Altria Group Q1 2026 Earnings Report

Altria Group EPS Results

• Actual EPS: $1.32
• Consensus EPS: $1.25
• Beat/Miss: Beat by +$0.07
• One Year Ago EPS: $1.23

Altria Group Revenue Results

• Actual Revenue: $4.76 billion
• Expected Revenue: $4.58 billion
• Beat/Miss: Beat by +$180.46 million
• YoY Revenue Growth: +5.30%

Altria Group Announcement Details

• Quarter: Q1 2026
• Date: 4/30/2026
• Time: Before Market Opens
• Conference Call Date: Thursday, April 30, 2026
• Conference Call Time: 9:00AM ET

Altria Group (NYSE:MO) (NYSE: MO) is a tobacco and nicotine company headquartered in Richmond, Virginia. Through its operating companies, Altria develops, manufactures and markets cigarettes, cigars, oral tobacco products, nicotine pouches and electronic vaping products, with its business focused primarily on the United States.

Altria’s smokeable products portfolio includes Marlboro cigarettes, which are manufactured and marketed in the U.S. by Philip Morris USA, as well as Black & Mild cigars through John Middleton. Its oral tobacco products include Copenhagen and Skoal moist smokeless tobacco, along with on! nicotine pouches, which are marketed through Altria’s U.S. oral tobacco businesses. Altria also owns NJOY, an electronic cigarette and vaping company.

The company was formed as Philip Morris Companies Inc. and adopted the Altria name in 2003. Philip Morris International was separated from Altria in 2008, leaving Altria primarily focused on the domestic U.S. market. Its portfolio and corporate strategy have increasingly emphasized smoke-free nicotine products alongside its established combustible tobacco brands.

Altria Group Q1 2026 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Delivered a strong start to 2026 with adjusted diluted EPS up 7.3% in Q1, reaffirmed full‑year guidance of $5.56–$5.72, returned significant cash to shareholders (≈$1.8B dividends + $280M buybacks) and reduced debt with total debt/EBITDA at 1.9x.
• Positive Sentiment: Smokable business drove profit growth — segment adjusted OCI rose 6.3%, margins expanded to 65.1%, net pricing was +6.3%, and cigarette declines moderated (reported -2.4%, adjusted shipments ≈-4%), while Marlboro strengthened premium share to 59.5%.
• Positive Sentiment: ON!/On+ rollout progressing — total ON! shipments grew nearly 18% to >46M cans; On+ began national shipping in March, was in ~100,000 stores covering ~85% of pouch category volume, and is the first product authorized under the FDA Pilot program.
• Negative Sentiment: Near‑term weakness in the oral tobacco segment — total reported shipments down 3.1%, estimated adjusted volumes down ~8.5%, retail share fell 5.5 percentage points and margins declined ~1.8 p.p., driven partly by Helix marketing spend and mix shift from MST to pouches.
• Neutral Sentiment: E‑vapor market appears to be moderating as illicit flavored disposable demand eases and enforcement increases; Altria estimates ~20.5M adult vapers and says faster, predictable FDA authorizations plus sustained enforcement are needed to restore a compliant e‑vapor marketplace.

Presentation

[Operator]

Good day, welcome to the Altria Group 2026 Q1 earnings conference call. Today's call is scheduled to last about one hour, including remarks by Altria's management and a question-and-answer session. If you'd like to ask a question during this time, and if you have joined via the webinar, please use the Raise Hand icon, which can be found at the bottom of your webinar application. If you have joined by phone, please dial star nine to raise your hand, and when prompted, star six will allow you to mute and unmute. 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.

[Mac Livingston, VP of Investor Relations at Altria Group]

Thanks, Rehalani. Good morning, and thank you for joining us. This morning, Billy Gifford, Altria's CEO, and Sal Mancuso, our CFO, will discuss Altria's 2026 Q1 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.

[Mac Livingston, VP of Investor Relations at Altria Group]

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. 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 Billy.

[Billy Gifford, CEO at Altria Group]

Thanks, Mac. Good morning, and thank you for joining us. We delivered a strong start to the year, growing adjusted diluted EPS by 7.3% in the Q1. Our highly cash generative businesses supported significant returns to shareholders through dividends and share repurchases while we continued to invest in support of our vision. Our smokeable product segment generated strong income growth. Marlboro strengthened its position in the premium segment, and PM USA continued to execute its total portfolio strategy with discipline. In the oral tobacco product segment, ON! performed well in a highly competitive marketplace, and Helix expanded On+ nationwide. My remarks this morning will focus Q1 performance from ON! and an update on the state of the e-vapor category. I'll then turn it over to Sal, who will provide further detail on our business results and financial outlook. Let's begin with ON!

