Altria (MO) Q1 2026 Earnings Call Transcript

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DATE

Thursday, April 30, 2026 at 9 a.m. ET

CALL PARTICIPANTS

• Chief Executive Officer — William Gifford
• Chief Financial Officer — Salvatore Mancuso
• Vice President, Investor Relations — Mac Livingston

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TAKEAWAYS

• Adjusted Diluted EPS -- Grew by 7.3% for the quarter, reflecting disciplined operational execution.
• Smokeable Products Segment Adjusted OCI -- Increased by 6.3%, with adjusted OCI margin expanding to 65.1%, up 0.7 percentage points.
• Domestic Cigarette Volumes -- Reported volume declined by 2.4%; shipment volume declined by 4% after trade inventory adjustment, compared to an estimated 5% industry decline using the same adjustment.
• Marlboro Premium Segment Share -- Expanded to 59.5%, up 0.1 percentage point year over year and 0.2 percentage points sequentially.
• Marlboro Total Retail Share -- Declined 1.4 percentage points year over year and 0.1 percentage point sequentially, impacted by discount segment growth.
• Basic Brand Retail Share -- Gained 2.4 percentage points year over year and 0.5 percentage point sequentially within the discount segment.
• Total PM USA Retail Share -- Increased by 0.4 percentage points year over year and 0.1 percentage point sequentially.
• Oral Tobacco Products Segment Adjusted OCI -- Exceeded $400 million, with segment margin at 67.4%, down 1.8 percentage points from the prior year due to higher marketing spend and product mix.
• Oral Tobacco Products Segment Volumes -- Reported total segment volume decreased by 3.1%; adjusted for inventory movements, volume declined approximately 8.5%.
• on! Portfolio Shipment Volume -- Increased by nearly 18% to over 46 million cans, driven by demand for on! Classic and on! PLUS national expansion pipeline shipments.
• on! and on! PLUS Retail Share -- Accounted for 7.8% of the oral tobacco category, down 0.8 percentage points year over year but up 0.2 percentage points sequentially.
• on! PLUS Retail Expansion -- Achieved shelf presence in approximately 100,000 stores, covering 85% of nicotine pouch category volume.
• Oral Tobacco Industry Growth -- Estimated total oral tobacco industry volume rose 9.5% over the past six months, mainly due to oral nicotine pouches.
• Nicotine Pouch Category -- Gained 9.1 share points and now comprises more than 58% of oral tobacco.
• Oral Tobacco Segment Retail Share -- Decreased by 5.5 percentage points.
• Adjusted Equity Earnings from AB InBev -- Recorded $160 million, representing a 9.6% increase year over year.
• Dividends and Share Repurchases -- Returned $1.8 billion through dividends and repurchased 4.5 million shares for $280 million; $72 million remains under current repurchase authorization.
• Debt Retirement -- Retired just over $1 billion of maturing debt, resulting in a debt-to-EBITDA ratio of 1.9x, consistent with the company's target.
• 2026 Full-Year Adjusted Diluted EPS Guidance -- Reaffirmed at $5.56 to $5.72, a growth rate of 2.5%-5.5% from a 2025 base of $5.42, with growth now expected to be more evenly split across both halves of the year.
• on! PLUS FDA Status -- Described as "the first and only product authorized under the FDA's pilot program" for PMTA reviews of certain oral nicotine pouches.
• Helix Trade Program -- Secured premium retail positioning in contracted stores representing about 90% of Helix volume.

SUMMARY

Altria Group (NYSE:MO) highlighted a shift in trade down to discount brands, with Basic capturing nearly all the year-over-year discount segment share gain in cigarettes. The company indicated that the oral nicotine pouch segment now represents a majority of oral tobacco category share, and Helix reported broad national distribution of on! PLUS following the product's launch in March. Federal and state enforcement on illicit e-vapor product sales intensified, contributing to moderation in cross-category movement between cigarettes and vapor, which management credited for improved cigarette volume trends. Company guidance for 2026 EPS growth was reaffirmed, with balanced growth expected between the first and second halves of the year, and explicit acknowledgment of ongoing consumer macroeconomic pressure and its effect on discount segment dynamics. Leadership transition was confirmed, with William Gifford conducting his final earnings call as CEO.

