Q2 2025 Earnings Call Transcript

Good day, and welcome to the Altria Group 2025 Second Quarter and First Half Earnings Conference Call. Today's call is scheduled to last about 1 hour, including remarks by Altria's management and a question-and-answer session. [Operator Instructions] I would now like to turn the call over to Mac Livingston, Vice President of Investor Relations for Altria Client Services. Please go ahead, sir.

Thanks, Leo. Good morning, and thank you for joining us. This morning, Billy Gifford, Altria's CEO; and Sal Mancuso, our CFO, will discuss Altria's second quarter and first half business results. Earlier today, we issued a press release providing our results.

The release, presentation, quarterly metrics and our latest corporate responsibility reports are all available at altria.com. During our call today, unless otherwise stated, we're comparing results to the same period in 2024. 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 results exclude special items that affect comparisons with reported results. Non-GAAP financial measures and reconciliations to the most comparable GAAP financial measures are included in today's earnings release and on our website at altria.com. Finally, all references in today's remarks to tobacco consumers or consumers within a specific tobacco category or segment refer to existing adult tobacco consumers 21 years of age or older.

With that, I'll turn the call over to Billy.

Thanks, Mac. Good morning, and thank you for joining us. In the second quarter, we continued the pursuit of our vision while maintaining our strong and profitable core businesses. In oral tobacco, on! delivered strong performance and was the substantial driver of the segment's growth in the quarter.

We continue to press for actions that will shape a fully regulated industry and provide expanded product choices for adult nicotine consumers. And we returned significant value to our loyal shareholders during the first half of the year with more than $4 billion delivered through dividends and share repurchases. Our operating companies delivered strong financial results in a dynamic marketplace, allowing us to raise the lower end of our 2025 guidance range. My remarks this morning will focus on second quarter and first half results from on!, next steps for NJOY and the state of the regulatory environment.

I'll then turn it over to Sal, who will provide further detail on our business results and 2025 outlook. Let's begin with on! and the nicotine pouch category. On! nicotine pouches continued to be the primary growth driver of the estimated 11% increase in oral tobacco industry volume over the past 6 months. In the second quarter, on! nicotine pouches grew 10 share points year-over-year and now represent more than half of the category.

Within this increasingly competitive environment, Helix continued to grow volume and share with on! reported shipment volume increasing by 26.5% to 52.1 million cans versus the year ago period. on!'s retail share of the total oral tobacco category was 8.7%, an increase of 0.7 share points versus the prior year. Last year, Helix launched the -- its On! campaign to differentiate the on! brand from competitive products, build emotional connections with its target audience and drive greater brand awareness. As part of the campaign rollout, the team used in-person activations to engage directly with adult consumers at action-packed events such as music festivals, NASCAR races and premier golf tournaments.

These one-to-one interactions allow consumers to connect with brand representatives, gain deeper insights into the product and experience the brand in a tangible, memorable way. In the first half of 2025, Helix reached over 170,000 adult tobacco consumers through these in-person activations. Helix's digital marketing channels amplified these experiences, reinforcing on!'s unique brand positioning across multiple touch points. In the second quarter, digital Impression approximately 190 million.

As a result of these combined efforts and continued strong presence at retail, on! brand awareness among adult tobacco consumers increased 7 percentage points in the first half of 2025 versus a year ago. Helix will continue to focus on driving trial, building long-term equity and increasing profitability. In fact, on!'s improving financial performance drove the majority of the oral segment's substantial profit growth for the quarter. Moving to our e-vapor business and NJOY.

In June, the Patent Trial and Appeal Board did not agree with our argument to invalidate JUUL's patent. While this is not the outcome we hope for, we are actively exploring all potential next steps. Meanwhile, we completed the product design of a modified NJOY ACE solution that we believe addresses all four disputed patents. Additionally, our product development teams are actively building a broader vapor portfolio of products that align with evolving expectations of today's consumers.

Let's now turn to the state of regulation in the U.S. nicotine market, where we continue to believe significant progress needs to be made to fulfill the promise of tobacco harm reduction. For some time, we've been advocating for enforcement against products that have completely evaded the regulatory process and for an acceleration in FDA market authorizations to create a responsible marketplace of smoke-free products for all adult consumers. As it relates to enforcement, the flavored disposable market continues to drive e-vapor category growth. At the end of the quarter, we estimate the e-vapor category included more than 20.5 million vapors, up over 1.9 million versus a year ago.

