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DATE

Thursday, July 30, 2026 at 9:00 a.m. ET

CALL PARTICIPANTS

• Vice President of Investor Relations - Mac Livingston
• Chief Executive Officer - Salvatore Mancuso
• Chief Financial Officer - Heather Newman

TAKEAWAYS

• Adjusted Diluted EPS -- $1.48 for the second quarter, representing a 2.8% increase, and $2.80 for the first half, up 4.9%.
• Full-Year Guidance -- Narrowed to a range of $5.61 to $5.72, representing a growth rate of 3.5% to 5.5% from the 2025 base of $5.42.
• Smokeable Products Adjusted OCI -- $3 billion for the quarter, an increase of 2.4%, driven by strong pricing for Marlboro and disciplined portfolio execution.
• Smokeable OCI Margins -- 64.8% for the second quarter and 64.9% for the first half, reflecting the balance between premium pricing and discount growth.
• Domestic Cigarette Volume -- Declined 3.2% in the second quarter; when adjusted for trade inventory movements, the decline was 4.5% compared to a 5% industry-wide decline.
• Marlboro Premium Share -- 59.6% of the premium segment, which remained unchanged versus the prior year and increased 0.1 share points sequentially.
• Basic Retail Share -- Expanded 2.3 share points year over year and 0.3 share points sequentially as the company targeted approximately 35,000 stores to capture trade-down volume.
• on! Retail Share -- Reached 8.6%, representing a 0.8 share point sequential increase driven by the national expansion of on! PLUS to 120,000 stores.
• on! Shipment Volume -- 49.9 million cans in the second quarter, down 4.2% due to trade inventory movements and high promotional comparisons from 2025.
• Oral Tobacco Adjusted OCI -- Decreased 8% to $435 million for the quarter, reflecting strategic investments in on! PLUS introductory trial offers and difficult prior-year comparisons.
• Oral Segment Margins -- 66.7% for the quarter and 67% for the first half, remaining stable despite increased competitive activity in the nicotine pouch category.
• Cigar Shipment Volume -- Increased 5% in the second quarter, significantly outperforming the broader large mass cigar industry which declined 6.4%.
• ABI Adjusted Equity Earnings -- $158 million for the quarter, an increase of 21.5% versus the prior year.
• Shareholder Returns -- Paid $3.6 billion in dividends and repurchased 5.3 million shares for $335 million during the first half of 2026.
• Share Repurchase Authorization -- $665 million remained under the current program at the end of the second quarter, with expiration set for December 31, 2026.
• Debt-to-EBITDA Ratio -- 1.9x as of June 30, 2026, which is in line with the company target of approximately 2x.
• Illicit E-Vapor Enforcement -- Federal seizures of illicit products exceeded $250 million during the quarter, contributing to a moderation in the category's growth trajectory.
• NJOY ACE Status -- Management submitted a supplemental PMTA for modified products that do not infringe on disputed patents, with plans to re-enter the market at a future date.
• Tax and Duty Refunds -- Expected to be higher in the second half of the year with a balanced benefit across the third and fourth quarters.
• Adult Vaper Population -- Estimated at 20 million consumers, a figure that has remained essentially unchanged from one year ago.

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RISKS

• Mancuso stated, "The consumer remains under pressure. Gas prices and inflation remain elevated, driven primarily by the uncertainty and the geopolitical climate that they are living in today," noting that these factors continue to influence purchasing behavior and trade-down dynamics.
• Newman stated, "Economic pressure on adult smokers continue to impact cigarette industry dynamics. In the Discount segment, persistent discretionary income pressures, especially among low-income consumers remain the primary driver of growth," explaining the 2.6 share point growth in the discount retail segment.

SUMMARY

Management at Altria Group, Inc. (MO -9.32%) reported first-half performance characterized by narrowed earnings guidance and the continued expansion of the smoke-free portfolio. The smokeable products segment maintained profitability through a dual strategy of premium pricing for Marlboro and targeted expansion for Basic in the discount segment. The oral tobacco segment saw share gains for the on! brand despite lower OCI driven by launch-related investments. Management noted that increased federal enforcement against illicit e-vapor products has contributed to a moderation in cigarette industry volume declines. The company continues to prioritize capital returns, maintaining a 1.9x debt-to-EBITDA ratio while funding dividends and share repurchases.

