Q2 2026 Altria Group Inc Earnings Call

Speaker #1: Good day, and welcome to the Altria Group 2026. Erling's conference call. Today's call is scheduled to last about 1 hour, including remarks by Altria's management and a question-and-answer session.

Speaker #1: Representatives of the investment community and media on the call will be able to ask questions following the conclusion of the prepared remarks. I would now like to turn the call over to Matt Livingston, Vice President of Investor Relations.

Speaker #1: Please go ahead, sir.

Speaker #2: Thanks, Olivia. Good morning, and thank you for joining us. This morning, Sal Mancuso, Altria's CEO, and Heather Newman, our CFO, will discuss Altria's 2026 Q2 business results.

Speaker #2: Earlier today, we issued a press release providing our results. The release, presentation, and quarterly metrics are all available at altria.com. During our call today, unless otherwise stated, we're comparing results to the same period in 2025.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: Finally, all references in today's remarks to nicotine consumers, or consumers within a specific nicotine category or segment, refer to existing adult nicotine consumers 21 years of age or older.

Speaker #2: With that, I'll turn the call over to Sal.

Speaker #3: Thanks, Matt. Good morning. And thank you for joining us. In the second quarter, our operating companies continued to deliver against the priorities we outlined at the start of the year.

Speaker #3: Advancing our smoke-free portfolio, strengthening our traditional tobacco businesses, and delivering significant returns to shareholders. In smoke-free, Helix expanded on-plus to 120,000 stores nationwide, engaged in trial-generating activities, and prepared for additional line extensions to come later this year.

Speaker #3: In smokeable products, PMUSA advanced its data-driven total portfolio approach to drive profitability. As Marlborough Cowboy cut generated strong interest among premium smokers, and Basic continued to gain traction in discount.

Speaker #3: We delivered strong first-half results, driving adjusted diluted EPS growth of 4.9% and returned nearly 3.9 billion dollars to shareholders through dividends and share repurchases combined.

Speaker #3: This performance reflects steady disciplined execution and confidence in our full-year plan. Which allowed us to narrow our earnings guidance for the year. This morning, I'll cover second quarter and first-half results from on recent FDA actions and e-vapor category dynamics, and how our operating companies celebrated America's 250th anniversary.

Speaker #3: I'll then turn it over to Heather, who will provide further detail on our business results and financial outlook. Let's begin with the nicotine pouch category, and our growing on-portfolio.

Speaker #3: Nicotine pouches continue to drive volume growth in the oral tobacco category. Which we estimate. Increased 6% over the past 6 months. In the second quarter, the nicotine pouch category grew 8.1 share points and now represents nearly 60% of the total oral category.

Speaker #3: As the category continues to expand, Helix is building on its momentum and strengthening ons position. In the second quarter, ons reported shipment volume was 49.9 million cans down 4.2% versus the prior year due to trade inventory movements.

Speaker #3: Year to date, ons reported shipment volume increased by 5.1%, reflecting the early impact of on-plus following its national expansion. In the second quarter, ons retail share reached 8.6%, up 0.8 share points sequentially, and 0.3 share points year over year.

Speaker #3: Driven by the introduction of on-plus. Early data suggests on-plus's resonating with both loyal ons and competitive nicotine pouch consumers, driving incremental volume and share contributions for the brand.

Speaker #3: We've also seen encouraging repeat purchase rates that suggest consumers value the differentiated experience of our Nico Silk soft pouch. These results reflect the strategic investments we've made to support the brand.

Speaker #3: Earlier this year, Helix launched a new retail trade program that secured premium visibility and incremental fixture space for on-plus, and it's growing product portfolio.

Speaker #1: To expand Helix is building on its momentum, and strengthening on its position. In the second quarter, on reported shipment volume, was 49.9 million cans, down 4.2% versus the prior year due to trade inventory movements.

Speaker #3: Helix complements the program with responsible marketing investments across retail, live events, paid social media, and more. As a result, Helix delivered gains in both total and unaided brand awareness for ons in the first half of the year.

Speaker #1: Year-to-date, on reported shipment volume increased by 5.1%, reflecting the early impact of ONPLUS following its national expansion. In the second quarter, on retail share reached 8.6%, up 0.8 share points sequentially, and 0.3 share points year-over-year.

Speaker #3: Maintaining its position as the second most recognized brand in the nicotine pouch category. These early indicators reflect a strong start for on-plus with nicotine pouch consumers.

Speaker #1: Driven by the introduction of ON PLUS. Early data suggests ON PLUS is resonating with both loyal ON and competitive nicotine pouch consumers, driving incremental volume and share contributions for the brand.

Speaker #3: Competitive activity in the nicotine pouch space is intensifying, with competitors bringing new products and flavors to market. And Helix is prepared with a differentiated product experience and a growing product portfolio.

Speaker #1: We've also seen encouraging repeat purchase rates, that suggests consumers value the differentiated experience of our Nico Silk soft pouch. These results reflect the strategic investments we've made to support the brand.

Speaker #3: Helix's momentum is supported by an improving regulatory backdrop. The FDA recently updated its enforcement priorities for certain e-vapor and nicotine pouch products. We view this as a positive step toward greater regulatory clarity and transparency.

Speaker #1: Earlier this year, Helix launched a new retail trade program that secured premium visibility and incremental fixture space for ONPLUS, and it's growing product portfolio.

Speaker #3: While the guidance does not replace the need for formal authorizations, it recognizes that products and advanced stages of FDA review should be treated differently from products that evade regulatory oversight entirely.

Speaker #1: Helix complemented its trade program with responsible marketing investments, across retail, live events, paid social media, and more. As a result, Helix delivered gains in both total and unaided brand awareness for ON in the first half of the year.

Speaker #3: For Helix, we believe this guidance provides regulatory clarity for future product launches and reinforces Helix's strong position. As the on-plus authorizations received last year, create the potential for a faster supplemental PMTA pathway for future line extensions.

Speaker #1: Maintaining its position as the second most recognized brand in the nicotine pouch category. These early indicators reflect a strong start for ONPLUS with nicotine pouch consumers.

Speaker #3: In the second quarter, Helix resumed shipments of on-plus 12 milligram in three flavors in Florida, North Carolina, and Texas. With a national expansion planned for the third quarter.

Speaker #1: Competitivity in the nicotine pouch space is intensifying, with competitors bringing new products and flavors to market. And Helix is prepared with a differentiated product experience and a growing product portfolio.

Speaker #3: Helix also plans to introduce flavor extensions across 6, 9, and 12 milligram strengths beginning with blueberry mint and mango pineapple in the fourth quarter.

Speaker #1: Helix's momentum is supported by an improving regulatory backdrop. The FDA recently updated its enforcement priorities for certain e-vapor and nicotine pouch products. We view this as a positive step toward greater regulatory clarity and transparency.

Speaker #3: We believe these products will enhance the on-plus portfolio and help meet increasing consumer demand for higher strength options and more flavor variety. Helix is committed to strengthening its position in the attractive nicotine pouch space and driving long-term profitable growth in the category.

Speaker #1: While the guidance does not replace the need for formal authorizations, it recognizes that products at advanced stages of FDA review should be treated differently from products that evade regulatory oversight entirely.

Speaker #3: In e-vapor, we continue to believe that the category holds the potential to advance tobacco harm reduction in the US and that recent FDA actions help expand access to regulated options for consumers.

Speaker #1: For Helix, we believe this guidance provides regulatory clarity for future product launches and reinforces Helix's strong position. As the ONPLUS authorizations receive last year, create the potential for a faster supplemental PMTA pathway for future line extensions.

Speaker #3: We also continue to see encouraging signs that federal and state agencies are committed to stronger enforcement. During the quarter, this included continued federal seizures of illicit products totaling more than 250 million dollars.

Speaker #1: In the second quarter, Helix resumed shipments of ONPLUS 12 mg in 3 flavors in Florida, North Carolina, and Texas, with a national expansion planned for the third quarter.

Speaker #3: A lawsuit by the Minnesota Attorney General against a leading illicit e-vapor manufacturer and actions by major commerce and payment platforms to restrict illicit e-vapor sales.

