MO Q3 '26

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1. 109:24 ETQ&A▲ +0.17%

   “It's in about 100,000 stores, which is about 75% of the cigarette volume.”

   Analyst asked: the pressure on the smoker is beginning to ease? And then secondly, on Cowboy Cut, can you maybe help us understand where you see the sub-brands positioning within the broader Marlborough portfolio? I know initially it was launched at a discount to Marlborough Black, but we're now seeing it priced above Black in some states, while in other states it's sort of yet to be introduced. How should we th

   Management, 0.3x volume, adj. next 5 min: +0.10% raw vs -0.07% sector

   New, abnormal minute +5 min after the statement

   low confidence

1. 0.00%0:00OperatorGood day and welcome to the Altria Group 2026 third quarter 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. Representatives of the investment community and media on the call will be able to ask questions following the conclusion of prepared remarks. I would now like to turn the call over to Mac Livingston, Vice President of Investor Relations. Please go ahead,
2. 0.00%0:28Managementsir. Thanks, Olivia. Good morning and thank you for joining us. This morning, Sal Mancuso, Altria's CEO, and Heather Newman, our CFO, will discuss Altria's 2026 third quarter and first nine months 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, we will be talking about the results of the first nine months business results. 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.
3. -0.35%1:12ManagementPlease 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 will be talking about the results of the first nine months business results. 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
4. -0.35%1:54ManagementGAAP financial measures are included in today's earnings release, and on our website at Altria.com. Finally, 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 Sal. Thanks, Mac. Good morning, and thank you for joining us. Altria delivered strong financial results. It's the most recent performance in the third quarter, growing adjusted diluted earnings per share by 4.8%,
5. -0.58%2:35Managementwhile continuing to invest in our vision and building on our foundation for the future. In smokable products, PMUSA grew operating companies' income through its data-driven total portfolio approach, with cowboy cut, strengthening Marble's premium position, and basic-level business performance. continuing to gain share and discount. In smoke-free, Helix made meaningful progress by expanding on plus 12 milligram nationwide, investing in brand building initiatives, and preparing for its next wave of innovation,
6. -0.58%3:18Managementwhich is now underway with the introduction of blueberry mint and mango pineapple flavor extensions at retail. 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. In August, we announced our 61st dividend increase in 57 years, and our board recently authorized a $1 billion expansion of our existing share repurchase program. Our strong performance through the first nine months
7. -0.58%4:00Managementand confidence in our full-year plan allowed us to raise our earnings guidance for the year. My remarks this morning will focus on third-quarter performance from on and the evolving regulatory environment. I'll then turn it over to Heather, who will provide further details on our business results in 2026 financial outlook. Let's begin with the nicotine pouch category and our growing on portfolio. Nicotine pouches continue to drive volume growth in the oral tobacco category,
8. -0.58%4:39Managementwhich we estimate increased 5.5% over the past six months. In the third quarter, the nicotine pouch category grew 5.8 share points and now represents more than 60% of the total oral category. As the category continues to expand, Helix is delivering solid results and strengthening Onn's position in an increasingly competitive marketplace. In the third quarter, Onn reported shipment volume increased 13.3% to 47.8 million cans.
9. -0.58%5:20ManagementYear-to-date, reported shipment volume increased 7.7%. Onn retail share was 8.3% in the third quarter, up 1 tenth versus the prior year and down 3 tenths sequentially. This performance is encouraging as Onn's retail price continued to move higher and competitive investment remained elevated across the category during the quarter. Higher nicotine strengths and broader flavor variety continue to drive growth in the third quarter. Onn retail share was 8.3% in the third quarter, up 1 tenth versus the prior year and down 3 tenths sequentially. This performance is encouraging as Onn retail share continued to grow and competitive investment remained elevated across the category during the quarter. Higher nicotine strengths and broader flavor variety continued to grow in the third quarter, up 1 tenth versus the prior year and down three tenths sequentially. And Helix is expanding Onn Plus to better meet this consumer demand.