• CEO Mancuso attributed sales momentum in the nicotine pouch category to on! PLUS, noting that share reached 8.6% and stating, "Early data suggests on! PLUS is resonating with both loyal on! and competitive nicotine pouch consumers."
• Management reported that the illicit e-vapor market's growth is slowing, with CEO Mancuso noting, "signs of moderating growth continued in the second quarter" as the total number of adult vapers stabilized.
• CFO Newman explained that the lack of sequential growth in tax refunds for imported cigarettes was a "timing factor" involving the staging of products and inventory movement.
• The company plans to expand the on! PLUS 12-milligram strength nationally in the third quarter and introduce Blueberry Mint and Mango Pineapple flavor extensions in the fourth quarter.
• Management confirmed NJOY ACE's potential re-entry following a supplemental PMTA filing, with Mancuso stating the FDA guidance recognizes products in review "should be treated differently from products that evade regulatory oversight entirely."
• The Marlboro Cowboy Cut was introduced to leverage the brand's American heritage during the nation's 250th anniversary while providing a value option within the premium segment.

INDUSTRY GLOSSARY

• ANC: Adult Nicotine Consumers, referring to existing nicotine users 21 years of age or older.
• FET: Federal Excise Tax, a legislated tax on specific goods like tobacco.
• MST: Moist Smokeless Tobacco, a category including traditional products like Copenhagen and Skoal.
• OCI: Operating Companies Income, a measure of segment-level profitability before corporate expenses and interest.
• PMTA: Premarket Tobacco Product Application, the required regulatory pathway for FDA authorization of new tobacco products.
• RGM: Revenue Growth Management, a data-driven approach to pricing and promotional investments to maximize profitability.

Full Conference Call Transcript

Operator: Good day, and welcome to the Altria Group 2026 Second Quarter Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Mac Livingston, Vice President of Investor Relations. Please go ahead, sir.

Mac Livingston: 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 second quarter 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, unless otherwise stated, we're comparing results to the same period in 2025. Our remarks contain forward-looking statements, including projections of future results. Please review the forward-looking and cautionary statements 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 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.

Salvatore Mancuso: Thanks, Mac. Good morning, and thank you for joining us. In the second quarter, our operating companies continue to deliver against the priorities we outlined at the start of the year, advancing our smoke-free portfolio, strengthening our traditional tobacco businesses and delivering significant returns to shareholders. In smoke-free, Helix expanded on! PLUS to 120,000 stores nationwide, engaged in trial-generating activities and prepared for additional line extensions to come later this year. In smokeable products, PM USA advanced its data-driven total portfolio approach to drive profitability as Marlboro Cowboy Cut generated strong interest among premium smokers and Basic continued to gain traction in discount.

We delivered strong first half results, driving adjusted diluted EPS growth of 4.9% and returned nearly $3.9 billion to shareholders through dividends and share repurchases combined. This performance reflects steady, disciplined execution and confidence in our full year plan, which allowed us to narrow our earnings guidance for the year. This morning, I'll cover second quarter and first half results from on!, recent FDA actions and e-vapor category dynamics and how our operating companies celebrated America's 250th anniversary. I'll then turn it over to Heather, who will provide further detail on our business results and 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, which we estimate increased 6% over the past 6 months. In the second quarter, the nicotine pouch category grew 8.1 share points and now represents nearly 60% of the total oral category. As the category continues to expand, Helix is building on its momentum and strengthening on!'s position. In the second quarter, on! reported shipment volume was 49.9 million cans, down 4.2% versus the prior year due to trade inventory movements. Year-to-date, on! reported shipment volume increased by 5.1%, reflecting the early impact of on! PLUS following its national expansion.

In the second quarter, on! retail share reached 8.6%, up 0.8 share points sequentially and 0.3 share points year-over-year, driven by the introduction of on! PLUS. Early data suggests on! PLUS is resonating with both loyal on! and competitive nicotine pouch consumers, driving incremental volume and share contributions for the brand. We've also seen encouraging repeat purchase rates that suggest consumers value the differentiated experience of our NICOSILK soft pouch. These results reflect the strategic investments we've made to support the brand. Earlier this year, Helix launched a new retail trade program that secured premium visibility and incremental fixture space for on! PLUS and its growing product portfolio.