Speaker #1: Helix also plans to introduce flavor extensions across 6, 9, and 12 mg strengths, beginning with Blueberry Mint and Mango Pineapple in the fourth quarter.

Speaker #3: For harm reduction to succeed, two things are necessary. A more efficient authorization process and consistent enforcement over time. Both are critical to establish a level playing field among legal manufacturers with high-quality smoke-free products for adult nicotine consumers.

Speaker #1: We believe these products will enhance the ONPLUS portfolio and help meet increasing consumer demand for higher strength options and more flavor variety. Helix is committed to strengthening its position in the attractive nicotine pouch space and driving long-term profitable growth in the category.

Speaker #3: We believe increased enforcement activity including supply-related disruptions at the border is helping slow demand for illicit products. While illicit flavor disposable products remain prevalent, signs of moderating growth continue in the second quarter.

Speaker #1: In e-vapor, we continue to believe that the category holds the potential to advance tobacco harm reduction in the U.S. and that recent FDA actions help expand access to regulated options for adult consumers.

Speaker #3: And we're beginning to see this reflected in the consumer data. At the end of June, we estimate there were approximately 20 million adult vapors essentially unchanged from a year ago.

Speaker #1: We also continue to see encouraging signs that federal and state agencies are committed to stronger enforcement. During the quarter, this included continued federal seizures of illicit products totaling more than $250 million.

Speaker #3: Over the same period, the estimated number of disposable e-vapor consumers declined modestly. Together, these trends suggest the category's illicit-driven growth trajectory is beginning to moderate from the growth seen in previous years.

Speaker #1: A lawsuit by the Minnesota Attorney General against a leading illicit e-vapor manufacturer and actions by major commerce and payment platforms to restrict illicit e-vapor sales.

Speaker #3: Before I turn it over to Heather, I'd like to briefly highlight how we're supporting the people, communities, and brands that have been central to our success for generations.

Speaker #1: For harm reduction to succeed, two things are necessary: a more efficient authorization process and consistent enforcement over time. Both are critical to establish a level playing field among legal manufacturers with high-quality smoke-free products for adult nicotine consumers.

Speaker #3: Our companies have strong American roots and longstanding relationships with farmers that span more than 200 years. Our nation celebrates its 200th and 50th anniversary we're honoring that heritage.

Speaker #1: We believe increased enforcement activity—including supply-related disruptions at the border—is helping slow demand for illicit products. While illicit flavor disposable products remain prevalent, signs of moderating growth continue in the second quarter.

Speaker #3: By investing in American tobacco growers, in their local communities, engaging our employees nationwide through service, and civic participation, and marking the milestone across our portfolio including Copenhagen's year-long celebration of the Farmers Veterans and Tradespeople who helped shape our country.

Speaker #1: And we're beginning to see this reflected in the consumer data. At the end of June, we estimate there were approximately 20 million adult vapors essentially unchanged from a year ago.

Speaker #3: And PMUSA's introduction of Marlborough Cowboy Cut. A classic Marlborough experience anchored in the brand's iconic American story. Collectively, these efforts honor the American roots that have shaped our reinforcing the foundation for our next chapter of growth.

Speaker #1: Over the same period, the estimated number of disposable e-vapor consumers declined modestly. Together, these trends suggest the category's illicit-driven growth trajectory is beginning to moderate from the growth seen in previous years.

Speaker #3: In summary, we've had a strong first half of 2026. Our expanding smoke-free portfolio, the strength of our traditional businesses, a regulatory environment that has increasingly focused on addressing illicit products, and the passion of our talented employees support our confidence in the opportunities ahead.

Speaker #1: Before I turn it over to Heather, I'd like to briefly highlight how we're supporting the people, communities, and brands that have been central to our success for generations.

Speaker #1: Our companies have strong American roots, and long-standing relationships with farmers that span more than 200 years. Our nation's celebrates its 200th and 50th anniversary; we're honoring that heritage.

Speaker #3: With that, I'm delighted to turn the call over to Heather Newman, our new CFO, to provide details on our business and financial results.

Speaker #1: By investing in American tobacco growers, in their local communities, engaging our employees nationwide through service and civic participation, and marking the milestone across our portfolio—including Copenhagen's year-long celebration of the Farmers Veterans and Tradespeople who helped shape our country—and PMUSA's introduction of Marlborough Cowboy Cut.

Speaker #2: Thanks, Al. And good morning, everyone. Outreach delivered strong second quarter and first half financial performance. Adjusted diluted earnings per share increased by 2.8% to $1.48 in the second quarter and by 4.9% to $2.80 for the first half.

Speaker #2: Robust smokeable products adjusted OCI growth continued to be a key contributor to earnings. In the segment, adjusted OCI grew by 2.4% to $3 billion in the second quarter and by 4.2% to $5.7 billion in the first half.

Speaker #1: A classic Marlborough experience anchored in the brand's iconic American story. Collectively, these efforts honor the American roots that have shaped our businesses while reinforcing the foundation for our next chapter of growth.

Speaker #2: Adjusted OCI margins expanded to 64.8% in the second quarter and 64.9% in the first half. The decline in our smokeable volumes reported domestic cigarette volumes declined 3.2% in the second quarter and 2.8% in the first half.

Speaker #1: In summary, we've had a strong first half of 2026. Our expanding smoke-free portfolio, the strength of our traditional businesses, a regulatory environment that has increasingly focused on addressing illicit products, and the passion of our talented our confidence in the opportunities ahead.

Speaker #2: When adjusted for trade inventory movements, domestic cigarette volumes in the second quarter and the first half declined by an estimated 4.5% and 4% respectively.

Speaker #1: With that, I'm delighted to turn the call over to Heather Newman, our new CFO, to provide details on our business and financial results.

Speaker #2: At the industry level, when adjusted for the same factor, we estimate that domestic cigarette volumes declined by 5% in both the second quarter and in the first half, marking the fourth consecutive quarter of moderated cigarette industry declines.

Speaker #2: Thanks, Al. And good morning, everyone. ALTRIA delivered strong second quarter and first half financial performance. Adjusted diluted earnings per share increased by 2.8% to $1.48 in the second quarter, and by 4.9% to $2.80 for the first half.

Speaker #2: This trend continues to primarily be driven between cigarettes and illicit-flavored disposable e-vapor products. Economic pressure on adult smokers continued to impact cigarette industry dynamics.

Speaker #2: Robust smokeable products adjusted OCI growth continued to be a key contributor to earnings. In the segment, adjusted OCI grew by 2.4% to $3 billion in the second quarter, and by 4.2% to $5.7 billion in the first half.

Speaker #2: In the discount segment, persistent discretionary income pressures especially among low-income consumers remain the primary driver of growth. Pressures included elevated gas prices and the compounding effects of inflation exceeding overall wage growth.

Speaker #2: Adjusted OCI margins expanded to 64.8% in the second quarter and 64.9% in the first half. The decline in our smokeable volumes continued to moderate during the quarter.

Speaker #2: As a result, for both the second quarter and first half, discount retail share grew by 2.6 share points. This trade down dynamic impacted Marlborough's overall retail share, which declined 1.5 share points versus a year ago period, and 2/10 sequentially.

Speaker #2: Reported domestic cigarette volumes declined 3.2% in the second quarter and 2.8% in the first half. When adjusted for trade inventory movements, domestic cigarette volumes in the second quarter and the first half declined by an estimated 4.5% and 4%, respectively.

Speaker #2: However, Marlborough maintained its longstanding leadership profitable premium segment. In the second quarter, Marlborough's share of premium was 59.6%, unchanged versus the prior year and up 1/10 sequentially.

Speaker #2: At the industry level, when adjusted for the same factor, we estimate that domestic cigarette volumes declined by 5% in both the second quarter and in the first half, marking the fourth consecutive quarter of moderated cigarette industry declines.

Speaker #2: Basic continues to support PMUSA's portfolio strategy by providing a competitive offering in stores where discount brands are most relevant. During the quarter, retail share expanded by 3/10 sequentially and 2.3 share points year over year.

Speaker #2: This trend continues to primarily be driven by reduced cross-category movement between cigarettes and illicit-flavored disposable e-vapor products. Economic pressure on adult smokers continued to impact cigarette industry dynamics.

