Altria Group (NYSE:MO) reported its fourth-quarter earnings for 2024, with earnings per share (EPS) matching analyst expectations at $1.29. The company also reported revenues of 5.11 billion dollars, surpassing the forecast of 5.04 billion dollars. Following the earnings announcement, Altria's stock showed a slight increase of 0.16% in pre-market trading, with the price reaching $51.62. However, the stock had closed down 2.13% the previous day.
Key Takeaways
- Altria's EPS met expectations, with revenues exceeding forecasts.
- The company returned over 10.2 billion dollars to shareholders in 2024.
- Altria authorized a new 1 billion dollar share repurchase program.
- E-vapor and oral nicotine products showed significant growth.
- The illicit e-vapor market poses challenges to future growth.
Company Performance
Altria demonstrated stable financial performance in the fourth quarter of 2024, with a 3.4% growth in full-year adjusted diluted EPS. The company continues to focus on shareholder returns, having distributed over 10.2 billion dollars through dividends and share repurchases. The smokeable products segment saw a 5.5% growth in adjusted operating company income (OCI), despite an 8.8% decline in domestic cigarette volumes.
Financial Highlights
- Revenue: 5.11 billion dollars, exceeding the forecast of 5.04 billion dollars.
- Earnings per share (EPS): 1.29 dollars, meeting the forecast.
- Dividend payouts: 6.8 billion dollars for the year.
- Share repurchase: 73.5 million shares for 3.4 billion dollars.
Earnings vs. Forecast
Altria's actual EPS of 1.29 dollars met the analysts' forecast exactly, indicating stable performance. The revenue of 5.11 billion dollars was a positive surprise, exceeding the expected 5.04 billion dollars by approximately 1.39%. This performance aligns with the company's historical trend of meeting or slightly exceeding expectations.
Market Reaction
Following the earnings release, Altria's stock saw a modest increase of 0.16% in pre-market trading, reaching a price of $51.62. Despite this uptick, the stock had experienced a decline of 2.13% the previous day, closing at $51.54. The stock remains within its 52-week range, which spans from $39.25 to $58.04.
Outlook & Guidance
For 2025, Altria has projected an adjusted diluted EPS between $5.22 and $5.37, reflecting a growth of 2-5%. The company is reassessing its smoke-free goals due to challenges posed by the illicit e-vapor market. Altria is also preparing to introduce its heated tobacco product, Plume, to the market.
Executive Commentary
CEO Billy Gifford emphasized the challenges posed by the illicit e-vapor market, stating, "We believe the regulatory structure is broken and the tobacco marketplace is not operating as Congress intended." He also noted the impact of inflation on consumers, describing it as "the biggest headwind for our consumer." Despite these challenges, Gifford remains committed to the company's vision of expanding its portfolio of FDA-authorized smoke-free products.
Risks and Challenges
- Illicit e-vapor market: Over 60% of the category is represented by illicit products, impacting regulatory and market dynamics.
- Inflation: Ongoing inflationary pressures could affect consumer spending habits.
- Regulatory environment: Potential changes in regulations could affect product offerings and market access.
- Decline in cigarette volumes: Continued decrease in domestic cigarette sales may impact revenue.
- Competitive pressures: Maintaining market share in the face of evolving consumer preferences and new entrants.
Q&A
During the earnings call, analysts raised concerns about the ongoing patent litigation with JUUL regarding the Enjoy e-vapor product. Questions also focused on how Altria plans to navigate the challenges posed by the illicit e-vapor market and the impact of consumer spending pressures due to inflation.
Full transcript - Altria Group (MO) Q4 2024:
Conference Operator: Good day, and welcome to the Altria Group 2024 4th Quarter and Full Year Earnings Conference Call. Today's call is scheduled to last about 1 hour, including remarks by Altria Management and a question and answer session. I would now like to turn the call over to Mac Livingston, Vice President of Investor Relations for Altria Client Services. Please go ahead, sir.
Mac Livingston, Vice President of Investor Relations, Altria Client Services: Thanks, Shelby. Good morning, and thank you for joining us. This morning, Billy Gifford, Altria's CEO and Sal Mancuso, our CFO, will discuss Altria's 4th quarter and full year business results. Earlier today, we issued a press release providing our results. The release, presentation, quarterly metrics and our latest corporate responsibility reports are all available at altria.com.
During our call today, unless otherwise stated, we're comparing results to the same period in 2023. Our remarks contain forward looking statements, including projections of future results. Please review the forward looking and cautionary statement 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 tobacco consumers or consumers within a specific tobacco category or segment refer to existing adult tobacco consumers 21 years of age or older. With that, I'll turn the call over to Billy.
Billy Gifford, CEO, Altria Group: Thanks, Mac. Good morning and thank you for joining us. 2024 was another pivotal year for Altria, headlined by meaningful progress toward our vision, strong financial results and significant cash returns to shareholders. Our company's leading brands and talented teams enabled our core tobacco businesses to deliver solid income growth and margin expansion, while we strategically invested in our future. For the full year, we grew adjusted diluted earnings per share by 3.4 percent and continued our long history of rewarding shareholders with over $10,200,000,000 in dividends and share repurchases.