Helix complemented its trade program with responsible marketing investments across retail, live events, paid social media and more. As a result, Helix delivered gains in both total and unaided brand awareness for on! in the first half of the year, maintaining its position as the second most recognized brand in the nicotine pouch category. These early indicators reflect a strong start for on! PLUS with nicotine pouch consumers. Competitive activity in the nicotine pouch space is intensifying with competitors bringing new products and flavors to market and Helix is prepared with a differentiated product experience and a growing product portfolio. Helix's momentum is supported by an improving regulatory backdrop.

The FDA recently updated its enforcement priorities for certain e-vapor and nicotine pouch products. We view this as a positive step toward greater regulatory clarity and transparency. While the guidance does not replace the need for formal authorizations, it recognizes that products in advanced stages of FDA review should be treated differently from products that evade regulatory oversight entirely. For Helix, we believe this guidance provides regulatory clarity for future product launches and reinforces Helix's strong position as the on! PLUS authorizations received last year create the potential for a faster supplemental PMTA pathway for future line extensions. In the second quarter, Helix resumed shipments of on!

PLUS 12-milligram in 3 flavors in Florida, North Carolina and Texas, with a national expansion planned for the third quarter. Helix also plans to introduce flavor extensions across 6, 9 and 12-milligram strengths, beginning with Blueberry Mint and Mango Pineapple in the fourth quarter. We believe these products will enhance the on! PLUS portfolio and help meet increasing consumer demand for higher strength options and more flavor variety. Helix is committed to strengthening its position in the attractive nicotine pouch space and driving long-term profitable growth in the category.

In e-vapor, we continue to believe that the category holds the potential to advance tobacco harm reduction in the U.S. and that recent FDA actions help expand access to regulated options for adult consumers. We also continue to see encouraging signs that federal and state agencies are committed to stronger enforcement. During the quarter, this included continued federal seizures of illicit products totaling more than $250 million, a lawsuit by the Minnesota Attorney General against a leading illicit e-vapor manufacturer and actions by major commerce and payment platforms to restrict illicit e-vapor sales. For harm reduction to succeed, 2 things are necessary, a more efficient authorization process and consistent enforcement over time.

Both are critical to establish a level-playing field among legal manufacturers with high-quality smoke-free products for adult nicotine consumers. We believe increased enforcement activity, including supply-related disruptions at the border is helping slow demand for illicit products. While illicit-flavored disposable products remain prevalent, signs of moderating growth continued in the second quarter, and we're beginning to see this reflected in the consumer data. At the end of June, we estimate there were approximately 20 million adult vapers essentially unchanged from a year ago. Over the same period, the estimated number of disposable e-vapor consumers declined modestly. Together, these trends suggest the category's illicit-driven growth trajectory is beginning to moderate from the growth seen in previous years.

Before I turn it over to Heather, I'd like to briefly highlight how we're supporting the people, communities and brands that have been central to our success for generations. Our companies have strong American roots and long-standing relationships with farmers that span more than 200 years. Our nation celebrates its 250th anniversary. We're honoring that heritage by investing in American tobacco growers and their local communities, engaging our employees nationwide through service and civic participation and marking the milestone across our portfolio, including Copenhagen's year-long celebration of the farmers, veterans and tradespeople who help shape our country and PM USA's introduction of Marlboro Cowboy Cut, a classic Marlboro experience anchored in the brand's iconic American story.

Collectively, these efforts honor the American roots that have shaped our businesses while reinforcing the foundation for our next chapter of growth. In summary, we've had a strong first half of 2026. Our expanding smoke-free portfolio, the strength of our traditional businesses, a regulatory environment that is increasingly focused on addressing illicit products and the passion of our talented employees support our confidence in the opportunities ahead. With that, I'm delighted to turn the call over to Heather Newman, our new CFO, to provide details on our business and financial results.

Heather Newman: Thanks, Sal, and good morning, everyone. Altria delivered strong second quarter and first half financial performance. Adjusted diluted earnings per share increased by 2.8% to $1.48 in the second quarter and by 4.9% to $2.80 for the first half. Robust smokeable products adjusted OCI growth continued to be a key contributor to earnings. In the segment, adjusted OCI grew by 2.4% to $3 billion in the second quarter and by 4.2% to $5.7 billion in the first half. Adjusted OCI margins expanded to 64.8% in the second quarter and 64.9% in the first half. The decline in our smokeable volumes continued to moderate during the quarter.