During the same period, disposable vapors increased by an estimated $2.7 million to approximately $14.4 million. We continue to estimate that flavored e-vapor disposable products, the majority of which we believe have abated the regulatory process, represent more than 60% of the category. While this issue remains significant, we see signs that enforcement actions have picked up momentum. Key government officials at the Department of Health and Human Services and the FDA have publicly acknowledged the severity of the issue and there is bipartisan support in Congress for urgent action across government agencies.

We're encouraged by recent actions by Customs and Border Protection, FDA, state legislatures and state attorneys general to prevent the importation of illicit e- vapor products evading the regulatory system. Key actions from these stakeholders this year include FDA strengthening its import policy, reducing the possibility of imported vapor products bypassing FDA review; tighter border controls, which have resulted in a higher percentage of rejections of properly declared e-vapor shipments from China than ever before; FDA issuing warning letters to 24 importers responsible for importing illicit products and State Attorneys General issuing warnings and bringing civil litigation addressing illicit Chinese vapor importers and distributors.

The net effect of these recent actions is that it is becoming more difficult to import illicit e-vapor products. In fact, some wholesalers have recently reported supply shortages of some of the most popular disposable brands, citing enforcement at the ports and tariffs. We believe these changes have prompted e-vapor importers to misdeclare their shipments, resulting in illicit products entering the country undetected. While we are seeing some progress, more consistent action needs to be taken to deliver sustainable long-term results.

We continue to advocate at the federal and state levels for more coordinated and decisive actions against illicit actors. Illicit e-vapor enforcement is only one area where the regulatory system is failing. The FDA must accelerate product authorizations across all tobacco categories. By law, the FDA is required to review and decide PMTAs within 180 days.

We have waited over 5 years for a decision on some product applications. We continue to urge FDA to implement a workable process that results in timely decision-making to meet their statutory requirements and promotes public health. We believe these steps are critical to establish a nicotine marketplace that offers adult smokers expanded choices in smoke-free products and gives consumers comfort in the oversight of the products available to them. In summary, we remained encouraged by the strong performance of our operating companies in a challenging marketplace conditions.

Our highly cash-generative core businesses supported continued investments in our smoke-free products. And the increased focus by key stakeholders on cleaning up the illicit market reinforces our confidence in the long-term outlook for our smoke-free portfolio. I'll now turn it over to Sal to provide more detail on our business results.

Thanks, Billy. As Billy described in his opening remarks, Altria delivered strong second quarter and first half financial performance. Adjusted diluted earnings per share increased 8.3% to $1.44 in the second quarter and increased by 7.2% for the first half, driven by robust adjusted OCI growth and the benefit of share repurchases over the past year. In the smokeable products segment, adjusted operating companies income grew by 4.2% to $2.9 billion in the second quarter and by 3.5% to $5.5 billion in the first half.

Adjusted OCI margins expanded to 64.5% for the second quarter and the first half. This performance was supported by strong net price realization of 10% for the quarter and 10.4% for the first half. Total smokeable products segment reported domestic cigarette volumes declined by 10.2% in the second quarter and 11.9% for the first half. When adjusted for calendar differences and trade inventory movements, the segment's domestic cigarette volumes for the second quarter and first half declined by an estimated 10.5% and 11%, respectively.

At the industry level, we estimate that domestic cigarette volumes declined by 8.5% in the second quarter and for the first half when adjusted for trade inventory movements, calendar differences and other factors. While our smokable business is focused on Marlboro in the premium segment, adult smokers continue to face macroeconomic pressures. The compounding effects of inflation exceeding overall wage growth, especially among low-income consumers contributed to the discount segment growing 1.9 share points year-over-year and 0.4 sequentially. To better compete in the discount segment and informed by our data analytics, PM USA strategically expanded Basic into approximately 30,000 targeted stores.