[Billy Gifford, CEO at Altria Group]

The nicotine pouch category. Over the past six months, oral nicotine pouches drove the estimated 9.5% increase in total oral tobacco industry volume. In the Q1, the nicotine pouch category grew nine point one share points and now represents more than 58% of total oral tobacco. Against this backdrop, Helix delivered solid results in a highly competitive environment. Reported shipment volume for the total ON! portfolio grew nearly 18% to over 46 million cans in the Q1, reflecting continued demand for ON! Classic and the pipeline shipments for the On+ national expansion. At retail, ON! and On+ together represented 7.8% of the total oral tobacco category, down 0.8 share points year-over-year and up 0.2 share points sequentially.

[Billy Gifford, CEO at Altria Group]

We began shipping On+ nationwide in March, and at the end of the Q1, it was available in approximately 100,000 stores, representing 85% of nicotine pouch category volume. On+ is the first and only product authorized under the FDA's Pilot program aimed at streamlining PMTA reviews for certain oral nicotine pouches. The brand is currently available in 3 flavors across 2 nicotine strengths and features our proprietary NICOSILK technology. To support the On+ expansion, Helix recently launched a new retail trade program to strengthen execution across the full ON! portfolio. The program is focused on increasing visibility and securing incremental fixture space to support On+ today and future innovations over time. Today, the Helix trade program has secured premium retail positioning in contracted stores representing approximately 90% of Helix volume.

[Billy Gifford, CEO at Altria Group]

Additionally, On+ is prominently featured across key retail touch points with coordinated signage from curb to counter. On+ is supported by marketing that highlights the product experience, including visuals that showcase the pouch itself, communicate comfort, and reinforce its positioning as the softest pouch on the planet. These materials are designed to give nicotine consumers a clear understanding of how the pouch looks, feels, and fits. This messaging is complemented by initiatives such as in-person events, brand partnerships, paid social media, and streaming audio that aim to increase awareness, drive trial, and further strengthen On-brand equity. Importantly, these efforts are grounded in responsibility with safeguards to limit reach to underage audiences and with a strong focus on regulatory compliance. Through these actions, we believe we can position On+ as a differentiated offering for adult nicotine consumers and responsibly grow the brand over the long term.

[Billy Gifford, CEO at Altria Group]

On the regulatory front, the FDA is reviewing applications for On! + Mint, Wintergreen, and Tobacco in 12 milligram strengths under its Pilot program. We have submitted applications for 6 additional flavor varieties across three nicotine strengths. We believe the science and evidence supporting all of these applications is compelling and provides a basis for FDA authorization within the 180-day statutory timeline. Let's now turn to the e-vapor category. While illicit flavored disposable products remain prevalent, after several years of rapid growth, we began to see signs of moderation in the back half of 2025. We believe increased enforcement activity and supply-related marketplace disruption has slowed demand for these products, and those dynamics continued into the Q1. At the end of March, we estimate there were approximately 20.5 million adult vapers in line with the year ago period.

[Billy Gifford, CEO at Altria Group]

Over the same time frame, the estimated number of disposable e-vapor consumers declined modestly. Taken together, we believe these developments suggest early indications that the category's prior growth trajectory, driven largely by illicit flavored disposable products, may be evolving. From an enforcement perspective, we continue to see signs of a commitment from enforcement agencies and incremental progress. During the quarter, federal agencies worked alongside local law enforcement to combat illicit products, including a large-scale enforcement action in Northern Virginia, supported by the Drug Enforcement Administration. In addition, in states where product directories are in place and properly enforced, we are seeing evidence that these frameworks are helping to reduce the presence of illicit products in tracked channels. In our view, consumer demand for e-vapor products demonstrates the potential for the category's role in tobacco harm reduction in the U.S.

[Billy Gifford, CEO at Altria Group]

Progress continues to be constrained by the limited number of FDA-authorized products. We see a clear pathway to restoring order and advancing harm reduction anchored in a more efficient and predictable authorization process that supports reasonable, responsible innovation and establishes a compliant legal marketplace of e-vapor products. When combined with sustained enforcement, we believe this would allow compliant manufacturers to provide adult nicotine consumers with authorized high-quality products that are appropriate for the protection of public health. Overall, we delivered a strong start to the year.