Speaker #2: Throughout the first half, PMUSA applied the same RGM-driven precision that guided basics repositioning from the start. Expanding targeted promotional support to roughly 35,000 stores while refining investment levels based on marketplace learnings.

Speaker #2: In the discount segment, persistent discretionary income pressures—especially among low-income consumers—remained the primary driver of growth. Pressures included elevated gas prices and the compounding effects of inflation exceeding overall wage growth.

Speaker #2: This discipline data-driven approach to basics retail footprint and brand investments helps capture share that we believe otherwise would have been lost to competitive discount brands while limiting incremental impact to Marlborough.

Speaker #2: As a result, for both the second quarter and first half, discount retail share grew by 2.6 share points. This trade-down dynamic impacted Marlborough's overall retail share, which declined 1.5 share points versus the year-ago period, and 0.2 sequentially.

Speaker #2: PMUSA's total portfolio strategy continues to support both share performance and long-term profit growth. Total PMUSA retail share expanded 1/10 of a share point sequentially and 3/10 versus a year ago.

Speaker #2: However, Marlborough maintained its long-standing leadership profitable premium segment. In the second quarter, Marlborough's share of premium was 59.6%, unchanged versus the prior year and up 0.1 sequentially.

Speaker #2: This balance between premium and discount reinforces long-term profitability while supporting overall share stability within PMUSA. Reflecting this balance, smokeable price realization for the quarter was 4.5%, driven by strong net pricing for Marlborough, partially offset by mix impact of basic volumes growth.

Speaker #2: Basic continues to support PMUSA's portfolio strategy by providing a competitive offering in stores where discount brands are most relevant. During the quarter, retail share expanded by 0.3 sequentially and 2.3 share points year-over-year.

Speaker #2: In cigars, reported shipment volume increased 5% in the second quarter as Middleton continued to significantly outperform in the large mass cigar industry. All other manufacturers continued to experience volume declines, with the industry down 6.4% in the same period.

Speaker #2: Throughout the first half, PMUSA applied the same RGM-driven precision that guided basics repositioning from the start. Expanding targeted promotional support to roughly 35,000 stores while refining investment levels based on marketplace learnings.

Speaker #2: Turning now to the oral tobacco product segment. Second quarter results reflect continued evolution of the category towards nicotine pouches. Segment performance was impacted by the prior year comparison when 2025 volumes benefited from promotional timing and competitor supply disruptions.

Speaker #2: This disciplined, data-driven approach to basics retail footprint and brand investments helps capture share that we believe otherwise would have been lost to competitive discount brands while limiting incremental impact to Marlborough.

Speaker #2: Additionally, financial results were impacted by strategic investments behind On Plus introductory trial offers as we expanded beyond the initial launch dates. As a result, adjusted OCI decreased by 8% in the second quarter and 4.2% in the first half.

Speaker #2: PMUSA's total portfolio strategy continues to support both share performance and long-term profit growth. Total PMUSA retail share expanded 0.1 of a share point sequentially and 0.3 versus a year ago.

Speaker #2: This balance between premium and discount reinforces long-term profitability while supporting overall share stability within PM USA. Reflecting this balance, smokeable price realization for the quarter was 4.5%, driven by strong net pricing for Marlboro, partially offset by the mix impact of Basic volume growth.

Speaker #2: Adjusted OCI remained at 66.7% for the second quarter and 67% for the first half. Total segment reported shipment volume decreased 8.5% for the second quarter and growth in On was more than offset by lower MST volumes.

Speaker #2: In cigars, reported shipment volume increased 5% in the second quarter, as Middleton continued to significantly outperform in the large-mass cigar industry. All other manufacturers continued to experience volume declines, with the industry down 6.4% in the same period.

Speaker #2: When adjusted for trade inventory movements, we estimate that second quarter and first half oral tobacco product segment volumes declined by approximately 2% and 5.5% respectively.

Speaker #2: Oral tobacco product segment retail share was 20% in the second quarter and for the first half. Retail share was stable sequentially reflecting the growth of On and resiliency of our MST brands.

Speaker #2: Turning now to the oral tobacco product segment. Second quarter results reflect the continued evolution of the category towards nicotine pouches, segment performance with impacted by a difficult prior year comparison, when 2025 volumes benefited from promotional timing and competitor supply disruptions.

Speaker #2: In the highly profitable Moist Smokeless Tobacco segment, Copenhagen continued to maintain its longstanding premium leadership. Turning to ABI's financial results, we recorded 158 million in adjusted equity earnings in the second quarter up 21.5% versus the prior year.

Speaker #2: Additionally, financial results were impacted by strategic investments behind ON+ introductory trial offers as we expanded beyond the initial launch dates. As a result, adjusted OCI decreased by 8% in the second quarter, and 4.2% in the first half.

Speaker #2: 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.

Speaker #2: Adjusted OCI margins remained strong, at 66.7% for the second quarter and 67% for the first half. Total segment reported shipment volume decreased 8.5% for the second quarter and 6% for the first half, as growth in ON was more than offset by lower MST volumes.

Speaker #2: We remain committed to returning significant value to shareholders. During the first half of the year, we paid approximately 3.6 billion in dividends and repurchased 5.3 million shares for 335 million.

Speaker #2: At the end of the second quarter, we had 665 million remaining, under our current share repurchase program, which expired at the end of the year.

Speaker #2: When adjusted for trade inventory movements, we estimate that second quarter and first half oral tobacco product segment volumes declined by approximately 2% and 5.5%, respectively.

Speaker #2: In addition, our balance sheet remained strong. Our debt-to-EBITDA ratio as of June 30 was 1.9 times, in line with our target, of approximately 2 times.

Speaker #2: Oral tobacco product segment retail share was 29% for the second quarter and for the first half. Retail share was stable sequentially, reflecting the growth of ON and resiliency of our MST brands.

Speaker #2: Finally, let's turn to our financial outlook. As we've discussed this morning, our business performed extremely well during the first half of the year. As a result, we are raising the lower end of our full year 2026 guidance.

Speaker #2: In the highly profitable Moist Smokeless Tobacco segment, Copenhagen continued to maintain its long-standing premium leadership. Turning to ABI's financial results, we recorded 158 million in adjusted equity earnings in the second quarter, up 21.5% versus the prior year.

Speaker #2: We now expect to deliver adjusted diluted EPS in a range of $5.61 to $5.72, representing a growth rate of 3.5% to 5.5% from a base of $5.42 in 2025.

Speaker #2: We are mindful of the challenge state of the nicotine consumers and we will continue to closely monitor their purchasing behaviors. And while refunds of taxes and duties paid on imported cigarettes for the quarter were flat sequentially due to timing factors, we continue to expect export volume and related tax refunds to be higher in the second half of the year, with a more balanced benefit across the third and fourth quarters.

Speaker #2: 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.

Speaker #2: We remain committed to returning significant value to shareholders. During the first half of the year, we paid approximately 3.6 billion in dividends and repurchased 5.3 million shares for 335 million.

Speaker #2: With that, we'll wrap up and Sal and I will be happy to take your questions. Will the calls are being compiled I'll remind you that today's earnings release and our non-GAAP reconciliations are available on Altria.com.

Speaker #2: At the end of the second quarter, we had 665 million remaining, under our current share repurchase program, which expired at the end of the year.

Speaker #2: In addition, our balance sheet remained strong, our debt-to-EBITDA ratio as of June 30 was 1.9 times, in line with our target, of approximately 2 times.

Speaker #2: We've also posted our usual quarterly metrics which include pricing, inventory, and other items. Operator, let's open the question and answer period.

Speaker #2: Finally, let's turn to our financial outlook. As we've discussed this morning, our business performed extremely well during the first half of the year. As a result, we are raising the lower end of our full-year 2026 guidance.

Speaker #3: Thank you. At this time, if you would like to ask a question, please click on the raise hand button which can be found on the black bar at the bottom of your screen.

Speaker #3: When it is your turn, you will receive a message on your screen from the host allowing you to talk and then you will hear your name called.

Speaker #2: We now expect to deliver adjusted diluted EPS in a range of $5.61 to $5.72, representing a growth rate of 3.5% to 5.5% from a base of $5.42 in 2025.