In the second quarter, Basic's retail share grew 0.4 sequentially with limited impact on Marlboro. As a result, total PM USA cigarette retail share increased 0.2 sequentially to 45.2% in the second quarter. The targeted launch of Basic demonstrates how PM USA is using its broad toolkit of portfolio brands and sophisticated data analytics to provide the right value to the right consumer, while preserving the strength of the Marlboro brand. Within the highly profitable premium segment, Marlboro maintained its long-standing leadership in the category.

In the second quarter, Marlboro expanded its share of the premium segment by 0.2 to 59.5%. In cigars, reported shipment volume increased 3.7% as Middleton continued to outperform in the large mass cigar industry. Let's turn now to the oral tobacco products segment. Adjusted OCI grew by an impressive 10.9% in the second quarter and 5.5% in the first half.

Adjusted OCI margins increased by 3.1 percentage points for the second quarter and 1.4 percentage points for the first half. As Billy mentioned, these results were mainly driven by on!'s strong performance in the second quarter. Total segment reported shipment volume decreased 1% for the second quarter and 2.9% for the first half as growth in on! was more than offset by lower MST volumes. When adjusted for calendar differences and trade inventory movements, we estimate that second quarter and first half, oral tobacco products segment volumes declined by approximately 4% and 2.5%, respectively.

Oral Tobacco Products segment retail share was 33.1% for the second quarter and 33.9% for the first half, as declines in our MST brands were not fully offset by share gains from on!. 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 $130 million of adjusted equity earnings in the second quarter, down 10.3% versus the prior year.

This decline was driven by a lower ownership interest compared to the year ago period, reflecting the sale of a portion of our ABI investment last 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. As Billy mentioned, our businesses performed well in a dynamic environment during the first half of the year. As a result, we raised the lower end of our 2025 guidance range.

We now expect to deliver adjusted diluted EPS in a range of $5.35 to $5.45, representing a growth rate of 3% to 5% from a base of $5.19 in 2024. We expect EPS growth to moderate as we lap the lower share count associated with the 2024 accelerated share repurchase program and the benefit of the MSA legal fund expiration. We are also mindful of the challenged state of tobacco consumers, and we'll continue to closely monitor their purchasing behaviors. Before turning to Q&A, I'd like to highlight the significant value we returned to shareholders during the first half of the year. We paid approximately $3.5 billion in dividends and repurchased 10.4 million shares for $600 million.

At the end of the second quarter, we had $400 million remaining under our current share repurchase program, which we expect to complete by the end of the year. In addition, our balance sheet remains strong. Our total debt-to-EBITDA ratio as of June 30 was 2.0x, in line with our target of approximately 2x. With that, we'll wrap up, [Audio Gap] and Billy and I will be happy to take your questions.

While the calls are being compiled, I'll remind you that today's earnings release and our non-GAAP reconciliations are available on altria.com. We've also posted our usual quarterly metrics, which include pricing, inventory and other items. Let's open the question-and-answer period. Operator, do we have any questions?

[Operator Instructions] Our first question comes from Matthew Smith of Stifel.

I wanted to first talk about the raising of the lower end of the guidance range. You've had a really nice performance in the underlying OCI growth here in the second quarter even when you strip out the lower legal settlement benefit. But it looks like the second half doesn't require as strong of an underlying OCI performance, at least at the higher end of the range. You laid out the dynamics here in terms of EPS phasing when you lap the MSA and -- the MSA benefit and the share repo.

But on an underlying basis, can you talk about your expectations in the second half of the year? And how you're thinking about what could be an even more uncertain consumer environment given some of the inflationary pressure, which may pick up as we get further into the back half of the year?

Sure. Let me start by saying we're really pleased with our first half results in our updated EPS guidance range. And I think you've summarized well, the items we highlighted in our opening remarks, lapping of the 2024 accelerated share repurchase program, the expiration of the legal fund, which occurred in the fourth quarter of last year. And then you rightly highlight that it's a dynamic market, and we're going to continue to monitor the state of the adult tobacco consumer and their purchasing behaviors.

Inflation is still an unknown variable going forward. There's been some green shoots, lower gas prices on a year-over-year basis. Even though they remain high, most recently, we have seen an uptick in consumer confidence. But again, the macro economic environment remains dynamic and somewhat unsettled trade deals are still being negotiated and what potential impact that could have on controllable spending for the consumer is something that we'll pay close attention to.

