Q1 2025 Altria Group Inc Earnings Call

Mac Livingston: We issued a press release providing our results. The release, presentation, quarterly metrics, and our latest corporate responsibility reports are all available at altria.com.

Police, providing our results there.

The release presentation quarterly metrics and our latest corporate responsibility reports are all available at Altria Dot com.

Mac Livingston: During our call today, unless otherwise stated, we're comparing results to the same period in 2024.

During our call today, unless otherwise stated we're comparing results to the same period in 2024.

Mac Livingston: Our remarks contain forward-looking statements, including projections of future results. Please review the forward-looking and cautionary statement section at the end of today's earnings release for various factors that could cause actual results to differ materially from projection.

Our remarks contain forward looking statements, including projections of future results.

Please review the forward looking and cautionary statements section at the end of today's earnings release for various factors that could cause actual results to differ materially from projections.

Mac Livingston: Future dividend payments and share repurchases remain subject to the discretion of our Board of Directors. We report our financial results in accordance with U.S. generally accepted accounting principles. Today's call will contain various operating results on both a reported and adjusted basis. Adjusted results exclude special items that affect comparisons with reported results. Descriptions of these non-GAAP financial measures and reconciliations to the most comparable GAAP financial measures are included in today's earnings release and on our website at altria.com.

Future dividend payments and share repurchases remain subject to the discretion of our board of directors.

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

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

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

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

Mac Livingston: 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.

Finally, all references in today's remarks to tobacco consumers.

Or consumers within.

To put category or segment.

<unk> to existing adult tobacco consumers 21 years of age or older.

Billy: With that, I'll turn the call over to Billy. Thanks, Mac. Good morning and thank you.

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

Billy: Thanks, Mac good morning, and thank you Polly profitable traditional tobacco businesses performed well in a challenging environment in the first quarter.

Billy: Highly profitable traditional tobacco businesses performed well in a challenging environment in the first quarter. The smokable products segment delivered solid adjusted operating company's income growth behind the strength of Marlboro.

Billy: The smokable products segment delivered solid adjusted operating companies income growth behind the strength of Marlboro.

Billy: and the Oral Tobacco Product Segment on Maintain Momentum in a Competitive Marketplace. as Helix invested strategically behind the brand. And shareholders continue to benefit from strong cash returns through dividends and share repurchases while we invest it in pursuit of our vision.

Billy: And the oral tobacco products segment.

Billy: <unk> maintained momentum and a competitive marketplace.

Billy: As helix invested strategically behind the brand.

Billy: And shareholders continue to benefit from strong cash returns through dividends and share repurchases, while we invested in pursuit of our vision.

Billy: My remarks this morning will focus on encouraging first-quarter results from OIN.

Speaker Change: My remarks, this morning will focus on encouraging first quarter results from oil.

Billy: The state of the e-vapor category and enforcement progress.

Billy: The state of the E vapor category and enforced that progress.

Billy: and our path forward with eBay.

Speaker Change: And our path forward with E vapor.

Billy: I'll then turn it over to Sal who will provide further detail on our business results. Let's begin with ON and the nicotine pouch category. All nicotine pouches drove the estimated 10% increase volume over the past six months. In the first quarter, Oil Nicotine Pouses grew 8.7 share points and now represent nearly half of the Oil Tobacco category. Helix delivers strong performance in a very competitive environment this quarter. growing on reported shipment volume to over 39 million cans, representing 18% growth. on continuing its momentum at retail, expanding its share of the oral tobacco category to 8.8%, an increase of 1.8 share points versus the prior year, and one-tenth of a share point sequentially.

Sal: I'll, then turn it over to Sal, who will provide further detail on our business results.

Speaker Change: Let's begin with on and the nicotine pouch category.

Speaker Change: Oral nicotine pouches drove the estimated 10% increase volume over the past six months.

Speaker Change: In the first quarter oral nicotine pouches grew eight seven share points and now represents nearly half of the oral tobacco category.

Speaker Change: Helix delivered strong performance in a very competitive environment this quarter.

Speaker Change: Growing on reported shipment volume to over 39 million cans, representing 18% growth.

Speaker Change: <unk> continued its momentum at retail expanding its share of the oral tobacco category to eight 8%.

Speaker Change: An increase of one eight share points versus the prior year.

Speaker Change: 110th of a share point sequentially.

Billy: In addition, Owen's share of the nicotine pouch category was 17.9 percent, an increase of half a share point versus the prior year. Helix delivered these results while continuing to optimize promotional resources and as Owens' price at retail increased year over year. We believe Helix's ability to grow OWN's volume and share while its retail price is increasing demonstrates OWN's strengthening brand equity among loyal consumers.

Speaker Change: In addition, <unk> share of the nicotine pouch category was 17, 9%.

Speaker Change: An increase of half a share point versus the prior year.

Speaker Change: <unk> delivered these results, while continuing to optimize promotional resources.

Speaker Change: And as oil price at retail increased year over year.

Speaker Change: We believe <unk> ability to grow <unk> volume and share while its retail price is increasing demonstrates <unk> strengthening brand equity among loyal consumers.

Billy: As a result, the responsible brand-building investments, including the new It's On! campaign, consumer impressions of On! grew by nearly five times versus the prior year, exceeding $200 million in the first quarter. And over the past six months, awareness of the Orin brand among current oral nicotine pouch consumers reached over 60 percent, an increase of nine percentage points. This year, Helix plans to maintain this momentum by bringing the It's On campaign to more consumers and focusing on equity investments behind the On brand in new and existing channels.

Speaker Change: As a result of responsible brand building investments, including the new it's borne campaign consumer impressions of one <unk>.

Speaker Change: Grew by nearly five times versus the prior year.

Speaker Change: Exceeding $200 million in the first quarter.

Speaker Change: And over the past six months awareness of the owned brand among current oral nicotine pouch consumers.

Speaker Change: <unk> over 60% an increase of nine percentage points.

Speaker Change: This year <unk> plans to maintain this momentum by bringing the <unk> campaign to more consumers and focusing on equity investments behind the on brand in new and existing channels.

Billy: Let's now turn to the e-vapor category, where the illicit flavored disposable market continues to drive category growth. At the end of the quarter, we estimate the e-vapor category included more than 20 million vapors, up over 2.6 million versus a year ago. During the same period, disposable papers increased by an estimated 4 million to approximately 14 million.

Speaker Change: Let's now turn to the E vapor category, where the illicit flavored disposable market continues to drive category growth.

Speaker Change: At the end of the quarter, we estimate the E vapor category included more than 20 million vapors.

Speaker Change: Up over $2 6 million versus a year ago.

Speaker Change: During the same period disposable papers increased by an estimated 4 million to approximately $14 million.

Billy: We estimate that illicit e-vapor products now represent more than 60% of the category.

Speaker Change: We estimate that illicit E vapor products now represent more than 60% of the category.

Billy: To address the illicit e-vapor issue, we remain focused on advocating for regulatory reforms to accelerate product authorizations and enhance enforcement against illicit active For more information, visit www.FEMA.gov We are actively engaging with members of Congress and key administrative staff. to highlight the importance of this issue and are urging the new administration and the federal multi-agency task force established last year to take stronger, more coordinated action. We're also supporting state legislative remedies to address illicit e-vapor, including state directories. Today, two states have enacted directory legislation this year. and another 21 states have legislation pending. DDGs are also becoming more active.

