ALTRIA GROUP, INC. Q3 FY2026 earnings call

• Onn Portfolio Growth: Nicotine pouches drove oral category volume growth of 5.5% over six months. Onn shipment volume increased 13.3% to 47.8 million cans in Q3. Retail share was 8.3%, up 0.1 share point YoY. Helix expanded OnPlus 12mg nationwide and introduced new flavors (blueberry mint, mango pineapple), with watermelon mint launching in November.
• Brand Equity & Marketing: Launched the 'Onvitational' golf tournament as a multi-year brand experience to build equity and differentiate Onn. Secured premium retail positioning in stores representing ~90% of volume through a new trade program.
• Smoke-Free Strategy: Helix is investing in innovation and brand building. The introduction of higher nicotine strengths and broader flavor variety is driving category growth. Management believes Onn is well-positioned for long-term profitable growth.
• Regulatory & Legal Action: Helix filed legal action against the FDA to enforce the 180-day PMTA review timeframe mandated by Congress. Welcomed FDA’s acknowledgment of challenges and intent to pursue rulemaking for a more efficient authorization process.
• Illicit Market Enforcement: Encouraging progress in illicit vape enforcement has reduced adult vapor consumers by ~1 million YoY (to ~20 million). Management emphasizes that sustained enforcement and efficient authorization are critical for a level playing field.
• Shareholder Returns: Announced 61st dividend increase (4.7% to $1.11/share) and authorized a $1 billion expansion of the share repurchase program. Returned over $6 billion to shareholders YTD.
• Macroeconomic Resilience: Despite economic pressure and rising costs, smokable products showed resilience. Marlboro Cowboy Cut successfully retained value-sensitive smokers in the premium segment without diluting brand equity.

Smokable Products: Adjusted Operating Companies' Income grew 3.9% to $3.1 billion in the third quarter and 4.1% to $8.8 billion for the first nine months. Adjusted OCI margins expanded to 64.5% (Q3) and 64.8% (YTD). Reported domestic cigarette volumes declined 2.9% in Q3 and 2.8% YTD; adjusted for trade inventory, volume declines were estimated at 4% (Q3) and slightly below industry average of 5%. Marlboro premium share reached 60%, up 0.3% YoY. BASIC discount share grew 1.8 share points YoY. Total PMUSA retail share increased 0.3 share points YoY. Cigar shipment volumes increased 0.9% (Q3) and 2% (YTD).

Oral Tobacco Products: Adjusted OCI decreased 3.7% to $443 million in Q3 and 4% to $1.3 billion YTD. Adjusted OCI margins remained strong at 66.4% (Q3) and 66.8% (YTD). Total segment reported shipment volume decreased 4.3% in Q3 and 5.4% YTD, driven by lower Moist Smokeless Tobacco (MST) volumes offsetting Onn growth. Adjusted oral tobacco segment volumes declined an estimated 5% in both periods. Segment retail share was 27.9% (Q3) and 28.6% (YTD).

Alliance Brands Inc. (ABI): Adjusted equity earnings were $191 million in Q3, up 21.7% versus prior year.

Revenue Contribution: Smokable products remain the key contributor to earnings growth, while Oral Tobacco continues to generate strong margins despite volume declines.

• Raised full-year adjusted diluted EPS guidance to a range of $5.66 to $5.74, representing 4.5% to 6% growth from the 2025 base of $5.42. Previously guided for 2.5% to 5% growth.
• Guidance revision reflects strong performance in the first nine months and confidence in core tobacco businesses.
• No specific forward-looking guidance provided for duty drawback benefits beyond current run rates or PMI contract impacts in 2027.

• Regulatory Uncertainty: Changes in FDA enforcement guidance could impact product availability and market dynamics. The current PMTA framework faces criticism for slow processing times.
• Illicit Market Threat: Illicit e-vapor products pose a significant risk to harm reduction goals and legal manufacturers. While enforcement is improving, sustained efforts are required.
• Macroeconomic Pressures: Continued inflation, high gas prices, and constrained discretionary income put pressure on adult smokers’ budgets, potentially impacting volume growth.
• Competitive Intensity: The nicotine pouch and smoke-free categories are highly competitive, requiring continuous investment in innovation, flavor variety, and retail execution to maintain market share.
• Litigation Risks: Ongoing legal actions against the FDA carry inherent risks regarding outcomes and timelines.

Q: Analyst asked about industry cigarette volume resilience factors and Marlboro Cowboy Cut’s long-term positioning within the portfolio given its variable pricing across states.

A: Sal Mancuso attributed volume resilience primarily to moderated cross-category movement from illicit e-vapors due to consumer saturation and enhanced enforcement. Regarding Cowboy Cut, he described it as a premium option to retain value-sensitive smokers, leveraging American heritage. He noted initial introductory pricing followed by margin increases over time, with state-level price variations reflecting data-driven retail management tools rather than strategic inconsistency.

Q: Analyst questioned the rationale behind raising EPS guidance and whether increased investments in smoke-free initiatives impacted financial results.

A: CFO Heather Newman explained that strong first-nine-month performance allowed narrowing and raising the guidance range to 4.5%-6% growth. She confirmed that the raised guidance includes continued investments in OnPlus (e.g., 12mg launch) but emphasized that robust Revenue Growth Management (RGM) capabilities enabled profitability growth despite macroeconomic headwinds like elevated gas prices.

Q: Analyst asked about Enjoy Ace’s potential return to the vapor market and how Altria plans to manage operations differently given past losses.

A: CEO Sal Mancuso confirmed patent issues were resolved and stated plans to re-enter the vapor market but with a "very disciplined" approach. He emphasized prioritizing profitability and engaging stakeholders for illicit enforcement. He acknowledged the market remains dominated by illicit products, necessitating a cautious strategy to ensure sustainable long-term participation.

Q: Analyst sought clarity on Onn volume decline relative to Q2 and expectations for future growth drivers.

A: Sal Mancuso clarified that the sequential volume decline was driven by MST (Moist Smokeless Tobacco) category contraction as consumers shifted to pouches. He highlighted OnPlus’s differentiators, including nickel silk technology and recent launches of 12mg strength and new flavors. He expressed optimism for future growth driven by these innovations and the broader tobacco harm reduction opportunity.

Q: Analyst asked for visibility on duty drawback benefits scaling into 2027, specifically if benefits could reach $700-$800 million annually with PMI contracts.

A: Management declined to provide specific ranges for 2027 duty drawback benefits. They reiterated that current ramp-ups are balanced across quarters and that the PMI contract manufacturing agreement does not begin until 2027. They advised focusing on the established trajectory rather than speculative future figures.