Speaker #3: Please accept unmute your audio and ask your question. Investors, analysts, and media representatives are now invited to participate in the question and answer session.

Speaker #3: We will take questions from the investor community first. The first question is from Matt Smith at Stifel. Please unmute yourself and begin with your question.

Speaker #2: We are mindful of the challenge state of the nicotine consumers and we will continue to closely monitor their purchasing behaviors. And while refunds of taxes and duties paid on imported cigarettes for the quarter were flat sequentially due to timing factors, we continue to expect export volume and related tax refunds to be higher in the second half of the year, with a more balanced benefit across the third and fourth quarters.

Speaker #4: Hi, good morning. Thank you for taking my question. You raised the low. Guidance range but even with that, the low end is below the first half.

Speaker #4: And I think initially you anticipated a stronger phasing of growth in the second half. So how should we think about the second half now given some commentary around building benefits from the duty drawback?

Speaker #2: With that, we'll wrap up and Sal and I will be happy to take your questions. Will the calls are being compiled, I'll remind you that today's earnings release and our non-GAAP reconciliations are available on altria.com.

Speaker #4: Are you stepping up investments? You talked about some launches behind On Plus and you have Cowboy Cut going into the market. So are you stepping up incremental investments or are there other considerations in the second half we should think about?

Speaker #2: We've also posted our usual quarterly metrics, which include pricing, inventory, and other items. Operator, let's open the question-and-answer period.

Speaker #5: Yeah, thanks for the question, Matt. It's good to hear from you. Look, we were really pleased that we could narrow guidance for our investors coming out of the second quarter.

Speaker #5: Really pleased with the first half results to your point. And yeah, the timing played out somewhat differently than our what we thought at the very beginning of the year.

Speaker #1: Thank you. At this time, if you would like to ask a question, please click on the raise hand button, which can be found on the black bar at the bottom of your screen.

Speaker #1: When it is your turn, you will receive a message on your screen from the host allowing you to talk, and then you will hear your name called.

Speaker #5: As you go into the second half of the year, I think it's important to keep an eye on the financial health of the consumer.

Speaker #1: Please accept, unmute your audio, and ask your question. Investors, analysts, and media representatives are now invited to participate in the question-and-answer session. We will take questions from the investor community first.

Speaker #5: The consumer remains under pressure. Gas prices and inflation remain elevated driven primarily by the uncertainty and the geopolitical climate. That they are living in today.

Speaker #1: The first question is from Matt Smith at Stifel. Please unmute yourself and begin with your question.

Speaker #5: So and then I think you are right to point out we talked about national expansion of the 12 milligram On Plus we've talked about flavor introduction of flavor extensions across the portfolio and yes, that will require a level of investment.

Speaker #3: Hi, good morning. Thank you for taking my question. You raised the low end of the guidance range, but even with that, the low end is below the first half delivery.

Speaker #3: And I think initially you anticipated a stronger phasing of growth in the second half. So how should we think about the second half now, given some commentary around building benefits from the duty drawback?

Speaker #5: So again, we feel really good about being able to narrow guidance and we look forward to the second half of the year.

Speaker #3: Are you stepping up investments? You talked about some launches behind ON+, and you have Cowboy Cut going into the market. So are you stepping up incremental investments, or are there other considerations in the second half we should think about?

Speaker #4: Thank you. And as a follow-up, one of the investment areas is the continued expansion of Cowboy Cut. I know it's early days but can you talk about your initial observations in terms of the product's market share trajectory and where the volume for Cowboy Cut is being sourced from and how you think that evolves over time?

Speaker #4: Yeah, thanks for the question, Matt. It's good to hear from you. Look, we were really pleased that we could narrow guidance for our investors.

Speaker #4: Coming out of the second quarter, really pleased with the first half results to your point. And yeah, the timing played out somewhat differently than our what we thought at the very beginning of the year.

Speaker #5: Yeah, we're excited about Cowboy Cut. We're really pleased with the early introduction of Cowboy Cut. Again, it serves two purposes. One, it does allow Marlboro to further celebrate the 250th anniversary of the country.

Speaker #4: As you go into the second half of the year, I think it's important to keep an eye on the financial health of the consumer.

Speaker #5: And it really leverages Marlboro's American heritage. And at the same time, it engages with more value-sensitive Marlboro smokers and premium smokers who are seeking value at a time when the economic environment is difficult for those consumers.

Speaker #4: The consumer remains under pressure. Gas prices and inflation remain elevated, driven primarily by the uncertainty and the geopolitical climate. That they are living in today.

Speaker #4: So and then I think you are right to point out, we talked about national expansion of the 12 milligram ON+. We've talked about flavor introduction of flavor extensions.

Speaker #5: You should think of Cowboy Cut as one of the many tools in the suite of RGM tools that PMUSA uses to engage with consumers.

Speaker #5: So again, really pleased with the early days of Cowboy Cut. And really pleased that we're able to use the breadth of Marlboro's portfolio to engage with value-sensitive consumers.

Speaker #4: Across the portfolio, and yes, that will require a level of investment. So again, we feel really good about being able to narrow guidance and we look forward to the second half of the year.

Speaker #5: And to use data analytics so that we can be more prescriptive in terms of how we apply those promotional rates across the country.

Speaker #3: Thank you. And as a follow-up, one of the investment areas is the continued expansion of Cowboy Cut. I know it's early days, but can you talk about your initial observations in terms of the product's market share trajectory and where the volume for Cowboy Cut is being sourced from, and how you think that evolves over time?

Speaker #4: Thank you, Sal. I'll pass it on.

Speaker #5: Thanks, Matt.

Speaker #3: The next question is from Bonnie Herzog at Goldman Sachs. Please unmute yourself and begin with your question.

Speaker #4: Yeah, you know we're excited about Cowboy Cut. We're really pleased with the early introduction of Cowboy Cut. Again, it serves two purposes. One, it does allow Marlboro to further celebrate the 250th anniversary of the country.

Speaker #2: All right. Thank you. Good morning, everyone. I had a question on the double duty drawback. I guess I'm hoping for a little bit more color on why you didn't recognize more of a benefit in Q2.

Speaker #2: You did export more volume sequentially. So I guess I assume something happened with the import volume quantity. I'm asking because I just want to make sure there's, I don't know, no issue and you have good visibility on this really ramping into H versus 1H.

Speaker #4: And it really leverages Marlboro's American heritage. And at the same time, it engages with more value-sensitive Marlboro smokers and premium smokers who are seeking value at a time when the economic environment is difficult for those consumers.

Speaker #2: And then despite the double duty drawback benefit not increasing sequentially in the quarter, your smokeable OCI growth was still up and up sequentially on a stack basis, which is clearly positive.

Speaker #4: You should think of Cowboy Cut as one of the many tools in the suite of RGM tools that PMUSA uses. To engage with consumers, so again, really pleased with the early days of Cowboy Cut.

Speaker #2: So could you touch on some of the drivers of that and maybe how sustainable you believe that is?

Speaker #6: Hey, Bonnie. Thanks for the question. For double duty drawback, you're absolutely right to point out export volumes increased Q1 to Q2. Really what you're seeing is a timing factor.

Speaker #4: I'm really pleased that we're able to use the breadth of Marlboro's portfolio to engage with value-sensitive consumers, and to use data analytics so that we can be more prescriptive in terms of how we apply those promotional rates across the country.

Speaker #6: And so there are two components to that, why that's not true and up to the FET credit. One is the time in terms of when we apply for that credit.

Speaker #6: The other is just staging of products and inventory movement. And that's why that's not perfectly lining up. We do expect in the second half of the year for export volume to increase.

Speaker #3: Thank you, Sal. I'll pass it on.

Speaker #4: Thanks, Matt.

Speaker #6: And we'll have a more balanced benefit across Q3 and Q4 for the FET credit. From a smokeable OCI standpoint, really have two components, strong Marlboro price realization that happened in the quarter as well as the first half.

Speaker #1: The next question is from Bonnie Herzog at Goldman Sachs. Please unmute yourself and begin with your question.