[Sal Mancuso, CFO at Altria Group]

With strong financial performance in the Q1, reflecting the continued resilience of our smokable business. Segment adjusted OCI grew by 6.3% with adjusted OCI margins expanding to 65.1% and an increase of 0.7 percentage points. This performance was supported by solid net price realization of 6.3%. Additionally, we saw the decline in our smokable volumes continue to moderate. In the Q1, reported domestic cigarette volumes declined by 2.4%. When adjusted for trade inventory movements, we estimate domestic cigarette shipment volumes declined by 4%. At the industry level, when adjusted for trade inventory movements, we estimate domestic cigarette industry volumes declined by 5%, marking the fourth consecutive quarter of sequential year-over-year moderation. This trend was driven primarily by reduced cross-category movement between cigarettes and illicit flavored disposable e-vapor products.

[Sal Mancuso, CFO at Altria Group]

For consumers, the macroeconomic environment remains challenging. Elevated everyday expenses and higher gas prices later in the quarter continued to weigh on discretionary income among more price-sensitive adult smokers. Although higher than normal tax refunds provided some short-term relief, these pressures were the primary driver of year-over-year discount segment retail share growth of two point four share points. This trade-down dynamic impacted Marlboro's overall retail share, which declined one point four share points versus the year ago period and 0.1 share point sequentially. However, in the highly profitable premium segment, where smoker purchasing behavior reflects higher levels of brand loyalty, Marlboro continued to demonstrate its competitive strength. In the Q1, Marlboro expanded its share of the premium segment to 59.5%, up zero point one share point versus the prior year and 0.2 share points sequentially, expanding its long-standing leadership position.

[Sal Mancuso, CFO at Altria Group]

Basic continued to capture share in the discount segment, reflecting Philip Morris USA's data-driven total portfolio approach to meeting a broad set of consumer needs. Basic's retail share grew 0.5 share points sequentially and 2.4 share points year-over-year. Total Philip Morris USA retail share grew 0.1 share point sequentially and 0.4 share points versus a year ago, demonstrating the strong execution of Philip Morris USA's total portfolio approach. In cigars, reported shipment volume was down slightly by 0.2%. John Middleton Co. continued to outperform the large mass cigar industry behind the strength of Black & Mild. Let's turn now to the oral tobacco product segment, which delivered over $400 million in total adjusted OCI in the Q1.

[Sal Mancuso, CFO at Altria Group]

Adjusted OCI margins remained strong at 67.4%, down 1.8 percentage points from a year ago, and were impacted by Helix marketing investments for in-person events and digital advertising, as well as product mix between traditional MST and nicotine pouches. Total segment reported shipment volume decreased 3.1% as growth in ON! was more than offset by lower MST volumes. When adjusted for trade inventory movements, we estimate that Q1 oral tobacco products segment volumes declined by approximately 8.5%. Year-over-year trade inventory comparisons were impacted primarily by on! PLUS pipeline volume in theQ1 and elevated competitor volume in 2025. Oral tobacco products segment retail share declined by 5.5 percentage points.

[Sal Mancuso, CFO at Altria Group]

Overall, we remain encouraged by the performance of our oral tobacco businesses as Copenhagen continued to lead in MST and Helix expanded its portfolio in the growing nicotine pouch category. Turning to our investment in ABI, we recorded $160 million in adjusted equity earnings in the quarter, up 9.6% 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 and maintaining a strong balance sheet.

[Sal Mancuso, CFO at Altria Group]

In the Q1, we paid approximately $1.8 billion in dividends and repurchased 4.5 million shares for $280 million. At the end of the quarter, we had $720 million remaining under our current share repurchase program, which expires at the end of the year. In addition, our balance sheet remains strong. We retired just over $1 billion of debt that matured in February, and our total debt to EBITDA ratio as of March 31st was 1.9 times, in line with our target.

[Sal Mancuso, CFO at Altria Group]

Finally, on guidance, we reaffirm our expectation to deliver 2026 full year adjusted diluted EPS in a range of $5.56-$5.72, representing a growth rate of 2.5%-5.5% from a base of $5.42 in 2025. As a result of the strong Q1 performance, we now expect 2026 adjusted diluted EPS growth to be more balanced between the first half and the second half of the year. Our reaffirmed guidance range now contemplates the impact of moderated e-vapor industry growth on combustible and e-vapor product volumes and increased macroeconomic uncertainty facing adult nicotine consumers. Before we wrap up, I'd like to thank Billy for his leadership over his decades of service to Altria.

