Good day, and welcome to the Altria Group 2025 Third Quarter and 9 Months Earnings Conference Call. Today's call is expected to last around 1 hour, including comments from Altria's management and a question-and-answer session. I would now like to turn the call over to Mac Livingston, Vice President of Investor Relations. Please proceed.

Thanks, Angela. Good morning, and thank you for joining us. This morning, Billy Gifford, Altria's CEO; and Sal Mancuso, our CFO, will discuss Altria's third quarter and first 9 months business results. Earlier today, we issued a press release providing our results. The release, presentation, quarterly metrics and our latest corporate responsibility reports are all available at altria.com. During our call today, unless otherwise stated, we're comparing results to the same period in 2024. Our remarks contain forward-looking statements, including projections of future results. Please review the forward-looking and cautionary statement section at the end of today's earnings release for various factors that could cause actual results to differ materially from projections. Future dividend payments and share repurchases remain subject to the discretion of our Board of Directors. We report our financial results in accordance with U.S. generally accepted accounting principles. Today's call will contain various operating results on both a reported and adjusted basis. Adjusted results exclude special items that affect comparisons with reported results. Descriptions of these non-GAAP financial measures and reconciliations to the most comparable GAAP financial measures are included in today's earnings release and on our website at altria.com. Finally, all references in today's remarks to tobacco consumers or consumers within a specific tobacco category or segment refer to existing adult tobacco consumers 21 years of age or older. With that, I'll turn the call over to Billy.

