Altria Group, Inc. Q2 FY2026 Earnings Call

Good day and welcome to ULTRIA Group 2026 second quarter earnings conference call. Today's call is scheduled to last about one hour including remarks by ULTRIA's management and a question and answer session. 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 Mac Livingston, Vice President of Investor Relations. Please go ahead sir.

Thanks, Olivia. Good morning, and thank you for joining us. This morning, Sal Mancuso, Altria CEO, and Heather Newman, our CFO, will discuss Altria's 2026 second quarter business results. 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. 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. 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 nicotine consumers or consumers within a specific nicotine category or segment refer to existing adult nicotine consumers 21 years of age or older. With that, I'll turn the call over to Sal.

Thanks, Mac. Good morning, and thank you for joining us. In the second quarter, our operating companies continue to deliver against the priorities we outlined at the start of the year, advancing our smoke-free portfolio, strengthening our traditional tobacco businesses, and delivering significant returns to shareholders. In Smokefree, Helis expanded OnPlus to 120,000 stores nationwide, engaged in trial-generating activities, and prepared for additional line extensions to come later this year. In smokeable products, PMUSA advanced its data-driven, total portfolio approach to drive profitability, as Marlboro Cowboy Cut generated strong interest among premium smokers and BASIC continued to gain traction in discount. We delivered strong first-half results, driving adjusted diluted EPS growth of 4.9% and returned nearly $3.9 billion to shareholders through dividends and share repurchases combined. 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. 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. Nicotine pouches continue to drive volume growth in the oral tobacco category, which we estimate increased 6% over the past six months. In the second quarter, the nicotine pouch category grew 8.1 share points and now represent nearly 60% of the total aural category. As the category continues to expand, Helix is building on its momentum and strengthening Onn's position. In the second quarter, Onn's reported shipment volume was 49.9 million cans, down 4.2% versus the prior year due to trade inventory movements. Year-to-date, ON reported shipment volume increased by 5.1%, reflecting the early impact of ON Plus 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, driven by the introduction of ON+. Early data suggests ON+, is resonating with both loyal ON and competitive nicotine pouch consumers, driving incremental volume and share contributions for the brand. We've also seen encouraging repeat purchase rates that suggest consumers value the differentiated experience of our Nikko Silk soft pouch. These results reflect the strategic investments we've made to support the brand. Earlier this year, Helix launched a new retail trade program that secured premium visibility and incremental fixture space for Onplus and its growing product portfolio. 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, 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 competitive activity in the nicotine power space is intensifying with competitors bringing new products and flavors to market and helix is prepared with a differentiated product experience in a growing product portfolio 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. While the guidance does not replace the need for formal authorizations, it recognizes that products in advanced stages of FDA review should be treated differently from products that evade regulatory oversight entirely. For Helix, we believe this guidance provides regulatory clarity for future product launches and reinforces Helix's strong position as the OnPlus authorizations received last year create the potential for a faster supplemental PMTA pathway for future line extensions. In the second quarter, Helix resumes shipments of ONPLUS 12 milligram in three flavors in Florida, North Carolina, and Texas, with a national expansion planned for the third quarter. Helix also plans to introduce flavor extensions across six, nine, and 12 milligram strengths, beginning with blueberry mint and mango pineapple in the fourth quarter. 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-powered space and driving long-term profitable growth in the category. In eVapor, 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. 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, 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. 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. We believe increased enforcement activity, including supply-related disruptions at the border, is helping slow demand for illicit products. While illicit flavored disposable products remain prevalent, signs of moderating growth continued in the second quarter, 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. 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. 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 our companies have strong American roots and long-standing relationships with farmers that span more than 200 years our nation celebrates its 250th anniversary we're honoring that heritage by investing in American tobacco growers and 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 Marlboro Cowboy Cut, a classic Marlboro 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. In summary, we have had a strong first half of 2026. Our expanding smoke-free portfolio, the strength of our traditional businesses, a regulatory environment that is increasingly focused on addressing illicit products, and the passion of our talented employees, support our confidence in the opportunities ahead. 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.