• Management noted that "in states where product directories are in place and properly enforced, we are seeing evidence that these frameworks are helping to reduce the presence of illicit products in tracked channels."
• Salvatore Mancuso explained that expansion of Basic's promotional activity is determined by data analytics targeting discount-purchasing locations, rather than by overall financial performance.
• It was clarified that six new on! PLUS flavor applications are not currently part of the FDA's pilot program, but use established product science to expedite review.
• Marlboro's maintenance of premium segment share was attributed to its "aspirational brand" status and the deployment of revenue growth management strategies at the store level.
• Salvatore Mancuso indicated that "You will see increases in the export volume and the benefit of the duty drawback as the year progresses."
• Cowboy Cut, a new Marlboro line extension aimed at price-sensitive consumers, will be rolled out to broader distribution later in the second quarter.
• CEO William Gifford stated, "On1 PLUS is the first and only product authorized under the FDA's pilot program," underscoring regulatory differentiation in the nicotine pouch category.
• Company representatives described current e-vapor conditions as "still, call it, approximately 70% of the volume is illicit flavor disposables," indicating ongoing regulatory and compliance challenges.

INDUSTRY GLOSSARY

• OCI (Operating Companies Income): Segment-level measure of operating profit, adjusted for certain items as disclosed by the company.
• PMTA (Premarket Tobacco Product Application): Regulatory process by which the FDA assesses new tobacco products for legal marketing in the U.S.
• Helix: Altria subsidiary focused on the oral nicotine pouch segment, marketing the on! and on! PLUS brands.
• RGM (Revenue Growth Management): Strategic approach using analytics to maximize value across price, promotions, and product mix in retail execution.
• Duty Drawback: Import-export-related program providing refunds on customs duties for certain exported goods, relevant to reported segment performance.
• AB InBev: Abbreviation for Anheuser-Busch InBev, a multinational beverage and brewing company in which Altria holds an equity stake.
• Basic: Discount cigarette brand within Altria's PM USA portfolio.
• on! PLUS: Nationwide nicotine pouch product under the on! brand, distributed by Helix, with FDA pilot program authorization.
• MST (Moist Smokeless Tobacco): Category of oral tobacco placing emphasis on traditional brands like Copenhagen and Skoal.

Full Conference Call Transcript

William Gifford: Thanks, Mac. Good morning, and thank you for joining us. We delivered a strong start to the year, growing adjusted diluted EPS by 7.3% in the first quarter. Our highly cash-generative businesses supported significant returns to shareholders through dividends and share repurchases, while we continue to invest in support of our vision. Our smokeable products segment generated strong income growth. Marlboro strengthened its position in the premium segment and PM USA continued to execute its total portfolio strategy with discipline. In the oral tobacco products segment, on! performed well in a highly competitive marketplace and Helix expanded on! PLUS nationwide.

My remarks this morning will focus on first quarter performance from on! and an update on the state of the e-vapor category. I'll then turn it over to Sal, who will provide further detail on our business results and financial outlook. Let's begin with on! and the nicotine pouch category. Over the past 6 months, oral nicotine pouches drove the estimated 9.5% increase in total oral tobacco industry volume. In the first quarter, the nicotine pouch category grew 9.1 share points and now represents more than 58% of total oral tobacco. Against this backdrop, Helix delivered solid results in a highly competitive environment.

Reported shipment volume for the total on! portfolio grew nearly 18% and to over 46 million cans in the first quarter, reflecting continued demand for on! Classic and the pipeline shipments for the on! PLUS national expansion. At retail, on! and on! PLUS together represented 7.8% of the total oral tobacco category, down 0.8 share points year-over-year and up 0.2 share points sequentially. We began shipping on! PLUS nationwide in March. And at the end of the first quarter, it was available in approximately 100,000 stores, representing 85% of nicotine pouch category volume. On1 PLUS is the first and only product authorized under the FDA's pilot program, I think that streamlining PMTA reviews for certain oral nicotine pouches.