Thanks, Mac. Good morning, and thank you for being with us. Altria achieved significant progress in the third quarter across our business sectors. We reported strong financial results with a 3.6% increase in adjusted diluted earnings per share and made meaningful strides in our smoke-free product portfolio while working towards our long-term growth objectives. on! held steady in a competitive market, and Helix introduced plans for on! PLUS, its new innovative oral product. Horizon also made key regulatory filings for a joint venture and heated tobacco products. In terms of long-term growth opportunities, we announced a partnership with KT&G to explore international smoke-free products and U.S. non-nicotine products. We remain focused on returning value to our shareholders, announcing our 60th dividend increase in 56 years in August and expanding our share repurchase program recently. My comments today will center on the results from on! and the launch of on! PLUS, updates on our heated tobacco and e-vapor portfolio, the current regulatory landscape, and our strategic partnership with KT&G. I'll then pass it over to Sal for more details on our business results, our outlook for 2025, and our commitment to delivering substantial cash returns to shareholders. Let's start with on! and the nicotine pouch market. Oral nicotine pouches have been the main contributor to a 14.5% rise in oral tobacco industry volume over the past 6 months. In the third quarter, nicotine pouches reached a 55.7 market share, up 11.1 share points year-over-year. Competitor promotions were notably high during the third quarter, especially in September, leading to additional growth for nicotine pouches. We will keep observing how this promotional activity affects long-term brand acceptance. Despite the competitive challenges, Helix remained firm in the third quarter, with shipments exceeding 42 million cans, nearly a 1% increase from the previous year. For the first nine months, Helix’s shipments surpassed 133 million cans, a nearly 15% growth from last year. Although the third-quarter shipment volumes for on! were shaped by trade inventory dynamics from promotional activities, we are optimistic about the consistent consumer demand evident in our retail sales data. In fact, on! captured 8.7% of the overall oral tobacco market share for both the third quarter and the first nine months, indicating stability and an increase of 0.8 share points over the first nine months. on!’s retail price rose approximately 1.5% in the third quarter compared to last year, contrasting with the rest of the nicotine pouch category, where average retail prices dropped 7% nationally, with over a 70% decline in one major retail chain—reflecting the intense promotional pressure. Nonetheless, Helix’s year-over-year performance remains a vital contributor to the income stability and profit margin growth within the oral tobacco segment for the third quarter. Helix is poised for sustainable long-term success. It recently launched on! PLUS in Florida, North Carolina, and Texas, and we’re encouraged by recent FDA actions that indicate progress towards a more efficient and transparent authorization process for nicotine pouches, which I'll elaborate on later. on! PLUS debuted with three flavors and three nicotine strengths, which we believe complement our existing on! portfolio. We consider on! PLUS to be a premium and distinct product that will attract both traditional dip users and competitive nicotine pouch consumers. on! PLUS offers three appealing attributes for pouch consumers: comfort, effective nicotine delivery, and flavor satisfaction. Recent research showed that on! PLUS MINT outperformed various leading brands in terms of purchase intent, primarily due to the comfort of the pouch. Innovation and consumer preferences remain key to Helix's strategy. Helix is actively developing new on! PLUS flavors for future U.S. introduction. In the heated tobacco sector, Horizon marked a significant milestone in bringing Ploom to the U.S. In August, Horizon submitted a combined PMTA and MRTPA to the FDA for Ploom and Marlboro heated tobacco sticks. We believe the scientific basis and evidence backing Horizon's applications are strong and warrant FDA authorization. Our teams are diligently preparing Ploom's market entry strategies and are eager to connect with smokers through this innovative product. Moving on to our e-vapor business with NJOY, we believe we have finalized the product design for a modified NJOY ACE solution that addresses all four disputed patents. Our teams are analyzing potential routes to market for the modified ACE product. During the third quarter, NJOY and JUUL engaged in new legal actions against each other. JUUL initiated litigation against NJOY in federal court and the ITC, claiming patent infringement related to the sales of NJOY DAILY and potentially other products NJOY could develop infringing JUUL's patents. We anticipate that the ITC will not reach a conclusion until early 2027 and plan to steadfastly defend our case in this litigation. Additionally, NJOY has counter-sued