Altria Group, Inc. (MO) 2024 Q2 Earnings Call Summary

Optimistic Highlights

NJOY's Strong Performance: NJOY's shipment volumes for consumables and devices showed significant sequential increases, with consumables up by 14.7% and devices by 80%. Retail share of consumables grew to 5.5 share points, indicating continued traction and growth.
Innovative Product Milestones: Achieved significant regulatory milestones, including FDA marketing granted orders for menthol e-vapor products, making NJOY the first and only brand with such authorization. Also submitted PMTA applications for next-generation products, positioning for future success.
Shareholder Value: Returned over $5.8 billion to shareholders through share repurchases and dividends in the first half of the year, demonstrating strong financial health and commitment to shareholder returns.
Smoke-Free Portfolio Confidence: Expressed confidence in the long-term outlook for the smoke-free portfolio, highlighting the potential to lead the transition of adult smokers to a smoke-free future.
Oral Tobacco Category Growth: on! nicotine pouches showed strong performance with retail share growing to 8.1% for the quarter, supported by strategic investments and a new trade program.

Challenges in Traditional Tobacco: Despite resilience, the traditional tobacco businesses face challenges in a tough operating environment, with cigarette industry shipment volumes pressured by macroeconomic factors and growth of illegal disposable e-vapor products.
Illicit Market Activity: The growth of illicit disposable e-vapor products and nicotine pouches due to lack of effective regulation and enforcement is a concern, with illicit products now representing more than 60% of the e-vapor category.
Regulatory Inaction: Criticized the FDA for inaction and slow pace of smoke-free product authorizations, enabling bad actors and illicit market expansion, which undermines the transition to smoke-free alternatives.

Adjusted EPS Guidance for 2024: Narrowed the full-year 2024 guidance range for adjusted diluted EPS to $5.07 to $5.15, indicating a growth rate of 2.5% to 4% from 2023, with growth weighted to the second half of the year.
Investment in Smoke-Free Products: Plans to continue investing in NJOY's value proposition and equity to build awareness and generate trial, with a focus on long-term profitability and growth in the smoke-free portfolio.

Q: Can you discuss the drivers of back-half growth in EPS guidance? (Bonnie Herzog, Goldman Sachs)
A: Factors include lapping the NJOY acquisition, two extra shipping days, benefits from an accelerated share repurchase program, and the expiration of legal fund payments related to the master settlement agreement. (Sal Mancuso)
Q: How are adult consumers reacting to enforcement efforts against illicit vapor products? (Matt Smith, Stifel)
A: Limited enforcement actions have been taken, but more significant efforts are needed. Early trends in Louisiana showed a shift towards compliant products and a slight impact on cigarette volume declines. (Billy Gifford)
Q: What proportion of U.S. cigarette volumes do states awaiting enforcement represent? (Callum Elliott, Bernstein)
A: Did not provide a specific number but emphasized the importance of comprehensive enforcement across the U.S. (Billy Gifford)
Q: Thoughts on ABI stake and credit rating following Fitch Ratings comments? (Faham Baig, UBS)
A: Investment-grade credit rating is important for managing a strong balance sheet. The ABI asset is viewed through the lens of long-term shareholder value. (Sal Mancuso)
Q: Are industry wholesale shipment trends indicative of ongoing inventory dynamics? (Owen Bennett, Jefferies)
A: Inventory levels tend to balance over time, but there's an expectation of some decrease in inventories commensurate with volume declines. (Billy Gifford)