The brand is currently available in 3 flavors across 2 nicotine strengths and features our proprietary NICOSILK technology. To support the on! PLUS expansion, Helix recently launched a new retail trade program to strengthen execution across the full on! portfolio. The program is focused on increasing visibility and securing incremental fixture space to support on! PLUS today and future innovations over time. Today, the Helix trade program has secured premium retail positioning in contracted stores, representing approximately 90% of Helix volume. Additionally, on! PLUS is prominently featured across key retail touch points with coordinated signage from curb to counter. On!

PLUS is supported by marketing that highlights the product experience, including visuals that showcase the pouch itself, communicate comfort and reinforce its positioning as the softest pouch on the planet. These materials are designed to give nicotine consumers a clear understanding of how the pouch looks, feels and fits. This messaging is complemented by initiatives such as in-person events, brand partnerships, paid social media and streaming audio that aim to increase awareness, drive trial and further strengthen on! brand equity. Importantly, these efforts are grounded in responsibility with safeguards to limit reach to underage audiences and with a strong focus on regulatory compliance. Through these actions, we believe we can position on!

PLUS as a differentiated offering for adult nicotine consumers and responsibly grow the brand over the long term. On the regulatory front, the FDA is reviewing applications for on! PLUS Mint, Wintergreen and Tobacco and 12-milligram strengths under its pilot program. And we have submitted applications for 6 additional varieties across 3 nicotine strengths. We believe the science and evidence supporting all of these applications is compelling and provides a basis for FDA authorization within the 180-day statutory time line. Let's now turn the e-vapor category. While illicit flavored disposable products remain prevalent, after several years of rapid growth, we began to see signs of moderation in the back half of 2025.

We believe increased enforcement activity and supply-related marketplace disruption have slowed demand for these products, and those dynamics continued into the first quarter. At the end of March, we estimate there were approximately 20.5 million adult vapors in line with the year ago period. Over the same time frame, the estimated number of disposable e-vapor consumers declined modestly. Taken together, we believe these developments suggest early indications that the category's prior growth trajectory driven largely by illicit flavored disposable products may be evolving. From an enforcement perspective, we continue to see signs of a commitment from enforcement agencies and incremental progress.

During the quarter, federal agencies worked alongside local law enforcement to combat illicit products, including a large-scale enforcement action in Northern Virginia supported by the Drug Enforcement Administration. In addition, in states where product directories are in place and properly enforced, we are seeing evidence that these frameworks are helping to reduce the presence of illicit products in tracked channels. In our view, consumer demand for e-vapor products demonstrates the potential for the category's role in tobacco harm reduction in the U.S. However, progress continues to be constrained by the limited number of FDA-authorized products.

We see a clear pathway to restoring order and advancing harm reduction, anchored in a more efficient and predictable authorization process that supports reasonable responsible innovation and establishes a compliant legal marketplace of e-vapor products. When combined with sustained enforcement, we believe this would allow compliant manufacturers to provide adult nicotine consumers with authorized high-quality products that are appropriate for the protection of public health. Overall, we delivered a strong start to the year. Our results this quarter reflected disciplined execution across our businesses, continued smoke-free progress amid a dynamic regulatory and competitive environment and our commitment to returning substantial capital to shareholders. Lastly, as you know, this will be my final earnings call as CEO.

It has been a privilege to lead this company alongside so many talented colleagues and friends. And I'm proud of the progress we've made together. I've also thoroughly enjoyed engaging with the investment community along the way, and I thank you for your trust and support. As I step away, I do so with full confidence in our leadership team and the strategy in place going forward. I'll now turn it over to Sal to provide additional details on our business and financial results.

Salvatore Mancuso: Thanks, Billy. The smokeable products segment delivered strong financial performance in the first quarter, reflecting the continued resilience of our smokeable business. Segment adjusted OCI grew by 6.3% with adjusted OCI margins expanding to 65.1% and an increase of 0.7 percentage points. This performance was supported by solid net price realization of 6.3%. Additionally, we saw the decline in our smokeable volumes continue to moderate. In the first quarter, reported domestic cigarette volumes declined by 2.4%. When adjusted for trade inventory movements, we estimate domestic cigarette shipment volumes declined by 4%. At the industry level, when adjusted for trade inventory movements, we estimate domestic cigarette industry volumes declined by 5%, marking the fourth consecutive quarter of sequential year-over-year moderation.