Speaker #5: All right, thank you. Good morning, everyone. I had a question on the double duty drawback. I guess I'm hoping for a little bit more color on why you didn't recognize more of a benefit in Q2.

Speaker #6: And then basic, from an overall strategy standpoint, it was incremental to total PMUSA. And we saw a benefit in terms of volume and share performance.

Speaker #5: You did export more volume sequentially, so I guess I assume something happened with the import volume quantity. I’m asking because I just want to make sure there’s, I don’t know, no issue, and you have good visibility on this really ramping into H versus 1H.

Speaker #6: So we feel really good about that total portfolio approach for PMUSA. That really aligns with our strategy to maximize profitability over the long term.

Speaker #2: Okay. Maybe part of my second question will touch on this, but then I do have another question just on the consumer and your SIG volumes.

Speaker #5: And then despite the double duty drawback benefit not increasing sequentially in the quarter, your smokeable OCI growth was still up and up sequentially on a stacked basis, which is clearly positive.

Speaker #2: As you guys have highlighted, SIG volume declines are moderating. So just maybe hoping for a little bit more color in what you think might be driving this and whether you expect this to continue.

Speaker #5: So could you touch on some of the drivers of that and maybe how sustainable you believe that is?

Speaker #2: And then I'm also asking in the context of sort of something you just touched on, Heather, is basic, because I think about the second half, you're going to have pretty tough comps for basic.

Speaker #6: Hey, Bonnie, thanks for the question. For double duty drawback, you're absolutely right to point out export volumes increased. Q1 to Q2, really what you're seeing is a timing factor.

Speaker #2: So just trying to understand if we should realistically assume your SIG volumes will be worse in 2H versus 1H. And then maybe high-level, just give us a sense of any change consumer behavior in a elasticities given maybe still elevated prices at the pump and tough macro.

Speaker #6: And so, there are two components to that, why that's not true enough to the FET credit. One is the timing in terms of when we apply for that credit.

Speaker #6: The other is just staging of products and inventory movement, and that's why that's not perfectly lining up. We do expect, in the second half of the year, for export volume to increase.

Speaker #2: Thanks.

Speaker #5: Yeah, Bonnie, there's a lot in that question. So let me hopefully answer all of them if I don't please follow up and if Heather has anything to add, of course.

Speaker #6: And we'll have a more balanced benefit across Q3 and Q4 for the FET credit. From a smokeable OCI standpoint, really have two components: strong Marlboro price realization that happened in the quarter as well as the first half.

Speaker #5: So as far as the let me start with the cigarette volumes. And what you're seeing across the industry, and we break out what we're seeing in terms of industry volume decline.

Speaker #6: And then basic, from an overall strategy standpoint, it was incremental to total PMUSA. And we saw a benefit in terms of volume and share performance.

Speaker #5: So the drivers, you have the secular decline in the price elasticity. And then the third bucket is this cross-category movement macroeconomic conditions. You are exactly right that the macroeconomic conditions are unsettled.

Speaker #6: So we feel really good about that total portfolio approach for PMUSA. That really aligns with our strategy to maximize profitability over the long term.

Speaker #5: Okay. Maybe part of my second question will touch on this, but then I do have another question just on the consumer and your SIG volumes.

Speaker #5: You have, again, as we talked about earlier, high levels and persistent inflation higher elevated gas prices. But that is somewhat being offset by the moderation in essentially more than offset by the moderation in cross-category movement.

Speaker #5: As you guys have highlighted, SIG volume declines are moderating. So just maybe hoping for a little bit more color in what you think might be driving this and whether you expect this to continue?

Speaker #5: And then I'm also asking in the context of sort of something you just touched on, Heather, is basic, because I think about the second half, you're going to have pretty tough comps for basic.

Speaker #5: And that's really driven by the fact we believe there are two factors that are driving that. One is the elevated level of enforcement that we're seeing in the marketplace and some of the supply chain disruption that is occurring related to the illicit disposable e-vapor products.

Speaker #5: So just trying to understand if we should realistically assume your SIG volumes will be worse in 2H versus 1H. And then maybe high-level, just give us a sense of any change in consumer behavior in combustibles, given maybe still elevated prices at the pump and tough macro things.

Speaker #5: And then these products have been available for a number of years. And the consumers many of them had moved already into these categories. So we think both are probably playing a role in the moderation of the decline rate that you're seeing.

Speaker #4: Yeah, Bonnie, there's a lot in that question. So let me hopefully answer all of them if I don't please follow up and if Heather has anything to add, of course.

Speaker #5: And we'll have to see. We don't talk about future volume trends necessarily, but we'll have to see how innovation impacts cross-category movement going forward.

Speaker #4: So as far as the let me start with the cigarette volumes. And what you're seeing across the industry, and we break out what we're seeing in terms of industry volume decline.

Speaker #5: In the first half, you were lapping a higher level of cigarette decline rates that you rightly pointed out. So that's a lot of the driver that you're seeing.

Speaker #4: So, the drivers—you have the secular decline in price elasticity. And then the third bucket is this cross-category movement and macroeconomic conditions. You are exactly right that the macroeconomic conditions are unsettled.

Speaker #5: In the industry, volume decline rate for this quarter. We're also very pleased with the fact that when you look at Marlboro's performance and the fact that it has really held steady in the highly profitable premium segment, that that's a credit not only to the strength of Marlboro and the loyalty rates, it has within the brand, but the ability for PMUSA to effectively use the RGM tool suite it has at its disposal.

Speaker #4: You have, again, as we talked about earlier, high levels and persistent inflation. Higher elevated gas prices. But that is somewhat being offset by the moderation in essentially more than offset by the moderation in cross-category movement.

Speaker #4: And that's really driven by the fact we believe there are two factors that are driving that. One is the elevated level of enforcement that we're seeing in the marketplace and some of the supply chain disruption that is occurring related to the illicit disposable e-vapor products.

Speaker #5: And then yeah, basic has shown strong growth on a year-over-year basis. And we will start to lap that, but we again, our strategy and discount is to participate in discount.

Speaker #4: And then these products have been available for a number of years. And the consumers many of them had moved already into these categories. So we think both are probably playing a role in the moderation of the decline rate that you're seeing.

Speaker #5: And not necessarily accelerate the growth and the discount category you're seeing. And that growth in the category is really driven by consumers' decisions to trade down during a difficult economic situation.

Speaker #4: And we'll have to see. We don't talk about future volume trends necessarily, but we'll have to see how innovation impacts cross-category movement going forward.

Speaker #2: All right. Thanks for that color. I'll pass it on.

Speaker #5: Thanks, Bonnie.

Speaker #1: The next question is from Palavmital at Barclays. Please unmute yourself and begin with your question.

Speaker #4: In the first half, you were lapping a higher level of cigarette decline rates that you rightly pointed out. So that's a lot of the driver that you're seeing.

Speaker #7: Hi. Good morning. Firstly, on cigarette volume. And it's a three-part question. So US industry volumes following up from the previous question clearly better. So far this year, just wanted to check, are you seeing any impact from higher gas prices?

Speaker #4: In the industry, volume decline rate for this quarter. We're also very pleased with the fact that when you look at Marlboro's performance and the fact that it has really held steady in the highly segment, that that's a credit not only to the strength of Marlboro and the loyalty rates, it has within the brand, but the ability for PMUSA to effectively use the RGM tool suite it has at its disposal.

Speaker #7: Because even Q2 volumes were strong or is there a change in that correlation? And in terms of your shipments, your shipments are almost 120, 130 basis points better than the inventory adjusted number.

Speaker #7: So should we expect that to unwind in the second half?

Speaker #4: And then yeah, basic has shown strong growth on a year-over-year basis. And we will start to lap that, but we, again, our strategy and discount is to participate in discount and not necessarily accelerate the growth and the discount that growth in the category is really driven by consumers' decisions to trade situation.

Speaker #5: Yeah. And we are seeing change to the price elasticity seen for a period of time. That coefficient of negative 0.35% continues to hold steady.

Speaker #5: You do see obviously, as I pointed out in Bonnie's question, the growth of the discount category in the cigarette space. And that's consumers making trade-down decisions.

Speaker #5: But premium remains the category or the segment where most of the profitability is in the cigarette category. It's about 85% of the profitability in the cigarette category.