10. -0.24%6:02ManagementTo better meet this consumer demand. In the third quarter, Helix expanded Onn Plus 12 milligram nationally across mint, wintergreen, and tobacco. In the third quarter, Helix expanded Onn Plus 12 milligram nationally across mint, wintergreen, and tobacco. And this month introduced blueberry mint and mango pineapple. And we're excited to announce that watermelon mint will join the portfolio and select retail locations in November with plans for more flavor innovation to come. We believe these additions strengthen the OnPlus portfolio and are supporting it with superior retail execution.
11. -0.24%6:46ManagementEarlier this year, Helix launched a retail trade program that secured premium positioning and stores representing approximately 90% of its volume. In an increasingly competitive category, we believe this positioning provides valuable visibility to support awareness, trial, and conversion. Beyond retail, Helix continues to invest in building the on-brand and creating distinctive consumer experiences. Earlier this month, Helix hosted the inaugural OnVotational, an invite-only golf tournament.
12. -0.14%7:27ManagementThe event gave on-consumers a chance to compete alongside athletes and golf personalities. Helix highlighted the tournament with digital content designed to extend its adult nicotine consumer reach beyond the event itself. Planned as a multi-year platform, we believe the OnVotational can become a signature brand experience, and it is the best than ever. OnVotational is the public, wholesale and private brand that builds lasting equity and further differentiates On over time. These efforts are grounded in responsibility,
13. -0.14%8:12Managementwith safeguards to limit reach to underage audiences, and a strong focus on regulatory compliance. We're encouraged by the progress Helix has made so far this year, and the foundation it is building for future growth. With a broader OnPlus portfolio, portfolio premium retail visibility, and growing brand equity, we continue to believe On is well-positioned to compete and drive long-term profitable growth in the category. From a regulatory perspective, the FDA's enforcement guidance allowed Helix to move through the regulatory process more efficiently. However, guidance can change.
14. -0.14%8:54ManagementSustained progress on harm reduction requires a more durable foundation, an efficient and predictable authorization process established through rulemaking. That's why Helix and Enjoy brought legal action against the FDA during the quarter. The complaint asked the court to require the FDA to establish a review process that meets the 180-day timeframe set by the FDA. The FDA's response was to allow our products with applications pending beyond that timeframe to be in market while the agency puts a new process in place.
15. -0.14%9:37ManagementFollowing the filing, the FDA announced plans to evaluate changes to the PMTA framework. The agency acknowledged challenges it has faced implementing the 2021 PMTA rule, including the policy of the FDA's approval of the PMTA framework. Moreover, the FDA endorsed concrete action and numbers that focus on how the FDA should utilize its proposal to implement this new panel.
16. -0.14%10:21ManagementOn is well-pflichted to compete and drive long-term profitable growth in the category. From a regulatory perspective, the FDA's enforcement guidance allowed Helix to move forward with the counters on harm reduction in the category. The FDA's launch of the new product calidad 내 따라ung to атмосunde to of the new üsselis budgetáply Lucid Marketởólua that São São Adriano nellarm, opportunity. A more efficient authorization process must be paired with consistent, illicit product enforcement. On that front, we continue to see encouraging progress on illicit e-vapor enforcement as federal, state, and local policymakers and law enforcement take meaningful steps to close gaps and hold bad actors accountable across the supply chain. These enforcement efforts appear to be impacting e-vapor category dynamics.
17. -0.20%11:01ManagementAt the end of September, we estimate there were approximately 20 million adult vapors, down 1 million versus a year ago, primarily driven by fewer e-vapor consumers using illicit products. Ultimately, we believe sustained enforcement and a more efficient authorization process must be paired with consistent, illicit product enforcement. are both necessary to establish a level playing field for legal manufacturers and expand access to high-quality smoke-free products for adult nicotine consumers. We remain confident in the
18. -0.20%11:42Managementopportunities in front of us. The breadth of our portfolio, the passion of our talented employees, our manufacturing capabilities, and the financial flexibility, supported by PMUSA's import-export activity, position us to deliver strong shareholder returns while investing for the future. With that, I'll turn the call over to Heather to provide additional details on our business and financial results. Thanks, Al, and good morning, everyone. Altria's operating companies effectively executed their strategies and delivered impressive third quarter and first-ninth quarter results. Thank you, Al. Thank you, Al. Thank you, Al. Thank you, Al. Thank you, Al. Thank you, Al. Thank you, Al. Thank you, Al. Thank you, Al. Thank you, Al. Thank you, Al. Thank you, Al. Thank you, Al. Thank you, Al. Thank you, Al. Thank you, Al. Thank you, Al. Thank you, Al. Thank you, Al. Thank you, Al.