[Sal Mancuso, CFO at Altria Group]

I have enjoyed the privilege of working closely with Billy for many years, and he has positioned us well to succeed in the future. We are committed to building upon the strong foundation he's fostered and accelerating progress toward our vision. With that, 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. Operator, let's open the question-and-answer period.

[Operator]

Thank you. Investors, analysts, and media representatives are now invited to participate in the question-and-answer session. We'll take questions from the investment community first. Our first question comes from Faham Baig with UBS. Please go ahead.

[Faham Baig, Executive Director and Equity Research Analyst at UBS]

Good morning, guys. Are you able to hear me?

[Sal Mancuso, CFO at Altria Group]

Yes, we are.

[Faham Baig, Executive Director and Equity Research Analyst at UBS]

Brilliant. Thanks for taking my question. I have two, please. The first one, I guess, is on your performance. At the full year stage, you spoke about a second half weighted performance this year, but the Q1 came in seemingly stronger than expected. What were the areas that surprised you positively relative to the guidance in February? I guess given the stronger than expected quarter, why have you chosen not to raise or narrow the guidance for the full year? That's the first question. And the second question is on cigarette volumes.

[Faham Baig, Executive Director and Equity Research Analyst at UBS]

Clearly, over the last 6 months, there has been an improvement in volumes. It seems to be entirely driven by the deep discount segment. I guess, what are the key drivers that are helping this particular segment, and why may it not be, sort of supporting the premium segment too?

[Sal Mancuso, CFO at Altria Group]

Yeah. Good morning and thank you for the questions. Look, we do a terrific job of forecasting the year. I would say, though, as the Q1 played out, what you saw was stronger volume performance, and that's primarily driven in the smokable category by a moderation of the cross-category movement that I talked about in my opening remarks. As the year plays out, we see growth being more balanced between the 1st half and the 2nd half of the year. That was, that was the primary driver that we're seeing. We thought it was prudent to reaffirm guidance. You know, we're a quarter into the year. Obviously, the macroeconomic environment remains challenging and uncertain. Gas prices have increased at the end of the quarter significantly.

[Sal Mancuso, CFO at Altria Group]

There's been some maybe short-term offsets to that as we've seen tax refunds higher than we have seen in past years, that may be somewhat short term if you think about it. We'll see how the rest of the year plays out. Obviously, if there's any updates as the year progresses to our guidance, we would communicate that. We feel really good about Reaffirm guidance for the year. As far as cigarette volumes go, again, I mentioned the cross-category moderation that we've seen played out. The consumer does remain under pressure, and that's been a driver of the growth in the discount category. We are really happy with PM USA's total portfolio strategy, which allows Basic to capture share of that discount category.

[Sal Mancuso, CFO at Altria Group]

We feel really good about PM USA's performance for the quarter and very pleased with Marlboro's performance, where it grew its share of premium sequentially and year-over-year.

[Faham Baig, Executive Director and Equity Research Analyst at UBS]

Thanks, guys.

[Billy Gifford, CEO at Altria Group]

Thank you.

[Operator]

Our next question comes from Matthew Smith with Stifel. Please go ahead.

[Matthew Smith, Managing Director at Stifel]

Hi, good morning. Thank you for taking my question. Billy, first off, just want to wish you well in your retirement in the upcoming weeks here.

[Billy Gifford, CEO at Altria Group]

Thank you very much.

[Matthew Smith, Managing Director at Stifel]

Just wanted to dig into smokable OCI a bit. The performance was quite strong in the quarter. On a per pack basis, operating costs were below the level from the second half of last year. I think less volume deleverage was likely a benefit, but can you provide some more color on the other factors in smokable OCI? Seems like double duty drawback grew in size. Did you see that drop through profit more efficiently in the quarter?

[Sal Mancuso, CFO at Altria Group]

Yeah. As you stated, we had really strong Q1performance from our smokable segment. Just great job by PM USA and John Middleton in that segment. As far as spending goes, as we've stated earlier, we do have some investments in our import-export business, which are more weighted to the first half. I wouldn't overread a particular quarter, but the per pack controllable costs obviously did receive a benefit from the higher volume as well as the export volume that we've broken out for you in our financial statements. I would say the overall OCI was driven primarily through pricing and the stronger cigarette volume performance that you saw play out through the year.