Reported domestic cigarette volumes declined 3.2% in the second quarter and 2.8% in the first half. When adjusted for trade inventory movements, domestic cigarette volumes in the second quarter and the first half declined by an estimated 4.5% and 4%, respectively. At the industry level, when adjusted for the same factor, we estimate that domestic cigarette volumes declined by 5% in both the second quarter and in the first half, marking the fourth consecutive quarter of moderated cigarette industry declines. This trend continues to primarily be driven by reduced cross-category movement between cigarettes and illicit-flavored disposable e-vapor products. Economic pressure on adult smokers continue to impact cigarette industry dynamics.

In the Discount segment, persistent discretionary income pressures, especially among low-income consumers remain the primary driver of growth, [ this ] included elevated gas prices and the compounding effects of inflation exceeding overall wage growth. As a result, for both the second quarter, first half, discount retail share grew by 2.6 share points. This trade-down dynamic impacted Marlboro's overall retail share, which declined 1.5 share points versus the year ago period and 0.2 share points sequentially. However, Marlboro maintained its [ long-standing leadership ] profitable premium segment. In the second quarter, Marlboro's share of premium was 59.6%, unchanged versus the prior year and up 0.1 share points sequentially.

Basic continues to support PM USA's portfolio strategy by providing a competitive offering in stores where discount brands are most relevant. During the quarter, retail share expanded by 0.3 share points sequentially and 2.3 share points year-over-year. Throughout the first half, PM USA applied the same RGM-driven precision that guided Basics repositioning from the start, expanding targeted promotional support to roughly 35,000 stores while refining investment levels based on marketplace learnings. This disciplined data-driven approach to Basics retail footprint and brand investments helped capture share that we believe otherwise would have been lost to competitive discount brands while limiting incremental impact to Marlboro. PM USA's total portfolio strategy continues to support both share performance and long-term profit growth.

Total PM USA retail share expanded 0.1 of a share point sequentially and 0.3 share points versus a year ago. This balance between premium and discount reinforces long-term profitability while supporting overall share stability within PM USA. Reflecting this balance, smokable price realization for the quarter was 4.5%, driven by strong net pricing for Marlboro, partially offset by mix impact of basic volume growth. In cigars, reported shipment volume increased 5% in the second quarter as Middleton continued to significantly outperform in the large mass cigar industry. All other manufacturers continue to experience volume declines with the industry down 6.4% in the same period. Turning now to the Oral Tobacco Products segment.

Second quarter results reflect the continued evolution of the category towards nicotine pouches. Segment performance was impacted by a difficult prior year comparison when 2025 volumes benefited from promotional timing and competitor supply disruptions. Additionally, financial results were impacted by strategic investments behind on! PLUS introductory trial offers as we expanded beyond the initial launch dates. As a result, adjusted OCI decreased by 8% in the second quarter and 4.2% in the first half. Adjusted OCI margins remained strong at 66.7% for the second quarter and 67% for the first half. Total segment reported shipment volume decreased 8.5% for the second quarter and 6% for the first half as growth in on! was more than offset by lower MST volumes.

When adjusted for trade inventory movements, we estimate that second quarter and first half Oral Tobacco Products segment volumes declined by approximately 2% and 5.5%, respectively. Oral Tobacco Products segment retail share was 29% for the second quarter and for the first half. Retail share was stable sequentially, reflecting the growth of on! and resiliency of our MST brands. In the highly profitable Moist Smokeless Tobacco segment, Copenhagen continued to maintain its long-standing premium leadership. Turning to ABI's financial results. We recorded $158 million in adjusted equity earnings in the second quarter, up 21.5% 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. During the first half of the year, we paid approximately $3.6 billion in dividends and repurchased 5.3 million shares for $335 million. At the end of the second quarter, we had $665 million remaining under our current share repurchase program, which expires at the end of the year. In addition, our balance sheet remains strong. Our debt-to-EBITDA ratio as of June 30 was 1.9x, in line with our target of approximately 2x. Finally, let's turn to our financial outlook.

As we've discussed this morning, our business performed extremely well during the first half of the year. As a result, we are raising the lower end of our full year 2026 guidance. We now expect to deliver adjusted diluted EPS in a range of $5.61 to $5.72, representing a growth rate of 3.5% to 5.5% from a base of $5.42 in 2025. We are mindful of the challenged state of the nicotine consumers, and we will continue to closely monitor their purchasing behaviors.