This trend was driven primarily by reduced cross-category movement between cigarettes and illicit flavored disposable e-vapor products for consumers, the macroeconomic environment remains challenging. Elevated everyday expenses and higher gas prices later in the quarter continued to weigh on discretionary income among more price-sensitive at the old smokers. Although higher-than-normal tax refunds provided some short-term relief, these pressures were primarily -- were the primary driver of year-over-year discount segment retail share growth of 2.4 share points. This trade down dynamic impacted Marlboro's overall retail share. which declined 1.4 share points versus the year ago period and 0.1 share point sequentially.

However, in the highly profitable premium segment where smoker purchasing behavior reflects higher levels of brand loyalty, Marlboro will continue to demonstrate its competitive strength. In the first quarter, Marlboro expanded its share of the premium segment to 59.5%, up 0.1 share point versus the prior year and 0.2 share points sequentially. A expanding its long-standing leadership position. Basic continued to capture share in the discount segment, reflecting PM USA's data-driven total portfolio approach to meeting a broad set of consumer needs. Basics retail share grew 0.5 share points sequentially and 2.4 share points year-over-year.

Total PM USA retail share grew 0.1 share point sequentially and 0.4 share points versus a year ago, demonstrating the strong execution of PM USA's total portfolio approach. In cigars, reported shipment volume was down slightly by 0.2%. The Middleton continued to outperform the large industry behind the strength of Black & Mild. Let's turn now to the oral tobacco products segment. which delivered over $400 million in total adjusted OCI in the first quarter. Adjusted OCI margins remained strong at 67.4% and down 1.8 percentage points from a year ago and were impacted by Helix marketing investments for in-person events and digital advertising as well as product mix between traditional MST and nicotine pouches.

Total segment reported shipment volume decreased 3.1% as growth in on was more than offset by lower MST volumes. When adjusted for trade inventory movements, we estimate that first quarter Oral Tobacco Products segment volumes declined by approximately 8.5%. Year-over-year trade inventory comparisons were impacted primarily by on plus pipeline volume in the first quarter and elevated competitor volume in 2025. Oral Tobacco Products segment retail share declined by 5.5 percentage points. Overall, we remain encouraged by the performance of our oral tobacco businesses. as Copenhagen continued to lead in MST and Helix expanded its portfolio in the growing nicotine pouch category.

Turning to our investment in ABI -- we recorded $160 million in adjusted equity earnings in the quarter, up 9.6% 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. We remain committed to returning significant value to shareholders and maintaining a strong balance sheet. In the first quarter, we paid approximately $1.8 billion in dividends and repurchased 4.5 million shares for $280 million. At the end of the quarter, we had $72 million remaining under our current share repurchase program, which expires at the end of the year. In addition, our balance sheet remains strong.

We retired just over $1 billion of debt that matured in February and our total debt-to-EBITDA ratio as of March 31 and was 1.9x, in line with our target. Finally, on guidance. We reaffirm our expectation to deliver 2026 full year adjusted diluted EPS and in a range of $5.56 to $5.72, representing a growth rate of 2.5% to 5.5% and from a base of $5.42 in 2025. As a result of the strong first quarter performance, we now expect 2026 adjusted diluted EPS growth to be more balanced between the first half and the second half of the year.

Our reaffirmed guidance range now contemplates the impact of moderated labor industry growth on combustible and e-vapor product volumes and increased macroeconomic uncertainty facing adult nicotine consumers. Before we wrap up, I'd like to thank Billy for his leadership over his decades of service to Altria. I have enjoyed the privilege of working closely with Billy for many years, and he has positioned us well to succeed in the future. We are committed to building upon the strong foundation he's fostered and accelerating progress toward our vision. With that, Bill 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. Operator, let's open the question-and-answer period.

Operator: [Operator Instructions] Our first question comes from Faham Baig with UBS.