Speaker Change: To address the illicit E vapor issue.

Speaker Change: We remain focused on advocating for regulatory reforms to accelerate product authorizations and enhance enforcement against illicit actors.

Speaker Change: We are actively engaging with members of Congress and key administrative staff.

Speaker Change: To highlight the importance of this issue and are urging the new administration and the federal multi agency task force established last year to make stronger.

Speaker Change: More coordinated action.

Speaker Change: We're also supporting state legislative remedies to address illicit E vapor.

Speaker Change: Including state directories.

Speaker Change: Today to date have enacted directory legislation this year.

Speaker Change: And another 21 states have legislation pending.

Speaker Change: State Ags are also becoming more active.

Billy: In the first quarter, 10 state AGs announced various actions, including civil lawsuits, targeted investigations, and warning letters against illicit e-vapor manufacturers, wholesalers, and retailers. In April, Iowa's AG led a coalition of every Republican state AG in asking the Trump administration to continue combating the flood of illicit e-vapor from China into the U.S.

Speaker Change: In the first quarter.

Speaker Change: 10 state Ags.

Speaker Change: Announced various actions, including civil lawsuits targeted investigations and warning letters against illicit E vapor manufacturers wholesalers and retailers.

Speaker Change: In April Iowa's AG bladder coalition every Republican State AG and asking the Trump administration.

Speaker Change: Continued combating the flood of illicit E vapor from China.

Speaker Change: The U S.

Billy: Let's now turn to Enjoy. Since we acquired Injoy in 2023, the e-vapor marketplace has changed significantly to the detriment of legitimate e-vapor manufacturers like Injoy. Unfortunately, in the absence of FDA-authorized flavored choices, many consumers have turned to the illicit market.

Speaker Change: Let's now turn to enjoy.

Speaker Change: Since we acquired enjoy in 2023.

Speaker Change: The E vapor market place has changed significantly to the detriment of legitimate E vapor manufacturers like enjoy.

Speaker Change: Unfortunately in the absence of FDA authorized flavor choices, many consumers have turned to the illicit market.

Billy: and NJOI has been further challenged by the ITC's exclusion order and cease and desist orders that took effect on March 31st. To comply with the orders, NJOI discontinued the importation of NJOI ACE and ceased shipments to wholesale. These orders are yet another step backwards for the e-vapor category. They severely limit FDA-authorized choices for consumers and undermine public health.

Speaker Change: And enjoy has been further challenged by the Itc's exclusion order and cease and desist orders.

Speaker Change: Look effect on March 31.

Speaker Change: To comply with the orders enjoyed discontinued the importation of enjoy ace and ceased shipments to wholesale.

Speaker Change: These orders are yet another step backwards for the E vapor category.

Speaker Change: Severely limit FDA authorized choices for consumers and undermine public health.

Billy: NJOI intends to appeal the ITC's decision to the U.S. Court of Appeals for the Federal Circuit, and our teams continue to work to finalize a product solution that we believe addresses all four patents.

Speaker Change: Enjoy intends to appeal the Itc's decision.

Speaker Change: The U S quarter Appeals for the federal circuit.

Speaker Change: And our teams continue to work to finalize a product solution that we believe addresses all four patents.

Billy: Looking ahead, we believe it is critical to compete in the e-vapor category with products that align with the evolving expectations of today's consumers. We see the exit of NJACE from the market saturated with illicit products as an opportunity to refine and strengthen our e-vapor product portfolio. To that end, we are combining the talent and capabilities we gained in the ENJOY acquisition with our evolved view on today's vapors to broaden ENJOY's pipeline of innovative e-vapor products. We continue to believe in the promise of a fully regulated e-vapor category.

Speaker Change: Looking ahead, we believe it is critical to compete in the EBIT.

Speaker Change: Category with products that align with the evolving expectations of today's consumers.

Speaker Change: We see the exit of <unk> from the market saturated with the listed products as an opportunity to refine and strengthen our E vapor product portfolio.

Speaker Change: To that end, we are combining the talent and capabilities. We gained in the enjoy acquisition with our evolved view on today's papers to broaden enjoys pipeline of innovative E vapor products.

Speaker Change: We continue to believe in the promise of a fully regulated E vapor category.

Billy: As I said before, the FDA has all the resources and tools necessary to accomplish that goal by expediting the authorization process and forcefully enforcing its rules. In the meantime, we are positioning ourselves to reenter a properly regulated market where we can compete on a level playing field and make significant progress toward our vision.

Speaker Change: As I've said before the FDA has all the resources and tools necessary to accomplish that goal by expediting.

Speaker Change: Adding the authorization process.

Speaker Change: And forcefully enforcing its rules.

Speaker Change: In the meantime, we are positioning ourselves to re enter a properly regulated market, where we can compete on a level playing field and make significant progress toward our vision.

Salvatore Mancuso: I'll now turn it over to Sal to provide more detail on our business results. Thanks, Billy. Turning to our first quarter business results, the smokable product segment grew adjusted operating company's income, or OCI, by 2.7%. Adjusted OCI margins were 64.4%, an increase of 4.2 percentage points versus a year ago. This performance was supported by robust net price realization of 10.8%. Total smokable product segment reported domestic cigarette volumes declined by 13.7% in the first quarter. When adjusted for calendar differences in trade inventory movements, we estimate that our domestic cigarette volumes declined by 12% over the same period.

Speaker Change: I'll now turn it over to <unk> to provide more detail on our business results.

Speaker Change: Thanks Billy.

Speaker Change: Turning to our first quarter business results.

Speaker Change: Our smokable products segment grew adjusted operating company's income or OCI by two 7%.

Speaker Change: Adjusted OCI margins were 64, 4% an increase of four two percentage points versus a year ago.

Speaker Change: This performance was supported by robust net price realization of 10, 8%.

Speaker Change: Total smokable products segment reported domestic cigarette volumes declined by 13, 7% in the first quarter.

Speaker Change: When adjusted for calendar differences and trade inventory movements, we estimate that our domestic cigarette volumes declined by 12% over the same period.

Salvatore Mancuso: At the industry level, when adjusted for trade inventory movements, calendar differences, and other factors, we estimate that domestic cigarette volumes declined by 9%. During the quarter, cigarette industry volume declines remained elevated, partly due to the growth of illicit-flavored disposable e-vapor products and continued discretionary income pressures on consumers. SMRCCAs remain under economic pressure due to the compounding effects of inflation exceeding overall wage growth, especially among low-income consumers. Although the year-over-year increases in the rate of inflation moderated it in the quarter, high prices on everyday expenses continue to constrain disposable income. As a result, we've seen smokers continue to seek price relief at retail, either within their regular brand or in the form of discount products.

Speaker Change: At the industry level, when adjusted for trade inventory movements calendar differences and other factors, we estimate that domestic cigarette volumes declined by 9%.

Speaker Change: During the quarter cigarette industry volume declines remained elevated.

Speaker Change: Partly due to the growth of illicit flavor disposable E vapor products and.

Speaker Change: And continued discretionary income pressures on consumers.

Speaker Change: Smokers remain under economic pressure due to the compounding effects of inflation.