As the year progressed, our innovative smoke free products, Enjoy In On, demonstrated encouraging performance through volume and share growth in their respective categories. And we hit meaningful milestones that help solidify our smoke free portfolio and position us for sustained success.
Mac Livingston, Vice President of Investor Relations, Altria Client Services: Shelby, we're having an issue with hearing the music still for those listening.
Conference Operator: All right. And thank you. One moment. Thank you for your patience in holding. The issue has been resolved.
Speakers, you may proceed with your conference.
Mac Livingston, Vice President of Investor Relations, Altria Client Services: Thanks, Shelby. We apologize for the technical difficulties, and we'll start over again without the music. So good morning, and thank you for joining us. This morning, Billy Gifford, Altria's CEO and Sal Mancuso, our CFO, will discuss Altria's 4th quarter and full year business results. Earlier today, we issued a press release providing our results.
The release, presentation, quarterly metrics and our latest corporate responsibility reports are all available at altria.com. During our call today, unless otherwise stated, we're comparing results to the same period in 2023. Our remarks contain forward looking statements, including projections of future results. Please review the forward looking and cautionary statement 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 tobacco consumers or consumers within a specific tobacco category or segment refer to existing adult tobacco consumers 21 years of age or older. With that, I'll turn the call over to Billy. Thanks, Mac. Good morning and thank you for joining us.
2024 was another pivotal year for Altria, headlined by meaningful progress toward
Billy Gifford, CEO, Altria Group: our vision, strong financial results and significant cash returns to our shareholders. Our company's leading brands and talented teams enabled our core tobacco businesses to deliver solid income growth and margin expansion, while we strategically invested in our future. For the full year, we grew adjusted diluted earnings per share by 3.4% and continued our long history of rewarding shareholders with over $10,200,000,000 in dividends and share repurchases. As the year progressed, our innovative smoke free products Enjoy and On demonstrated encouraging performance through volume and share growth in their respective categories. And we hit meaningful milestones that help solidify our smoke free portfolio and position us for sustained success in the U.
S. Nicotine space, including Enjoy receiving the 1st and only marketing granted orders from the FDA for menthol e vapor products, submitting PMTA applications to the FDA for next generation Enjoy and ON products, continuing preparations to commercialize Plume through our joint venture with JT and advocating for a responsible and well regulated marketplace, including stepped up enforcement against illicit market activity. My remarks this morning will focus on our view of the U. S. Nicotine space, our smoke free progress and our earnings guidance for 2025.
I'll then hand it over to Sal, who will provide an update on consumer and industry dynamics, further detail on our smokeable business and financial results. Let's begin with the operating environment and our view of the nicotine space. The potential for tobacco harm reduction in the U. S. Is significant and consumers are seeking smoke free alternatives at a faster pace than we've seen historically.
In fact, over the past year, the estimated number of adult consumers in the e vapor and oral tobacco categories grew to approximately 28,000,000, nearly as large as the adult smoker population. We estimate that smoke free alternatives represented approximately 45% of the total nicotine space, up 5 percentage points from the prior year. For the total nicotine space, industry equivalized nicotine volumes increased for the 2nd consecutive year and grew by approximately 2% over the past 5 years on a compounded annual basis. The growing adoption of smoke free alternatives is encouraging The growing adoption of
: smoke free alternatives is encouraging and directly aligned with our vision and the growth aspirations of
Billy Gifford, CEO, Altria Group: our smoke free businesses. In addition, decades of deliberate actions to prevent youth tobacco use are yielding results. And underage tobacco usage rates are at historic lows. Together, these trends are very encouraging for public health and the harm reduction opportunity. However, the primary driver of industry and smoke free growth continues to be the widespread availability of illicit disposable e vapor products, which is jeopardizing the long term opportunity for tobacco harm reduction.
We estimate that the e vapor category grew by approximately 30% in 2024 and that illicit products represent more than 60% of the category. At year end, we estimate that there were 20,000,000 vapers, up nearly 20% from the prior year, driven exclusively by disposable vapers. Our data also show that approximately 40% of the growth in disposable vapers came from those with no prior cigarette usage. It has become clear that 2 markets exist in the U. S, one for those who operate within the regulatory framework and one for those who flagrantly violate and evade the rules.
In the simplest terms, we believe the regulatory structure is broken and the tobacco marketplace is not operating as Congress intended. The FDA has not authorized enough smoke free products to meet consumer demand with legal products and regulators are not holding bad actors accountable. Illicit product manufacturers, distributors and retailers have yet to experience any material consequences for violating federal laws and regulations. This dynamic continues to make the operating environment challenging for responsible manufacturers and retailers and is confusing for consumers seeking FDA authorized products. In 2023, we introduced our 20 28 enterprise goals to more clearly define where we are headed.
We believe that our deep understanding of adult tobacco consumers, our comprehensive smoke free portfolio and our industry leading capabilities would help make them a reality. When we established these goals, we were aware of a small illicit e vapor market, not dissimilar from illicit markets in other tobacco categories throughout our history. However, the illicit e vapor market has grown to a size and scale beyond our expectations. We believe this dynamic compromises our ability to achieve our 20 28 smoke free volume and revenue goals. In addition, we believe it compromises our ability to achieve the Enjoy specific financial targets we established in connection with that transaction.
