Altria Group, Inc. Price & Performance (MO)

Thanks, Shelby. Good morning and thank you for joining us. Billy Gifford, Altria's CEO and Sal Mancuso, our CFO will discuss Altria's 4th quarter and full year 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 2023. 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 repurchase 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 reconciled to the most comparable GAAP financial measures are included in today's earnings release and on our website ataltria.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 Bill. Thanks, Mac. Good morning and thank you for joining us. 2024 was another pivotal [indiscernible] Headlined by meaningful progress for the vision, strong financial results and significant cash returns to shareholders. Our company's leading brands and talented teams enabled our core tobacco businesses to deliver solid income growth and margin expansion. While we strategically invested in our future.

For the full year, we grew adjusted diluted earnings per share by 3 point [indiscernible] and continued our long history of rewarding shareholders with over $10,200,000,000 in dividends and share repurchases. As the year progressed, our innovative smoke free products engine win on demonstrated encouraging performance through volume and share growth in their respective category. And we hit meaningful milestones that help solidify our Smokefree portfolio and position us for sustained success. [indiscernible] having an issue with hearing the music still for those listening.

Thank you for your patience in holding. Thank you for your patience in holding. The issue has been resolved. Speakers, you may proceed with your conference.

Thanks, Shelby. We apologize for the technical difficulties and we'll start over again without the music. So good morning and thank you for joining us. This morning, Billy Gifford, Altria's CEO and Sal Mancuso, our CFO will discuss Altria's 4th quarter and full year 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. During our call today, unless otherwise stated, we're comparing results to the same period in 2023. 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 ataltria.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. 2024 was another pivotal year for Altria. Headlined by meaningful progress toward our vision, strong financial results and significant cash returns to our shareholders. Our company's leading brands and talented teams enabled our core tobacco businesses to deliver solid income growth and margin expansion. While we strategically invested in our future, For the full year, we grew adjusted diluted earnings per share by 3.4 percent and continued our long history of rewarding shareholders with over $10,200,000,000 in dividends, and share repurchases. As the year progressed, our innovative smoke free products Enjoy and On demonstrated encouraging performance through volume and share growth in their respective categories. And we hit meaningful milestones that helped solidify [indiscernible] and position us for sustained success in the U. S. Nicotine space. Including Enjoy receiving the 1st and only marketing Granite orders from the FDA for Mintball e vapor products. Submitting PMTA applications to the FDA for next generation ENJOY [indiscernible] continuing preparations to commercialize Ploom through our joint venture with JT, and advocating for a responsible and well regulated marketplace, including stepped up enforcement against illicit market activity. My remarks this morning will focus on our view of the U. S. Nicotine space our smoke free progress and our earnings guidance for 2025 I'll then hand it over to Sal who will provide an update on consumer and industry dynamics further detail on our smokable business and financial results.

Let's begin with the operating environment and our view of the nicotine space. The potential for tobacco harm reduction in the U. S. Is significant and consumers are seeking smoke free alternatives at a faster pace than we've seen historically. In fact, the estimated number of adult consumers in the e vapor and oral tobacco categories, grew to approximately 28,000,000 nearly as large as the adult smoker population. We estimate that smoke free alternatives represented approximately 45% of the total nicotine space up 5 percentage points from the prior year. For the total nicotine space, industry Equivalized nicotine volumes increased for the second consecutive year and grew by approximately 2% over the past 5 years annual basis. The growing adoption of smoke free alternatives is encouraging and directly aligned with our vision and the growth aspirations of our Smoke 3 businesses. In addition, decades of deliberate actions to prevent youth tobacco use are yielding results. An underage tobacco usage rate are at historic [indiscernible] these trends are very encouraging for public health and the harm reduction opportunity, However, the primary driver of industry and smoke free growth continues to be the widespread availability of illicit disposable e vapor products. Which is jeopardizing the long term opportunity for tobacco harm reduction.