Speaker Change: Overall wage growth.

Speaker Change: Among low income consumers.

Speaker Change: Although the year over year increases in the rate of inflation moderated in the quarter.

Speaker Change: High prices on everyday expenses.

Speaker Change: <unk> to constrained disposable income.

Speaker Change: As a result, we've seen smokers continue to seek price relief at retail.

Speaker Change: Either within their regular brand or in the form of discount products.

Salvatore Mancuso: In the first quarter, the discount cigarette segment grew by 1.8 share points. Marlboro retail share declined by one share point versus the year ago period and 0.3 share points sequentially. within the highly profitable premium segment where smoker purchasing behavior tends to reflect high levels of brand loyalty, Marlboro maintained its longstanding leadership in the category. In the first quarter, Marlboro expanded its share of the premium segment by 0.1 share point to 59.3% while other competitive brands ceded share. We are encouraged by Marlboro's resilient performance and believe it is a testament to its positioning as the aspirational brand in the category, strong brand loyalty, and PMUSA's RGM and data analytics capabilities.

Speaker Change: In the first quarter the discount cigarettes segment grew by one eight share points.

Speaker Change: Marlboro retail share declined by one share point versus the year ago period in.

Speaker Change: <unk> 0.3 share points sequentially.

Speaker Change: Within the highly profitable premium segment.

Speaker Change: Our smoker purchasing behavior tends to reflect high levels of brand loyalty.

Speaker Change: <unk> maintained its long standing leadership in the category.

Speaker Change: In the first quarter marble expanded its share of the premium segment by 0.1 share point to 59, 3%, while other competitive brands ceded share.

Speaker Change: We are encouraged by more barrels resilient performance and believe it is a testament to its positioning as the aspirational brand in the category strong brand loyalty and PM Usa's, our GM and data analytics capabilities.

Salvatore Mancuso: PMUSA uses its RGM tools to manage the Marlboro franchise holistically, supporting Marlboro at the state, store, and consumer levels. As I discussed the CAGNY, national metrics like average price gaps are too generalized to be meaningful and are not reflective of how PMUSA delivers value or manages the business.

Speaker Change: PM USA uses of <unk> tools to manage the Marvel franchise Holistically.

Speaker Change: Putting more barrel at the state store and consumer levels.

Speaker Change: As I discuss the Cagny national metrics like average price gaps or to generalize to be meaningful and are not reflective of how PM USA delivers value or manages the business.

Salvatore Mancuso: As a result, beginning in the first quarter, we are no longer providing the Marlboro price gap versus the lowest effective price in our quarterly metrics.

Speaker Change: As a result, beginning in the first quarter, we are no longer providing the marble price gap versus the lowest effective price and our quarterly metrics.

Salvatore Mancuso: and Cigars. Reported shipment volume decreased 2.9%. Middleton continue to outperform in the large mass cigar industry behind the strength of Black & Mild.

Speaker Change: In cigars reported shipment volume decreased two 9%.

Speaker Change: Middleton continued to outperform in the large mass cigar industry behind the shrink of black and mild.

Salvatore Mancuso: Let's turn now to the oral tobacco product segment, which delivered over $400 million in total adjusted OCI in the first quarter. Adjusted OCI margins remain strong at 69.2%, down slightly from a year ago. Total segment reported shipment volume decreased 5% as growth in ON was more than offset by lower MST volume. When adjusted for calendar differences in trade inventory movements, we estimate that first-quarter oral tobacco product segment volumes declined by approximately 1%. Oral tobacco product segment retail share declined by 3.1 percentage points as declines in our MST brands were not fully offset by continued share growth of OND.

Speaker Change: Let's turn now to the oral tobacco products segment, which delivered over $400 million in total adjusted OCI in the first quarter.

Speaker Change: Adjusted OCI margins remained strong at 69, 2% down slightly from a year ago.

Speaker Change: Total segment reported shipment volume decreased 5% as.

Speaker Change: S growth and on which more than offset by lower MST volumes.

Speaker Change: When adjusted for calendar differences and trade inventory movements, we estimate that first quarter oral tobacco products segment volumes declined by approximately 1%.

Speaker Change: Oral tobacco products segment retail share declined by three one percentage points.

Speaker Change: As declines in our MST brands were not fully offset by continued share growth Yvonne.

Salvatore Mancuso: Overall, we remain encouraged by the performance of our oral tobacco products, as On Guru Volume and Share in a highly competitive category in Copenhagen remained a significant contributor to Adjusted OCI as the leading moist, smokeless tobacco brand for consumers who want a high quality, premium product experience.

Speaker Change: Overall, we remain encouraged by the performance of our oral tobacco products as on grew volume and share in a highly competitive category and.

Speaker Change: In Copenhagen remains a significant contributor to adjusted OCI.

Speaker Change: As the leading moist smokeless tobacco brand for consumers, who want a high quality premium product experience.

Salvatore Mancuso: Let's turn to an update on our e-vapor reporting unit. As Billy mentioned, the ITC orders related to the Enjoy Ace went into effect at the end of the first quarter.

Speaker Change: Let's turn to an update on our E vapor reporting unit.

Speaker Change: As Billy mentioned, the ITC orders related to the enjoy <unk> went into effect at the end of the first quarter.

Salvatore Mancuso: As a result, we performed an interim impairment assessment of the goodwill and recorded a non-cash impairment charge of $873 million. Despite the withdrawal of Enjoy Ace from the marketplace, we believe we gain valuable assets and capabilities in the Enjoy acquisition that can be applied toward a future e-vapor pipeline that meets consumer preferences over the long term.

Speaker Change: As a result.

Speaker Change: We performed an interim impairment assessment of the goodwill and recorded a noncash impairment charge of $873 million.

Speaker Change: Despite the withdrawal of enjoy ace from the marketplace. We believe we gained valuable assets and capabilities in the enjoy acquisition that can be applied toward a future E vapor pipeline that meets consumer preferences over the long term.

Salvatore Mancuso: Turning to ABI's financial results, we recorded $146 million of adjusted equity earnings down 11.5% versus the prior year. This decline was driven by a lower ownership interest compared to the year-ago period, reflecting the sale of a portion of our ABI investment.

Speaker Change: Turning to Api's financial results, we recorded $146 million of adjusted equity earnings down 11, 5% versus the prior year.

Speaker Change: This decline was driven by our lower ownership interest compared to the year ago period.

Speaker Change: Collecting the sale of a portion of our <unk> investment.

Salvatore Mancuso: We continue to view our ABI stake as a financial investment and our goal remains to maximize the long-term value of the investment for our shareholders. We remain committed to returning significant value to shareholders and maintaining a strong balance sheet. In the first quarter, we paid approximately $1.7 billion in dividends and repurchased 5.7 million shares for $326 million. At the end of the first quarter, we had $674 million remaining under our current share repurchase program, which we expect to complete by the end of the year. In addition, our balance sheet remains strong. Our total debt to EBITDA ratio as of March 31st was 2.1 times in line with our target of approximately two times.

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

Speaker Change: And our goal remains <unk>.

Speaker Change: Maximize the long term value of DNA.

Speaker Change: For our shareholders.

Speaker Change: We remain committed to returning significant value to shareholders and maintaining a strong balance sheet.