As a result, we are reassessing these smoke free goals and enjoy targets and anticipate providing updates when we have more clarity on how the legitimate e vapor market may evolve. We will be looking for signs of material progress, such as a decline in the illicit growth in the growth of illicit products, a meaningful increase in the number of illicit products prevented from entering the U. S. And DOJ or state AGs bringing litigation against illicit manufacturers, distributors and importers. Encouragingly, earlier this month, 9 state AGs and the District of Columbia announced various actions against illicit e vapor importers, distributors and retailers.
We also believe the FDA can restore order to the market by authorizing more PMTAs to establish a legal market of alternatives for consumers and by partnering with other federal agencies to prevent illicit products from entering the country. I am optimistic that these issues can and will be addressed. Let me be clear, we remain steadfast in our commitment to our vision and to building a portfolio of FDA authorized smoke free products for adult smokers and adult consumers currently using smoke free products. This update to our 20 28 enterprise goals does not impact our corporate financial goals or long term growth goals. And our progress on our goals can be found in the earnings release we issued this morning.
Let's now transition to our smoke free performance beginning with Enjoy. 2024 was a year of growth and learning for Enjoy and we are pleased with its performance in the context of the broader e vapor market as Enjoy grew volume and share in a competitive pod segment. Enjoy's progress was driven by several actions taken throughout the year, which I'll briefly highlight. In 2024, Enjoy expanded distribution base to over 100,000 stores, secured premium position at retail and more than 80% of contracted stores through Enjoy's first trade program, executed a variety of trial generating activities with compelling results and introduced a new brand equity campaign with impactful consumer messaging. As a result of these efforts, Enjoy consumables shipment volume grew by more than 15% to 12,800,000 units in the 4th quarter.
Consumables shipment volume for the full year was 46,600,000 units. And Enjoy device shipment volume for the Q4 grew by more than 22% to 1,100,000 units and was 5,000,000 units for the full year. In the Q4, Enjoy's retail share of consumables was 6.4 share points, up 2.8 share points versus the year ago period. Enjoy grew its share of consumables by 0.2 of a share point sequentially, while the retail price increased by over 20%, indicating strong demand for the brand. Before moving on, I'll mention the litigation before the U.
S. International Trade Commission. Yesterday, the ITC (NSE:ITC) issued its final determination in Juul's case against injury. The ITC agreed with Juul's claims with respect to the 4 patents in this case. We disagree with the ITC's decision and continue to believe that JUUL's patents are invalid and that ACE does not infringe on these patents.
As a remedy, the ITC issued an exclusion order and cease and desist orders barring the importation and sale of ACE. The ITC's decision is currently under a 60 day review period by the Office of the US Trade Representative, which could reject the ITC's decision. Enjoy continues work on its product solution that addresses all of the patents at issue in the event the ITC's decision is not rejected. This decision would severely limit FDA authorized choices, including the only FDA authorized menthol e vapor products and undermines public health, especially in context of a market that is overrun by illicit products. Regarding Injoy's case against JUUL, in December, the administrative law judge issued an initial determination finding that Juul's products did not infringe on Enjoy's patents.
We have petitioned the ITC to review and reverse the ALJ's initial determination. We expect the ITC to issue a final determination in early April. Moving to the oral tobacco category. In the Q4, oral nicotine pouches grew 9.6 share points versus the prior year and represented over 45% of the category. Oral nicotine pouches were the primary contributor to the estimated 8% increase in oral tobacco industry volume over the past 6 months.
Helix continued to participate in the category growth as on reported shipment volume grew by more than 44% year over year to nearly 44,000,000 cans in the 4th quarter. ORN performed well at retail, growing its share of the oral tobacco category by 2 share points year over year to 8.9% in the 4th quarter. Born retail share was unchanged sequentially despite reduced promotional investments and increased competitive pressure. Consumer Loyalty for ON continues to build an approximately 800,000 consumers regularly purchased Oren in the 4th quarter, an increase of more than 40% versus the prior year. This growth included increased sourcing from competitive pouch brands.
1's performance was enabled by a variety of strategic investments Helix made throughout the year, including a new trade program that created broader visibility and secured premium fixture position for nearly 80% of Oren's volume and a fresh new look for Oren packaging and the its own equity campaign to further differentiate the brand. As a result of these efforts, Helix achieved profitability for the first time in the Q4 ahead of its 2025 goal. And we anticipate Helix will be profitable for the full year 2025. Outside of the U. S, Oran Plus is competing in the nicotine pouch space in Sweden and the United Kingdom (TADAWUL:4280).
In both markets, Olin (NYSE:OLN) plus has been incremental to our total portfolio, sourcing mainly from competitive brands. Olin plus's Flex (NASDAQ:FLEX) Tek pouch offers a unique product experience and we are encouraged by the steady momentum that ON plus is building at retail and on e commerce. We are using consumer insights to inform our plans and we are launching 2 new flavors, raspberry lemon and watermelon mint in both markets to appeal to evolving consumer preferences. We look forward to bringing On Plus to the U. S.
Once authorized. In heated tobacco, we believe we are developing a portfolio of products that will appeal to adult smokers seeking innovative inhalable alternatives to e vapor products. We are moving forward with regulatory preparations to bring heated tobacco stick products to the U. S. Through Horizon, our joint venture with JT.