Speaker #5: All right. Thanks for that color. I'll pass it on.

Speaker #4: Thanks, Bonnie.

Speaker #1: The next question is from Palav Mittal at Barclays. Please unmute yourself and begin with your question.

Speaker #5: So PMUSA remains focused on that. You are also correct to point out that PMUSA volume outperform at least the volume trend outperformed the industry.

Speaker #7: Hi, good morning.

Speaker #4: Good morning.

Speaker #7: Firstly, on cigarette volume, and it's a three-part question. So US industry volumes following up from the previous question clearly better so far this year.

Speaker #5: And that's really the total portfolio approach that PMUSA has employed. So you saw overall PMUSA share grow on a year-over-year basis. So that's impacting the volume comparison versus the industry.

Speaker #7: Just wanted to check, are you seeing any impact from higher gas prices? Because even Q2 volumes were strong, or is there a change in that correlation?

Speaker #7: And in terms of your shipments, your shipments are almost 120, 130 basis points better than the inventory adjusted number. So should we expect that to unwind in the second half?

Speaker #7: Sure. And then.

Speaker #5: Anything I missed there? Go ahead.

Speaker #7: If I can then ask on your smokeless business, the on business, can you just talk about the consumer feedback on the On Plus product, the recent 12 mg launch, and any retention rates since you have gone national in March?

Speaker #4: Yeah, we are seeing changes to the price elasticity seen for a period of time. That coefficient of negative 0.35% continues to hold steady. You do see, obviously, as I pointed out in response to Bonnie's question, the growth of the discount category in the cigarette space.

Speaker #7: The reason I asked this question is because despite the national expansion, volumes haven't accelerated significantly. So just wanted to check if there is any inventory movement which is impacting the Q2 numbers or is there something more than that?

Speaker #4: And that's consumers making trade-down decisions. But premium remains the category or the segment where most of the profitability is in the cigarette category. It's about 85% of the profitability in the cigarette category.

Speaker #5: Yeah. Let me start and then Heather, if you'd like to add anything. We're really pleased with the On Plus launch. It's in about 120,000 stores.

Speaker #5: So it covers about 90% of the nicotine product volume. AGDC done has AGDC has done a terrific job. With the On Plus, we mentioned earlier that we launched a new retail program that provides On and On Plus with premium visibility in about 90% of its volume.

Speaker #4: So PMUSA remains focused on that. You are also correct to point out that PMUSA volume outperform, at least the volume trend outperformed the industry.

Speaker #4: And that's really the total portfolio approach that PMUSA has employed. So you saw overall PMUSA share grow on a year-over-year basis. So that's impacting the volume comparison versus the industry.

Speaker #5: Share was up 0.8 sequentially. That is driven by the On Plus launch. The consumer likes the differentiated experience of the soft pouch technology. But we also recognize this important to have higher strengths.

Speaker #7: Sure. And then.

Speaker #4: Anything I missed there? Go ahead.

Speaker #7: If I can then ask on your smokeless business, the on business, can you just talk about the consumer feedback on the On Plus product, the recent 12 mg launch, and any retention rates since you have gone national in March?

Speaker #5: So we're excited about the 12 milligram national launch in the third quarter. And then the flavor expansions, we understand that flavors are important to this category.

Speaker #5: And while the larger flavor portfolio is in mint and winogreen, other flavors are important. So we're excited about our ability to launch that later in the year in the fourth quarter.

Speaker #7: The reason I asked this question is because despite the national expansion, volumes haven't accelerated significantly. So just wanted to check if there is any inventory movement which is impacting the Q2 numbers, or is there something more than that?

Speaker #5: You are right when you talk about shipments. There were some comp issues related to the second quarter. So if you look at 2025, volume was up due to some promotional activity as a major competitor was having some supply chain disruption.

Speaker #4: Yeah, let me start and then Heather, if you'd like to add anything. We're really pleased with the On Plus launch. It's in about 120,000 stores.

Speaker #4: So, it covers about 90% of the nicotine product volume. AGDC has done a terrific job. With On Plus, we mentioned earlier that we launched a new retail program that provides On and On Plus with premium visibility in about 90% of its volume.

Speaker #5: It was important for Helix to promote the on product. And then you have some timing between first quarter and second quarter. As On Plus national launch was being prepared.

Speaker #5: So really happy with the initial launch, excited about the feedback we're getting from consumers. But really excited about the pipeline of products to come related to On Plus.

Speaker #4: Share was up 0.8 sequentially. That is driven by the On Plus launch. The consumer likes the differentiated experience of the soft pouch technology. But we also recognize this important to have higher strengths.

Speaker #7: Thank you.

Speaker #1: The next question is from Eric Sarota at Morgan Stanley. Please unmute yourself and begin with your question.

Speaker #4: So, we're excited about the 12-milligram national launch in the third quarter, and then the flavor expansions. We understand that flavors are important to this category.

Speaker #6: Hi. Thanks for taking the question. Hoping you could give some color into how you're thinking about portfolio mix between discount and premium in the second half.

Speaker #4: And while the larger flavor portfolio is in mint and wintergreen, other flavors are important. So we're excited about our ability to launch that later in the year, in the fourth quarter.

Speaker #6: And as we move forward, you've already talked a bit about or fielded some questions in terms of lapping some of the distribution expansion for basic.

Speaker #4: You are right when you talk about shipments. There were some comp issues related to the second quarter. So if you look at 2025, volume was active as a major competitor was having some supply chain disruption.

Speaker #6: At the same time, you have Cowboy Cut ramping, which at least from limited sample at retail seems to be kind of like a 40% discount to main line, at least in the markets I've seen.

Speaker #4: It was important for Helix to promote the on product. And then you have some timing between first quarter and second quarter. As On Plus national launch was being prepared.

Speaker #6: So not asking for future pricing guidance, but just how are you thinking about that mix benefit or sort of that mix impact going forward?

Speaker #8: Sure. I'm happy to answer. So overall, what we try to do from a strategy standpoint is to maximize the profitability over the long term.

Speaker #4: So really happy with the initial launch, excited about the feedback we're getting from consumers. But really excited about the pipeline of products to come related to On Plus.

Speaker #8: And we do that pretty consistently across the portfolio for PMUSA. And I think the first half performance is a fantastic example of that. You are right that we have different aspects of the portfolio that we will leverage.

Speaker #7: Thank you.

Speaker #8: Let's take Marvill, for example, and Cowboy Cut. That really helps insulate brand. We know that consumers are still under pressure. And to keep them within the Marvill family from time to time, we will leverage our RGM capabilities and provide value to those premium consumers who are under pressure.

Speaker #1: The next question is from Eric Sarota at Morgan Stanley. Please unmute yourself and begin with your question.

Speaker #6: Hi, thanks for taking the question. Hoping you could give some color into how you're thinking about portfolio mix between discount and premium in the second half.

Speaker #8: And that's exactly how we're going to utilize Marvill Cowboy Cut. And then when you think about discount, our approach and sales spot on. We want to participate in discount without accelerating that growth.

Speaker #6: And as we move forward, you've already talked a bit about or fielded some questions in terms of lapping some of the distribution expansion for basic.

Speaker #8: We've done this from time to time. So historically, this is in line with our strategy. Previously, we have had L&M where we've supported discount consumers.

Speaker #8: And now our current strategy is basic. I will remind you, it's very targeted in terms of its support. We leverage RGM to clearly identify where there's consumers under pressure to have the least amount of impact to Marvill.

Speaker #6: At the same time, you have Cowboy Cut ramping, which at least from limited sample, at retail seems to be kind of like a 40% discount to main line, at least in the markets I've seen.

Speaker #8: And so we're really proud of our capabilities there in terms of RGM. And we feel confident in our ability to manage that for the second half.

Speaker #6: So, not asking for future pricing guidance, but just—how are you thinking about that mix benefit, or sort of that mix impact, going forward?

Speaker #9: Great. And then just a follow-up on a different topic. I know it's early days, but in terms of On Plus, any insights as to what you're seeing in terms of consumer sourcing?

Speaker #5: Sure. I'm happy to answer. So overall, what we try to do from a strategy standpoint is to maximize the profitability over the long term.