Speaker Change: In the first quarter, we paid approximately $1 7 billion in dividends and repurchased five 7 million shares for $326 million.

At the end of the first quarter, we had $674 million remaining under our current share repurchase program, which we expect to complete by the end of the year.

Speaker Change: In addition, our balance sheet remains strong our total debt to EBITDA ratio as of March 31.

Speaker Change: Was two one times in line with our target of approximately two times.

Salvatore Mancuso: Let's move now to guidance, where we expect to deliver 2025 full year adjusted diluted EPS in a range of $5.30 to $5.45, representing a growth rate of 2% to 5% from a base of $5.19 in 2024.

Speaker Change: Let's move now to guidance, where we expect to deliver 2025 full year adjusted diluted EPS in a range of $5 30.

Speaker Change: To $5 45.

Speaker Change: Representing a growth rate of 2% to 5% from a base of $5 19.

Speaker Change: In 2024.

Salvatore Mancuso: As noted in today's press release, beginning in the first quarter, we changed our treatment of our amortization expense associated with definite live intangible assets, and now excluded from our adjusted results. We believe that operating results adjusted for this item better reflect the underlying performance of our businesses and provides a better comparison to prior operating results. As a result, our guidance reflects a recast of the guidance range and 2024 base. Our growth rate expectation is unchanged.

Speaker Change: As noted in today's press release, beginning in the first quarter, we changed our treatment of our amortization expense associated with definite lived intangible assets and now excluded from our adjusted results.

Speaker Change: We believe that operating results adjusted for this item better reflect the underlying performance of our businesses and provides a better comparison to prior operating results.

Speaker Change: As a result.

Speaker Change: Our guidance reflects a recast of the guidance range in 2024 base.

Speaker Change: Our growth rate expectation is unchanged.

Salvatore Mancuso: Our guidance assumes limited impact on combustible and e-vapor product volumes from enforcement efforts in the illicit e-vapor market and assumes Enjoy Ace does not return to the marketplace this year. The guidance range also includes the reinvestment of anticipated cost savings related to our previously announced Optimize and Accelerate initiative. and lower expected net periodic benefit income. In addition, our guidance range contemplates limited impact of increased tariffs on our costs and potential impacts on our consumers based on presently available information about tariffs.

Speaker Change: Our guidance assumes limited impact on combustible and E vapor product volumes from enforcement efforts and the illicit E vapor market and assumes enjoy ace does not return to the marketplace. This year.

Speaker Change: The guidance range also includes the reinvestment of anticipated cost savings related to our previously announced optimize and accelerate initiative.

Speaker Change: And lower expected net periodic benefit income.

Speaker Change: In addition, our.

Speaker Change: Our guidance range contemplates limited impact of increased tariffs on our cost and potential impacts on our consumers based on presently available information about tariffs.

Salvatore Mancuso: We will continue to closely monitor the state of our consumers, including how the economic impact of tariffs could affect their purchasing behaviors.

Speaker Change: We will continue to closely monitor the state of our consumers, including how the economic impact of tariffs could affect their purchasing behaviors.

Mac Livingston: With that, we'll wrap up and Billy and I will be happy to take your questions. 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. Let's open the question and answer period.

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

Speaker Change: While 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, do we have any questions.

Operator: Operator, do we have any questions? 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 touchtone phone at this time.

Speaker Change: Thank you.

Speaker Change: 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 Touchtone phone at this time invest.

Operator: Investors, analysts and media representatives are now invited to participate in a question and answer session. We will take questions from the investment community first.

Speaker Change: Investors analysts and media Representatives are now invited to participate in a question and answer session. We will take questions from the investment community. One. Our first question comes from Matt Smith with Stifel. Please go ahead. Your line is open.

Matthew Smith: Our first question comes from Matt Smith with Stiefel. Please go ahead. Your line is open. Hi, good morning. Thank you for taking my question. Good morning, Matt.

Matt Smith: Hi, Good morning, Thank you for taking my question.

Speaker Change: Good morning, Matt.

Billy: Billy, maybe to start, Altria has a unique perspective or a great perspective on the consumer. You talked about some of the macroeconomic pressure the consumer is facing. And when we look at the bridge in the underlying cigarette volume chart that you provide, it looks like the macroeconomic factor is less of an impact relative to the cross category factors that you're calling out. Can you talk about the current state of the consumer, and are you seeing that inflationary pressure on the consumer play a role in that elevated cross category movement? Yeah, it's a great question, Matt.

Speaker Change: Billy maybe to start.

Speaker Change: Ultra has a unique perspective or a great perspective on the consumer you talked about some of the macroeconomic pressure the consumer is facing and when we look at the bridge and the underlying cigarette volume.

Speaker Change: Chart that you provided it looks like the the macroeconomic factor as well.

Speaker Change: Less of an impact relative to the cross category factors that you are calling out.

Speaker Change: Can you talk about the current state of the consumer and are you seeing that that inflationary pressure on the consumer play a role in that elevated cross category movement.

Billy: We certainly are seeing the consumer under pressure, and we've been noting it for a number of quarters, as you recall. It's the cumulative impact of the inflation. It's not just one quarter standalone. It's the cumulative impact over time. And we are seeing, to your point, in the cross category, especially to illicit e-vapor, we're seeing pricing from a consumer perspective move up. It's certainly not number one. Flavors are still number one, and the flexibility they have and the amount of choices they have in the marketplace being the number one thing. But price is certainly moving up in that, and it's becoming a more prominent fact.

Speaker Change: Yes, it's a great question, Matt we certainly are seeing the consumer in depression, and we have been noting it for a number of quarters as you recall.

Speaker Change: It's the cumulative impact of the inflation thats not just one quarter Standalone is the cumulative impact over time, and we are seeing to your point and the cross category, especially to illicit E vapor, we're seeing price a consumer perspective.

Speaker Change: Certainly not number one flavors, one and the flexibility they have and the amount of choices. They have in the marketplace being the number one thing, but prices certainly moving up in that and is becoming a more prominent factor.

Billy: Thank you, Billy.

Billy: And as a follow up, can you talk about what you're seeing from the consumer that gives you the confidence in continuing to seek pretty robust pricing in the cigarette category. You announced an additional price increase recently. And can you talk about the confidence in the consumer for that pricing, or perhaps it's more flexibility with that pricing to reinvest more in Marlboro to sustain the strong performance you're seeing in the premium segment? Thank you. Yeah, I think it's the key point you had at the end. It's the flexibility. It's a little bit of both. Certainly the strength of Marlboro, but the tools we have available to us with data analytics and revenue growth management allows us to apply resources where they're needed by the consumer.

Speaker Change: I think $1 billion as a follow up can you talk about.

Speaker Change: What youre seeing from the consumer that that gives you the confidence in continuing to.

Speaker Change: Seek.

Speaker Change: Pretty robust pricing in the cigarette category, you announced an additional price increase recently.

Speaker Change: And can you talk about the confidence in the consumer for that pricing or perhaps it's more flexibility with that pricing to reinvest more in marlboro to sustain the strong performance you are seeing in the premium segment. Thank you. Yes, I think is the key point you had at the end. It's the flexibility it is a little bit of both certainly the strength of Marlboro, but the tools we have available to.