During 2024, we made great progress towards our PMPA and accelerated our work on an MRTPA submission for Plume. We now expect to make a combined submission in mid year 2025. And in December, we commenced a small scale test launch of SWIC, our heated tobacco capsule product through e commerce in Great Britain. We expect to use consumer insights from the test to further inform our strategies. Turning to our 2025 financial outlook.
We remain committed to tobacco harm reduction in the U. S. And continue to believe there is a significant opportunity to shift millions of smokers to FDA authorized smoke free alternatives. Our planned investment areas include market activities in support of our smoke free products and continued smoke free product research, development and regulatory preparations. We believe the external environment will remain dynamic in 2025.
And we will continue to monitor the economy, including the cumulative impact of inflation, tobacco consumer dynamics, including purchasing patterns and adoption of smoke free products, illicit product enforcement and regulatory litigation and legislative developments. Considering these factors, we expect to deliver 2025 full year adjusted diluted EPS in a range of $5.22 to $5.37 This range represents an adjusted diluted EPS growth rate of 2% to 5% from a $5.12 base in 20.24. Our guidance includes the impact of 1 fewer shipping day in 20 25, which occurs in the 4th in the Q1, assumes a limited impact on combustible and e vapor product volumes from enforcement efforts in the illicit e vapor market and includes the reinvestment of anticipated cost savings related to our previously announced optimize and accelerate initiative. In addition, the guidance range includes lower expected net periodic benefit income. I'd also like to welcome Rich Stoddart to our Board of Directors as announced this morning.
Mr. Stoddart's extensive global marketing and executive leadership experience will be a tremendous asset to Altria. I'll now turn it over to Sal to provide additional detail on our business and financial results.
Sal Mancuso, CFO, Altria Group: Thanks, Billy. Our core tobacco businesses generated solid financial performance again this year in a challenging external environment. The smokeable product segment delivered on its strategy of maximizing profitability, while appropriately balancing investments in Marlboro with funding the growth of smoke free products. The segment grew its adjusted operating company's income by 5.5% in the 4th quarter and by 2% for the full year. Adjusted OCI margins expanded to 61.2% 61.6% for the Q4 and full year respectively.
This performance was supported by robust net price realization of 11.3% for the quarter and 10.1% for the full year. Smokeable Products segment reported domestic cigarette volumes declined 8.8% in the 4th quarter and 10.2% for the full year. When adjusted for calendar differences and trade inventory movements, domestic cigarette volumes for the Q4 and the full year declined by an estimated 11%. At the industry level, we estimate that adjusted domestic cigarette volumes declined by 8% in the 4th quarter and 9% for the full year. As Billy described, the pace of change within the nicotine space has been rapid over the past 2 years.
These changes have resulted in significant shifts in adult tobacco consumer preferences, with an increasing number of adult consumers entering the nicotine category, primarily through smoke free products. We have been monitoring these shifts and their effects on cigarette industry decline rates and are making 2 updates to our latest cigarette category decomposition estimates. First, we believe that the cigarette category secular decline estimate of 2.5% represents the impact to cigarette industry volume due to the decline in adult smokers excluding any cross category movement. 2nd, we estimate cross category impacts contributed approximately 3% to 4% to the cigarette industry decline over the last 12 months. Turning now to share dynamics.
Total (EPA:TTEF) discount segment share grew by 1.7 share points in the 4th quarter and by 1.3 share points for the full year with most of the growth coming from deep discount. Marlboro retail share of the cigarette category declined 1 share point in the 4th quarter and 0.3 share points sequentially, consistent with the recent historical seasonality in the 4th quarter. Within the highly profitable premium segment, Marlboro expanded its share of premium to 59.4 percent for the 4th quarter, an increase of 0.1 share point year over year and sequentially. For the full year, Marlboro grew its share of premium to 59.3%, an increase of 0.4 share points versus the prior year. We believe that Marlboro remains the aspirational brand in the cigarette category, and we are encouraged by its performance in 2024.
In cigars, reported shipment volume increased 2.9% in the 4th quarter. Middleton continued to contribute to smokeable products segment financial results and black and mild remain the leader in the highly profitable machine made large tip cigar segment. The Oral Tobacco Products segment reported strong 4th quarter results. Adjusted OCI and adjusted OCI margins increased and ON grew its retail share of the oral tobacco category year over year. For the Q4, adjusted OCI grew 13% and the segment expanded percent, an impressive increase of 6.4 percentage points versus the prior year.
For the full year, the segment grew adjusted OCI by 5.2 percent with adjusted OCI margins of 67.8%, up 0.4 percentage points. Total segment reported shipment volume decreased by 0.4% and 1% for the Q4 and full year respectively. When adjusted for trade inventory movements and calendar differences, segment volumes were essentially unchanged for the Q4 and declined by an estimated 2% for the full year. Oral Tobacco Products segment retail share declined by 3.1 percentage points in the 4th quarter as declines in our MST brands were partially offset by on share gains. Within the MST category for the Q4 and full year, Copenhagen remained the undisputed leader and approximately 1 in every 2 MST cans purchased was a USSTC brand.