And while refunds of taxes and duties paid on imported cigarettes for the quarter were flat sequentially due to timing factors, we continue to expect export volume and related tax refunds to be higher in the second half of the year with a more balanced benefit across the third and fourth quarters. 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 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] The first question is from Matt Smith at Stifel.

Matthew Smith: You raised the low end of the guidance range. But even with that, the low end is below the first half delivery. And I think initially, you anticipated a stronger phasing of growth in the second half. So how should we think about the second half now given some commentary around building benefits from the duty drawback? Are you stepping up investments? You talked about some launches behind on! PLUS and you have Cowboy Cut going into the market. So are you stepping up incremental investments? Or are there other considerations in the second half we should think about?

Salvatore Mancuso: Yes. Thanks for the question, Matt. It's good to hear from you. Look, we were really pleased that we could narrow guidance for our investors coming out of the second quarter. Really pleased with the first half results, to your point. And yes, the timing played out somewhat differently than our -- what we thought at the very beginning of the year. As you go into the second half of the year, I think it's important to keep an eye on the financial health of the consumer. The consumer remains under pressure. Gas prices and inflation remain elevated, driven primarily by the uncertainty and the geopolitical climate that they are living in today.

So -- and then I think you are right to point out. We talked about national expansion of the 12-milligram on! PLUS. We've talked about flavor, introduction of flavor extensions across the portfolio. And yes, that will require a level of investment. So again, we feel really good about being able to narrow guidance, and we look forward to the second half of the year.

Matthew Smith: And as a follow-up, one of the investment areas is the continued expansion of Cowboy Cut. I know it's early days, but can you talk about your initial observations in terms of the product's market share trajectory and where the volume for Cowboy Cut is being sourced from and how you think that evolves over time?

Salvatore Mancuso: Yes. We're excited about Cowboy Cut. We're really pleased with the early introduction of Cowboy Cut. Again, it serves 2 purposes. One, it does allow Marlboro to further celebrate the 250th anniversary of the country, and it really leverages Marlboro's American heritage. And at the same time, it engages with more value-sensitive Marlboro smokers and premium smokers who are seeking value at a time when the economic environment is difficult for those consumers. You should think of Cowboy Cut as one of the many tools in the suite of RGM tools that PM USA uses to engage with consumers.

So again, really pleased with the early days of Cowboy Cut and really pleased that we're able to use the breadth of Marlboro's portfolio to engage with value-sensitive consumers and to use data analytics so that we can be more prescriptive in terms of how we apply those promotional rates across the country.

Operator: The next question is from Bonnie Herzog at Goldman Sachs.

Bonnie Herzog: I had a question on the double duty drawback. I guess I'm hoping for a little bit more color on why you didn't recognize more of a benefit in Q2. You did export more volume sequentially. So I guess I assume something happened with the import volume quantity. I'm asking because I just want to make sure there's, I don't know, no issue and you have good visibility on this really ramping in 2H versus 1H. And then despite the double duty drawback benefit not increasing sequentially in the quarter, your smokeable OCI growth was still up and up sequentially on a stacked basis, which is clearly positive.

So could you touch on some of the drivers of that and maybe how sustainable you believe that is?

Heather Newman: Bonnie, thanks for the question. For double duty drawback, you're absolutely right to point out export volumes increased Q1 to Q2. Really, what you're seeing is a timing factor. And so there are 2 components to that, why that's not truing up to the FET credit. One is the time in terms of when we apply for that credit. The other is just staging of products, some inventory movement, and that's why that's not perfectly lining up. We do expect in the second half of the year for export volume to increase, and we'll have a more balanced benefit across Q3 and Q4 for the FET credit.

From a smokeable OCI standpoint, we really have 2 components, strong Marlboro price realization that happened in the quarter as well as the first half. And then Basic, from an overall strategy standpoint, it was incremental to total PM USA, and we saw a benefit in terms of volume and share performance. So we feel really good about that total portfolio approach for PM USA that really aligns with our strategy to maximize profitability over the long term.

Bonnie Herzog: Okay. Maybe part of my second question will touch on this, but then I do have another question just on the consumer and your cig volumes. As you guys have highlighted, cig volume declines are moderating. So just maybe hoping for a little bit more color on what you think might be driving this and whether you expect this to continue? And then I'm also asking in the context of sort of something you just touched on, Heather, is Basic because as I think about the second half, you're going to have pretty tough comps for Basics. So just trying to understand if we should realistically assume your cig volumes will be worse in 2H versus 1H.