Thanks, Sal. 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. 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. Adjusted OCI margins expanded to 64.8% in the second quarter and 64.9% in the first half. The decline in our smokable volumes continued to moderate during the quarter. 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. At the industry level, when adjusted for the same factor, we estimate that domestic cigarette volumes declined by 5 percent in both the second quarter and in the first half, marking the fourth consecutive quarter of moderated cigarette industry declines. 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 continue to impact cigarette industry dynamics. In the discount segment, persistent discretionary income pressures, especially among low-income consumers, remain the primary driver of growth. Preachers included elevated gas prices and the compounding effects of inflation exceeding overall wage growth. 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 Marlboro's overall retail share, which declined one-and-a-half share points versus the year-ago period, and two-tenths sequentially. However, Marlboro maintained its long-standing leadership profitable premium segment. In the second quarter, Marble's share of premium was 59.6%, unchanged versus the prior year, and up one-tenth sequentially. 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 tenths sequentially and 2.3 share points year over year. 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. This disciplined, data-driven approach to basics retail footprint and brand investments helped capture share that we believe otherwise would have been lost to competitive discount brands while limiting incremental impact to Marlboro. PMUSA's total portfolio strategy continues to support both share performance and long-term profit growth. total PMUSA retail share expanded one-tenth of a share point sequentially and three-tenths versus a year ago this balance between premium and discount reinforces long-term profitability while supporting overall share stability within PMUSA reflecting this balance smokable price realization for the quarter was 4.5 percent driven by strong net pricing for Marlboro partially offset by mix impact of basic volumes basic volume growth 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 continue to experience volume declines with the industry down 6.4% in the same period turning now to the oral tobacco product segment second quarter results reflect the continued evolution of the category towards nicotine pouches segment performance was impacted by a difficult prior year comparison when 2025 volumes benefited from promotional timing and competitor supply disruptions additionally financial results were impacted by strategic investments behind on plus introductory trial offers as we expand it beyond the initial launch dates As a result, adjusted OCI decreased by 8% in the second quarter and 4.2% in the first half. 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 percent for the second quarter and six percent for the first half as growth in on was more than offset by lower mst volumes when adjusted for trade inventory movements we estimate that second quarter and first half oral tobacco product segment volumes declined by approximately two percent and five point five percent respectively oral tobacco products 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 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. We continue to view our ABI stake as a financial investment, and our goal remains to maximize the long-term value of the investment for our shareholders. We remain committed to returning significant value to shareholders. During the first half of the year, we paid approximately $3.6 billion in dividends and repurchased 5.3 million shares for $335 million. At the end of the second quarter, we had $665 million remaining under our current share repurchase program, which expires at the end of the year. In addition, our balance sheet remains strong. Our debt-to-EBITO ratio as of June 30th was 1.9 times, in line with our target of approximately two times. 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. 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. We are mindful of the challenged 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 with that we'll wrap up and sal 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-gap reconciliations are available on altria.com we've also posted our usual quarterly

metrics which include pricing inventory and other items operator let's open the question and answer period 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 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 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 the first question is from matt smith at

stifle please unmute yourself and begin with your question hi good morning thank you for taking my question you raised the low end of the guidance range but even with that that the low end is below the first half delivery and 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? 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?

Yeah, thanks for the question, Matt. It's good to hear from you um look we were really pleased that we could narrow guidance uh for our investors uh coming out of the second quarter really pleased with the first half results to your point and yeah the timing played out uh somewhat differently than our what we thought at the at the very beginning of the year um as you go into the second second half of the year i think it's important to keep an eye on the financial health of the consumer. 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. And then I think you are right to point out, we talked about national expansion of the 12 milligrams on. Plus, we've talked about flavor, introduction of flavor extensions 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.

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?

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, you know, it does allow Marlboro to further celebrate the 250th anniversary of the country, 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. You should think of Cowbite 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 Cowbite Cut and 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.

Thank you, Salah. Pass it on.

Thanks, Matt.