Turning to our investment in ABI, we recorded $159,000,000 of adjusted equity earnings for the 4th quarter, down 8.1% versus the prior year. These earnings reflect the impact of a lower ownership interest compared to the year ago period due to the partial sale of our ABI investment last year. We continue to view the ABI stake as a financial investment and our goal remains to maximize the long term value of the investment for our shareholders. We demonstrated our commitment to returning significant value to shareholders and maintaining a strong balance sheet during 2024. For the full year, we returned over $10,200,000,000 of cash to shareholders through dividends and share repurchases.
We paid $6,800,000,000 in dividends and our board raised our dividend by 4.1 percent in August, marking our 59th increase in the last 55 years. We also completed our previously authorized share repurchase program, repurchasing 73,500,000 shares for $3,400,000,000 representing our largest single year share repurchase in over 2 decades. Our share repurchases were supported by the proceeds from our partial sale of our investment in ABI. We effectively balanced our capital allocation priorities during the year and we maintained a strong balance sheet. Our total debt to EBITDA ratio as of December 31 was 2.1 times in line with our target of approximately 2 times.
Moving to 2025, I am pleased to announce that our board authorized a new $1,000,000,000 share repurchase program, which we expect to complete by the end of this year. With that, we'll wrap up and 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.
Let's open the question and answer period. Operator, do we have any questions?
Conference Operator: Thank you. We'll take our first question from Matt Smith with Stifel. Your line is open.
Matt Smith, Analyst, Stifel: Hi, good morning. Billy, maybe to start out, the guidance for the year, the 2% to 5% EPS growth, can you talk about the phasing of earnings growth? You have lower MSA costs in the 1st 3 quarters, but one less shipping day in the Q1. So just as we consider the shape of the year, can you help us with in terms of phasing?
Billy Gifford, CEO, Altria Group: Yes. You know, Matt, we don't guide to the quarter. But I think as you think about the year, nothing is really distorting in 2024 as we look forward to 2025. You remember, 2024 to 2023, we ramped up spending in Enjoy because we had a half year to a full year ownership of that brand. Nothing like that would stand out for 2025 as we go forward.
We did want to highlight the one last shipping day in the Q1. So just to make sure people understood that that was occurring in the Q1.
Matt Smith, Analyst, Stifel: Thank you, Billy. And as my follow-up, Marlboro continues to perform well in terms of market share of the premium segment, but discount share trends picked back up in the 4th quarter. You called out continued discretionary income pressure on adult tobacco consumers. Can you talk about the trends you're seeing in those adult consumers? Is there incremental pressure?
Is this continued cumulative impact over time and a mix shift given the proliferation of cigarette alternatives? And how do you see that playing out through 2025?
Billy Gifford, CEO, Altria Group: Yes. And that's one of the things we'll continue to monitor, Matt, to your point. We do see the cumulative impact really affecting our consumers. And you can see it outside of the tobacco industry. You can see it in credit card, late payments, things of that nature and the amount of credit card debt that consumers are carrying.
So the consumer continues to feel that pressure. And it really we believe is the cumulative impact of inflation. So we'll see how that shapes up in 2025. But we feel good about the guidance we gave. And as you know, take very many things into considerations before we provide that range.
But it is something that we'll monitor. As far as cross category, we're continuing to see that pressure. We try to highlight that in our decomposition of cigarette industry volume. It really is, and you heard in my remarks, the illicit vapor market flooding the market with flavors. If you step back, you can take an optimistic view.
It's what we've been saying that consumers are ready to move if they can find alternatives. We just need a regulatory system that authorizes legal products and enforces against illegal products.
Matt Smith, Analyst, Stifel: Thank you, Billy. I'll pass it on.
Conference Operator: Thank you. We'll take our next question from Bonnie Herzog with Goldman Sachs. Your line is open.
Bonnie Herzog, Analyst, Goldman Sachs: All right. Thank you. Good morning.
Conference Operator: Good morning, Bonnie.
Bonnie Herzog, Analyst, Goldman Sachs: Good morning. I was hoping you could provide a little more color on the possible options you have for Enjoy and what a potential settlement would Juul be on the table. I guess, how are you guys thinking about playing in the e vapor category right now, especially given how the market has evolved with illicit, etcetera. Billy, you did discuss some of this and also asking given your comments about no longer being able to hit your targets for EnJoy. So is it maybe not worth being in e vapor right now and possibly better to prioritize and protect the profitability you have in smokeable, drive growth in NIC (NASDAQ:EGOV) pouches with ON, as well as pursue HNB, while at the same time return cash to shareholders with your strong dividend and buyback program.
So just kind of love to hear your thoughts on all of this.
Billy Gifford, CEO, Altria Group: Yes. You brought up a lot of good points Bonnie. I'll try to give you a concise answer, but if I miss anything or you have follow-up, please do. I think when you step back as far as pathways, there are a number of pathways. There are still some steps in the process.
I talked about the review of the trade representative. While that has been if you look back in history, it's been very rare. I think there's special circumstances here. If you think about public health, you have a market that's flooded with illegal vapor products, specifically disposables that have completely shirked the regulatory process that are in the market. While you have Enjoy, which authorized on the tobacco flavors and the only authorized thus far on the menthol side.
So when I think you think about that from a public health perspective, I really believe public health and the improvement of public health through time should be a determining factor as we go through that process. But you mentioned settlement and you mentioned the factors that we'll be considering. 1, you need a reasonable party on the other side. We're going to be disciplined about it. When you think about the e vapor market, the pod segment declining at roughly 15%.