Speaker Change: With that analytics and revenue growth management allows us to apply resources, where they're needed by the consumer and Youll recall us describing it we can do it at the store level. We're certainly in progress to try to do it to the individual level, but we can certainly do it to the store level pretty effectively and we're pleased with the results <unk> had in the marketplace from a rock.

Billy: And you'll recall us describing it. We can do it at the store level. We're certainly in progress to try to do it to the individual level, but we can certainly do it to the store level pretty effectively. And we're pleased with the results Marlboro's had in the marketplace from a market share.

Speaker Change: Sure standpoint.

Gaurav Jain: And take our next question from Gaurav Jain with Barclays. Please go ahead. Your line is open. Hi. Good morning, Billy. Good morning, Sal.

Speaker Change: We'll take our next question from James <unk> with Barclays. Please go ahead. Your line is open.

James: Hi, good morning, good morning Sal.

Gaurav Jain: Three questions from me. One is on the brand you have, BASIC. It seems that you have repositioned it down almost to the pricing of Lucky Strike.

James: Questions from me one is on the volume of the bond new hub bullshit, <unk> fully sold down our loss and.

Speaker Change: Lucky strike.

Billy: And I'm picking that data from you, so maybe my reading isn't correct, but can you just help us understand how you are thinking about approaching the discount segment? Yeah, it's a good question, Gaurav. Look, I wouldn't see it as a strategy shift. This is very common to what we do back through time. If you think about it, when we were increasing the profitability on BASIC in our history, we used positioning L&M to capture those smokers that were unable to move up with the price increases on BASIC. You're seeing the exact opposite now. As we increase profitability on L&M, we ran some tests with our BASIC brand in the marketplace.

James: So.

James: <unk> will be leading the wound product with double dose.

James: Also understand how youre thinking about.

James: Approaching the discount segment.

James: Yes, it's a good question Gaurav look I wouldn't see it as a strategy shift. This is very common to what we do with factory time, if you think about it when we were increasing the profitability on basic in our history, we reuse positioning <unk> to capture those smokers that we're unable to move up with the price increases on basically you are seeing the exact opposite now as we can.

James: Kris profitability on O&M, we ran some test with our basic.

Billy: We were pleased with the test that it was able to capture those consumers that couldn't move up or were unable to move up with the increased price, and we were able to capture them with the brand. So, we expanded that as we moved into this year.

James: <unk> brand in the marketplace. We were pleased with the task that it was able to capture those consumers that couldnt move up or unable to move up with the increased price and we were able to capture them with the brand. So we expanded that as we moved into this year.

Billy: You know, we are still a premium-focused company. We want to have presence in discount, but we are not interested in growing the discount segment. The profitability is still in the premium segment. You know, you recall at Cagney, and it's still true as we ended the first quarter, the dollar market share of Marlboro still exceeds its overall market share from a volume.

James: We are still at premium focused company, we want to have presence in discount, but we are not interested in growing the discount segment profitability is still in the premium segment.

James: Youll recall at Cagny, and it's still true as we ended the first quarter. The dollar market share of marble still exceeds its overall market share from a volume perspective.

Gaurav Jain: Thank you so much.

Gaurav Jain: And my second question is on ORN. So still pretty robust growth, 18% YOY. Clearly growth has slowed down, you know, and you know, we have the biggest competitor, you know, increasing guidance last week, they're more bullish.

Speaker Change: Thank you so much and my second question was on system continued robust growth to 18% by Hawaii.

James: Annual growth has slowed down.

James: And we have the biggest comparable day.

James: Teasing guidance philosophy.

Billy: So do you think there is a risk to ORN's trajectory as we go into the second half of the year? And do you need to pursue a multi-brand strategy, maybe enter synthetic nicotine? So could you just help us understand how you're thinking about ORN? Yeah, I'll try to disassemble. There are a couple of questions in there, and I'll try to answer them individually. I think, look, we're pleased with the ORN. Some of it's just mathematical as the base grows, and certainly from a percentage standpoint, it's going to slow a bit. But it's a competitive marketplace.

James: More bullish.

James: Do you think that is against two bonds trajectory as we go into the second half of the year and do you need to pursue a multi branded strategy maybe end of synthetic Nickelodeon.

James: Could you just help us understand how you are.

James: Thank you will welcome.

James: Yes, I'll try to disassemble and there are a couple of questions in there and I'll try to answer them individually I think look we're pleased with the on some of them. It's just mathematical as the base grows is certainly up from a percentage standpoint, it's going to slow a bit.

Billy: We're certainly seeing the entry of various, as you mentioned, synthetic nicotine products into the marketplace with different traits to the consumer, and the consumers are trying those. But we're pleased with it. And, you know, I would highlight again back to our pipeline. We're excited for authorization for ORN Plus to bring it to the marketplace. Certainly it was the adult dipper that moved first, and they were desiring something a bit larger from a pouch perspective. And so we're excited to be able to bring ORN Plus, and we feel good about ORN, and we'll continue to drive its momentum in the market.

James: But it's a competitive marketplace, we're certainly seeing the entry of various as you mentioned synthetic nicotine products into the marketplace with different traits to the consumer and the consumers are trying those but we're pleased with it and.

James: I'll highlight again back to our pipeline.

James: We're excited for authorization from plus to bring it to the marketplace. Certainly it was the adult dipper that move first and they were desiring something a bit larger from a power perspective.

James: And so we're excited to be able to bring on plus and we feel good about on and we will continue to drive its momentum in the marketplace.

Billy: And lastly, on e-cigarettes, so, you know, it is clearly a big category and now you can't sell your devices. So, is it that you will just exit the market or because that doesn't seem to be a viable strategy long-term? So, how should we think about you approaching the e-cigarette market here on? Yeah, certainly we can't ship anything after March 31st, so we see shipments. Anything that was at wholesale or retail can continue to be sold through.

James: Thank you and lastly on E cigarettes. So.

James: As many of the category and now you can't settle their devices. So.

James: Is it that you will just exited the market.

James: Because that doesn't seem to be aligned with the strategy long term.

James: How should we think about you approaching Vegas centric market.

James: Yes, certainly we can't ship anything after March 31, so we see shipments anything that was at wholesale or retail can can continue to be sold through.

Billy: I think your broader question is, what is our strategy in e-vapor? And as we try to express both in this earnings call and at Cagney, we believe e-vapor is something we need to participate in long term because it has been the most successful in the U.S. converting adult smokers to smoke-free products. From this standpoint, it's important to step back and think about the nature of the marketplace that's currently taking place. You heard in my remarks, over 60 percent of the market is illicit e-vapor products. That completely went around the regulatory process. So we're certainly advocating for quicker authorizations because you can see the success of moving the consumer from smokable or combustible products to smoke-free products that e-vapor has.

James: I think your broader question is what is our strategy and a big burden as we tried to crest. Both in this earnings call and at Cagny.

James: PRC is something.

James: And long term because it has been the most successful in the U S converting adult smokers to smoke free products.

James: From the standpoint, it's important to step back and think about the nature of the marketplace. That's currently taking place.

Speaker Change: <unk> heard in my remarks over 60% of the market is illicit E vapor products.

Speaker Change: That completely went around the regulatory process. So we're certainly advocating for quicker authorizations, because you can see the success that they're moving.