JUUL in federal court and the ITC over specific claims of patent infringement concerning certain JUUL products. As we evaluate our strategy for ACE and focus on enhancing our innovative product pipeline in the e-vapor space, we observe a market saturated with flavored disposable e-vapor products, many of which we believe are bypassing the regulatory process. By the end of the third quarter, we estimate the e-vapor category included around 21 million vapers, an increase of nearly 2 million compared to last year. Disposable vapers rose by an estimated 2.4 million to almost 15 million during the same period. We believe flavored disposable e-vapor products account for over 60% of the market, which is a notable concern. However, we are heartened by the recent regulatory enforcement actions and productive dialogues that indicate progress. For some time, we have been advocating for enhanced enforcement against these products and a quicker pace for FDA market authorizations for smoke-free products. In the third quarter, we saw significant enforcement targeting these products and welcomed promising plans from the FDA regarding the speed of authorizations in the oral nicotine pouch category. On the enforcement side, we continue to observe increased engagement and actions from federal agencies and officials. This includes coordinated raids conducted by a federal multi-agency task force across the nation, resulting in the seizure of hundreds of thousands of illicit vapor products from retailers and wholesalers, with an expectation for further legal actions. Ongoing seizures, including actions by HHS and U.S. Customs and Border Protection involving more than 4 million illicit vapor units worth over $86 million, showcase the largest seizure of its kind through a national operation led by the DEA targeted at illicit activities within vape shops. These federal measures, alongside state and local efforts, signify progress. Nevertheless, we believe sustained and coordinated enforcement is essential to genuinely influence the market landscape. We are committed to supporting a functional regulatory system that fully leverages tobacco harm reduction potential. These ongoing enforcement initiatives are crucial for ensuring that adult consumers can access regulated products grounded in science and aligned with public health objectives. Beyond enforcement, we are advocating for the FDA to expedite product authorizations and create a responsible marketplace for smoke-free options. In September, the FDA initiated a pilot program aimed at streamlining PMTA reviews for oral nicotine pouches, and Helix was informed that applications for on! PLUS are part of this program. We view this as a positive development from the FDA and are actively collaborating with them regarding these applications. Although the pilot only applies to certain nicotine pouches, we hope it hints at broader FDA efforts to expedite regulatory decisions across all smoke-free platforms. As we pursue smoke-free opportunities in the U.S., we remain devoted to our long-term growth objectives. In September, we made progress by announcing a new collaboration with KT&G. We are jointly identifying opportunities to boost global demand for nicotine pouch products, contemplating extending the on! portfolio into select international markets. As part of our initial steps in international modern oral, we have entered into an agreement with KT&G to acquire a stake in Another Snus Factory, the manufacturer of the LOOP Nicotine Pouch brand. LOOP is currently offered in various strengths and unique flavors. Our research indicates that complex flavors are propelling growth in the modern oral segment in international markets, and we are pleased to invest in ASF to enhance our portfolio of on!, on! PLUS, and FUMI to effectively compete across all modern oral product categories. Furthermore, our collaboration aims to explore U.S. non-nicotine opportunities, particularly in the energy and wellness sectors with KT&G's Korea Ginseng Corporation, leveraging their product knowledge alongside our commercial expertise. Additionally, through our partnership with KT&G, we are seeking ways to boost operational efficiencies in traditional tobacco that may yield benefits for both companies in our respective regions. We believe this collaboration supports our overall goals and may enhance our capabilities regarding international nicotine products. We are eager about our partnership with KT&G and will provide updates on our collaborative efforts. In conclusion, Altria has maintained momentum in the third quarter. Our core tobacco businesses have shown resilience. We have advanced our smoke-free portfolio and opened new avenues for long-term growth in international modern oral and U.S. non-nicotine innovation. These initiatives align with our vision and company goals. I am confident in our strategy, excited about the opportunities ahead, and grateful for our team's unwavering commitment to delivering long-term value to our shareholders. Now I'll hand it over to Sal for further insight into the business environment and our results.