But again, really happy with the first half results, happy that we were able to narrow guidance by lowering the bottom end of that range.

Thank you, Sal. And Billy, a question for you as a follow-up on NJOY e-vapor, you talked about working around or developing a new NJOY ACE device that seems to not -- it seems to work around the patents that we're in dispute with ITC. But if I heard you correctly, that product is still -- or has finalized product development. Can you give an update on the path from here as to when you think you could having an application to FDA for that updated advice and what kind of application that would be in terms of a more streamlined authorization process relative to just the traditional PMTA?

Yes. And don't forget, Matt, that we still have litigation routes that we can take, and we're investigating those. But from the standpoint of the patents, you're right, you'll recall that we had already filled 3 of those patent workarounds or taking care of any disputed facts related to patent infringement from the ITC. We've already filed those, the fourth patent.

We're at product walk, and we'll be proceeding down that path. And -- and we're actually encouraged by the fact that we're excited to be able to bring that to market. It was making great strides when it was in market, the consumer liked the device and the experience they had with NJOY. The brand team had built a great brand around it, and so we're excited to be able to bring that back.

While I can't satisfy giving you an exact date, we'll continue to update you as we make progress against that. In addition to that, we wanted to really focus on the consumer. And as you heard in my remarks, really finding what the consumer likes and some of the devices that they're using, even though they may be coming to the U.S. illicitly, and have those, I guess, desirable traits in our pipeline of products. And so more to share in the future on that as well.

Our next question is from Bonnie Herzog of Goldman Sachs.

I had a follow-up question, I guess, on your guidance, especially, I guess, given the lapping of the legal fee elimination in Q4. I guess -- how are you feeling about your ability to deliver on your long-term EPS growth algo of mid-single digits through FY '28. I mean it does imply that growth will need to step up quite a bit in the next few years. So hoping maybe Billy to get your perspective on this and how confident you are that you're going to be able to deliver on that?

Yes. We still have that as a goal of the way we're managing our business, Bonnie. And when you think about it, it's a mid-single- digit CAGR across that period. You saw the results from the first half of this year.

We're very pleased with the results, even in a challenging environment based on the -- as Sal had mentioned, the macroeconomics. Look, our consumer is still under strain, economic strain. We feel like we made some very disciplined and smart moves in the marketplace to help the consumer with that. And from a standpoint of the consumer themselves, as Sal mentioned gas prices they stabilized and even slightly down, but they're at, call it, around $3 a gallon across the U.S., that's still fairly high.

But what we're seeing is what we've seen historically is if things are stagnant for a period of time, they don't necessarily always have to decrease, our consumer can start getting comfortable with their situation. And because of the loyalty in the tobacco industry, they'll make different choices.

Okay. Maybe another question, a little bit along the lines of what you just mentioned about sort of your consumer and retain them. I do want to ask about Basic. Could you talk a little bit more about your strategy with the brand and the changes you've made to your promotions on the brand?

I guess love to hear from you what your ultimate strategy is for Basic? And how are you thinking about possibly taking greater discount share versus trying to retain consumers in your total brand family?

Yes, I appreciate the question, Bonnie. With Basic, it's not abnormal for us. If you go back in history Basic was our discount play. We had priced it up and L&M was our discount play.

Now we priced L&M up and repositioned Basic as a discount play. I think the difference being is that now with the amount of data we received from retail and the RGM analytics, the revenue growth management analytics that we have, we can be very precise and targeted. You saw the results from Basic in approximately 30,000 stores. And so a very targeted approach where the store itself skews heavy discount and be there for the consumers.

And to your point, we find it cheaper to keep the consumer in our portfolio as then we can market to them individually as their economic situation changes through time. So it's about keeping them in our portfolio of brands, being there for the consumer and have an open conversation with them through time.

Okay. That's helpful, Billy. And just to confirm. So your -- so far because these changes are relatively new, have you been pleased sort of with the results. It's kind of working out the way you were expecting and so you're going to continue some of these efforts behind Basic?

Yes. Well, I won't speak to the future because I don't want to give the competition of playbook to go by, we're very pleased with the results. And I think it shows that the quality of data analytics we have with our colleagues across Altria, being able to have those results in a short period of time with a very targeted approach.