Mirza Faham Baig: Brilliant. I have 2, please. The first one, I guess, is on your performance. At the full year stage, you spoke about a second half weighted performance this year, but Q1 came in seemingly stronger than expected. What were the areas that surprised you positively relative to the guidance in February. And I guess given the stronger-than-expected quarter, why have you chosen not to raise or narrow the guidance for the full year? So that's the first question. And the second question is on cigarette volumes. Clearly, over the last 6 months, there has been an improvement in volumes. But it seems to be entirely driven by the deep discount segment.

So I guess what are the key drivers that are helping this particular segment? And why may not be sort of supporting the premium segment too?

Salvatore Mancuso: Yes. So thank you for the questions. So look, we do a terrific job of forecasting the year I would say, though, is the first quarter played out, what you saw was stronger volume performance, and that's primarily driven in the smokeable category by a moderation of the cross-category movement that I talked about in my opening remarks. So as the year plays out, we see growth being more balanced between the first half and the in the second half of the year. So that was the primary driver that we're seeing. We thought it was prudent to reaffirm guidance. We're a quarter into the year. Obviously, the macroeconomic environment remains challenging and uncertain.

Gas prices have increased at the end of the quarter significantly. There's been some maybe short-term offsets to that as we've seen tax refunds higher than we have seen in the -- in past years, and that may be somewhat short term if you think about it. So we'll see how the rest of the year plays out. Obviously, if there's any updates as the year progresses to our guidance, we would communicate that. But we feel really good about our ability to reaffirm guidance for the year.

As far as cigarette volumes go, again, I mentioned the cross-category moderation that we've seen played out, but the consumer does remain under pressure, and that's been a driver of the growth in the discount category. We are really happy with PM USA's total portfolio strategy, which allows Basic to capture share of that discount category. So we feel really good about PM USA's performance for the quarter and very pleased with Marlboro's performance where it grew its share of premium sequentially and year-over-year.

Operator: Our next question comes from Matt Smith with Stifel.

Matthew Smith: And Billy, first off, I just want to wish you well in your retirement in the upcoming weeks here. Just wanted to dig into smokeable OCI a bit. The performance was quite strong in the quarter. And on a per pack basis, operating costs were below the level from the second half of last year. I think less volume deleverage was likely a benefit. But can you provide some more color on the other factors in smokable seems like double the duty drawback grew in size? And did you see that drop through profit more efficiently in the quarter? .

Salvatore Mancuso: Yes. So as you stated, we had really strong first quarter performance from our smokeable segment. So just a great job by PM USA and John Middleton in that segment. As far as spending goes, as we've stated earlier, we do have some investments in our import export business. which are more weighted to the first half. So I wouldn't overread a particular quarter, but the per pack controllable costs, obviously, were -- they did receive a benefit from the higher volume as well as the export volume that we've broken out for you in our financial statements.

So -- but I would say the overall OCI was driven primarily through pricing and the stronger cigarette volume performance that you saw play out through the year. And again, that's primarily driven by the moderation of the cross-category movement between vapor and the cigarette category.

Matthew Smith: And as a follow-up to the full year guidance question, there's a lot of reinvestment this year, whether it's behind on us or the carryover from basic repositioning and some other upcoming activities in smokeable. If you continue to see resiliency in the consumer, how do you balance the earnings growth potential against leaning more heavily into reinvestment this year given some of the flexibility you have.

William Gifford: Yes. I think you have to think about it in totality, Matt. When you think about investment, we don't feel like we're under-investing in any of our growing categories. And so we'll continue to invest appropriately with those I think from the strength of the consumer, it's the wild card with the economic outlook, the way it is with higher gas prices and stuff. And as Sal mentioned, there were certainly offsets. We'll see as those offsets play out throughout the year. and how gas prices continue to trend and we'll make any changes when it's appropriate.

Operator: Our next question comes from Bonnie Herzog of Goldman Sachs. Please go ahead.