Speaker Change: Moving the consumer from Smokable, our combustible products to smoke free products that E vapor has and that the.

Billy: And that we need authorizations because the consumer is desiring it, but we also need enforcement for those products that go around the Our interest is to learn from the consumer the traits and characteristics of the disposables that they like, enhance our pipeline, and that's where we're investing. Certainly, we're at final design for the last patent that we were found to be infringed upon. We'll continue to challenge in legal. I don't want you to think we're giving up the legal challenges, but we are close to having worked around all of the four patents that we were found to have infringed upon, and we're excited to bring pods back.

Speaker Change: You need authorizations, because the consumers desire in it but we also need enforcement for those products that go around the system our interest is to.

Speaker Change: Learn from the consumer the traits and characteristics of the disposables that they like enhanced our pipeline and that's where we're investing.

Speaker Change: Certainly we're going to.

Speaker Change: We are at final design for the last patent that we were found to be infringed upon will continue to challenge and legal I don't want you to think we're giving up the legal challenges.

Speaker Change: But we are close to having worked around all of the four patents that were found to have infringed upon and we're excited to bring pods back but remember the pod category itself is shrinking it's disposable thats growing and so they were trade there and we've included those traits and our pipeline of products and are excited.

Billy: But remember, the pod category itself is shrinking. It's disposable that's growing. And so there were traits there, and we've included those traits in our pipeline of products and are excited to move forward and be able to bring Enjoy back to the market.

Speaker Change: To move forward and be able to bring enjoyed back to the marketplace.

Speaker Change: Thank you so much.

Bonnie Herzog: We'll take our next question from Bonnie Herzog with Goldman Sachs. Please go ahead. Your line is open. All right, thank you. Good morning.

Speaker Change: We will take our next question from Bonnie Herzog with Goldman Sachs. Please go ahead. Your line is open.

Speaker Change: Alright, Thank you and good morning.

Bonnie Herzog: Um, I guess I'm hoping to hear your perspective on the lost shipment and retail share in the quarter and, you know, maybe how concerned you are and, you know, are further share gains factored into the low end of your guidance? And then despite the volume and share pressures, you still were able to generate, you know, OCI growth smokable, but I think primarily due to the lower legal fees. So just trying to think through this and, you know, how it's going to manage, you know, some of these factors next year when you lapsed that.

Speaker Change: I guess I was hoping <unk> CRE, our perspective on the last ship and Bill touched on this quarter and maybe how concerned you are and are further share gain factored into the low end of your guidance.

Speaker Change: Despite the volume.

Speaker Change: Scale, we're able to generate OCI growth most of all but I think highly of lower legal fees.

Speaker Change: Thanks for that.

Speaker Change: Yeah.

Speaker Change: Yeah somebody is accurate next year when you lap that.

Billy: Yeah, no, I appreciate your question, Bonnie. I would remind you of our strategy in the combustible segment. Remember, it's to maximize profitability over the long term while balancing investments in Marlboro and the smoke-free categories. And that's exactly what you saw take place in the first quarter. Certainly, we're going to look at trends over the long term. We're not going to react from a quarter-to-quarter basis. We're, again, pleased with the way Marlboro is performing in the marketplace with the consumer under extreme economic conditions that they're facing. Certainly, your view towards what you believe will happen in the macroeconomic is a factor.

Speaker Change: Yes, no I appreciate your question Bonnie I wanted to remind you of our strategy in the combustible segment remember its to maximize profitability over the long term.

Speaker Change: While balancing investments in Marlboro and the smoke free category and Thats exactly what you saw take place in the first quarter.

Speaker Change: Certainly very I'll look at trends over the long term are not going to react from a quarter to quarter basis.

Speaker Change: Again pleased with the way <unk> performing in the marketplace with the consumer under extreme economic conditions that they're facing.

Speaker Change: Certainly at your view towards what you believe will happen in the macroeconomic is a factor and when you believe that consumers have experienced enough choices in the E vapor category that potentially slows through time of that conversion over so those are things that we're thinking about we certainly think about the strength of the brand.

Billy: And when you believe that consumers have experienced enough choices in the e-vapor category, that that potentially slows through time of that conversion over. So, those are things that we're thinking about. We certainly think about the strength of the brand, the economic pressures that the consumer is under. But that's where we have the RGM tools to be able to bring those consumers that are under extreme pressure, bring them relief in portions of the Marlboro brand. And so we'll continue to monitor it, especially the tariff impact, as that's a very fluid environment, how that impacts the consumer.

Speaker Change: The.

Speaker Change: <unk>.

Speaker Change: Economic pressure is that the consumer is under but thats, where we have the RDM tools to be able to bring those those consumers that are under extreme pressure, bringing them relief in portions of the Marvel brand and so.

Speaker Change: We will continue to monitor it.

Speaker Change: Actually the tariff impact is thats, a very fluid environment, how that impacts the consumer but we're pleased with the first quarter results.

Bonnie Herzog: But we're pleased with the first quarter results. Okay, thanks for that.

Bonnie Herzog: And then just maybe a little bit of a follow-on question, but different, you know, just wanted to ask a couple of questions on the relative price gaps.

Speaker Change: Okay. Thanks for that and then just maybe a little bit.

Speaker Change: Follow on question, but Jeff, Brian and I, just wanted to ask a couple of questions on the relative price gap.

Bonnie Herzog: I mean, first, I guess I'm curious to hear why you're no longer providing this in your metric sheet. And then second, how are you thinking about the gaps right now, considering, you know, they remain very wide between, you know, the lowest priced big brand in the market? I guess, how are you thinking about it in the context of, you know, we were just talking about the pressures on the consumer and the potentially move into recession this year? I guess, really, essentially, what are you doing, you know, to try and prevent further down trading pressures?

Speaker Change: I guess I'm curious to hear why you are no longer providing that metric sheet and then second how are you thinking about the gap right now considering yes they remain.

Speaker Change: All very wide between Barbara the lowest priced brand in the market I guess.

Speaker Change: How are you thinking about it in the context.

Speaker Change: Looking up the pressure on the consumer and potentially move into recession next year I guess.

Speaker Change: What are you doing to try and prevent further down training question, just thinking about that a share question.

Billy: Just thinking about the share question I asked earlier. Yep, I think I understand your question, but if I answer it wrong, follow back up, Bonnie. I think when you think about it, remember, and we've tried to describe this through various interactions with you all and the investor base, is that that price gap that we were showing was a national average. And we're really executing and making decisions in the business at the store level. And that's where the price gap matters. And you'll remember at Cagney, Sal laid out for you here's the price gap of Marlboro in a store.

Speaker Change: Yes, I think I understand your question, but if I answer it wrong Youre following backup Bonnie I think when you think about it remember and we've tried to describe this through various interactions with you all in the Investor base is that that price gap that we were showing was a national average and we're really executing and making decisions in the <unk>.

Speaker Change: Business at the store level, and that's where the price gap matters and Youll remember at Cagny salt laid out for you all here's the price gap of Marlboro in a store <unk>.

Billy: Here's what sort of segments of the Marlboro brand and franchise would be at, like Marlboro Black, for instance, in some stores was low as a price gap of 5%. So we're really monitoring it and executing our RGM tools at the store level. What we came to realize is that we kept getting asked questions about the national price gap, and that's not the way we were managing the business. And so it was causing confusion. So we felt like people were asking about it because we were publishing it, but that wasn't the way we were managing the business and having to explain how we were actually managing the business.