Our next question is from Faham Baig of UBS.

A couple from me as well, please. I'll start with you're noticing crackdowns on a list of vapes and more restrictions at the border. I just want to understand whether the net impact of the import restrictions versus the product still coming through mislabeling is having a neutral impact or a positive impact and whether that could be driving some of the improvement in cigarette volumes we've seen over the last couple of months. So I want to try to understand that a bit better.

And then the second question, I noticed the federal excise tax per pack was $0.03 lower than normal. I appreciate there has been some commentary on drawbacks and imports. Anything you would highlight on this and how we should think about this line item going forward?

Sure. I appreciate your questions, and I'll try to take them in order, but if I missed anything, please follow up. I think when you think about enforcements, we certainly are encouraged by some of the momentum we're seeing. The new commissioner has been in place about 100 days, and we've seen significant momentum since he's taken over.

But as he's stated, I believe publicly, there's more to do there. And we look forward to him and the FDA and the other agencies doing more. I think it's too soon to call it a trend one way or the other. Certainly, it's upstream, if you will, because that's part of the distribution is that to distribute a wholesaler and import.

It's hard to say whether that's taking place and whether the consumer has felt it yet in the marketplace at retail. Certainly, with the mislabeling, that's just another step of illegality from a standpoint of mislabeling products to get them into the U.S. and circumventing first evading the FDA and now trying to evade the customs and border patrol. So I think it remains to be seen. As you heard in my remarks, we need consistent action.

And that's what we're looking forward and are hopeful with the new commissioner in place and the momentum we've seen pick up. As far as FET, it's an interesting one. I think when you step back and look broadly, we're an American company with American manufacturing. And so we believe that policy, especially tax policy should support American manufacturing and that FET should be paid on cigarettes sold in the U.S.

And this drawback policy actually goes against both of those. And we've seen a number of competitors taking advantage of this, some pretty large advantage of that. And so we're going to look for partnerships because we're not going to be at a competitive disadvantage in the marketplace.

Our next question is from Eric Serotta of Morgan Stanley.

Great. Just to follow up on the last question around illicit vape. There have been several press stories about shortages for particular leading brands or products of illicit products over the past couple of months. Wondering if that's something that you've seen in the marketplace?

Have you seen some of the illicit actors sort of adapting their brands or products? Or is it just too early to say overall?

Yes, it's a bit early, but what I can remark on that is because there is a plethora of these products in the marketplace, shutting down one brand just allows the consumers to make different choices if they desire a certain flavor or a certain type of device. So that's why we are calling for more consistent action through time to really clean up the marketplace and get the progress for harm reduction moving forward on the right foot. I think from a standpoint of have we seen the diversions? In the past, we've seen the same manufacturer change brand names and packaging, but it's exactly the same as what was before.

And as I mentioned earlier, we're certainly seeing -- now that the Customs and Border Patrol is investigating everything declared appropriately, we have seen instances of misdeclaration and calling it something else other than e-vapor.

Great. And then to follow up, coming back to NJOY. In the past couple of quarters, you seem to have had a little bit more of a cautious tone or a comment of, essentially, we're not going to rush a product back to market when the market is totally in disarray. Maybe I didn't really -- again, I'm paraphrasing, maybe I didn't catch it, but I didn't quite -- I didn't -- I don't know if I heard a similar comment this time -- in this quarter's prepared remarks and has your view in terms of the ability to compete in vape and sort of the timing of when you would be able to come back to market really changed at all?

Yes. I wouldn't see it as change. And if you took that from our remarks, let me just restate. We're certainly excited to be able to bring NJOY back to marketplace when it's appropriate.

We were making great strides in capturing consumers. But the state of play in the e-vapor market hasn't changed. And you see total e-vapor consumers, call it about 20.5 million consumers and about 14.4 million of those are disposable vapors. And we believe a large portion of that is making it to the marketplace illicitly.

And so when you see that state of play, remember disposables are increasing, that means that pod-based products are decreasing. And you can see that in takeaway and share at retail, if you include the disposable marketplace or an estimate of it. And so certainly, when we bring it back to market, we're going to be disciplined about it. And we're excited when it's appropriate to be able to bring that back to market.