Bonnie Herzog: All right. And congratulations again, Billy and Sal, and Billy, I also wish you all the best in your retirement, and it's really been great working with you. I -- some of you guys can hear me. I have a question on the double Okay, good. I have a question on the double duty drawback. I guess I was hoping for some more color on the expected phasing of the benefits you now expect this year? I believe you did start to import in the quarter, and I do see the stepped-up benefit in Q1 versus Q4. And -- so just curious, should we expect a steady increase in the benefit each quarter as the year progresses?

And then did this activity play a role in any way in your updated guidance phasing to be more evenly split between 1H and 2H. I guess I'm just trying to think if there was any type of pull forward in the quarter that we should be aware of?

Salvatore Mancuso: Bonnie, thank you for the question. You will see increases in the export volume and the benefit of the duty drawback as the year progresses. So you are right in your assumption. I would tell you that the more balanced growth -- diluted EPS growth first half to second half is more driven by the fact that you've seen this moderation in cross-category movement and the benefit of the volume in the smokeable segment. And then, of course, we're paying close attention to the economic conditions that our consumers are facing -- they are under significant economic pressure, again, from the cumulative impact of inflation, rising costs of everyday items, including gas. So we'll pay close attention to that.

But I would say that's the main driver of the balance between first half and second half.

William Gifford: Yes. Thanks for the kind words, Bonnie. The only thing I would add is I think it's important to Think about the 2 drivers that are driving that interaction between smokeable and e-vapor. If you think about the 2 drivers, 1 is certainly enforcement. So as the product is not available for the consumer, they go back to their total considerations make tisions. But it's also -- and you heard in my remarks, saturation of the marketplace with e-vapor products and a slowdown in that transition over. And so it's hard to predict exactly when that saturation point is going to hit, and we think we're starting to see signs that we hit that.

That's why we've been after and really pushing the FDA to think of not only enforcement but authorization, and we think they can achieve much faster authorization by publishing product.

Bonnie Herzog: Okay. That's helpful. And then just 1 other question, if I may, on Marlboro. You're rolling out cabo cuts soon. So maybe hoping for a little color on the rollout and maybe expected state allegations. And then could you provide a little color on how you're going to manage Kiboycut relative to say Marlboro Black in terms of pricing? And ultimately, I guess, how we should think about the contribution to profitability, how you're going to manage versus Marble Black, et cetera.

Salvatore Mancuso: Sure, Bonnie. Yes, Cow Boyd Cut, we will expand distribution later in the year, specifically later in the second quarter. You should think of a cowboy cut a couple of ways. One is it's a tool within our RGM toolbox. It provides price-sensitive Marlboro consumers with an option, and we believe that's important. So you should expect it to be competitively priced. But of course, with RGM, you may see different price points depending on what where you're going. And also Cowboy Cut allows us to build on Marlboro's heritage during a time when the country celebrating its 250th anniversary. So it's also a benefit to Marvell's overall equity strength that you see in the marketplace.

So we're really excited about. It's a terrific product, and you will see broader distribution as the quarter plays out.

Operator: Next question comes from Andrei Andon with Jefferies.

Andrei Andon-Ionita: Three for me, please. Number one, could you please tell us a bit more about the factors that drove the improvement for Marlboro within the premium combustible segment? And then 2 questions on oral nicotine purchase, please. I know it's early days for on! PLUS. There's been a shipment benefit -- shipment benefit for Q1 volumes. But is there any color you could give us around the consumer, the early consumer offtake for the new product for on! PLUS? And perhaps, finally, just a clarification, the 6 new flavors that you've submitted applications for with the FDA? Are they also part of the Fast Track nicotine pouch pilot program?

William Gifford: Yes. I'll try to unpack those 3 questions, if I miss any, please follow up. I think when you think about the Marlboro brand within the premium segment, I think there are really 2 factors there. Marlboro still the aspirational brand in the cigarette category. And so with the tools that we have in data analytics with revenue growth management, it allows us to, on a store-by-store basis, make it very competitive, but remain very profitable. And I think that's what's really driving the Marlboro growth in premium. I think when you think about oral nicotine pouches, early on, it is very, very early. You remember that we went national towards the end of March.