You have to be and we will be disciplined on what you consider reasonable. I think when you think about what's winning in the marketplace is illegal disposable products. And that's clearly the winner in the marketplace. The brands may change names, but that is what's winning it. So we're certainly taking that into consideration as we consider pipeline products to meet consumer demands in the e vapor space.
There are a number of avenues to continue. We've shared with you previously, we filed SD exemptions for 3 patents where we work our engineers work to not infringe on the patents. And I think when you come to the bottom line from the patent standpoint, nothing changes that goes into the product and nothing changes that comes out to the consumer. It's really some modifications to the device itself. And so I'll pause there and see if I hit all of your points, but that's how we're thinking about it.
Bonnie Herzog, Analyst, Goldman Sachs: No, I think that's helpful. But to your point about the SCs, I mean, I think what's maybe missing is that 4th, right? It doesn't solve for the 4th patent, I guess. So I think you're maybe still right? Okay.
Billy Gifford, CEO, Altria Group: Yes. I hear you, Bonnie. And their engineers are vigorously working on that final, if you will, change that would allow us not to infringe on the determination made by the ITC.
Bonnie Herzog, Analyst, Goldman Sachs: Okay. Thank you. And then maybe just another quick question from me, just on your guidance. First, I did want to verify that your guidance includes the likely potential you're going to have to pull EnjoyACE from the market at the end of March, I think it does. I just want to double check.
And then second, assuming that happens, is it realistic to think about your ability to hit the high end of your EPS guidance range or just that being more likely given that Enjoy is still operating at a loss and therefore has been a drag on earnings and if it's pulled that would actually boost your income this year?
Sal Mancuso, CFO, Altria Group: Bonnie, we run as you know a number of scenarios as we're thinking about 2025. There are always puts and takes across the plan, and that's why we provided a range related to the EPS guidance. So we'll see how the year plays out. Obviously, we've got a lot of levers that we can pull to deal with anticipated variability in the marketplace. So we feel good about the guidance we've provided.
If there's anything to update as the year progresses, of course, we will.
Bonnie Herzog, Analyst, Goldman Sachs: Okay. I'll pass it on. Thank you.
Billy Gifford, CEO, Altria Group: Thank you.
Conference Operator: Thank you. And we'll take our next question from vaham Bey with UBS. Your line is open.
Vaham Bey, Analyst, UBS: Good morning, guys. I just have one follow-up and then maybe 2 actual questions. Just going quickly back to the question on Enjoy and the 4th patent that your engineers are furiously working behind. If you are able to successfully navigate that patent and are able to submit an SE application for that. By when do you expect to receive approval for that SE application?
And thereby, you could be able to bring that Enjoy product back on the market? The second question that I have was just on the Q4 results. And particularly in the smokeable division, your controllable costs in the final quarter was up around 13%, which is a sharp movement particularly from the previous quarter. Could you just maybe explain the dynamics in the Q4, which resulted into that as well as how we should think about controllable costs going into 2025? And the final question is on nicotine pouches.
I was a bit surprised that the oral tobacco category didn't grow faster in 'twenty five versus sorry, in 'twenty four versus 'twenty three given the rapid growth. But how do you see the growth of nicotine pouches in 2025 and particularly the competitive dynamics from both your legal players as well as some of the illicit ones?
Billy Gifford, CEO, Altria Group: Yes. I will answer the question on the 4th patent and the next team touches and then I'll let Sal answer the one on smokeable cost. I think when you think about that 4th patent, it really depends on the final lockdown of the change that we would make to be able to not infringe on the JUUL patent. If it follows the other 3, it would be through the SE exemption process. And as you recall, the SE exemption process is the more rapid, while not predictable, a more rapid process to get authorized by the FDA.
As far as nicotine pouches, I think as you see introductions of new categories, they always have fits and starts as far as growth depending on what consumer base they're reaching. I think you saw nicotine pouches grow so rapidly in the introduction because you had the traditional moist smokeless tobacco consumer moving over who was used to putting, if you will, tobacco or nicotine enjoyment products in their mouth. And so that's intuitive. I think what it will continue to grow is if it can speak to and consumers can make the change from other forms of nicotine such as cigarettes over to nicotine pouches. And so while we don't guide on volume, we think we have a great product with ON.
We're looking to ON plus to be authorized so that we can bring that to market and continue to engage the consumers to switch them over to smoke free products.
Sal Mancuso, CFO, Altria Group: Yes. And in terms of costs, I think when you look at the Q4, I would just point to timing. I think you got to look at costs over a longer period than just 1 quarter. So timing definitely a factor in Q4. As far as 2025, we don't guide at that granularity of a level for controllable costs.
I will tell you though, obviously, we're the smokeable category is a declining category. We are going to be disciplined in how we think about resource allocation. I guess one other thing I would point to when it comes to cost management, there are controllable costs. And then of course, we are using data analytics and the revenue growth management tools to allow us to be more efficient with how we continue to allocate our promotional resources in support of our cigarette brands. So there's more than just controllable costs when we think about financial discipline.
Billy Gifford, CEO, Altria Group: Thanks everyone. Thank you.