Our next question is from Gaurav Jain of Barclays.

Two questions from me. One is on this double duty drawback, the question which was asked earlier. So if I look at the price at which you are selling Basic and if I assume full excise tax, full MSA, then it is hard to conclude that there will be any EBIT left unless you are claiming this double duty drawback on Basic's. So could you talk about how this works?

And is it more focused on the discount cigarettes and deep discount cigarettes?

Yes. I wouldn't conflate those two, Gaurav. I would keep those two separate. Basic is being able to use and utilize our RGM analytics in the marketplace to continue to serve consumers and keep them in our portfolio of brands.

This drawback is a totally separate issue. When you look at kind of the progress on the big beautiful bill, you saw when it was proposed by the house, they were removing that because they saw it as bad policy. When it went to the Senate side, there were a number of senators that removed that from it. And what you see is competition that has international manufacturing and domestic, they just flip flop production, and that allows them to basically import product into the U.S. without any FET paid.

And so certainly, with us being a domestic manufacturer, which you would think tax policy would support, we're certainly going to look to not be at a competitive disadvantage now that it's a apparent law.

Okay. My second question is on this enforcement on e-cigarettes, which you alluded to is happening. If I look at cigarette volumes over the last 2 months, they have improved a bit. They are like minus 7.5%, the number we haven't seen in 2, 3 years.

But if I look at the pod-based system shipments in Nielsen data, it is still continuing its same trend of minus 8%, 9% decline. So is it that this reduction in disposable e-cigarette is helping the cigarette industry more than it has helped in the pod-based industry?

I think when you look at it, Gaurav, I would say that -- when you look at the decomp, you can see that the change in cigarette volume decline was really in that macroeconomic and cross category. I would say it's a bit of both, that's benefiting those cigarette industry. That's why we're pushing the FDA to authorize more products because the consumers made a choice for smoke free. If they authorize products that have gone through the science review, then we'll have consumers moving to products that are appropriate for public health.

And so both from an enforcement standpoint and an authorization is where we need the FDA to move. When you step back, Gaurav and look at it, it's a proof of concept that consumers will move exactly as we've been saying once they find products that satisfy them, and we can really make progress on reduce harm.

Sure. And then last question is on NGP. So you are a U.S. manufacturer, you don't have an international business. But do you think there are some of these international markets now where you can have an NGP only business and make it profitable.

And you have like -- as you mentioned, you are pursuing multiple e-cigarette options. You clearly have gone, which is there internationally. So are there some international markets where you think you can now create a NGP-only business?

We do believe that, Gaurav. And you'll recall as far as our corporate goals, that is one of them from a growth standpoint. You'll recall that from a nicotine pouch, we actually have that in distribution and call it the Nordic region and in the U.K., and we're pleased with the progress we're making there. And we do believe that we can be successful in NGP internationally through time.

I think the way you should think about that is we're going to be disciplined about it as we move forward.

We'll take our next question from Damian McNeela of Deutsche Bank.

First question is just on -- and whether you can sort of provide any color on what your plans after second half in terms of whether you're expecting to accelerate activation for the brand. And also whether you could quantify how well distributed the brand is currently in the U.S.? And then my second question is just on Middleton. Can you sort of provide an explanation of what's behind that sort of pretty decent performance, please?

Yes. I think when you think about on!, I'll be careful not to lay out exactly what we're going to do in the second half. But you see the success that we've had through the first half, we believe that is sustainable. We're excited about being able to bring our pipeline of products to the marketplace when appropriate because we feel like some of the pipeline of products are very competitive with the existing products in the marketplace as we've shared before.

I think when you think about on! and the activations, certainly reinforcing the equity and what we feel like is a bit different than the rest of the industry, focusing on equity and building a sustainable brand through time for our own portfolio of products when we can bring others to market. I think as far as the -- remind me the second part of your question...

Yes. Middleton volume was up. It is the dominant cigar in the highly profitable large mass machine-made cigar category. And it's a dominant player.

It's a very strong premium brand. I think when you look at volume, and you look within a quarter, there's always movement within the distribution channel in terms of inventory movements and things like that. But overall, Middleton continues to be a strong performer in the smokable segment.