Speaker #5: And we do that pretty consistently across the portfolio for PM USA. And I think the first-half performance is a fantastic example of that. You are right that we have different aspects of the portfolio that we will leverage.

Speaker #9: How much of it is kind of incremental to the category? And of the part that's not incremental, where do you see it sourcing the most volumes from?

Speaker #5: Let's take Marvo, for example, on Cowboy Cut. That really helps insulate the brand. We know that consumers are still under pressure, and to keep them within the Marvo family from time to time, we will leverage our RGM capabilities and provide value to those premium consumers who are under pressure.

Speaker #9: Either from a segment and strength or a brand standpoint?

Speaker #5: Yeah. If you look at the On Plus share performance, it was up 0.8 sequentially. 0.3 year over year. So we believe it's incremental. To the overall On portfolio, as I said earlier, it resonates both with On consumers as well as competitive nicotine pouch consumers.

Speaker #5: And that's exactly how we're going to utilize Marlboro Cowboy Cut. And then, when you think about discount, our approach on sales is spot on. We want to participate in discount without accelerating that growth.

Speaker #5: We've done this from time to time, so historically, this is in line with our strategy. Previously, we have had L&M, where we've supported discount consumers.

Speaker #5: And then it also is appealing to MST consumers. It's a large pouch. With stronger nicotine strengths, if you will. So we feel really good about the product.

Speaker #5: And now our current strategy is basic. I will remind you, it's very targeted in terms of its support. We leverage RGM to clearly identify where there's consumers under pressure to have the least amount of impact to Marlboro.

Speaker #5: But we recognize it's important to add more flavors to the portfolio. So that's why it was important to have the retail trade program in place ahead of the launch.

Speaker #5: And so we're really proud of our capabilities there in terms of RGM. And we feel confident in our ability to manage that for the second half.

Speaker #5: And again, our AGDC colleagues did a tremendous job of selling that in and working with our retail partners and it's also important to have a pipeline of products behind the current three flavors that we have in the market.

Speaker #2: Great. And then just a follow-up on

Speaker #6: A different topic: I know it's early days, but in terms of On Plus, any insights as to what you're seeing in terms of consumer sourcing?

Speaker #5: So yes, and I have to tell you we're agnostic that it may source some from On Classic. They stay within the On family. And On Plus, we believe is a differentiated product related to the Nico Silk soft pouch technology.

Speaker #6: How much of it is kind of incremental to the category? And of the part that's not incremental, where do you see it sourcing the most volumes from either from a segment and strength or a brand standpoint?

Speaker #5: And we believe over the long term, it will be a premium product because of its differentiation.

Speaker #4: Yeah, if you look at the On Plus share performance, it was up 0.8 sequentially, up 0.3 year over year. So we believe it's incremental.

Speaker #9: Great. Thanks so much. I'll pass it on.

Speaker #5: You're welcome, Eric. Have a great day.

Speaker #4: To the overall On portfolio, as I said earlier, it resonates both with On consumers as well as competitive nicotine pouch consumers. And then it also is appealing to MST consumers as a large pouch.

Speaker #1: The next question is from. Farhan Beg at UBS. Please unmute yourself and begin with your question.

Speaker #10: Good. Good morning, team. Are you able to hear me?

Speaker #5: Yes.

Speaker #10: Fantastic. A couple of questions from me as well. The first one, going back to combustibles, if my math is right, I think there's at least a couple of percentage points of deceleration in price mix at a time when the basics share expansion year on year is sort of no different compared to Q1.

Speaker #4: With stronger nicotine strengths, if you will. So we feel really good about the product, but we recognize it's important to add more flavors to the portfolio.

Speaker #4: So that's why it was important to have the retail trade program in place ahead of the launch. And again, our AGDC colleagues did a tremendous job of selling that in and working with our retail partners.

Speaker #10: Could you just help me understand what maybe drove the incremental step down in price mix? Whether that's related to Marvill pricing or the impact of Cowboy Cut?

Speaker #4: And it's also important to have a pipeline of products behind the current three flavors that we have in the market. So yes, and I have to tell you we're agnostic that it may source some from On Classic.

Speaker #10: Any help there would be useful. And the second question is going back to the recent FDA policy. You highlighted it gives you an opportunity to innovate and launch future line extension and nicotine pouches.

Speaker #4: If they stay within the On family, and On Plus, we believe is a differentiated product related to the Nico Silk soft pouch technology. And we believe over the long term, it will be a premium product because of its differentiation.

Speaker #10: I guess the other category the policy targets is vapor. Could you maybe remind us what you already have submitted in the PMTA pipeline? What's in scientific review?

Speaker #6: Great. Thanks so much. I'll pass it on.

Speaker #4: You're welcome, Eric. Have a great day.

Speaker #1: The next question is from Farhan Beg at UBS. Please unmute yourself and begin with your question.

Speaker #10: And how you think about launches in that category to try and further switch consumption away from the illicit trade?

Speaker #3: Good. Good morning, team. Are you able to hear me?

Speaker #4: Yes.

Speaker #5: Yeah. So there's a couple of questions in that question, as you pointed out. So let me start with price realization. What you've seen in terms of PMUSA's price realization this quarter is actually the fact that you had strong Marvill price realization and it was somewhat offset by the mix related to basic as basic has grown volume and share.

Speaker #3: Fantastic. A couple of questions from me as well. The first one, going back to combustibles, if my math is right, I think there's at least a couple of percentage points of deceleration in price mix at a time when the basics share expansion, year on year, is sort of no different compared to Q1.

Speaker #3: Could you just help me understand what maybe drove the incremental step down in price mix? Whether that's related to Marlboro pricing or the impact of Cowboy Cut?

Speaker #5: But we really look at overall profitability. So what you saw was strong smokeable profitability both in terms of margin and overall OCI performance. In the first half of the year.

Speaker #3: Any help there would be useful. And the second question is going back to the recent FDA policy—you highlighted that it gives you an opportunity to innovate and launch future line extensions and nicotine pouches.

Speaker #5: So again, that's the price realization. Some of it is just the math. So this for give you some point of reference. If you look at Marvill, a retail price in the second quarter, it was up about 7% on a year-over-year basis.

Speaker #3: I guess the other category the policy targets is vapor. Could you maybe remind us what you already have submitted in the PMTA pipeline? What's in scientific review?

Speaker #5: We do believe that the recent guidance from FDA is constructive. While it doesn't replace the importance of authorization, we do believe that it brings some clarity and transparency related to authorization both in the nicotine pouch as well as the e-vapor category.

Speaker #3: And how you think about launches in that category to try and further switch consumption away from the illicit trade?

Speaker #5: If you remember, Enjoy Ace was out of the market related to four patents. And that were filed in the ITC. We have modified those products they no longer infringe on those patents.

Speaker #4: Yeah, so there's a couple of questions in that question, as you pointed out. So let me start with price realization. What you've seen in terms of PM USA's price realization this quarter is actually the fact that you had strong Marlboro price realization, and it was somewhat offset by the mix related to Basic, as Basic has grown volume and share.

Speaker #5: And the customs and border patrol agree with that perspective. So we have submitted a supplemental PMTA. Our plan is to re-enter the market at some point with Enjoy Ace.

Speaker #5: While there's been a stepped-up level of enforcement, the illicit products remain prevalent. In that category. So as we enter the market, we're going to be disciplined and thoughtful about how we enter the market.

Speaker #4: But we really look at overall profitability. So what you saw was strong smokable profitability, both in terms of margin and overall OCI performance, in the first half of the year.

Speaker #4: So again, that's the price realization. Some of it is just the math. Just to give you some point of reference, if you look at Marlboro, the retail price in the second quarter was up about 7% on a year-over-year basis.

Speaker #5: And exercise financial discipline. But we're also going to continue to innovate for the future and meet the evolving consumer preferences in the e-vapor category.

Speaker #5: At the as we lock those products that those designs up, we'll determine the best path forward for submitting for FDA authorization. If it's a supplemental PMTA, then the clock begins when it's accepted by the FDA.