19. -0.06%12:25Managementfinancial performance. Adjusted diluted earnings per share increased 4.8% in the third quarter and by 5.1% for the first nine months. We delivered these results in an environment of continued economic pressure on adult smokers. The overall cost of goods and services has risen roughly 30% since 2021, putting sustained pressure on household budgets while more recent increases in gas prices have further constrained discretionary income. Against this backdrop, the smokable product segment remained the key contributor to earnings growth.
20. -0.06%13:07ManagementOur smokable strategy is to maximize profitability over the long term while balancing investments in Marlboro and funding the growth of smoke-free products. PMUSA's portfolio approach supports this strategy by offering options across brands and price points while driving strong financial results. Adjusted operating companies' income grew by 3.9% to $3.1 billion in the third quarter and by 4.1% to $8.8 billion for the first nine months. Adjusted OCI margins expanded to 64.5% for the third quarter and 64.8% for the first nine months,
21. -0.06%13:51Managementup 0.1 percentage point. Price realization was 4.4% for the quarter, reflecting the mixed impact of both Marlboro Cowboy Cut and Basics volume growth. Smokable volumes declined remained moderate. Reported domestic cigarette volumes declined by 2.9% in the third quarter and 2.8% for the first nine months. When adjusted for trade inventory movements, we estimate domestic cigarette volumes for the third quarter and for the first nine months declined by 4%, slightly below an estimated 5%
22. -0.06%14:36Managementdecline for the industry. Within the highly profitable premium segment, Marlboro strengthened its long-standing leadership position. The introduction of Cowboy Cut provided price sensitive Marlboro smokers with a premium option in a challenging economic environment. Contributing to Marlboro share share performance in the third quarter. Marlboro expanded its share premium segment to 60%, up three-tenths versus the prior year and four-tenths sequentially. Marlboro's overall retail share was unchanged sequentially and down one share point versus the year-ago period, as economic pressures continue to drive discount segment growth.
23. +0.02%15:18ManagementIn the third quarter, discount retail share grew by two share points and is now 34.1% of the category. Basic continues to support PMUSA's RGM strategy by providing a competitive offering in stores where discount brands are most relevant. During the quarter, Basic's retail share expanded by three-tenths sequentially and 1.8 share points year-over-year. The combined performance of Marlboro and Basic reflects the effectiveness of PMUSA's total portfolio approach. Total PMUSA retail share expanded two-tenths of a share point sequentially
24. +0.09%16:01Managementand three-tenths versus a year ago. In cigars, for the third quarter and first nine months, reported shipment volume increased 0.9% and 2% respectively, as Middleton continued to significantly outperform in a decline in the share point. In the third quarter, Marlboro and Basic rose
25. +0.09%16:49Managementby two-tenths. at 66.4% for the third quarter and 66.8% for the first nine months. Total segment reported shipment volume decreased 4.3% for the third quarter and 5.4% for the first nine months, as growth and on was more than offset by the lower MST volumes. When adjusted for trade inventory movements, we estimate third quarter and first nine months oral tobacco product segment volumes both declined by an estimated 5%. Oral tobacco product segment retail share was 27.9% for the third quarter
26. +0.19%17:31Managementand 28.6% for the first nine months. In the highly profitable moist smokeless tobacco segment, Copenhagen maintained its longstanding premium leadership. Turning to the market, according to ABI's financial results, we recorded $191 million of adjusted equity earnings in the third quarter, up 21.7% 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. Our strong financial performance for the first nine months enabled us to return over $6 billion to our shareholders,
27. +0.45%18:15Managementincluding $5.3 billion in dividends and $735 million in share repurchases. We remain committed to providing significant cash returns to our shareholders, as demonstrated by our recent dividend increase. In August, our board increased our quarterly dividend by 4.7% to $1.11 per share, our 61st increase in 57 years, and consistent with our progressive dividend goal, we have a significant growth of mid-single-digit annual growth. And today, we announced that our board authorized a billion-dollar expansion of our existing share repurchase program, which now expires on December 31, 2027.