And then maybe high level, just give us a sense of any changed consumer behavior and elasticities given maybe still elevated prices at the pump and tough macro.

Salvatore Mancuso: Yes. Bonnie, there's a lot in that question. So let me -- hopefully, I answer all of them. If I don't, please follow up and if Heather has anything to add, of course. So as far as the -- let me start with the cigarette volumes and what you're seeing across the industry. And we break out what we're seeing in terms of industry volume decline. So the drivers, you have the secular decline and the price elasticity. And then the third bucket is this cross-category movement and macroeconomic conditions. You are exactly right that the macroeconomic conditions are unsettled.

You have, again, as we talked about earlier, high levels and persistent inflation, higher elevated gas prices, but that is somewhat being offset by the moderation and it's actually more than offset by the moderation in cross-category movement. And that's really driven by the fact we believe there are 2 factors that are driving that. One is the elevated level of enforcement that we're seeing in the marketplace and some of the supply-chain disruption that is occurring related to the illicit disposable e-vapor products. And then these products have been available for a number of years and the consumers, many of them had moved already into these categories.

So we think both are probably playing a role in the moderation of the decline rate that you're seeing. And we'll have to see -- we don't talk about future volume trends necessarily, but we'll have to see how innovation impacts cross-category movement going forward. In the first half, you were lapping a higher level of cigarette decline rates that you rightly pointed out. So that's a lot of the driver that you're seeing in the industry volume decline rate for this quarter.

We're also very pleased with the fact that when you look at Marlboro's performance and the fact that it has really held steady in the highly profitable premium segment that's a credit not only to the strength of Marlboro and the loyalty rates it has within the brand, but the ability for PM USA to effectively use the RGM tool suite it has at its disposal. And then, yes, Basic has shown strong growth on a year-over-year basis, and we will start to lap that. But we -- again, our strategy in discount is to participate in discount and not necessarily accelerate the growth in the discount category you're seeing.

And that growth in the category is really driven by consumers' decisions to trade-down during a difficult economic situation.

Operator: The next question is from Pallav Mittal at Barclays.

Pallav Mittal: Firstly, on cigarette volumes, and it's a 3-part question. So U.S. industry volumes, following up from the previous question, clearly better so far this year. Just wanted to check, are you seeing any impact from higher gas prices because even Q2 volumes were strong? Or is there a change in that correlation? And in terms of your shipments, your shipments are almost 120, 130 basis points better than the inventory adjusted number. So should we expect that to unwind in the second half?

Salvatore Mancuso: Yes, and we are seeing change to the price elasticity seen for a period of time, that coefficient of negative 0.35% continues to hold steady. You do see, obviously, as I pointed out in Bonnie's question, the growth of the discount category in the cigarette space, and that's consumers making trade-down decisions. But premium remains the category or the segment where most of the profitability is in the cigarette category, it's about 85% of the profitability in the cigarette category. So PM USA remains focused on that. You are also correct to point out that PM USA volume outperformed, at least the volume trend outperformed the industry. And that's really the total portfolio approach that PM USA has employed.

So you saw overall PM USA share grow on a year-over-year basis. So that's impacting the volume comparison versus the industry.

Pallav Mittal: Sure. And then...

Salvatore Mancuso: Anything? Go ahead.

Pallav Mittal: If I can then ask on your Smokeless business, the on! business. Can you just talk about the consumer feedback on the on! PLUS product, the recent 12 mg launch and any retention rates since you have gone national in March? The reason I asked this question is because despite the national expansion, volumes haven't accelerated significantly. So just wanted to check if there is any inventory movement which is impacting the Q2 numbers? Or is there something more than that?

Salvatore Mancuso: Yes. Let me start and then Heather, if you'd like to add anything. We're really pleased with the on! PLUS launch. It's in about 120,000 stores. So it covers about 90% of the nicotine product volume. AGDC has done a terrific job with the on! PLUS. We mentioned earlier that we launched a new retail program that provides on! and on! PLUS with premium visibility and about 90% of its volume. Share was up 0.8 share points sequentially. That is driven by the on! PLUS launch. The consumer likes the differentiated experience of the soft pouch technology. But we also recognize it's important to have higher strengths. So we're excited about the 12-milligram national launch in the third quarter.