[Sal Mancuso, CFO at Altria Group]

Again, that's primarily driven by the moderation of the cross-category movement between the illicit vapor and the cigarette category.

[Matthew Smith, Managing Director at Stifel]

Thank you for that. As a follow-up to the full year guidance question, there's a lot of reinvestment this year, whether it's behind On+ or the carryover from Basic repositioning and some other upcoming activities in smokable. If you continue to see resiliency in the consumer, how do you balance the earnings growth potential against leaning more heavily into reinvestment this year, given some of the flexibility you have?

[Billy Gifford, CEO at Altria Group]

Yeah, I think you have to think about it in totality, Matt. When you think about investment, we don't feel like we're under-investing in any of our growing categories, and so we'll continue to invest appropriately with those. I think from the strength of the consumer, it's the wild card with the economic outlook the way it is, with higher gas prices and stuff. As Sal mentioned, you know, there were certainly offsets. We'll see as those offsets play out throughout the year and how gas prices continue to trend, and we'll make any changes when it's appropriate.

[Matthew Smith, Managing Director at Stifel]

Thank you. I'll pass it on.

[Operator]

Our next question comes from Bonnie Herzog of Goldman Sachs. Please go ahead.

[Bonnie Herzog, Managing Director and Senior Consumer Analyst at Goldman Sachs]

All right. Thank you. Good morning, congratulations again, Billy and Sal. Billy, I also wish you all the best in your retirement, and it's really been great working with you. Assuming you guys can hear me. I have a question.

[Billy Gifford, CEO at Altria Group]

Yes. We can.

[Bonnie Herzog, Managing Director and Senior Consumer Analyst at Goldman Sachs]

-on the double. Okay. Okay, good. I have a question on the double duty drawback. I guess I was hoping for some more color on the expected phasing of the benefits you now expect this year. I believe you did start the import in the quarter, and I do see the stepped up, you know, benefit in Q1 versus Q4. Just curious, should we expect a steady increase in the benefit, you know, each quarter as the year progresses? Did this activity, you know, play a role in any way in your updated guidance phasing, you know, to be more evenly split between one H and two H? I guess I'm just trying to think if there was any type of, you know, pull forward in the quarter that we should be aware of.

[Sal Mancuso, CFO at Altria Group]

Good morning, Bonnie, and thank you for the question. You will see increases in the export volume and the benefit of the duty drawback as the year progresses. You are right in your assumption. I would tell you that the more balanced growth, delivered EPS growth, first half to second half is more driven by the fact that you've seen this moderation in cross-category movement and the benefit of the volume in the smokable segment. Of course, we're paying close attention to the economic conditions that our consumers are facing. You know, they are under significant economic pressure, again, from the cumulative impact of inflation, rising costs of everyday items, including gas. We'll pay close attention to that.

[Sal Mancuso, CFO at Altria Group]

I would say that's the main driver of the balance between first half and second half.

[Billy Gifford, CEO at Altria Group]

Thanks for the kind words, Bonnie. The only thing I would add is I think it's important to think about the two drivers that are driving that interaction between smokable and e-vapor. If you think about the two drivers, one is certainly enforcement. As the product is not available for the consumer, they go back to their total consideration set and make decisions. It's also, and you heard in my remarks, saturation of the marketplace for the e-vapor products and a slowdown in that transition over. It's hard to predict exactly when that saturation point is going to hit. And we think we're starting to see signs that we've hit that. That's why we've been after and really pushing the FDA to think of not only enforcement, but authorization.

[Billy Gifford, CEO at Altria Group]

We think they can achieve much faster authorization by publishing product standards.

[Bonnie Herzog, Managing Director and Senior Consumer Analyst at Goldman Sachs]

That's helpful. Just one other question, if I may, on Marlboro. You know, you're rolling out Cowboy Blend soon, maybe hoping for a little color on the rollout and, you know, maybe expected space allocations. Could you provide a little, you know, color on how you're going to manage Cowboy Cut relative to, say, Marlboro Black in terms of pricing? Ultimately, I guess, how we should think about, you know, the contribution to profitability. You know, how you're gonna manage, you know, Cowboy Cut maybe versus Marlboro Black, et cetera. Thank you.

