative to the maybe slightly defensive mindset that you've necessarily had over the past several years under this pressure from Zin? Thanks.

Speaker Change: So I guess my question is does losing the leadership position changed your mindset and how are you gonna come about this category can be made.

Speaker Change: Would you be free in a sense to come at this from a more.

Speaker Change: One with challenger mindset relative to the.

Speaker Change: Sort of maybe slightly defensive mindset.

Speaker Change: Yeah, it's necessarily out over the past several years through this pressure from <unk>.

Bill: Yeah, I think when you think about the overall oil tobacco category, really, the strategy there is to maximize profitability while balancing investments behind Copenhagen, which is the aspirational brand in MST, and making appropriate investments in ON. You know, Copenhagen continues to be the leader in the MST space, and we're pleased with the results we saw in ON in the first quarter. Certainly, the growth in volume, the growth in overall share of the oil tobacco space, and the significant increase in retail price. And then, behind that, being able to file the application with the FDA for the ON Plus, which we feel like will perform very well in the marketplace once approved.

Speaker Change: Yes, I think when you think about the overall oral tobacco category really the strategy there is to maximize profitability, while balancing investments behind Copenhagen, which is the aspirational, Brian in MST and making appropriate investments in on.

Speaker Change: Copenhagen continues to be the leader in the MSP space and we're pleased with the results we saw in hone in the first quarter certainly the growth in volume the growth in overall share of the oral tobacco space from the significant increase in retail price and then behind that being able to file the application with the FDA for.

Speaker Change: The <unk>, plus which we feel like will performed very well in the marketplace once authorized.

Callum Elliott: Thanks for listening. Thank you. And, as a reminder, that is...

Speaker Change: Okay. Thanks.

Speaker Change: Thank you.

Speaker Change: Okay.

Operator: And as a reminder, that is star number one if you would like to ask a question. Our next question comes from Jennifer Maloney with the Wall Street Journal.

Speaker Change: And as a reminder, that is star one if you would like to ask a question. Our next question comes from Jennifer Maloney with Wall Street Journal.

Jennifer Maloney: First, I wanted to ask you about consumers under pressure. You said on this call that you were going to make appropriate investments and be there for them. Could you tell me what you meant by that? What kind of investments are you referring to?

Jennifer Maloney: Please go ahead.

Jennifer Maloney: Good morning.

Jennifer Maloney: Morning, Jennifer.

Jennifer Maloney: First I wanted to ask about consumers under pressure.

Speaker Change: On this call that.

Jennifer Maloney: You were going to make appropriate investments and be there for them.

Jennifer Maloney: What do you mean by that what kind of investments are you referring to.

Bill: Yeah, Jennifer. Really, it's all about promotions in the marketplace. When you think about the data analytics that we received, and I highlighted earlier that the price gap in a store can be different than in a store across a city or town, and it's really mining that data and seeing the consumer economic pressure and being able to allocate those resources appropriately for the situation that they're facing. And so it's really about retail promotions in the marketplace that we continue to adjust through time.

Jennifer Maloney: Yes, Jennifer I really its around promotions in the marketplace. When you think about the data analytics that we received and I highlighted earlier that the price cap in a store can be different than a store across a city or town finished really mining that data and stand the consumer macroeconomic pressure and being able to do all of those.

Jennifer Maloney: Resources appropriately for the situation that they're facing and so it's really about retail promotions in the marketplace that we continue to adjust through time. It allows us to be there for the consumer. Another example would be mobile block, having a place for the consumer that wants to engage with marble having a place.

Bill: It allows us to be there for the consumer. Another example would be Marlboro Black. Having a place for the consumer that wants to engage with Marlboro, having a place that they can continue to engage even when they're under economic pressure.

Jennifer Maloney: That they can continue to gauge even when they are under academic pressure.

Jennifer Maloney: And when you say promotional activity would that apply to both the Marlboro brand and also some of your lower price brands.

Jennifer Maloney: And when you say promotional activity, would that apply to both the Marlboro brand and also some of your lower priced brands?

Bill: We look across the portfolio. We think of the portfolio as one big RGM pool. And just like I mentioned Marlboro Black and the Marlboro family, it allows us to take a small segment of Marlboro and be there for the consumer. It gives them a place to continue to engage with the brand.