28. +0.45%18:59ManagementIn addition, our balance sheet remains strong. Our debt-to-ebitda ratio as of September 30th was 1.9 times, in line with our target of approximately 2 times. Finally, let's turn to our financial statements. We have a very strong financial performance, and we are committed to providing a strong financial performance. We have a very strong financial performance, and we are committed to providing a strong financial performance, and a very strong financial performance. Let's turn to our financial outlook. Our businesses performed extremely well in a dynamic environment during the first nine months of the year. And we maintained the strength of our core tobacco businesses while investing toward our vision. While investing preparing for this year's behest for Х1, as a result, we raised our earnings guidance and now expect to deliver biseps in a range of $5.66 to $5.074. there is a very close balance market trend below where it barrel in the short term. I think that's a good time to look at that the delta share compared to 90-day interest rates is bout 1.5% unwielding demand for a share and leading energy and dollar-ad supplementation plan compared to 90-day honesty. we can loops to 11% of current debt volume
29. +0.45%19:42Managementwith a 10.1 percent raise in 50-day return할ja half percent to six percent from a base of $5.42 in 2025. With that, we'll wrap up and Sal and I will be happy to take your questions. While the calls are being compiled, I'll remind you today's earnings release and our non-GAAP reconciliations are available on Altria.com. We've also posted our quarterly metrics, which include pricing, inventory, and other items. Operator, let's open the question and answer period.
30. +0.37%20:46OperatorWe will take questions from the investment community first. The first question is from Farmbeg at UBS. Please unmute yourself and begin with your question.
31. +0.37%20:59AnalystGood morning, Sal. Hey, Heather, how are you? A couple of questions from me, please. Firstly, on industry cigarette volumes and then on Marlborough Cowboy Cut. On the industry, this year, and it looks like the sequential growth in the discount segment moderated somewhat this quarter, despite the higher gasoline prices. Are there any particular factors you would call out behind the resilience? And more broadly, are you seeing any evidence that
32. +0.37%21:36Analystthe pressure on the smoker is beginning to ease? And then secondly, on Cowboy Cut, can you maybe help us understand where you see the sub-brands positioning within the broader Marlborough portfolio? I know initially it was launched at a discount to Marlborough Black, but we're now seeing it priced above Black in some states, while in other states it's sort of yet to be introduced. How should we think about the positioning and the intended role of Cowboy
33. +0.26%22:11ManagementCut longer term? Thank you. Yeah, terrific. And thanks for your questions. Two really, really good questions. So let's start with the industry volume. You know, the consumer continues to be under economic pressure, no doubt. The inflation, which has been in place for multiple years, continues to put pressure on their everyday goods. I would say, though, that nicotine historically has been a little bit more resilient than other CPG categories, for sure. But when you look at the moderation of the decline rates that you're seeing in the cigarette
34. +0.26%22:51Managementcategory, that's primarily being driven by the lower cross-category movement from the illicit e-vapor category. And I would say probably two factors are driving that. One is these products have been in the market for multiple years now, so consumers that were interested in it have moved. And then the second factor is, as we talked about earlier, the focus on enforcement for illicit products. We think that is having some impact. Now, we need those efforts to be sustained and to continue,
35. +0.17%23:33Managementbut it's definitely having an impact on supply chain in our minds. As far as Cowboy Cut, let's start with the smokable strategy, which is to maximize profitability. We are positioned to attract people who buy direct smoked straw along with their regular brand options eligibility over the long-term. And balance investments in Marlborough with investments in our long term vision. Cowboy Cut provides a premium Marlborough option at the right price to retain value sensitive smokers within that franchise. It delivers a classic Marlborough experience and is supported by brand equity that draws on its American heritage, and complements the nation's 250,000 barrel industry stories. That's almost calculate veering Song.