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

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 you know why you didn't recognize more of a benefit in q2 you did export more volume sequentially so i guess i assume something happened with the import volume quantity you know i'm asking because i just want to make sure there's i don't know no issue and you know you have good visibility on this really ramping in 2h versus 1h and then despite the double duty drawback benefit not increasing sequentially in the quarter, you know, your smokable OCI growth was still up and up sequentially on a stacked basis, which is clearly positive. So could you touch on, you know, some of the drivers of that and maybe, you know, how sustainable you believe that is?

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 the timing factor And so, there are two components to that, why that's not truing up to the FET credit. One is the time in terms of when we apply for that credit. The other is just staging a product, some 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, and we'll have a more balanced benefit across Q3 and Q4 for the FET credit. From a smokeable OCI standpoint, we really have two components, strong marble price realization that happened in the quarter as well as the first half, 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.

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. okay um maybe part of my second question we'll touch on this but then i do have another question just on the consumer and your sig volumes as you guys have highlighted you know sig volume declines you know are moderating so just maybe hoping for a little bit more color and what you think might be driving this and whether you expect this to continue and then i'm you know also asking in the context of sort of something you just touched on heather is you know basic because i think about the second half you're going to have pretty tough comps for basics so just trying to understand if we should realistically assume you know your sig volumes will be worse in 2h you know versus 1h and then you know maybe high level just give us a sense of any change consumer behavior and elasticities given you know maybe still elevated prices at the pump and tough macro thanks yeah bonnie there's a lot in that question so let me hopefully i answer all of them if i don't please follow up and if Heather has anything to add, of course.

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. So the drivers, you know, 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. 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, and it's actually more than offset, by the moderation in cross-category movement. 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. And then, you know, 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. And we'll have to see, you know, we don't talk about future volume trends necessarily, but we'll have to see how innovation impacts cross-category movement going forward. In the first half, you were lapping a higher level of cigarette decline rates that you rightly pointed out. So that's that's a lot of the driver that you're seeing in the industry volume decline rate for this quarter. We're also very pleased with the fact that, you know, when you look at Marlboro's performance and the fact that it is 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. 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 in discount is to participate in discount 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 stray down during a difficult economic situation.

All right. Thanks for that caller. I'll pass it on.

Thanks, Bonnie.

The next question is from Palav Mithal at Barclays. Please unmute yourself and begin with your question.

Hi. Good morning. firstly on secret volume and it's a three-part question uh so u.s industry volumes uh following up from the previous question clearly better so far this year just wanted to check are you seeing any impact on higher gas prices because even q2 volumes were strong or is there a change in that correlation and in terms of your shipments uh your shipments are almost 120 150 basis points better than the inventory adjusted number so should we expect that to unwind in the second half yeah and we are seeing change to the price elasticity seen for for a period of time that

coefficient of negative 0.35 percent continues to hold steady you do see obviously as i pointed out in bonnie's question uh the growth of the discount category in the cigarette space and that's consumers making trade down decisions but uh premium remains the category or the segment where most of the profitability is in the cigarette category it's about 85 percent of the profitability in the cigarette category so pm usa remains focused on that uh you are also correct to point out that pm usa volume outperform at least the volume trend outperformed the industry and that's really the total portfolio approach that pm usa has employed so you saw overall pm usa share grow on a year-over-year basis so that's impacting the volume comparison versus the industry. Sure. Anything I missed? Go ahead.

If I can then ask on your Moakless business, the OnBusiness, can you just talk about the consumer feedback on the OnPlus product, the recent 12MG launch, and any retention rates since you have gone national in March? The reason I ask this question is because despite the national expansion, and 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?

Yeah, let me start, and then, Heather, if you'd like to add anything. We're really pleased with the OnPlus launch. It's in about 120,000 stores, so it covers about 90% of the nicotine product volume. AGDC has done a terrific job with the OnPlus. We mentioned earlier that we launched a new retail program that provides On and OnPlus with premium visibility in about 90% of its volume. Share was up eight-tenths sequentially. That is driven by the OnPlus launch. The consumer likes the differentiated experience of the soft pouch technology, but we also recognize it's important to have higher strengths, 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. 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. 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. option, 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. 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.