Speaker #4: We do believe that the recent guidance from FDA is constructive. While it doesn't replace the importance of authorization, we do believe that it brings some clarity and transparency related to authorization both in the nicotine pouch as well as the e-vapor category.

Speaker #5: If it is a PMTA, the clock, if you will, that's six-month clocks. When it enters signing view. So definitely a level of clarity in terms of when products can enter the market and really a recognition by the FDA that products that ignore regulations or different than products that are legal and are going through the FDA process.

Speaker #4: If you remember, Enjoy Ace was out of the market related to four patents. And that were filed in the ITC. We have modified those products.

Speaker #4: They no longer infringe on those patents. And the customs and border patrol agree with that perspective. So we have submitted a supplemental PMTA. Our plan is to re-enter the market at some point with Enjoy Ace.

Speaker #5: And we think that is constructive.

Speaker #10: Thank you.

Speaker #1: The next question is from Damien Lila at Deutsche Bank. Please unmute yourself and begin with your question.

Speaker #4: While there's been a stepped-up level of enforcement, the illicit products remain prevalent in that category. So, as we enter the market, we're going to be disciplined and thoughtful about how we do so.

Speaker #10: Hi. Morning, everybody. Thank you for taking the questions. First one is, we've talked a lot about on-plus and the innovation that you're launching. But we're just wondering is there anything that you're doing with the regular on-products to sort of support or strengthen that part of the market?

Speaker #4: And exercise financial discipline. But we're also going to continue to innovate for the future and meet the evolving consumer preferences in the e-vapor category.

Speaker #10: First question. And then obviously, we've just been chatting about the FDA. But I was just wondering and obviously, you talked in the presentation about the improved backdrop around vape.

Speaker #4: At the as we lock those products that those designs up, we'll determine the best path forward for submitting for FDA authorization. If it's a supplemental PMTA, then the clock begins when it's accepted by the FDA.

Speaker #10: But specifically, can you provide any sort of insights in how you're thinking about a potential return to that category?

Speaker #5: Yeah, sure. So let me start with on we believe on-classic and on-plus both have a place in our portfolio and they're both important. If you look at on-classic, it's a smaller pouch.

Speaker #4: If it is a PMTA, the clock, if you will, that's six-month clocks. When it enters signed view. So definitely a level of clarity in terms of when products can enter the market.

Speaker #5: It's more of a dry feel. Currently, it has lower nicotine strengths. And the marketplace, so we will continue to innovate when it comes to on-classic.

Speaker #4: And really, a recognition by the FDA that products that ignore regulations are different than products that are legal and are going through the FDA process.

Speaker #5: And we believe that on-plus plays an important role as well. It has currently higher nicotine strengths. It's a larger pouch and has more of a wet feel.

Speaker #4: And we think that is constructive.

Speaker #3: Thank you.

Speaker #5: And so they both resonate with consumers and they both play an important role in our nicotine product portfolio. I talked a lot about e-vapor with Faham.

Speaker #1: The next question is from Damien Lila at Deutsche Bank. Please unmute yourself and begin with your question.

Speaker #3: Hi. Morning, everybody. Thank you for taking the questions. First one is, we've talked a lot about on-plus and the innovation that you're launching. But we're just wondering is there anything that you're doing with the regular on-products to sort of support or strengthen that part of the market?

Speaker #5: I would say that we see can play an important role in long-term tobacco harm reduction here in the US. We intend to participate in that category.

Speaker #5: But we recognize it's important to have sustained enforcement against the illicit manufacturers who are ignoring and really avoiding the regulatory landscape. So it's important that enforcement occurs, but it's also important that the FDA continues to authorize products so that the adult nicotine consumer has choices to participate in that category and be able to use reduced-risk products.

Speaker #3: First question. And then obviously, we've just been chatting about the FDA. But I was just wondering and obviously, you talked in the presentation about the improved backdrop around vape.

Speaker #3: But specifically, can you provide any sort of insights in how you're thinking about a potential return to that category?

Speaker #4: Yeah, sure. So let me start with On. We believe On Classic and On Plus both have a place in our portfolio, and they're both important. If you look at On Classic, it's a smaller pouch.

Speaker #5: We have not announced the timing of when we plan to re-enter the category, but we do plan on re-entering that category. And when we have more to report, of course, we will.

Speaker #4: It's more of a dry feel. Currently, it has lower nicotine strengths in the marketplace, so we will continue to innovate when it comes to On! Classic.

Speaker #10: Very clear. Thank you, Sam.

Speaker #4: And we believe that On! Plus plays an important role as well. It currently has higher nicotine strengths. It's a larger pouch and has more of a wet feel.

Speaker #5: You're welcome.

Speaker #1: And the final question is from Priya Ori Gupta at Barclays. Please unmute yourself and begin with your question.

Speaker #4: And so they both resonate with consumers and they both play an important role in our nicotine product portfolio. I talked a lot about e-vapor with Faham.

Speaker #11: Hi. This is Priya on for Priya. Thank you for taking our question. So could you please walk us through your thoughts on the current market backdrop in terms of not only your 2026 maturity, but also your 2027 Euro bond and how you're approaching the refinancing?

Speaker #4: I would say that we see can play an important role in long-term tobacco harm reduction here in the US. We intend to participate in that category.

Speaker #11: Thanks. Sure. First and foremost, we remain committed to delivering strong shareholder returns obviously are our primary vehicle to do that is by way of the dividend.

Speaker #4: But we recognize it's important to have sustained enforcement against the illicit manufacturers who are ignoring and really avoiding the regulatory landscape. So it's important that enforcement occurs, but it's also important that the FDA continues to authorize products so that the adult nicotine consumer has choices to participate in that category and be able to use reduced-risk products.

Speaker #11: Historically, after we have the dividend, we have about a billion excess in cash. And we look at capital associated ways to deploy that capital.

Speaker #11: One in which you're pointing to is our debt management. And we also look at other capital-efficient ways like share buyback. We also have opportunities to accelerate against our long-term adjacency vision as well as our smoke-free vision with any M&A opportunities.

Speaker #11: And we think that we're really well-positioned to manage those debt maturities in 2026 and 2027. We have a very strong balance sheet to do so with high cash generation businesses.

Speaker #4: We have not announced the timing of when we plan to re-enter the category, but we do plan on re-entering that category. And when we have more to report, of course, we will.

Speaker #11: And we remain focused on really delivering that strong shareholder value. Great. Thank you.

Speaker #3: Very clear. Thank you, Sam.

Speaker #4: You're welcome.

Speaker #1: And the final question is from Priya Ori Gupta at Barclays. Please unmute yourself and begin with your question.

Speaker #5: Thank you.

Speaker #11: Thank you.

Speaker #1: There appears to be no further questions at this time. I would like to turn the call back over to Matt Livingston for any closing remarks.

Speaker #5: Hi. This is Priya Theresa on for Priya. Thank you for taking our question. So could you please walk us through your thoughts on the current market backdrop in terms of not only your 2026 maturity, but also your 2027 Euro bond and how you're approaching the refinancing?

Speaker #2: Great. Thanks, everybody, for joining us. If you have any follow-up calls, please feel free to reach out. Thanks and have a great day.

Speaker #5: Thanks.

Speaker #2: Sure. First and foremost, we remain committed to delivering strong shareholder returns obviously are our primary vehicle to do that is by way of the dividend.

Speaker #2: Historically, after we have the dividend, we have about a billion excess in cash. And we look at capital associated ways to deploy that capital.

Speaker #2: One in which you're pointing to is our debt management. And we also look at other capital-efficient ways like share buyback. We also have opportunities to accelerate against our long-term adjacency vision as well as our smoke-free vision with any M&A opportunities.

Speaker #2: And we think that we're really well-positioned to manage those debt maturities in 2026 and 2027. We have a very strong balance sheet to do so with high cash generation businesses.

Speaker #2: And we remain focused on really delivering that strong shareholder value.

Speaker #5: Great. Thank you.

Speaker #4: Thank you.

Speaker #2: Thank you.

Speaker #1: There appear to be no further questions at this time. I would like to turn the call back over to Mac Livingston for any closing remarks.

Speaker #6: Great, thanks, everybody, for joining us. If you have any follow-up calls, please feel free to reach out. Thanks, and have a great day.