36. +0.17%24:16Management150th celebration. It's pretty widely distributed. It's in about 100,000 stores, which is about 75% of the cigarette volume. And it's a strategy we've deployed before. You know, you've seen it with Marlboro Special Select. You've seen it with Marlboro Black, where you have introductory pricing, and then you will see PMUSA take pricing or margin up those SKUs over time. Obviously, you know, you talked about different states and different pricing. Well, that's reflective of the data analytics and RGM tools that PMUSA has been able to deploy. So we're really,
37. +0.17%25:00Managementreally pleased with the impact on Marlboro. You saw Marlboro Sheriff Premium has reached about 60%. It's up three-tenths year over year. So feel really good about the overall performance of our smokable segment. And the cigarette category in particular.
38. +1.53%25:22AnalystThank you.
39. +1.53%25:23ManagementSure.
40. +1.53%25:27OperatorThe next question is from Matt Smith at Stifle. Please unmute yourself and begin with your question.
41. +1.53%25:34AnalystHi, good morning. Just wanted to come back to the raise of the full year guidance for EPS. Can you talk about where you're seeing strength relative to your previous expectations? And have you stepped up your investment levels behind some of the initiatives, whether it's behind the smoke-free vision investment? I would say definitely the S&P 500 is the leading selling point for CBOs, so we've seen a major increase in guidance from that. We've seen a significant increase in guidance from that.
42. +1.53%25:59ManagementAnd I think we can see that in the current EPS that we have with our S&P 500. We've seen an increase in guidance, especially when we come back to our new business concept of EPS. So I'm really excited to talk to you about that. I think it's going to be interesting to see what you'll get from this. If we can get a little bit more from that from your team, the EPS, we might be able to talk a little bit more about the second part of the question. So if you can just give a quick segue back to your question. Thank you. Thank you. Thank you. Thank you, Matt. Thank you. Thank you. of investments that we tend to invest in our smoke-free vision, really around on plus, and you're starting to see that play out in the marketplace with the 12 milligram product, as well as our flavor line extensions. You know, the other thing that we're mindful of is that we continue to be challenged by a pretty difficult macroeconomic environment for the consumer.
43. +1.83%26:43ManagementWe feel great about our RGM capabilities to manage through that environment as they remain under pressure. Gas prices are still elevated. Sal's already talked about inflation, but this new guidance range of the four and a half to six percent, we feel really confident that we can
44. +1.83%26:58Analystdeliver throughout the rest of the year. Appreciate that, Heather. And a follow-up on the quarter. Duty drawback, I think, was $124 million revenue benefit. Previously, you talked about it being pretty equally phased in the second half of the year. Is the third quarter level a reasonable amount for the fourth quarter? Is it a reasonable amount for the fourth quarter? I know there's some catch-up timing in there. I'll pass it on after that. Thank you.
45. +3.00%27:25ManagementYeah, I appreciate it. Our expectations have not changed. We did have some slight benefit in Q2 from a timing of the FET credit that we benefited from in Q3, but our expectations for the second half of the year in terms of stepping up and being balanced between the quarters has not changed.
46. +3.00%27:42OperatorThe next question is from Bonnie Herzog at Goldman Sachs. Please unmute yourself and begin with your question.
47. +2.59%28:01AnalystAll right. Thank you. Good morning, everyone. I had a quick follow-up on what you just touched on, Heather. In terms of the double duty drawback benefit, you did export 10 percent of your SIG volume in Q3. So I guess I was hoping to hear a little more color on how we should think about your ability to ramp this further next year, especially given your contract manufacturing agreement with Philip Morris will kick in. So if you could talk about that also, that would be great. Thank you. That would be appreciated.