[Sal Mancuso, CFO at Altria Group]

Bonnie. Cowboy Cut, we will expand distribution later in the year, specifically later in the Q2. You should think of Cowboy Cut a couple of ways. One is, it's a tool within our RGM toolbox. It provides price-sensitive Marlboro consumers with an option, and we believe that's important. You should expect it to be competitively priced. Of course, with RGM, you may see different price points depending on which store you go in. Cowboy Cut allows us to build on Marlboro's heritage during a time when the country is celebrating its 250th anniversary. It's also a benefit to Marlboro's overall equity strength that you see in the marketplace. We're really excited about Cowboy Cut. It's a terrific product.

[Sal Mancuso, CFO at Altria Group]

You will see a broader distribution as the quarter plays out.

[Bonnie Herzog, Managing Director and Senior Consumer Analyst at Goldman Sachs]

All right. Thank you. I'll pass it on.

[Operator]

Our next question comes from Andrei Andon with Jefferies. Please go ahead.

[Andrei Andon, Equity Research Analyst at Jefferies]

Hi. Good morning, Billy, Sal, Mac. Thank you very much for taking my questions. 3 from me, please. Number 1, could you please tell us a bit more about the factors that drove the improvement for Marlboro within the premium combustible segment? two questions on oral nicotine pouches, please. I know it's early days for On! +. There's been a shipment benefit for Q1 volumes. Is there any color you could give us around the consumer, the early consumer off-take for the new product, for On! +? Perhaps finally, just a clarification. The 6 new flavors that you've submitted the applications for with the FDA, are they also part of the Fast Track nicotine pouch Pilot program? Thank you.

[Billy Gifford, CEO at Altria Group]

Yeah. I'll try to unpack those three questions. If I miss any, please follow up. I think when you think about the Marlboro brand within the premium segment, I think there are really two factors there. Marlboro is still the aspirational brand in the cigarette category, and so with the tools that we have in data analytics with Revenue Growth Management, it allows us to, on a store-by-store basis, make it very competitive but remain very profitable. I think that's what's really driving the Marlboro growth in premium. I think when you think about oral nicotine pouches early on, it is very, very early. You'll remember that we went national towards the end of March, we're excited about that. We know that flavors are gonna play an important role in the future of the nicotine pouch category.

[Billy Gifford, CEO at Altria Group]

That ties into your third question about flavors. They are not part of the Pilot program at this point. This is why we believe that it's very easy for the FDA to go through the authorization process. The science is the same on those pouches as what they've already authorized. It's removing a GRAS, which stands for, in the FDA lingo, generally recognized as safe. You're removing 1 GRAS flavor and putting in a new GRAS flavor. They've already reviewed the science on everything else related to the product. Their only focus would really be the flavors, and that's why we believe that it can be achieved within the 180 day statutory requirement.

[Andrei Andon, Equity Research Analyst at Jefferies]

Thank you very much.

[Billy Gifford, CEO at Altria Group]

Thank you.

[Operator]

Our next question is from Eric Serotta with Morgan Stanley. Please go ahead.

[Eric Serotta, Executive Director and Equity Research Analyst at Morgan Stanley]

Great. Thanks for taking the question. Can you give us a little bit of color of how you're thinking about the potential macro impact from the low end, from the low-end consumer since the conflict began? We're now call it eight weeks or so into it. A lot of noise with weak consumer confidence overall, but higher tax refunds. What are you seeing? I guess in past times of sharp spikes in gas prices, what has sort of been the typical lag based on your research for an impact on your takeaway? Second question. You know, you certainly seem, you know, understandably more favorable about the e-vapor, illicit e-vapor enforcement. How is that impacting your thinking about your broader e-vapor strategy?

[Eric Serotta, Executive Director and Equity Research Analyst at Morgan Stanley]

You know, for the past year or so, you seem to be working behind the scenes on resolving the IP issues, but sort of not in a rush to get back onto a market that, you know, was clearly had its challenges. Is that evolving with the improved enforcement that you're and improved performance of market that you're talking about? Thank you.

[Billy Gifford, CEO at Altria Group]

Yeah. I'll let Sal kick us off with the macroeconomic, and then I'll take e-vapor.

[Sal Mancuso, CFO at Altria Group]

Sure. Good morning, Eric. I think you framed the macroeconomic situation quite well in your question, right? Later in the quarter, you did see a significant increase in gas prices. Obviously, that has an impact on discretionary spending that the consumer does have. They've been under pressure for quite a while, just as everyday items continue to be at elevated prices. There are some shorter-term tailwinds, I guess you would call it, related to some of the higher levels of tax refunds that we are seeing based on the data coming out of the IRS. Obviously we have to pay close attention to that. You are seeing a growth in the discount category within the cigarette business and/or cigarette segment, and that is driven by the macroeconomic difficulties that the consumer is facing.