Conference Operator: Thank you. We'll take our next question from Gaurav Jain with Barclays (LON:BARC). Your line is open.
Gaurav Jain, Analyst, Barclays: Hi, good morning everyone. Thank you for taking my questions. So a few from me. So the first is on, you know your pricing was up nicely in Q4 and despite that the volume growth remains impressive. So is that something now how we should think of on that you can keep pricing up given especially the spread which still exists with the market leader and yet your volumes can continue to compound at the rate at which industry is growing?
Billy Gifford, CEO, Altria Group: Yes, I appreciate the question. I think when you think about the nicotine space, it's getting more and more competitive, both with illicit product in the marketplace as well as what we see is the FDA is applying enforcement discretion against synthetic nicotine products in the marketplace that had followed PMTA, even though it appeared that the statute was pretty clear. So I think their application of enforcement discretion has bled over to the synthetic in that area. I think when you think about O. N, I think it's the product itself.
It resonates with the consumer. We certainly have gotten a bit sharper with how we put promotional spending in the marketplace. It allows us to continue to generate trial while being able to increase, if you will, the profitability of the product in the marketplace. We were extremely pleased to be able to meet our profitability target ahead of time. And we'll continue to use that analytics to get sharper to generate trial, but to keep loyalty with the brand as well.
And you heard in the remarks, the loyalty percentage of the consumers year over year who are returning to purchase 1, we feel like is very impressive.
Gaurav Jain, Analyst, Barclays: Thank you. Then a follow-up on actually your comments on the synthetic nicotine market. So clearly, your competitors are also launching the synthetic nicotine market. They are seeing the market differently in terms of what the FDA can do or cannot do. So isn't that a market you also want to participate in, not only on the nicotine pouch side, but also on the e cigarette side because a lot of new companies have launched a lot of using synthetic nicotine, then you should also be evaluating that.
Billy Gifford, CEO, Altria Group: Certainly. And we have been evaluating it all along. We were surprised with the application of enforcement discretion in that area based on the what we felt like was clarity in the statute when it was passed. But certainly with them applying enforcement discretion is something that's moved up on our radar.
Gaurav Jain, Analyst, Barclays: Sure. And lastly on the cigarette market share losses, I think we all have discussed it over the years that you want to maximize profitability in cigarettes. But is there like larger share losses or worsening versus where the industry growth rate is? So does that start concerning you at some point of time?
Billy Gifford, CEO, Altria Group: I think when you back up, Gaurav, we've been highlighting for you that when you look historically, when the consumer is under pressure, they react to their current economic situation and you see some down trading that takes place. I think when you look at it historically, what you see is we certainly want to give consumers a safe place to stick with Marlboro because Marlboro is the aspirational brand. And you see us apply those tools. I think you see with the growth in premium through time of Marlboro that we've been applying those tools correctly. Certainly, as I highlighted, it's something that we'll continue to monitor.
I think the other thing is, as we saw we've been highlighting for your illicit vape and that whole distribution process. We've been highlighting that it bled over to nicotine pouch. And we're seeing it to begin to bleed over into cigarettes as well as we're seeing, I'll call it white label product, but it's product that's legal outside of the U. S, but it's starting to bleed into the U. S.
Gaurav Jain, Analyst, Barclays: Thank you so much for taking my questions.
Billy Gifford, CEO, Altria Group: Thank you.
Conference Operator: Thank you. We'll take our next question from Eric Sarada with Morgan Stanley (NYSE:MS). Your line is open.
Eric Sarada, Analyst, Morgan Stanley: Great. Just wanted to circle back on the EPS guidance for 2025. You called out one less well, there's obviously one less day in the Q1, but you called out a somewhat lower tax rate and lower pension income. Are there any other items that we should think of? And can you help us quantify the pension income?
Just trying to bridge to mid single digit EPS algo, given you do have a benefit from the tax rate, but kind of offset by the pension income? Thank you.
Billy Gifford, CEO, Altria Group: Yes. I'll start us off and then I'll ask Sal to just mention on tax rate. I think when you think about it, look, every time you start a year, you have puts and takes and you see that historically through time. What we tried to highlight is the things that we incorporated into that range of scenarios that we look at for the EPS growth rate. When you think about it, that last that bunch shipping day is in the Q1, but it's a total year impact.
When you think about we wanted to highlight from enforcement, we don't really see any impact of stepped up enforcement in 2025. We mentioned net periodic pension income. That's really just the performance in the marketplace of the asset that's related to the pension investment. And then I'll let Sal speak to the tax rate.
Sal Mancuso, CFO, Altria Group: Yes. And the only thing I would add to the pension is we have a very well funded pension plan. So we feel really good about the management of the overall defined benefit plan. Tax rate is favorable on a year over year basis. You're right to call that out.
If you look at the past few years, you have seen variability in the adjusted tax rate. It's been driven by various factors, including tax credits, changes in state taxes and other business activities. So the guidance we've provided for the tax rate is our best estimate based on the 2025 plans that we've put in place and we'll continue to monitor it. You also asked about the mid single digit algorithm. I would tell you, if you think about those goals for EPS, it is a compounded annual growth rate.
We knew and we expected that would be some variability year to year as you're making investments in the long term vision and in the smoke free products. So we feel really good about the guidance we were able to provide today.