48. +2.59%28:33ManagementYeah. Thank you, Bonnie. Good morning. So in the first half of the year, we were really establishing the contract manufacturing arrangements, and then we communicated that step-up balanced approach through the second half of the year without getting too far ahead in terms of expectations for 2027. You are right to call out that that PMI agreement does not start until 2027. And so that benefit will certainly kick in. What we're working against and where you see the increase from Q2 to Q3 is our current CMA arrangements. And again, without getting too far ahead, we expect to be pretty balanced across the Q3 and Q4 here.
49. +2.85%29:18AnalystOkay. And then maybe if I could just switch gears a bit, and I have a question on Vapor, which you touched on. But just in terms of Enjoy Ace, I believe you've addressed the patent infringement issues and you're able to bring the product back to the market. So curious, if you're planning on doing this, maybe soon, and how you're thinking about what role Vapor can ultimately play in your smoke-free portfolio. And then if or when you bring it back to the market, I guess I'm trying to understand how you're going to manage it. I mean, would you manage it differently or run the business differently than what you had done before? Because I'm thinking about the substantial operating losses you used to have on the brand. Thank you.
50. +2.85%29:58ManagementYeah. Good morning, Bonnie. So you are correct to point, out that we have worked around the patent issues that forced us to pull Enjoy Ace out of the market. We have not announced when we're going back in the market, but we do plan on being back in the eVapor market. You're also right to point out that our approach is going to be, I would say, I would characterize it as very disciplined. The market, while we've seen some improvement, is still predominantly driven by the illicit category. And we want to compete in the market,
51. +1.06%30:43Managementbut we want to do it in a disciplined way and in a profitable way over time. So for us, we continue to engage with stakeholders to drive enforcement activity, to maintain or sustain it over time. We also recognize that it's important to have a strong, efficient, and efficient product chain. We recognize that there are certain attributes related to the illicit category that appeal to the consumers. So if you think about our innovative pipeline, we want to delight the consumer over time. So we continue to innovate further on Enjoy
52. +1.09%31:27ManagementAce. But our approach will be disciplined, and we'll have more to say as the market moves forward.
53. +1.09%31:32OperatorThe next question is from Andre Andon at Jefferies. Please unmute yourself and begin with your question. Andre Andon
54. +1.09%31:52AnalystHi, good morning, Sal, Heather, and Mack. Thank you very much for taking my questions. Two from me, please. Firstly, following up to Bonnie's question on vapes, we've already seen a legal competitor launch flavored vapes in August, September this year. Where do you see such products legal flavored vapes potentially getting share? Are they more likely to be a pressure point on cigarettes or rather on illicit vapes? And then secondly, it's encouraging to see on-grow year on year in Q3, but I believe the volumes have still declined relative to the previous quarter to Q2 26. What are your expectations for volume growth for on into next quarter and into next
55. -0.01%32:33Managementyear, and what would underpin this? Thank you. Yeah, so let me start with your vapor question, and it's a good one. Look, eVapor is a far lower risk proposition for smokers and exposes those smokers to lower levels of smoking. So we believe eVapor continues to play an important role in long-term harm reduction. We also recognize that flavors is something that attracts smokers to a less harmful product. So we do think it plays a role. But as we said, the category itself is upside down.
56. +0.21%33:19ManagementThe risk of consumers using illicit vapors, which have not been through the regulatory process, threatens the long-term tobacco harm reduction opportunity. And so we continue to engage with our stakeholders, as I said earlier, to drive the illicit enforcement. And we have seen definitely a stepped up level of enforcement. So over the long term, we believe vapor does play an important role and we will participate in that. Your question on growth of the nicotine pouch. Look, the volume decline you're seeing is primarily driven actually by,
57. -0.32%34:01Managementby the MST category as consumers move from MST into the nicotine pouch category. We're really excited about OnPlus. We believe that the Nicosilk technology for the pouch is a differentiator. We also recognize that higher levels of nicotine and flavors drive a lot of the consumer growth. So we're excited that we've got 12 milligrams. Just went into the. Market recently. So you haven't really seen the impact of that on retail share yet. And then we are entering the category, the retail space with flavors, mango, pineapple, and blueberry mint.