Thanks, Billy. Altria delivered strong third quarter and first 9 months financial performance. Adjusted diluted earnings per share increased 3.6% in the third quarter and by 5.9% for the first 9 months. In the smokeable products segment, adjusted operating company's income grew by 0.7% to nearly $3 billion in the third quarter and by 2.5% to $8.4 billion for the first 9 months. Adjusted operating company's income margins expanded to 64.4% for the third quarter and first 9 months, representing impressive margin growth of 1.3 percentage points and 2.7 percentage points, respectively. Smokeable products segment reported domestic cigarette volumes declined by 8.2% in the third quarter and 10.6% for the first 9 months. When adjusted for trade inventory movements and calendar differences, the segment's domestic cigarette volumes for the third quarter declined by an estimated 9%, slightly above the estimated 8% volume declines at the industry level. For the first 9 months, when adjusted for calendar differences and trade inventory movements, the segment's domestic cigarette volumes declined by an estimated 10.5% and by 8.5% at the industry level. PM USA continues to execute on its strategy of maximizing profitability over the long term. While maintaining its focus on Marlboro and the premium segment, PM USA recognizes the opportunity to compete within the discount segment, guided by data-driven strategies. Within the highly profitable premium segment, Marlboro maintained its long-standing leadership in the category. In the third quarter, Marlboro expanded its share of the premium segment by 0.3% to 59.6% versus the prior year and by 0.1% sequentially. At the same time, PM USA continued to strategically invest behind Basic, appealing to a price-sensitive cohort of adult smokers within the discount segment. Many adult smokers continue to face discretionary spending pressures resulting from a variety of macroeconomic headwinds, including the compounding effects of inflation. Leveraging PM USA's data analytics and robust revenue growth management tools, Basic grew 0.9 share point sequentially and 1.4 share points year-over-year for the third quarter. The discount segment of the industry expanded by 2.4 share points year-over-year with Basic capturing over half of that growth. Importantly, our data show that most of Basic's share gains came from adult smokers already within the discount segment, with limited impact on Marlboro. As a result of the combined efforts across the PM USA portfolio of brands, cigarette retail share increased sequentially for the second consecutive quarter to 45.4%, growing 0.3 share points in the third quarter. Cigars also continued to be a meaningful contributor to our smokeable products segment results. For the third quarter and the 9 months, Middleton reported shipment volume increased 2% and 1.1%, respectively, as Middleton outperformed in the large mass cigar industry. Let's turn now to the Oral Tobacco Products segment. In the third quarter, adjusted operating company's income declined by less than 1%. Over the same period, the segment saw improved profitability through impressive adjusted operating company's income margin expansion of 2.4 percentage points to 69.2%. For the first 9 months, adjusted operating company's income increased by 3.3%, with adjusted operating company's income margin expansion of 1.8 percentage points to 69%. Helix's year-over-year performance was a meaningful contributor to the stability of adjusted operating company's income in the third quarter and to the adjusted operating company's income growth for the first 9 months. Total segment reported shipment volume decreased 9.6% for the third quarter and 5.2% for the first 9 months. As growth in on! was more than offset by lower MST volumes. When adjusted for calendar differences and trade inventory movements, we estimate that third quarter and first 9 months, oral tobacco products segment volumes declined by an estimated 5.5% and 3.5%, respectively. Oral Tobacco Products segment retail share was 31.1% for the third quarter and 32.9% for the first 9 months. 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 $157 million of adjusted equity earnings in the third quarter, up 9% versus the prior year. As Billy mentioned, our businesses performed well in a dynamic environment during the first 9 months of the year, and we effectively maintained the strength of our core tobacco businesses while investing toward our vision. As a result, we raised the lower end of our 2025 guidance range. We now expect to deliver adjusted diluted EPS in a range of $5.37 to $5.45, representing a growth rate of 3.5% to 5% from a base of $5.19 in 2024. We expect EPS growth to moderate in the fourth quarter as we lap the lower share count associated with the 2024 accelerated share repurchase program and the benefit of the MSA legal fund expiration. We are also mindful of the challenged state of tobacco consumers and will continue to closely monitor their purchasing behaviors. Our strong financial performance for the first 9 months enabled us to return nearly $6 billion to our shareholders, including $5.2 billion in dividends and $712 million in share repurchases. We remain committed to providing significant cash returns to our shareholders, as demonstrated by our recent dividend increase and share repurchase announcement. In August, our Board increased our regular quarterly dividend by 3.9% to $1.06 per share, marking our 60th dividend increase in 56 years. This milestone underscores our legacy of delivering consistent shareholder value and highlights the resilience of our businesses through decades of change. And today, we announced that our Board authorized the expansion of our existing share repurchase program from $1 billion to $2 billion, which now expires on December 31, 2026. Lastly, our balance sheet remains strong. Our debt-to-EBITDA ratio as of September 30 was 2x, in line with our target of approximately 2x. 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.