Speaker Change: Certain segments of the Marlboro brand and franchise would be at like marble Black for instance, in some stores was lowest price gap of 5%. So we're really monitoring it and executing our GM tools at the store level.

Speaker Change: What we came to realize is that we kept getting questions about the national price gap and Thats not the way we were managing the business and so it was causing confusion. So we felt like people were asking about it because we were publishing it but that wasn't the way we were managing the business and having to explain how we were actually managing the business and that was the decision to renew.

Billy: And that was the decision to remove it from the quarterly metrics.

Speaker Change: From a quarterly metrics.

Bonnie Herzog: Okay, thank you.

Bonnie Herzog: I'll pass it on.

Speaker Change: Okay. Thank you I'll pass it on.

Fahim Baig: We'll take our next question from Fahim Baig with UBS. Please go ahead. Your line is open.

Speaker Change: We will take our next question from <unk> <unk> with UBS. Please go ahead. Your line is open.

Fahim Baig: Hi, guys, three questions this morning.

Speaker Change: Hi, guys three questions. This morning firstly.

Billy: Firstly, I appreciate it is very early days, but there have been significant tariffs implemented on products imported from China, which would include the disposable vapes. Have you seen any impact on the imports, availability and pricing for the disposable vapes from China post these tariffs? Yeah, I think it's too early to see the true indications of how I think that trend will play out as we progress through the year. Our hope is with revenue dollars available to the government, there will be much more enforcement taking place at the borders. And maybe we're starting to see the green shoots of that a little bit with certain crackdowns at the borders.

Speaker Change: I appreciate it is very early days, but there have been significant tariffs implemented on products imported from China, which would include the disposable face have you seen any impact on the imports availability.

Speaker Change: And pricing for the disposable face from from from China Post these tariffs yes.

Speaker Change: Yes, I think it's too early to see the true indications on how I think that trend will play out as we progressed through the year. Our hope is with revenue dollars available to the government there will be much more enforcement taking place at the borders and maybe we're starting to see the green shoots of that a little bit with certain crack downs at the borders.

Billy: But certainly with revenue, our hope is that there will be more attention paid to cracking down on these products coming into the US.

Speaker Change: Certainly with revenue our hope is that there will be more attention paid to cracking down on these products coming into the U S.

Billy: And secondly, one of your peers I noted recently acquired a portfolio of synthetic disposable vapes that could potentially look to compete with the disposable vapes from China.

Speaker Change: And secondly.

Speaker Change: One of your peers I noticed recently acquired a portfolio of synthetic disposable vape stock could potentially look to compete with.

Speaker Change: The disposable face from from from China. What is your view on synthetic vape products and is this scenario that.

Billy: What is your view on synthetic vape products? And is this an area that Altria could increase activity without having to go around the PMTA filings? Would be interesting to know. Yeah, certainly our view on synthetic has evolved through time. As you recall last, with the urine earnings release, we talked about our view was that it's synthetic was illegal because of the way the statute was written. It's certainly the indications with the activities from the FDA, it appears they're using enforcement discretion and enforcing against those products. So it certainly moves synthetic nicotine up on our radar.

Speaker Change: How true could increase activity without having to go around.

Speaker Change: The PMT a file.

Speaker Change: <unk> filings.

Speaker Change: Would be would be interesting to know.

Speaker Change: Yes, it's certainly our view on synthetic has evolved through time as you recall last with the year end earnings release, we talked about our view was that its synthetic was illegal because of the way. The statute was written it certainly the indications with the activities from the FDA. It appears they are using enforcement discretion and enforcement against those products.

Speaker Change: It certainly moved synthetic nicotine up on our radar and so we're looking at all available opportunities to assess what what's the right move in that direction.

Billy: So we're looking at all available opportunities to assess what's the right move in that direction. Thanks.

Salvatore Mancuso: And maybe the third question is for Sal. The settlement payments in the quarter were down about 20% or $170 million. Anything that you would call out on the drivers behind this and any phasing that may be behind the payments this year? Yeah, remember, there's a lot of variables that go into the calculation of the MSA and settlement payments. I would point out that there was the expiration of the legal fund. You started to see that in the fourth quarter of last year, and that will continue. So on a comparative basis, you will see that benefit in the first three quarters of this year.

Speaker Change: Thanks, and maybe the third question is for Sel.

Speaker Change: The settlement payments in the quarter were down about 20% or $170 million.

Speaker Change: Anything that you would call out on the drivers behind this and any facing that that maybe behind the payments this year.

Speaker Change: Remember theres a lot of variables that go into the calculation of the MSA settlement payments I would point out that there was the expiration of the legal fund you started to see that in the fourth quarter of last year and that will continue so on a comparative basis you will.

Speaker Change: See that benefit in the first three quarters of this year.

Fahim Baig: Perfect.

Fahim Baig: Thank you, guys.

Speaker Change: Perfect. Thank you guys. Thank.

Fahim Baig: Thank you.

Speaker Change: Thank you.

Operator: And once again, if you would like to ask a question, please press the star key followed by the number one on your touchtone phone at this time.

Speaker Change: And once again, if you would like to ask a question. Please press the star key followed best number one on your Touchtone phone at this time.

Emma Rumi: We'll take our next question from Emma Rumi with Reuters. Please go ahead. Your line is open.

Speaker Change: We'll take our next question from Emma Roomy with Reuters. Please go ahead. Your line is open.

Emma Rumi: Hi guys, thanks a lot for taking my question, well I have a few if that's alright. The first one is on the tariffs and whether you can see any kind of discernible impact on consumer sentiment in the US as a result of the tariffs and the uncertainty surrounding tariffs. Any colour you have on that would be great. Sure, good morning. So, as I said in my opening remarks, our guidance does consider the impact of tariffs. Remember, we are predominantly a U.S. company with a U.S.-focused supply chain, so while certain materials may be impacted, for example, tin and aluminum that are used in some of our packaging, the impact on our costs are limited, especially compared to other CPG companies and other industries.

Speaker Change: Hi, guys. Thanks, a lot for taking my question well I have a few if that's all right.

Speaker Change: The first one is on the.

Speaker Change: <unk>.

Paris, and whether you can see any kind of discernible impact on consumer sentiment in the U S. As a result.

Speaker Change: The tariffs and the uncertainty surrounding tariffs any color you have on that would be great.

Speaker Change: Sure good morning.

Speaker Change: So as I said in my opening remarks, our guidance does consider the impact of tariffs.

Remember, we are predominantly a U S company with a U S focused supply chain. So while certain materials may be impacted for example, 10 in aluminum that are used in some of our packaging the impact on our costs are limited, especially compared to other CPG.

Speaker Change: Companies in other industries of course, we do and we will continue to closely monitor the potential impact to our consumers as the year before.

Billy: Of course, we do and will continue to closely monitor the potential impact to our consumers as the year plays out. Okay, but so far, are you seeing any sort of discernible impact from the tariffs that have been imposed or that are threatened? On a cost basis, nothing material. From a consumer standpoint, obviously, they've been under economic pressure for quite a while. A lot of it, the sustained level of inflation that has taken place, the cumulative impact of that. So, you know, tariffs, I think, has impacted consumer confidence. You haven't necessarily seen it so much in the everyday items, but everyday items are up just because of inflation.