58. -0.32%34:45ManagementWe announced watermelon mint coming in November in select stores. And we plan on having future innovation through flavor deliveries in the future. So we're excited about the pipeline. We're excited about the tobacco harm reduction opportunity that nicotine pouch provides the adult nicotine consumers. So, you know, we, we, we look forward to OnPlus and OnClassic continuing to play a role in that.
59. +0.11%35:21AnalystUnderstood. Thank you very much.
60. +0.11%35:23OperatorWell, just a reminder, if you would like to ask a question, please click on the raise hand button, which can be found on the black bar at the bottom of your screen. The next question is from Palav Mital at Barclays. Please unmute yourself and begin with your question.
61. +0.11%35:42AnalystHi, good morning. So just to follow up on, on, see volumes are up 13% while we're in the third quarter. But when I look at scanner data, it is down mid teens or something like that. So is there a significant inventory as you roll out 12 mg or is it something else?
62. -0.13%36:03ManagementYou know, I'm not sure. I'm not sure. I'm not sure. I'm not sure. I'm not sure. I'm not sure. I'm not sure. I'm not sure. I'm not sure. I'm not sure. I'm not sure. I'm not sure. I wouldn't say significant, but I would say, you know, there's obviously some pipeline inventory as we launched a 12 mg across mint, wintergreen and tobacco. And then you've got the flavor introductions that we talked about earlier. You know, there's some differences on how you read scanner data where they look at pouches versus cans. So there's a little bit of noise in that. But nothing. Nothing significant. But, you know, within a quarter, you're going to have some pipeline movement, not just for us. You have other brands introducing new SKUs as well.
63. -0.13%36:45ManagementSo I think you got to look at that over a longer period of time.
64. -0.13%36:52AnalystSure. And if I can then ask on your cigarette business. Okay. And if I exclude the WT drawback for a moment, then the EBIT on your core cigarette business is flat, despite cigarette volumes being much better than what anyone of us has been doing. So that's sort of thought at start of the year. So how should we think about that? And how do you plan to grow your cigarette profits, especially as cigarette volumes start lapping tougher coms over the next few months?
65. -0.31%37:21ManagementYeah, I think it's frankly a little unfair to pick out one aspect of the margin and pull it out and say, well, EBIT is flat or, you know, you got to look across the entire composition of the market. The margin, which is driven by pricing, cost management, duty drawback is part of it. We feel really good about our ability to grow income within the cigarette category. You know, we've had strong OCI performance for the first nine months. You've seen Marlboro perform really well in the highly profitable premium segment.
66. -0.11%38:02ManagementPMUSA's overall share has grown through the total portfolio approach. And so, you know, we feel really good about the smokable segment in general. And as Heather stated earlier, that confidence and that performance through the first nine months allowed us to raise guidance. And we were happy to provide that as well. So I feel really good about the business overall. But thanks for the question.
67. -0.11%38:32AnalystSure. And if I can just squeeze one more in on duty drawback. You are exiting the industry. You're at around 500 million annual benefit from duty drawback based on the current run rate. And then as I think about next year, you will probably ramp up the current program and then the PM contract agreement will also kick in. So can you give us a broad range? I mean, from 500 million, can it go to a billion? Or are we looking at something around 700, 800 million for next year?
68. +0.34%39:05ManagementNo, we're not providing that range. I understand. The question I'd remind you, as Heather said earlier, you are not seeing the impact of the contract manufacturing agreement with PMI yet. That'll happen next year. So we talked about that this volume does build over time. I think Heather laid it out really well in earlier questions and in her remarks. But we won't provide any further guidance on that.
69. +0.34%39:39AnalystSure. Thank you. You're welcome.
70. +0.34%39:45OperatorAnd the final question is from Eric Sirota at Morgan Stanley. Please unmute yourself and begin with your question.