And then the flavor expansions. We understand that flavors are important to this category. And while the larger flavor portfolio is in Mint and Wintergreen, other flavors are important. So we're excited about our ability to launch that later in the year in the fourth quarter. You are right, when you talk about shipments, there were some comp issues related to the second quarter. So if you look at 2025, volume was up due to some promotional activity as a major competitor was having some supply-chain disruption, it was important for Helix to promote the on! product. And then you have some timing between first quarter and second quarter as on! PLUS national launch was being prepared.

So really happy with the initial launch, excited about the feedback we're getting from consumers, but really excited about the pipeline of products to come related to on! PLUS.

Operator: The next question is from Eric Serotta at Morgan Stanley.

Eric Serotta: Hoping you could give some color into how you're thinking about portfolio mix between discount and premium in the second half and as we move forward, you've already talked a bit about or fielded some questions in terms of lapping some of the distribution expansion for Basic. At the same time, you have Cowboy Cut ramping, which at least from limited sample at retail seems to be kind of like a 40% discount to mainline, at least in the markets I've seen. So not asking for future pricing guidance, but just how are you thinking about that mix benefit or sort of that mix impact going forward?

Heather Newman: Sure. I'm happy to answer. So overall, what we try to do from a strategy standpoint is to maximize the profitability over the long term. And we do that pretty consistently across the portfolio for PM USA. And I think the first half performance is a fantastic example of that. You are right that we have different aspects of the portfolio that we will leverage. Let's take Marlboro, for example, on Cowboy Cut. That really helps insulate brand. We know that consumers are still under pressure and to keep them within the Marlboro family, from time-to-time, we will leverage our RGM capabilities and provide value to those premium consumers who are under pressure.

And that's exactly how we're going to utilize Marlboro Cowboy Cut. And then when you think about discount, our approach and Sal is spot on, we want to participate in discount without accelerating that growth. We've done this from time-to-time. So historically, this is in line with our strategy. Previously, we have had L&M where we supported discount consumers and now our current strategy is Basic. I will remind you, it's very targeted in terms of its support. We leverage RGM to clearly identify where there's consumers under pressure to have the least amount of impact to Marlboro.

And so we're really proud of our capabilities there in terms of RGM, and we feel confident in our ability to manage that for the second half.

Eric Serotta: Great. And then just a follow-up on a different topic. I know it's early days, but in terms of on! PLUS any insights as to what you're seeing in terms of consumer sourcing? How much of it is kind of incremental to the category? And of the part that's not incremental, where do you see it sourcing the most volumes from -- either from a segment and strength or a brand standpoint?

Salvatore Mancuso: Yes. If you look at the on! PLUS share performance, it was up 0.8 share points sequentially, up 0.3 share points year-over-year. So we believe it's incremental to the overall on! portfolio. As I said earlier, it resonates both with on! consumers as well as competitive nicotine pouch consumers. And then it also is appealing to MST consumers as a large pouch with stronger nicotine strengths, if you will. So we feel really good about the product, but we recognize it's important to add more flavors to the portfolio. So that's why it was important to have the retail trade program in place ahead of the launch.

And again, our AGDC colleagues did a tremendous job of selling that in and working with our retail partners. And it's also important to have a pipeline of products behind the current 3 flavors that we have in the market. So yes, and I have to tell you, we're agnostic that it may source some from on! classic if they stay within the on! family. And on! PLUS, we believe, is a differentiated product related to the NICOSILK soft pouch technology. And we believe over the long term, it will be a premium product because of its differentiation.

Operator: And next question is from Faham Baig at UBS.

Mirza Faham Baig: Are you able to hear me?

Salvatore Mancuso: Yes.

Mirza Faham Baig: Fantastic. A couple of questions from me as well. The first one, going back to combustibles. If my math is right, I think there's at least a couple of percentage points of deceleration in price/mix at a time when the Basics share expansion year-on-year is sort of no different compared to Q1. Could you just help me understand what maybe drove the incremental step down in price/mix, whether that's related to Marlboro pricing or the impact of Cowboy Cut? Any help there would be useful. And the second question is going back to the recent FDA policy you highlighted, it gives you an opportunity to innovate and launch future line extensions in nicotine pouches.

I guess the other category, the policy targets is vapor. Could you maybe remind us what you already have submitted in the PMTA pipeline, what's in scientific review? And how you think about launches in that category to try and further switch consumption away from the illicit trade?