Speaker Change: Okay.

Speaker Change: Are you seeing any sort of discernible.

Speaker Change: From the tariffs.

Speaker Change: I've been in post or to ask questions.

Speaker Change: On a cost basis.

Speaker Change: Nothing material from a consumer standpoint, obviously, they've been under economic pressure for quite a while a lot of it the sustained level of inflation that has taken place the cumulative impact of that.

Speaker Change: So.

Speaker Change: Tariffs I think has impacted consumer confidence you haven't necessarily seen it so much in the everyday items, but everyday items are up just because of inflation. So the consumers under pressure.

Billy: So, the consumer is under pressure. It's early days. And we'll see how this plays out throughout the year. And it is something we run a lot of scenarios when we're thinking about providing the investment community guidance. And there are always puts and takes as the year plays out. And I think we are well positioned to adjust. Got it.

Speaker Change: It's early days and we'll see how this plays out throughout the year and it is something we run a lot of scenarios when we're thinking about <unk>.

Speaker Change: Providing the investment community guidance.

There are always puts and takes as the year plays out and I think we are well positioned to adjust.

Billy: Thank you. And obviously, on tariffs, there's still a lot of uncertainty around the duration or the rates that will be applied.

Speaker Change: Got it thank you.

Speaker Change: On tariffs, there's still a lot of uncertainty around the duration or the rates that will be applied could you talk a little bit about how you kind of plan for the long term and in your guidance, whether you are using a particular.

Salvatore Mancuso: Could you talk a little bit about how you kind of plan for the long term and in your guidance, whether you're using a particular percentage for tariffs as part of the sort of base case, or if Yeah, I assume that you're looking at kind of 10% perhaps or 20% on aluminum, but it'd be great if you could talk me through the numbers that you're including in your base case scenario. Yeah, I understand the question. It's a fair question. I'm not going to get into specific numbers and details. What I would tell you is that when you look at the cost of our products, specifically our biggest income generator, the cigarette business, the predominant cost is really driven by federal excise tax, settlement payments, things like that.

Speaker Change: On pitch photography.

Speaker Change: That's positive.

Speaker Change: That's sort of base case or.

Speaker Change: I assume that you're looking at kind of 10% perhaps 20.

Speaker Change: <unk> 2010.

Speaker Change: But it'd be great. If you could talk me through the numbers that you're including in your base case.

Speaker Change: Yes, I understand the question, it's a fair question.

Speaker Change: I'm not going to get into specific numbers and details what I would tell you is that when you look at the cost of our products specifically our biggest income generator.

Speaker Change: The cigarette business.

Speaker Change: Predominant cost is really driven by federal excise tax settlement payments things like that the cost for materials leaf conversion.

Salvatore Mancuso: The cost for materials, leaf conversion is pretty low compared to most CBG companies. So it is something we consider. We have a really terrific supply chain group that is looking at alternative suppliers, and we feel really good about their ability to continue to think about this long term and manage it appropriately. So again, we'll continue to monitor the situation. It is very early days, but we believe that we've got the ability to adjust as time goes on. And again, we'll pay close attention to the impact on the consumer.

Speaker Change: <unk> is pretty low compared to most CPG companies. So it is something we consider we have a really terrific supply chain.

Speaker Change: Group that is looking at alternative.

Speaker Change: Suppliers.

Speaker Change: And we feel really good about their ability to continue to think about this long term and manage it appropriately.

Speaker Change: So again, we will continue to monitor the situation. It is very early days, but we believe that we've got the ability to adjust as time goes on and and again, we will pay close attention to the impact on the consumer.

Emma Rumi: Got it, thank you.

Billy: And then, last one from me, if I may, on unauthorised vapes. You talked a minute ago about the potential for tariffs to increase enforcement at the border, and that's interesting, but I wondered if more broadly you've seen any other positive signals from the Trump administration so far, and how you interpret the changes that have been either implemented or proposed at the FDA and CTP? Certainly we're hopeful, hopeful that they take a position of authorizing and enforcing it. And you heard me earlier say, and you referred to it, certainly with the potential for additional revenue to the U.S.

Speaker Change: Got it. Thank you and then last one for me if I may.

Speaker Change: I know.

Speaker Change: You talked a minute ago about the potential for tariffs to increase enforcement at the border and that's interesting.

Speaker Change: I wondered if more broadly you've seen any other positive signals from the Trump administration, so far and how do you interpret the changes that have been either implemented or proposed at the FDA on CPP.

Speaker Change: Certainly we're hopeful hopeful that they take a position of authorizing and enforcing that and you heard me earlier say and you referred to it certainly with the potential for additional revenue to the U S government.

Billy: government, we're hopeful that there will be stepped up enforcement at the borders, but more importantly is exactly where you went, which is the FDA and the CTP, that they take seriously the regulatory act that was passed by Congress, it shows with these illicit vapes in the marketplace that the consumer wants to move. And so they need to increase their authorization, have a very disciplined process. You remember the act itself called for products to be authorized within 180 days. And I can't recall any product even coming close to meeting that deadline. And so certainly authorization so that you fill the pipeline with products that the consumer wants, and then enforcement for those that just completely shirk the regulatory process that was laid forth by Congress and the intentions there.

Speaker Change: We're hopeful that there will be stepped up enforcement of borders, but more importantly is exactly where you want which is the FDA and the CPP.

Speaker Change: They take seriously the regulatory act that was passed by Congress.

Speaker Change: It shows with these Elisa based in the marketplace that the consumer wants to boot.

Speaker Change: So they need to increase their authorization, having a very disciplined process you remember the act itself called for products to be authorized within 180 days and I can't recall any product, even coming close to meeting that deadline and so certainly authorization. So that you fill the pipeline with <unk>.

Speaker Change: <unk> that the consumer wants and then enforcement for those that just completely sharp the.

Speaker Change: Regulatory process that was late fourth by Congress and the intentions there so.

Billy: So we're certainly hopeful. I think we saw some early actions with the removal of the proposed rule for both menthol in cigarettes and flavored cigars, and we're hopeful that activity and momentum continues.

Speaker Change: We're certainly hopeful I think we saw some early actions with the removal of the proposed rule for both menthol in cigarettes and flavored cigars.

Speaker Change: That activity and momentum continues.

Emma Rumi: Okay, thank you very much.

Mac Livingston: Thank you.

Speaker Change: Okay. Thank you very much thank you.

Mac Livingston: And there appears to be no further questions at this time.

Speaker Change: And there appears to be no further questions. At this time I would like now like to turn the call back over to Mac Livingston for any closing remarks.

Mac Livingston: I would now like to turn the call back over to Mac Livingston for any closing remarks. Just thanks to everybody for joining us, and have a great day. We'll talk to you soon. Thanks.

Mac Livingston: Just thanks to everybody for joining us and have a great day, we'll talk to you soon thanks.

Operator: This concludes today's call. Thank you for your participation, and you may disconnect at any time. and Andy Simmons. All right. Good work.

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

Speaker Change: [music].

Speaker Change: Okay.