71. +0.34%39:53AnalystGreat. Thanks for taking the questions. A couple of things. First, Sal, I get your perspective a little bit in terms of nicotine pouch category growth over the shorter term and then over the mid to long term. I've seen an incredible amount of interest. I have had the impression that in the past, you know, I've seen a lot of innovation from both Altria, Helix and adding your competitors over the past four or five months as the regulatory environment has changed. At the same time, the category growth rate hasn't really materially accelerated.
72. +0.56%40:36AnalystComing up, you're going to have the leader in the category, you know, effectively lower in the price per pouch. You know, how do you see this all playing out? out in terms of category, volume, and revenue growth over the short term, and then any change to your thinking about how big this category can be over the mid to long term? Yeah, look,
73. +0.38%41:03Managementit's a really good question. The nicotine pouch category has seen tremendous growth, much of it driven by MST consumers that move into nicotine pouch. There are a number of reasons for that, including social friction. If you think about, you know, there's no spitting, as an example, with nicotine pouch. You've also seen some growth from cigarette consumers that are seeking a reduced harm way of enjoying nicotine, if you will. The rate of acceleration, you know, look, as the numbers get bigger, like any category, you would see that the percentage
74. +0.38%41:45Managementchange might not be as high as when you're first seeing the adoption, obviously. So that's something to consider. But, you know, we see the category as a tremendous tobacco harm reduction opportunity. It's still predominantly male. I think if you look overseas, you have seen you know, a lot of people who are in the tobacco industry, they're not necessarily in the tobacco industry. They're not necessarily in the tobacco industry. They're not necessarily in the tobacco industry. They're not necessarily in the tobacco industry. So we think that's continues to be an opportunity. And you're right to point out, it is a highly competitive category. You know, it's a growing category. So you're going to see competition. And, you know, we're used to that. I mean, the cigarette category has been highly competitive. The
75. +0.41%42:28Managementsmokeless category was highly competitive. But we believe over the long term, tobacco-like margins are very achievable in this category. And, you know, I think that's something that we're going to continue to see. And I think that's something that we're going to continue to see. And I think that's going to continue to see. And I think that's something that we're going to continue to see. And I think we see on and on plus is a premium proposition. We continue to invest in the pipeline of innovation. We continue to invest in the brand. We were really excited to see the invitational take place. So we feel really good about the category and the potential it has for long-term harm reduction in the U.S. market. Great. And then a quick follow-up.
76. +0.20%43:10AnalystJust turning to your slide on the industry volume decomposition for cigarettes, the price elasticity impact ticked down about 20 basis points over the past quarter. What do you think is driving that? And then additionally, the macro cross-category and other continues to tick lower. I know you called out cross-category at less than 50 basis points versus about 50 basis points. So maybe there's
77. +0.20%43:48Analystjust some rounding here, but just wondering what's driving the reductions on both of those lines.
78. +0.20%43:59ManagementYeah, the cigarette price elasticity coefficient hasn't changed. It's still negative 0.35. So the impact you're seeing is just a year or so. Yeah, I think that's a good point. I think that's a good point. I think that's a good point. Price change across the category, if you will. And it's just multiplication. As far as the macro and cross-category movement, it's really the cross-category movement and the moderation of that that is lowering that number over time. Macroeconomics still continue to be headwinds, if you will, for the consumer. It continues to put pressure on consumer spending. Obviously, we're paying very close to the end of the year. So I think that's a good point.
79. +0.10%44:40Managementattention to that. But as Heather pointed out earlier, our ability to use data analytics and RGM tools, I think, positioned us really well to navigate through that. So PMUSA and the employees there, as well as Helix and UST, continue to use these tools very effectively. And we feel good about our ability to continue to manage through that. Great. Thanks for the questions. I'll pass
80. +0.07%45:11Analystit on. Sure. You're welcome. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank
81. +0.07%45:13Operatoryou. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. There appears to be no further questions at this time. I would like to turn the call back over to Mac Livingston for any
82. +0.07%45:22Managementclosing remarks. Thanks to everyone for joining us today. If you have further questions, please feel
83. +0.07%45:27Operatorfree to reach out to the IR team. Thanks. This concludes today's call. Thank you for your participation. You may disconnect at any time.