Thank you.

The next question is from Eric Sirota at Morgan Stanley. Please unmute yourself and begin with your question.

Hi, thanks for taking the question. I'm hoping you could give some color into how you're thinking about portfolio mix between discount and premium in the second half. And as we move forward, you've already talked a bit about or fielded some questions in terms of, you know, lapping some of the distribution expansion for basic. At the same time, you have cowboy cut ramping, which, you know, at least from, you know, limited sample at retail seems to be, you know, kind of like a 40% discount to mainline, at least in the markets I've seen. So not asking for future pricing guidance, but just how are you thinking about that mixed benefit or sort of that mixed impact going forward?

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. 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. So let's take Marlboro, for example, on Cowboy Cut. That really helps insulate brand. We know that consumers are still under pressure. And to keep them within the Marlboro family, from time to time, we will leverage our RGM capabilities and provide value to those premium consumers who are under pressure. And that's exactly how we're going to utilize Marlboro 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. 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 supported discount consumers, 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. 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.

Great, and then just to 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, 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?

Yeah, if you look at the OnPlus share performance, it was it was up eight tenths sequentially up three tenths 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 uh competitive uh nicotine pouch consumers 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, 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. 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. So yes, and I have to tell you, we're agnostic that it may source some from Aan Classic. They stay within the Aan family. And On Plus, we believe, is a differentiated product related to the Nickel Silk Soft Pouch technology. And we believe over the long term, it will be a premium product because of its differentiation.

Great. Thanks so much. I'll pass it on.

You're welcome, Eric. Have a great day.

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

Good morning, team. Are you able to hear me? Yes. 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. 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? 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 extensions and nicotine pouches. 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 and and how you think about launches um in in in in that category to to try and um further switch consumption away from the illicit trader yeah so uh there's a couple of questions in that question as you pointed out so let me start with price realization um what you've seen in terms of PMSA's price realization this quarter is actually the fact that you had strong marble price realization and it was somewhat offset by the mix related to basic as basic has grown volume and share but we really look at overall profitability so you what you saw was strong uh smokeable profits profitability both in terms of margin and overall oci performance in the first half of the year so again uh you know that's the price realization some of it is just the math um so this will give you some point of reference if you look at marlboro a retail price in the second quarter, it was up about 7% on a year-over-year basis. 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 if you remember enjoy aces 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 and 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 while there's been a stepped up level of enforcement the illicit products remain prevalent in that in that category so as we enter the market we're going to be disciplined and thoughtful about how we enter the market 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. As we lock those products, 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. If it is a PMTA, the clock, if you will, that's six-month clock when it enters scientific 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 are different than products that are legal and are going through the FDA process, and we think that is constructive.

Thank you.

The next question is from Damien McNeill at Deutsche Bank. Please unmute yourself and begin with your question.

Hey. Morning, everybody. Thank you for taking the questions. The 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 is the 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, But specifically, can you provide any sort of insights in how you're thinking about a potential return to that category?

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. 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 and we believe that on plus plays an important role as well it has uh currently higher nicotine strengths uh it's a larger pouch and has more of a wet feel and so they both resonate with consumers and they both play an important role in our nicotine product portfolio. I talked a lot about eVapor with Faham. I would say that we see can play an important role in long-term tobacco harm reduction here in the U.S. We intend to participate in that category but we 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 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 very clear thank you sam welcome and the final question is from Priya Oree-Gupta at Barclays.

Please unmute yourself and begin with your question.

Hi, this is Teresa 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?

First and foremost, we remain committed to delivering strong shareholder returns. Obviously, our primary vehicle to do that is by way of the dividend. Historically, after we have the dividend, we have about a billion excess in cash, and we look at capital-efficient ways to deploy that capital. 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 and we think that we're really well positioned to manage those debt maturities in 26 and 27. we have a very strong balance sheet to do so with high cash generation businesses and we remain focused on really delivering that strong shareholder value.

Great. Thank you.

Thank you. Thank you.

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.

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

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