We estimate that the e vapor category [indiscernible] by approximately 30% in 2024 and that elusive products represent more than 60% of the category. At year end, we estimate that there were 20,000,000 vapers up nearly 20% from the prior year driven exclusively by disposable vapers. Our data also show that in disposable vapers came from those with no prior cigarette usage. It has become clear that 2 markets exist in the U. S. 1 for those who operate within the regulatory framework. And one for those who flakertally violate and evade In the simplest terms, we believe the regulatory structure is broken. And the tobacco marketplace is not operating as Congress The FDA has not authorized enough smoke free products to meet consumer demand with legal products. And regulators are not holding bad actors [indiscernible] Alistate product manufacturers distributors and retailers have yet to experience any material consequences for violating federal laws and regulations. This dynamic continues to make the operating environment [indiscernible] For responsible manufacturers and retailers, and is confusing for consumers, seeking FDA authorized products. In 2023, we introduced our 20 28 enterprise goals to more clearly define where we are headed. We believed our deep understanding of adult tobacco consumers our comprehensive smoke free portfolio and our industry leading capabilities would help make them a reality.

When we established these goals, we were aware of a small illicit e vapor market not dissimilar [indiscernible] in other tobacco categories, throughout our history. However, the illicit e vapor market has grown to a size and scale beyond our expectations. We believe this dynamic compromises our ability to achieve [indiscernible] [indiscernible] and revenue goals. In addition, we believe it compromises our ability to achieve the Enjoy specific financial targets, we established in connection with that transaction.

As a result, we are reassessing these smoke free goals and ENJOY targets and anticipate providing updates when we have more clarity on how the legitimate e vapor market may evolve. We will be looking for signs of material progress. Such as a decline in the illicit growth in the growth of illicit products. A meaningful increase the number of illicit products prevented from entering the U. S. And DOJ or state AGs [indiscernible] litigation against illicit manufacturers distributors and importers. Encouragingly, earlier this month, 9 state AGs and the District of Columbia announced various actions against illicit e vapor importers distributors retails. We also believe the FDA can restore order the market. By authorizing more PMTAs to establish a legal market of alternatives, for consumers. And by partnering with other federal agencies to prevent illicit products from entering the country. I am optimistic that these issues can and will be addressed. Let me be clear. We remain steadfast in our commitment to our vision. And to building a portfolio of FDA authorized smoke free products for adult smokers. And adult consumers currently using [indiscernible] This update to our 20 28 Interpris goals does not impact our corporate financial goals or long term growth goals.

And our progress on our goals can be found in the earnings release we issued [indiscernible] Let's now transition to our Smoke Free performance beginning with Enjoy. 2024 was a year of growth. And learning for Enjoy. And we are pleased with its performance in the context of the broader e vapor market as Enjoy grew volume and share in a competitive [indiscernible] Which I'll briefly highlight. In 2024, [indiscernible] Expanded distribution base over 100,000 stores. Secured premium position at retail and more than 80% of contracted stores through Enjoy's First Trade program. Executed a variety of trial generating activities with compelling results and introduced a new brand equity campaign with impactful consumer messaging. As a result of these efforts, enjoy consumables shipment volume grew by more than 15% to 12.8 1,000,000 units in the 4th quarter. Consumables shipment volume for the full year was 46 [indiscernible] 1,000,000 units and enjoyed device shipment volume for the 4th quarter grew by more than 22 percent to 1,100,000 units and was 5,000,000 units for the full year. In the 4th quarter, Enjoy's reach share of consumables, was 6.4 share points up 2.8 share points versus the year ago period. Njoy grew its share of consumables by 0.2 of a share point sequentially, while the retail price increased by over 20% indicating strong demand for the brand.

Before moving on, I'll mention the litigation before the U. S. International Trade Commission. Yesterday, the ITC issued its final determination in JUUL's case against Enjoy. The ITC agreed with JUUL's claims with respect to the 4 patents in this case. We disagree with the ITC's decision and continue to believe that JUUL's patents are invalid. And that ACE does not infringe on these patents. As a remedy, the ITC issued an exclusion order and cease and desist orders barring the importation and sale of ACE. The ITC's decision is currently under a 60 day review period by the Office of the U. S. Trade Representative. Which could reject the ITC's decision. Enjoy continues work on its product solution that addresses all of the patents at issue the ITC's decision is not rejected, This decision would severely limit FDA authorized choices. Including the only FDA authorized Mint Thaw e vapor products, and undermines especially in context of a market that is overrun by illicit products. Regarding Enjoy's case against JUUL, in December, the administrative law judge issued an initial determination finding that JUUL's products did not infringe, [indiscernible] We have petitioned the ITC to review and reverse the ALJ's initial determination.