And so we're excited about that. But we know that flavors are going to play an important role in the future of the nicotine pouch category, and that ties into your third question about flavors. And they are not part of the pilot program at this point. But this is why we believe that it's very easy for the FDA to go through the authorization process. The science is the same in those pouches as what they've already authorized. It's from moving a grass, which stands for in the FDA lingo, generally recognized as safe. So you're removing 1 grass flavor and putting in a new grass flavor.

And so they've already reviewed the science on everything else related to the product. Their only focus would really be the flavors. And that's why we believe that it can be achieved within the 180-day statutory requirement.

Operator: Our next question is from Eric Serotta with Morgan Stanley.

Eric Serotta: Great. Can you give us a little bit of color of how you're thinking about the potential macro impact from the low end -- from the low-end consumer. Since the conflict began, we're now, call it, 8 weeks or so into it, a lot of noise with weak consumer confidence overall, but higher tax refunds -- what are you seeing? And I guess, in past times of sharp spikes in gas prices, what has sort of been the typical lag based on your research for an impact on your takeaway? And then second question, you certainly see understandably more favorable about the e-vapor elicit vapor enforcement.

How is that impacting your thinking about your broader e-vapor strategy -- for the past year or so, you seem to be working behind the scenes on resolving the IP issues, but sort of not going to rush to get into -- get back on to a market that was clearly had its challenges. Is that evolving with the improved enforcement that you're an improved performance of the market that you're talking about?

William Gifford: Yes. I'll let Sal kick us off with the macroeconomic and then I'll take e-vapor.

Salvatore Mancuso: Sure. Eric, I think you framed a macroeconomic situation quite well in your question, right? So later in the quarter, you did see a significant increase in gas prices. And obviously, that has an impact on discretionary spending that the consumer does have and been under pressure for quite a while, just as everyday items continue to be at elevated prices. But there are some shorter-term tailwinds, I guess, you would call it, related to some of the higher levels of tax refunds that we are seeing based on the data coming out of the IRS. So obviously, we have to pay close attention to that.

You are seeing a growth in the discount category within the cigarette business or cigarette segment. and that is driven by the macroeconomic difficulties that the consumer is facing. And you've seen us using the RGM, the revenue growth management, data analytics and tool set that we do have. And that's why you see basic in heavily discounted stores where we can capture consumer purchases that may have gone to other discount brands and we can capture those purchases in basic. And then we talked earlier about Cowoboy cut being a competitively priced product that will engage with Marlboro that are under economic pressure. So we believe we have the tools to manage through this situation.

But obviously, we're going to pay close attention to the consumers' economic condition as the year progresses.

William Gifford: And I think related to e-vapor, while we were just as excited as you are, some of the green shoots you're seeing in enforcement, I think it's important to can still look at the context, the e-vapor category in total. So it's very large, but it's still, call it, approximately 70% of the volume is illicit flavor disposables. And so it's still upside down in the marketplace. Now we're excited. We're making significant progress on the ITC issue that you described related to the patent infringements. We feel good about that.

We're excited to be able to bring that product back to the marketplace at the appropriate time, but we'll still do it in a disciplined fashion while the marketplace is still upside down. And that's, again, going back to our earlier point, it's why we are really pushing the FDA. They think about both enforcement, but authorizations so that we can keep those consumers in the e-vapor category with products that are authorized.

Operator: [Operator Instructions] Our next question comes from Damian McNeela of Deutsche Bank.

Damian McNeela: Just 1 question for me. I think in your prepared remarks, you mentioned that on! PLUS was getting allocated additional shelf space in the 100,000 or so stores that it's got listings in. Can you just sort of give an indication of where that shelf space is coming from? Is it -- are you winning it back off of the nicotine pouch brands? Or is it coming from traditional oil tobacco products, please?

William Gifford: Yes, it's a good question. We feel very excited about what our sales force was able to achieve. You can think of that category primarily as its own category within the retail space. And so that is achieving that outlook within the nicotine pouch space.

Operator: Our next question comes from Callum Elliott of Bernstein. .

