Altria's Q1 2025 Earnings Call: Contradictions in E-Vapor Strategy, Synthetic Nicotine, and Consumer Behavior

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Strong Performance in Oral Tobacco and Nicotine Pouches:
- Oral tobacco products segment reported over $400 million in total adjusted OCI in the first quarter, with adjusted OCI margins remaining strong at 69.2%. Oral nicotine pouches grew 8.7 share points, now representing nearly half of the oral tobacco category.
- The growth was driven by the success of the on! brand, which increased its share of the oral tobacco category to 8.8% and the nicotine pouch category to 17.9%, attributed to strategic investments in brand-building and consumer engagement.

Impact of Economic Pressures on Cigarette Market:
- The smokeable products segment reported a 13.7% decline in domestic cigarette volumes, with the discount cigarette segment growing by 1.8 share points. Marlboro retail share declined by 1 share point year-over-year.
- The decline in cigarette volumes was due to economic pressures, particularly inflation exceeding wage growth, leading smokers to seek price relief and switch to discount products. Discount brands saw increased demand as a result.

Challenges and Strategy in the E-Vapor Market:
- Altria faces ongoing challenges in e-vapor, with illicit flavored disposable products representing more than 60% of the category. NJOY ACE was discontinued due to ITC orders, and Altria recorded a non-cash impairment charge of $873 million.
- Altria is advocating for regulatory reforms and more enforcement, aiming to participate long-term in the e-vapor market once regulatory and enforcement issues are addressed. The company is refining its product portfolio to align with consumer preferences for re-entry into the market.

Financial Performance and Shareholder Returns:
- Altria paid approximately $1.7 billion in dividends and repurchased 5.7 million shares for $326 million in the first quarter. The company maintained a strong balance sheet, with a total debt-to-EBITDA ratio of 2.1x.
- The robust financial performance is supported by strong cash returns through dividends and share repurchases, while maintaining investments in strategic areas like on! and pursuing long-term growth opportunities.