Eric Sarada, Analyst, Morgan Stanley: Okay. And then hoping to get some color as to what you're seeing in terms of the tobacco consumer. It seems we've seen a modest pickup or a moderate pickup in sort of low end consumer spending in the convenience channel kind of from the depth of the summer to kind of October and then post election. We've seen a number of other categories in the channel overall. Wondering if you have any color as to what you're seeing with respect to your consumer in those channels?
Billy Gifford, CEO, Altria Group: Yes. I mean, there are always headwinds and tailwinds. I would tell you that the biggest headwind is the cumulative impact of inflation. When you look historically, and I mentioned this earlier, the consumer our consumer specifically is at the lower end of the socioeconomic status. And so they react immediately to their current economic situations.
If things stay steady for a period of time, they adjust to that. It's been this cumulative impact of inflation that they haven't been able to adjust to. And that's why we highlighted, look, we'll continue to watch the economy and the impact of cumulative inflation. If it continues to compound, we would expect our consumer to stay under pressure. If it will moderate, we expect the consumer to be able to adjust to that through time.
And that's what we'll
: continue to watch.
Billy Gifford, CEO, Altria Group: Great. Thanks. I'll pass it on. Thank you.
Conference Operator: Thank you. We'll take our last question from Emma Remini with Reuters. Your line is open. Hi, guys.
: Thanks a lot for doing the call and the opportunity to ask questions. I wanted to hear a little bit about your expectations for policy changes under the new administration. So first of all, on combustibles, obviously, the menthol ban has been scrapped. What about the proposed nicotine cap? Do you see any prospect of that being picked up by the Trump administration?
Billy Gifford, CEO, Altria Group: Yes. We'll wait and see on that. We will certainly be excited to hear the outcome of that. I would remind you that that was a proposed rule at the time. We see it as completely technically feasible and we provided detailed comments to the FDA.
And we really believe that the future should be harm reduction. And you heard me mention in my remarks earlier, we believe the regulatory system is broken and really not function in the way Congress intended. If you step back and think about what that regulatory system was designed to do, it was to have a 3rd party look at the science, authorize products and enforce against illegal products and none of that is really happening to any scale thus far. So what I believe we expect from the current administration is that they will look at this and really get the agency function in the way it was intended to function.
: Yes. Okay. Well, that was kind of my next question on the policy around vapes or new nicotine products and the FDA's approach. I mean, it sounds like you think the sort of the change in administration is an opportunity to sort of push for some change. What kind of possible scenarios do you think they're considering?
Or are you sort of preparing for?
Billy Gifford, CEO, Altria Group: Yes. What we would like to see is that very similar to what I just mentioned, which is an agency we know that the adult cigarette consumer, at least slightly over half of them are looking for alternatives that satisfy them. And so what we need is an agency that is expedient, diligent but expedient on authorizing products and an agency that enforces against the list of products in the marketplace. I think you can go to a majority of the states across the U. S.
And see a plethora of these products that are just basically on their nose at the agency and the federal government and are being sold throughout the U. S. And so you need better authorization of legal products and enforcement against illegal. That's what we would be looking for. We think that sets the U.
S. Up for harm reduction through time.
: Yes. And is there a risk though that the administration could just say, let's just scrap this PMTA process altogether if the FDA can't meet its own deadline sort of if you've got a pending application go ahead and market kind of thing? Is that a threat?
Billy Gifford, CEO, Altria Group: We would certainly prefer as we supported the FDA all along passing of it as it was intended is that you have a third party really regulate the marketplace. So that it's you have manufacturing standards, you have a science standards for legitimate products in the marketplace. And so we would continue to want to see the FDA have authority over nicotine products in the marketplace. So it doesn't turn into what we were seeing in the e vapor market early on, which is a Wall, Wall West and continues because of lack of enforcement. We just need an agency to function as it was proposed to function.
: Okay. And just very lastly, the other sort of policy uncertainty is around tariffs, which I assume would impact Altria's vaping business mostly, although correct me if I'm wrong on that point. It'd be great to know if there would be an impact there, how you might be able to mitigate it? Would it be through price? Or could you do anything in terms of shifting production?
It'd just be great to know what options you're considering if tariffs do come into force.
Billy Gifford, CEO, Altria Group: Yes. There's been a lot of tariffs mentioned in the media. I haven't seen any past. I think if you're referring to e vapor, we've heard some comments where everything is sourced out of China. We would have limited impact to any tariffs that were put in place on China.
: Okay. And so sorry, could you explain why? Because I thought Envoy was produced in China, but again, I might be wrong.
Billy Gifford, CEO, Altria Group: No, we actually have alternative productions facilities that we utilize that are outside of China.
: Okay. Okay. Is that in like Indonesia?
Billy Gifford, CEO, Altria Group: Yes. I'm not going to get into specifics for competitive reasons, but we have other manufacturing facilities around the globe.
: Okay. That's helpful. Thanks very much, guys.
Billy Gifford, CEO, Altria Group: Thank you.
Conference Operator: Thank you. And 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.
Mac Livingston, Vice President of Investor Relations, Altria Client Services: Great. Thanks everybody again for joining us and have a great day.
Conference Operator: This concludes today's call. Thank you for your participation. You may disconnect at any time.
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