We will take questions from the investment community first. Our first question comes from Matt Smith with Stifel.

Sal, you raised the low end of the guidance again, which is nice to see here, but the fourth quarter implies a deceleration in the earnings growth. You called out lapping the share repurchase and the MSA legal fee expiration. Are there any other key puts and takes as we think about the fourth quarter and more importantly, the path to growing smokeable operating company's income again?

Thank you, Matt. No, as you mentioned, we did talk about the share repurchase and the MSA legal funnel. I'll also say we continue to monitor consumer spending, the marketplace remains dynamic. So I would really focus on that, but we feel really good about the ability to narrow guidance by raising the bottom. We're very pleased with the first 9-month financial performance. And then smokable profitability, again, we feel really good about PM USA's performance, their ability to expand margins for Marlboro remains strong within the premium segment. So we feel really good about the smokable business and happy to be able to provide the guidance.

As a follow-up, you mentioned that the cigarette industry is experiencing a slower rate of decline on a sequential basis. Billy, I know you provide the 12-month bridge that highlights the macroeconomic factors. However, that 12-month bridge doesn't always reflect significant changes from one quarter to the next. Given the moderation observed sequentially, could you discuss the factors that you believe are contributing to this trend?

Thank you for the question, Matt. When you take a step back and look at the situation, you're correct that the 12-month data doesn't change as quickly. In the marketplace, our consumers are still facing challenges. They don't necessarily need improvement, but rather consistency. We've observed some consistency in areas like gas prices and inflation, and we'll see how that develops throughout the year. Additionally, as I mentioned earlier, the increased enforcement in e-vapor is bringing consumers back into play. We would prefer to keep them in the smokeless category, but when enforcement occurs, it certainly causes them to consider other nicotine options.

And we'll take our next question from Bonnie Herzog with Goldman Sachs.

All right. I guess I have a question first on the nicotine pouch category. The competitive environment has really intensified. So could you touch on what you're seeing and whether I guess you've been happy with the performance and positioning of on! considering the moderating growth. And then could you talk about some of your initiatives that you're implementing, I guess, to maybe turn the performance around. I guess I'm kind of wondering, do you feel that you need to step up promotional spend. And then finally, could you maybe share early feedback on the rollout of on! PLUS and I guess, assuming it's positive, should we assume you'll roll out that brand nationally?

Yes, thanks for the question, Bonnie. You're right. The competitive environment has significantly stepped up. I mean when we try to dimensionalize it, on! was moving up, call it, 1.5% at retail from a price perspective while the entire category was down 7% on a national basis, but as much as 70% in a major retail environment. So it was a significant shift in promotional spending by competitors. We had that early on with the on! in the marketplace when we launched, and we've talked about how we're bringing the revenue growth management tools over to the category. So we're extremely pleased with the performance where we were moving up in retail price while the category was moving down significantly. I know people get hung up on some of the shipment volume. I think the encouraging aspect that we see is on the retail takeaway volume. And when you look at that, that's the true demand by the consumer, and that was steady even in that highly competitive environment. Much too early on on! PLUS to really mention, we are certainly excited about the differentiation that product has and research, and we're excited to be able to bring that to market and expand it when it's appropriate.

All right. And then I just wanted to also ask about your KT&G partnership, it was recently expanded and you touched on this, but just hoping for a little more color on the operational efficiencies you see, especially as it relates to opportunities to maybe take advantage of the double duty drawback. Also, could you give us a little more color on I guess, opportunities for alternative revenue streams as well as further expansion internationally given this partnership?

Yes. Thanks, Bonnie. And you touched on 2 of the 3. We really see it as 3-pronged. Certainly, the modern oral initiative, being able to expand on! and on! PLUS in international markets is something that we'll be exploring. Rounding out our portfolio with the inclusion of LOOP into that, so we feel like that completes the portfolio, and we look forward to continuing discussions with them on how to think about expanding internationally into other markets. The second point is certainly the non-nicotine opportunities. And I tried to highlight a little bit where we would explore working with them. They have certainly the product expertise in the Korean red ginseng and we would look to work with them based on our commercial distribution strength in the U.S. of what are the opportunities there and certainly, we'll share more when it's appropriate. And the third was the operational efficiencies. And what we saw there was it was the ability to adapt our manufacturing center for cigarettes for items that are specific to international markets, whether that be pack size or trace and tracking and things of that nature. It certainly, to your point, allows us to take advantage of duty drawback. That's a benefit of it. But it also opens up the door for us to think about international opportunities in the future.

We'll go next to Eric Serotta with Morgan Stanley.

Billy, starting on on! PLUS, I realize it's very early days, but you did mention it as premium positioning. Could you talk a bit about the price point as you launch in the 3 states where you did a realizing only a matter of weeks or less. But how are you thinking about the relative price point of on! PLUS relative to on! and relative to competitors, which I realize are moving targets at the moment? And then Sal, controllable costs and smokables were up pretty significantly year-on-year, I realize they were down in a year ago. So there was perhaps a comparison issue. But how are you thinking about controllable costs going forward? Or is there any additional color you could talk about in the quarter? And the smokeable operating company's income growth was relatively muted at less than 1%. Was that really the controllable cost, or are there other factors that you'd point to that constrain the operating company's income growth in the quarter?