Salvatore Mancuso: Yes. So there's a couple of questions in that question, as you pointed out. So let me start with price realization. What you've seen in terms of PM USA's price realization this quarter is actually the fact that you had strong Marlboro price realization, and that was somewhat offset by the mix related to Basic as Basic has grown volume and share. But we really look at overall profitability. So what you saw was strong smokeable profitability, both in terms of margin and overall OCI performance in the first half of the year. So again, that's the price realization. Some of it is just the math.

So just to give you some point of reference, if you look at Marlboro retail price in the second quarter, it was up about 7% on a year-over-year basis. We do believe that the recent guidance from FDA is constructive. While it doesn't replace the importance of authorization, we do believe that it brings some clarity and transparency related to authorization, both in the nicotine pouch as well as the e-vapor category. If you remember, NJOY ACE was out of the market related to 4 patents that were filed in the ITC. We have modified those products. They no longer infringe on those patents, and Customs and Border Patrol agree with that perspective. So we have submitted a supplemental PMTA.

Our plan is to re-enter the market at some point with NJOY ACE. But while there's been a stepped-up level of enforcement, the illicit products remain prevalent in that category. So as we enter the market, we're going to be disciplined and thoughtful about how we enter the market and exercise financial discipline. But we're also going to continue to innovate for the future and meet the evolving consumer preferences in the e-vapor category. As we lock those products, those designs up, we'll determine the best path forward for submitting for FDA authorization. If it's a supplemental PMTA, then the clock begins when it's accepted by the FDA.

If it is a PMTA, the clock, if you will, that 6-month clock [Audio Gap] it enters scientific review. So definitely a level of clarity in terms of when products can enter the market and really a recognition by the FDA that products that ignore regulations are different than products that are legal and are going through the FDA process. And we think that is constructive.

Operator: The next question is from Damian Neela at Deutsche Bank.

Damian McNeela: First one is we've talked a lot about on! PLUS and the innovation that you're launching. But we're just wondering, is there anything that you're doing with the regular on! products to sort of support or strengthen that part of the market is the first question. And then obviously, we've just been chatting about the FDA, but I was just wondering -- and obviously, you talked in the presentation about the improved backdrop around vape. But specifically, can you provide any sort of insights in how you're thinking about a potential return to that category?

Salvatore Mancuso: Yes, sure. So let me start with on!. We believe on! classic and on! PLUS both have a place in our portfolio, and they're both important. If you look at on! classic, it's a smaller pouch. It's more of a dry feel. Currently, it has lower nicotine strengths in the marketplace. So we will continue to innovate when it comes to on! classic. And we believe that on! PLUS plays an important role as well. It has currently higher nicotine strengths. It's a larger pouch and has more of a wet feel. And so they both resonate with consumers, and they both play an important role in our nicotine product portfolio. I talked a lot about e-vapor with Faham.

I would say that [Audio Gap] can play an important role in long-term tobacco harm reduction here in the U.S. We intend to participate in that category. But we recognize it's important to have sustained enforcement against the illicit manufacturers who are ignoring and really avoiding the regulatory landscape. So it's important that enforcement occurs, but it's also important that the FDA continues to authorize products so that the adult nicotine consumer has choices to participate in that category and be able to use reduced-risk products. We have not announced the timing of when we plan to re-enter the category, but we do plan on re-entering that category. And when we have more to report, of course, we will.

Operator: And the final question is from Priya Ohri-Gupta at Barclays.

Unknown Analyst: This is [ Theresa ] on for Priya. So could you please walk us through your thoughts on the current market backdrop in terms of not only your 2026 maturity, but also your 2027 Euro bond and how you're approaching the refinancing?

Heather Newman: Sure. First and foremost, we remain committed to delivering strong shareholder returns. Obviously, our primary vehicle to do that is by way of a dividend. Historically, after we have the dividend, we have about $1 billion excess in cash. And we look at capital-efficient ways to deploy that capital, one in which you're pointing to is our debt management. And we also look at other capital-efficient ways like share buyback. We also have opportunities to accelerate against our long-term adjacency vision as well as our smoke-free vision with any M&A opportunities. And we think that we're really well positioned to manage those debt maturities in '26 and '27.

We have a very strong balance sheet to do so with high cash generation businesses, and we remain focused on really delivering that strong shareholder value.

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: Great. Thanks to everybody for joining us. If you have any follow-up calls, please feel free to reach out. Thanks, and have a great day.

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