Jennifer Maloney: We look across the portfolio, we think of the portfolio is one big Rgs pool, and just like I've mentioned, Marlboro Black and marble family. It allows us to take a small segment of Marvel and be there for the consumer it gives them a place to continue to engage with the brand, but we look across the entire portfolio.

Jennifer Maloney: Looking out at the rest of 2024, do you expect pressures on lower-income consumers to continue or to moderate?

Jennifer Maloney: Looking at the rest of 2024 do you expect pressures on lower income consumers to continue or to moderate.

Bill: Yeah, I think when you think about the consumer being at the lower end of the socioeconomic status, they've been impacted, while inflation has slowed down a bit, it's still increasing, and the cumulative impact of that inflation on their total market purchase, as well as the increase in debt levels. And that, coupled with increased interest rates through time, has impacted discretionary spend for our

Jennifer Maloney: Yes, I think when you think about the consumer being at the lower end of the socioeconomic status they've been impacted.

Jennifer Maloney: Inflation has slowed down a bit it's still increasing and the cumulative impact of that inflation on their total market purchase.

Jennifer Maloney: As well as the increase in debt levels and that coupled with increased interest rates through time has impacted discretionary spend for our consumers.

Jennifer Maloney: So, what's your strategy for the overall oral tobacco category, and then specifically for the modern oral subcategory?

Speaker Change: Thanks, one more question on our modern oral tobacco, so looking at the share losses earnings call in Copenhagen and.

Bill: Yeah, you may have heard me mention earlier that the overall strategy for oral tobacco is to maximize profitability over the long term while making appropriate investments in Copenhagen and investing in our own product in the marketplace. I think when you think about it, it's intuitive that the more smokeless consumer is the first to move over because it allows them to avoid some of the social friction of spitting things of that nature in relation to enjoying nicotine in their product.

Jennifer Maloney: And also the share performance in on.

Jennifer Maloney: It seems like <unk> is taking significant share from traditional oral tobacco.

Jennifer Maloney: On isn't catching up to him.

Jennifer Maloney: So what's your strategy for that overall oral tobacco category and then specifically for the modern Wow sub.

Jennifer Maloney: Subcategory.

Jennifer Maloney: You May have heard me mentioned earlier, the overall strategy and oral tobacco is to maximize profitability over the long term, while making appropriate investments in Copenhagen and the investments in the it.

Jennifer Maloney: Our own product in the marketplace I think when you think about it it's intuitive that the moist smokeless consumer is the first to move over there used to putting nicotine products in their mouth.

Jennifer Maloney: When you think about Xen versus ON, we feel very good. I think you saw that, and we highlighted in our remarks, we feel like we're going to have better positioning at retail. We feel good about the existing product, and we feel great about the pipeline to follow, which will be followed with the FDA, PMTAs, and ON Plus as we progress to the end of this.

Jennifer Maloney: And moving from MST to nicotine pouch allows.

Jennifer Maloney: That allows them to avoid some of the social friction spitting things of that nature in relation to enjoying nicotine in their product.

Jennifer Maloney: When you think about the Zen versus on we feel very good I think you saw that.

Jennifer Maloney: And we highlighted in our remarks, we feel like we're going to have better positioning at retail we feel good about the existing product and we feel great about the pipeline the follow up which will be following with the FDA PMT as an owned plus as we progressed through the end of this quarter.

Bill: So would it be fair to say that your goal would be to capture those folks who are moving from school in Copenhagen to modern oral, to capture as many of those folks as possible with ON rather than lose them to VIN? That would be correct. Thanks very much.

Jennifer Maloney: So would it be fair to say that your goal would be to capture those folks who are moving from scale in Copenhagen, some iron ore to capture as many of those folks as possible with on rather than losing them to then that would be correct.

Speaker Change: Okay. Thanks very much.

Mac Livingston: There appear to be no further questions at this time. I would like to turn the call back to Mac Livingston for any closing remarks.

Speaker Change: Thank you.

Jennifer Maloney: And there appears to be no further questions at this time I would like to turn the call back to Mac Livingston for any closing remarks.

Mac Livingston: Thanks for joining us on the call today. I hope you all have a great day. Thanks so much.

Mac Livingston: Thanks for joining the call today Hope you all have a great day. Thanks, so much.

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

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

Jennifer Maloney: Oh.

Jennifer Maloney: Okay.

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