Altria (MO) Q2 Earnings call transcript Jul 31, 2024

Altria Group's second quarter earnings call showcased the company's resilience and strategic focus on both traditional tobacco products and its innovative smoke-free offerings. The call, led by CEO Billy Gifford and CFO Sal Mancuso, highlighted the company's achievements in the e-vapor category, particularly with the success of NJOY, and addressed challenges related to illicit market activity.

NJOY's Encouraging Results and the E-Vapor Market

The second quarter saw significant milestones for NJOY, with the receipt of marketing granted orders from the FDA for four menthol e-vapor products, making NJOY the first and only menthol e-vapor product authorized by the FDA. The company also submitted PMTA applications for next-generation NJOY and on! products, setting the stage for future growth. NJOY's retail share of consumables increased to 5.5 share points, up 1.3 share points sequentially, reflecting the brand's strong performance in the market.

Despite these achievements, the broader e-vapor category faces challenges due to the lack of effective regulation and enforcement. The illicit e-vapor market continues to pose a significant threat, with disposable vapor products overtaking pod-based volumes. The illicit market is estimated to represent more than 60% of the category, contributing to the growth of illicit cigarettes and nicotine pouches.

Financial Performance and Future Outlook

Altria's financial performance for the second quarter and first half of 2024 was consistent with expectations, with adjusted diluted EPS remaining unchanged for the second quarter and declining by 1.6% for the first half. The company is narrowing its full-year guidance for adjusted diluted EPS, now expecting to deliver a growth rate of 2.5% to 4% from a base of $4.95 in 2023. The company's balance sheet remains strong, with a debt-to-EBITDA ratio of 2.1x, in line with its capital structure goal.

Investment in Innovation and Regulatory Challenges

Altria's investment in innovation, particularly in smoke-free products, is a key focus for the company. The second quarter saw the submission of PMTAs for on! PLUS, an innovative pouch product made using Altria's proprietary "soft-feel" material. The product has shown promising results in international markets, including Sweden and the United Kingdom, where it is incremental to Altria's photo portfolio and has minimal cannibalization.

The earnings call also addressed regulatory challenges, particularly the lack of enforcement and slow pace of smoke-free authorizations. Altria continues to engage with regulators and lawmakers to build awareness and drive marketplace enforcement. The company is actively advocating for multi-agency collaboration and has seen some positive actions at the federal level, including the creation of a federal multi-agency task force to coordinate enforcement efforts against illicit e-vapor products.

Conclusion

Altria's earnings call highlighted the company's strategic focus on innovation, regulatory compliance, and financial performance. The success of NJOY and the challenges in the e-vapor market underscore the need for effective regulation and enforcement to ensure a responsible and fully regulated tobacco industry. With a strong balance sheet and a commitment to shareholder value, Altria is well-positioned to navigate the evolving tobacco landscape and responsibly lead the transition of adult smokers to a smoke-free future.