[Sal Mancuso, CFO at Altria Group]

You've seen us using the RGM, the revenue growth management data analytics and tool set that we do have, that's why you see Basic and heavily discounted stores where we can capture consumer purchases that may have gone to other discount brands, and we can capture those purchases in Basic. We talked earlier about Cowboy Cut being a competitively priced product that will engage with Marlboro consumers that are under economic pressure. We believe we have the tools to manage through the situation, but obviously we're gonna pay close attention to the consumer's economic condition as the year progresses.

[Billy Gifford, CEO at Altria Group]

I think related to e-vapor, while we're just as excited as you are, some of the green shoots we're seeing in enforcement, I think it's important to step and still look at the context of the e-vapor category in total. It's very large, but it's still call it approximately 70% of the volume is illicit flavor disposables. It's still upside down in the marketplace. We're excited, we're making significant progress on the ITC issue that you described related to the patent infringements. We feel good about that. We're excited to be able to bring that product back to the marketplace at the appropriate time, but we'll still do it in a disciplined fashion while the marketplace is still upside down.

[Billy Gifford, CEO at Altria Group]

That's again, going back to our earlier point, is why we are really pushing the FDA to think about both enforcement but authorizations so that we can keep those consumers in the e-vapor category with products that are authorized.

[Eric Serotta, Executive Director and Equity Research Analyst at Morgan Stanley]

Great. Thanks so much. Congratulations, Billy, and best of luck, Sal. Thank you.

[Billy Gifford, CEO at Altria Group]

Thank you very much.

[Operator]

As a reminder, if you'd like to ask a question, please use the Raise Hand icon that can be found at the black bar of your bottom of your screen. Our next question comes from Damian Mcneela of Deutsche Bank. Please go ahead.

[Damian Mcneela, Research Analyst at Deutsche Bank]

Hey. Morning, everybody. Just one question from me. I think in your prepared remarks you mentioned that on! PLUS was getting allocated additional shelf space in the 100,000 or so stores that it's got listings in. Can you just sort of give an indication of where that shelf space is coming from? Is it, Are you winning it back off other nicotine pouch brands, or is it coming from traditional tobacco products, please?

[Billy Gifford, CEO at Altria Group]

Yeah, it's a good question. We feel very excited about what our sales force was able to achieve. You can think of that category primarily as its own category within the retail space. That is achieving that outlook within the nicotine pouch space.

[Damian Mcneela, Research Analyst at Deutsche Bank]

Yeah. Okay. Thank you very much. All the best for the future.

[Billy Gifford, CEO at Altria Group]

Thank you.

[Operator]

Our next question comes from Callum Elliott of Bernstein. Please go ahead.

[Callum Elliott, Senior Analyst at Bernstein]

Hi, hope you can hear me. Just adding my congratulations on the well-deserved retirement, Billy. Best of luck with the charitable endeavors. My first question-

[Billy Gifford, CEO at Altria Group]

Thank you very much. Yes, we can hear you loud and clear.

[Callum Elliott, Senior Analyst at Bernstein]

Perfect. My first question is on your nicotine pouch strategy. One of your tobacco peers has been rolling out a nicotine pouch product under a legacy oral tobacco brand. My question is, do you have any thoughts about maybe trying to do the same thing with Copenhagen or Skoal, or do you think that your initiatives with ON! are sufficient to get the sort of the consumer response that you're hoping for? My second question is about Basic and its interaction with Marlboro. I think the data you showed shows discount share gain of 240 basis points year-on-year in Q1, and Basic is also gain 240 basis points.

[Callum Elliott, Senior Analyst at Bernstein]

It, it seems like all of the discount sector share gain is coming from Basic. And as we all know, we sort of annualized the repositioning quite soon. Should we be expecting that discount share gains slow as a whole, as Basic starts to slow and maybe Marlboro can start doing a bit better? Or would you expect other discount brands to start doing better once Basic annualizes the launch?

[Billy Gifford, CEO at Altria Group]

Yeah, I'll take the first question and then pass it on to Sal for the Basic question. In the nicotine category, USSTC was the only smokeless company to have signed the Master Settlement Agreement, so that prevents us from using those tobacco brands in a product that does not contain tobacco. We feel very good about ON! and on! PLUS and the way it's positioned from an equity standpoint. I feel like we can compete very well in the nicotine pouch space.