Yes. Thanks, Eric. So I'll kick this off and then Sal can follow up with the question for him. I think when you think about on! PLUS, we certainly see that as a premium-priced product because of the differentiation and the satisfaction we think it brings in the experience to the consumer. In our research, the consumers choose that as the top product in their total experience standpoint, and we think it can demand the premium price at retail. Certainly, in any introduction, you have introductory price promotions. We know as soon as we get it in consumers' hands, they experience that differentiation that I'm trying to highlight to you. And so we'll certainly have introductory price promotions as we look to expand when appropriate.

In terms of controllable costs, I believe it's important to take a long-term view rather than examining them on a quarterly basis. Costs can fluctuate and are not consistent throughout a quarter. Cost management, particularly in a declining category like smokeable products and cigarettes, is crucial for our growth strategy, alongside pricing. We manage our overall costs carefully, and our Optimize and Accelerate program focuses not only on effective cost management and reductions but also on enhancing performance and speed to market. We are reinvesting cost savings into our future initiatives. Additionally, we've dedicated significant effort to refining our data analytics and revenue growth management tools, which have proven very beneficial. This improvement is reflected as price realization in our financial reports, but I view it as increased productivity, allowing us to optimize promotional spending for our brands. We are pleased with the effectiveness of our data analytics and RGM tools. Looking at the income from our smokable products over the longer term, I can report that they are up 2.5% year-to-date, and we are particularly satisfied with the strong performance of Marlboro within the premium segment.

We'll go next to Faham Baig with UBS.

A couple from me as well. Firstly, if I could come back on the duty drawbacks. If we take a bigger look at the picture. Altria is likely to make around $3 million in federal excise tax payments this year. Should this be the amount that we think about the potential benefit from the duty drawbacks? And is this likely to be the sort of key engine that drives group EPS growth to high single digits over the next couple of years to meet the mid-single-digit EPS CAGR to 2028? So that's the first question. The second one, going back to the pilot program that the FDA is running. Does this or could this impact your decision to go ahead with the national launch on on! PLUS, i.e., you may wait for the decision on this? Or you may take a decision irrespective of the program? And the second one on that is why do you think it's possible for the FDA to accelerate this process on nicotine pouches, but it's not possible to do so in vapor, which is arguably a much larger category and reviews there began much earlier?

Yes. So quite a few things in that question. So if I don't touch on one, please follow up. I think when you think about the duty drawback, I wouldn't jump to a conclusion at this point in time. It's really about a relationship with international players. How do we think about producing cigarettes for international, some of the other benefits that we get certainly drawback is an additional benefit to that. When you think about the pilot program, I want to be clear that we want a functioning regulatory system. So we're going to always make our decisions based on what's the long-term best interest of the company with an eye towards what is best to get a functioning regulatory system. I think your question related to pouches versus vapor, I think from comments from them, but just the interpretation of it being called a pilot program, they wanted to start where it made sense to start, and that's in nicotine pouch. It's a fairly set category, even though we've seen some players maybe enter the marketplace illicitly. It gives them a way to think about the category in total and then differentiated products and what's different between individual products in the marketplace, which should speed up their review of that. I think when you think about vapor, the marketplace is a mess right now. And so I think the nature of a pilot program is to learn. They will learn; manufacturers, including us, will learn. It's been a very collaborative process with constant engagement through the application review process, which is very different and very encouraging from the FDA we experienced under the previous administration. So I think once you have those learnings, we would hope and encourage the FDA to expand it to other categories.

I guess just a quick follow-up. Could you clarify that the EPS growth is suggested to accelerate to high single digits over the next couple of years in order to meet your mid-single-digit EPS CAGR? Is that still the ambition?

Our ambition is the goal. We haven't changed our goals from an overall CAGR that we stated previously. And that's been our stated goal. So yes, that's the way I would think about how we're going to manage the business going forward.

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

Thanks, everybody, for joining us today, and have a great day.

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