Our next question is from Gerald Pascarelli of Needham & Company.

I just wanted to go back to on!, maybe ask it another way, but your volume growth of 26.5% was definitely higher than what we were expecting on a tougher comp, but you did lose share of the category. And so as the category continues to expand, becomes increasingly competitive, just maybe some of the initiatives you have in place to protect your share position? And then just in terms of the revised EPS guidance, does that in any way contemplate maybe increased investment spending behind on! in the back half of the year?

I'll take the first half and Sal, you can pick up on the EPS. I think when you think about on!, it's really about reinforcing the equity. And I think the team has gotten very good about using RGM that we've perfected in some of our other categories of continuing to induce trial, but not having to oversubsidize loyal consumers of the on! brand. And it's about going out and reaching them where the consumer is, and you heard some of the comments, whether that's music festivals or NASCAR races or things of that nature and reinforcing the brand to the consumer so that they feel good not only about the product, but about the brand itself.

And so from that standpoint, you're right, competition is picking up. As far as a quarter shipment share in that nature, I would ask you to look over a longer period of time. Certainly, you're going to have a shipments that are going through the distribution channel and things of that nature that can distort a quarter. I would look at both volume and share over a longer period.

And Gerald, as far as guidance, I'm not going to provide any information about promotional activity in the second half. But what I will say is that the guidance does contemplate our continued support of our vision and the development of product pipeline within the smoke-free innovative tobacco categories or nicotine categories. And of course, the continued support of the on! brand as it continues to -- we continue to drive a trial and awareness and conversion for that brand.

[Operator Instructions] Our next question is from Emma Rumney of Reuters.

I wanted to ask about tariffs because the guidance statements that it accounts for increased tariff costs, given the NJOY as in actually on! market at the moment and isn't expected to return this year, could you talk me through specifically what parts of your business are affected by increased tariffs and on which countries?

Yes, sure. So first, what I would tell you is that while tariffs have had an impact on our cost, we don't view them as material to our overall business, and they have been contemplated in the guidance that we have provided you. As far as where they do impact, we do sometimes see the impact of tariffs in our supply chain, our direct materials as an example, in some of the packaging material we use because some of our supply chain is overseas or international base. So -- but again, I think what's more important for us is to monitor the impact of tariffs on the adult tobacco consumer.

And the potential impact on cost of everyday items that they are purchasing and how that could impact purchasing behaviors of the consumers. So again, it's something we monitor closely, and we'll be watching as the year plays out.

Got it. And is that packaging for your cigarettes, oral tobacco or all of the above?

Yes, it's metal for foil liners. It's tin cans, things like that. So you can see it there. And you see it in some other areas. But again, it's something that's been contemplated. And unlike many other CPG companies, it really has not had a material impact on our overall cost.

Yes. So not significant enough to sort of spark price increases or changes to the supply chain or anything?

Well, I'm not going to talk about price increases, but no, nothing material on a cost basis.

Okay. And changes to the supply chain, would you look at those? Or again, is it not material enough to...

No. We always -- we're always looking at changes to supply chain. What I mean by that is we have an optionality across the supply chain with different vendors, different geographies, our ability to manage inventory levels as an example, our leaf is a multiple year crops that we're managing. So we do have flexibility in our supply chain folks, our procurement folks do a terrific job of managing the different variables that they face, maintaining a strong supply chain is important to us, of course, in high-margin business.

So they did a terrific job. So we feel very comfortable with it.

And I think there are some tariffs on markets like Malaysia, for example, that weren't in place last time you updated the market, which would affect NJOY when you did want to start importing it again. Are you thinking about that and how you might be able to mitigate the impact once you are ready to start importing the device?

Yes. Look, we're always thinking about it. I'm not going to get into details of the supply chain, but we do have flexibility in the supply chain related to NJOY. But as you know, there are tariffs across the -- across the international market that are part of our consideration set.

Right now, NJOY, as you said, is not in the market. We continue to work to bring it back into the market with some of the IP work that Billy talked about earlier. But again, we feel very comfortable with the optionality we have in our e-vapor category.

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.

Thank you for joining us today. Everyone, have a great day.

This does conclude today's conference. You may now disconnect your lines, and everyone, have a great day.