[Sal Mancuso, CFO at Altria Group]

Callum, we're very pleased with Basic's performance. Remember, Basic's promotions were in limited retail distribution. That distribution is being driven by the data analytics that we have, so that Basic is being promoted in stores that over-index discount. That allows PM USA to capture consumer purchases that would have otherwise gone to other discount brands and not having an over-index impact on Marlboro. That's why we believe you're seeing Marlboro continue to grow share in the premium category and perform quite well there. Basic is able to capture the discount share that it's been able to capture. We feel really good with the strategy. It's really driven by data analytics, and it allows us to use the revenue growth management tools across PM USA's portfolio.

[Callum Elliott, Senior Analyst at Bernstein]

Maybe I can just ask a follow-up, if that's okay, Sal.

[Sal Mancuso, CFO at Altria Group]

Sure.

[Callum Elliott, Senior Analyst at Bernstein]

The sort of stronger than expected performance in Q1, does that give you the scope possibly to sort of further extend distribution for Basic beyond the sort of the plateau that we seem to have originally found, given that you seem to have this sort of increased flexibility now within the 2026 guidance, or is that not something that we should be expecting?

[Sal Mancuso, CFO at Altria Group]

Well, I don't think the strong performance is what drives that. It really is the data. If there's opportunistic retail locations to promote Basic and limit the impact on Marlboro, then PM USA will make that decision. It's not driven by the financial performance necessarily, it's being driven by the data analytics.

[Callum Elliott, Senior Analyst at Bernstein]

Okay. Thank you very much.

[Sal Mancuso, CFO at Altria Group]

Sure.

[Operator]

Our next question comes from Dave Ress with Richmond Times-Dispatch. Please go ahead.

[Dave Ress, State Politics / Growth and Development Reporter at Richmond Times-Dispatch]

Hi. I was hoping that you could talk a little bit more about the enforcement for the disposable vape. You probably know that in here in Virginia, the legislature has passed the new permitting and enforcement legislation for vape shops. I'm wondering if this is something that brings enforcement to a new front. Is it something that might be significant in terms of other states being interested in this kind of thing? Have you been monitoring that?

[Billy Gifford, CEO at Altria Group]

We have been. I think when you think about it, all the efforts that we try to get both at the state level and the federal level are exactly what you're after is making sure that the consumer in the vape category has authorized products, that the FDA, an independent party, has looked at what's in them and what comes from them. That's what we're driving. I think when you look across the U.S., you see a number of tools available at the state level. You've mentioned the permitting in Virginia. Other states have directories. It all is driven by how well they enforce it. Where we see enforcement take place, we see that the consumer goes back to their total consideration set. We've seen some go to nicotine pouch, we've seen some come back to cigarettes.

[Billy Gifford, CEO at Altria Group]

We've seen in some states where I'll call it a gray area, where there are vape products that have applications in front of the FDA and are awaiting a decision, so they're able to stay in the marketplace. Again, that's why we've been really pushing the FDA to think about both enforcement but also making authorization more readily available.

[Dave Ress, State Politics / Growth and Development Reporter at Richmond Times-Dispatch]

Could the Virginia legislation be a model for other states?

[Billy Gifford, CEO at Altria Group]

We've seen that across states. Some states have used model legislation that drives more, if you will, enforcement and to have only authorized or attempt to have only authorized products in the marketplace, but it's really driven by how well it's enforced.

[Dave Ress, State Politics / Growth and Development Reporter at Richmond Times-Dispatch]

Thank you.

[Billy Gifford, CEO at Altria Group]

Thank you.

[Operator]

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

[Mac Livingston, VP of Investor Relations at Altria Group]

Thanks, everybody, for joining today's call. Please reach out to investor relations if you have further questions. Have a great day.

[Operator]

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

Participants

Executives

• Billy Gifford, CEO
• Mac Livingston, VP of Investor Relations
• Sal Mancuso, CFO

Analysts

• Andrei Andon, Equity Research Analyst at Jefferies
• Bonnie Herzog, Managing Director and Senior Consumer Analyst at Goldman Sachs
• Callum Elliott, Senior Analyst at Bernstein
• Damian Mcneela, Research Analyst at Deutsche Bank
• Dave Ress, State Politics / Growth and Development Reporter at Richmond Times-Dispatch
• Eric Serotta, Executive Director and Equity Research Analyst at Morgan Stanley
• Faham Baig, Executive Director and Equity Research Analyst at UBS
• Matthew Smith, Managing Director at Stifel