Callum Elliott: Hopefully, you can hear me and just adding my congratulations on the World as a retirement believe best of luck with the endeavors? So my first question is on your nicotine pouch strategy. One of your tobacco peers has been rolling out a nicotine pouch product under a legacy world tobacco brand -- so my question is, do you have any thoughts about maybe trying to do the same thing with Copenhagen or Skol? Or do you think that your initiatives with on are sufficient to get the sort of the consumer response that you're hoping for? Then my second question is about ASIC and its interaction with Marlboro.

I think the data you showed shows discount share gain of 240 basis points year-on-year in Q1 and basic is also going 340 basis points. So it seems like all of the discount sector share gain is coming from basic -- and as we all know, we sort of annualize the repositioning quite soon. So should we be expecting that discount share gains slow as a whole as basic starts to slow and maybe Marlboro can start doing a bit better. Would you expect other discount brands to start doing better once basically annualizes the launch?

William Gifford: Yes. I'll take the first question and then pass it on to Sal for the basic question. In the nicotine oral category, USSTC was the only smokeless company to have signed a master settlement agreement. So that prevents us from using those tobacco brands in a product that does not contain tobacco. So we feel very good about on! and on! PLUS and the way it's positioned from an equity standpoint. We feel like we can compete very well in the nicotine pouch space.

Salvatore Mancuso: And Callum,we're very pleased with basics performance. Remember, basics, promotions were in limited retail distribution. And it's really being driven, that distribution is being driven by the data analytics that we have so that basic is being promoted in stores that over-index discount. And that allows PMUSA to capture consumer purchases that would have otherwise gone to other discount brands and not having an overnet impact on Marlboro. So that's why we believe you're seeing Marlboro continue to grow share in the premium category and performed quite well there. Basic is able to capture the discount share that it's been able to capture. So we feel really good with the strategy.

It's really driven by data analytics and it allows us to use the revenue growth management tools across the PM USA's portfolio.

Callum Elliott: Maybe I can just ask a follow-up, if that's okay, Sal the sort of stronger-than-expected performance in Q1. Does that give you the possibly to sort of further extend distribution for basic beyond the sort of the plateau that we seem to have originally found given that you seem to have this sort of increased flexibility now within the 2026 guidance? Or is that not something that we should be expecting?

Salvatore Mancuso: Well, I don't think the strong performance is what drives that. It really is the data. And if there's opportunistic retail locations to promote basic and limit the impact on Marlboro, then that decision, but it's not driven by the financial performance necessarily. It's being driven by the data analytics Sure.

Operator: Our next question comes from Dave with Richmond Times Dispatch.

Unknown Analyst: I was hoping you could talk a little bit more about the enforcement for the disposable vapes. You probably know that here in Virginia, the legislature has passed the new permitting and enforcement legislation for vape shops. And I'm wondering if this is something that brings enforcement to a new front? Is it something that might be significant in terms of other states being interested in this kind of thing. Have you been monitoring that?

William Gifford: We have been. I think when you think about it, all the efforts that we try to get both at the state level and the federal level, or exactly what you're after is making sure that the consumer in the vape category has authorized products that the FDA, an independent party has looked at what's in them and what comes from them. And so that's what we're driving. I think when you look across the U.S., you see a number of tools available at the state level. You've mentioned the permitting in Virginia. Other states have directories. It all is driven by how well they enforce it.

Where we see enforcement take place, we see that the consumer goes back to their total consideration set. So we've seen some go to nicotine pounds. We've seen some come back in cigarettes. And then we've seen in some states where I'll call it a gray area where their vape products that have applications in front of the FDA and are awaiting a decision. So they're able to stay in the marketplace. So Again, that's why we've been really pushing the FDA to think about both enforcement but also making authorization more readily available.

Unknown Analyst: Could the Virginia legislation be a model for other states?

William Gifford: We've seen that across states. Some states have used model legislation that drives more, if you will, enforcement and have only authorized products in the marketplace, but it's really driven by how well it's enforced.

Operator: There appears to be no further questions at this time. I would like to turn the call back over to Mac Livingston for any closing remarks.

Mac Livingston: Thanks, everybody, for joining today's call. Please reach out to Investor Relations if you have further questions. Have a great day.

Operator: This concludes today's call. Thank you for your participation. You may disconnect at any time.

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