We expect the ITC to issue a final determination in early April. Moving to the oral tobacco category. In the 4th quarter, all nicotine pouches grew 9.6 share points versus the prior year and represented over 45% of the category. Oral nicotine pouches were the primary contributor to the estimated 8% increase in oral tobacco industry volume. Over the past 6 months. Helix continued to participate in the category growth as on reported shipment volume grew by more than 44% year over year, to nearly 44,000,000 cans in the 4th quarter.

Horn performed well at retail. Growing its share of the oral tobacco category by 2 share points year over year to 8.9% in the 4th quarter. Foreign retail share was unchanged sequentially despite reduced promotional investments and increased competitive pressure, Consumer loyalty fought on continues to build and approximately 800,000 consumers regularly purchased on in the 4th quarter. An increase of more than 40% versus the prior year. This growth included increased sourcing from competitive pouch brands, [indiscernible] Helix made throughout the year. Including a new trade program that created and secured premium fixture position for nearly 80% [indiscernible] and a fresh new look for our packaging. And the It's On Equity campaign to further differentiate the brand. As a result of these efforts, Helix achieved profitability for the first time in the 4th quarter ahead of its 2025 goal. And we anticipate Helix will be profitable for the full year 2025, Outside of the U. S, Olin plus is competing in the nicotine pouch space in Sweden and the United Kingdom. In both markets, [indiscernible] has been incremental to our photo portfolio sourcing mainly [indiscernible] [indiscernible] offers a unique product experience and we are encouraged by the steady momentum that ON plus is building at retail, and on e commerce.

We are using consumer insights to inform our plans as we are launching 2 new flavors, raspberry lemon and watermelon net in both markets to appeal to evolving consumer We look forward to bringing OnPlus to the U. S. Once authorized. In heated tobacco, we believe we are developing a portfolio that will appeal to adult smokers seeking innovative inhalable alternatives [indiscernible] We are moving forward with regulatory preparations to bring heated tobacco stick products to the U. S. Through Horizon, our joint venture with JT. During 2024, we made great progress towards our PMTA and accelerated our work on an MRTPA submission. [indiscernible] we now expect to make a combined submission in mid year 2025. And in December, we commenced a small scale test launch of SWIC our heated tobacco capsule product through e commerce in Great Britain We expect to use consumer insights from the test to further inform our strategies, Turning to our 2025 financial outlook. We remain committed to tobacco harm reduction in the U. S. And continue to believe there is a significant opportunity to shift millions of smokers to FDA authorized smoke free alternatives. Our planned investment areas include market activities, in support of our smoke free products and continued smoke free product research, development and regulatory preparations.

We believe the external environment will remain dynamic in 2025. And we will continue to monitor the economy including the cumulative impact of inflation, tobacco consumer dynamics, including purchasing patterns, and adoption of smoke free products. Illicit product enforcement, and regulatory litigation and legislative [indiscernible] Considering these factors, we expect to deliver 2025 full year adjusted diluted EPS in a range of $5.22 to $5.37 This range represents an adjusted diluted EPS growth rate of 2% to 5% from a $5.12 base in 2024. Our guidance includes the impact of 1 fewer shipping day in 2025. Which occurs in the Q1 assumes a limited impact of combustible and e vapor product volumes from enforcement efforts in the illicit e vapor market and includes the reinvestment of anticipated cost savings related to our previously announced optimize and accelerate initiative. In addition, the guidance range includes lower expected net periodic benefit income. I'd also like to welcome Rich Stoddart, to our Board of Directors as announced this morning, Mr. Stoddart's extensive global marketing, and executive leadership experience will be a tremendous asset to Altria. I'll now turn it over to Sal to provide additional details [indiscernible] and financial results, Thanks, Billy. Our core tobacco businesses generated solid financial performance again this year.

In a challenging external environment the Smokeable Products segment. Delivered on a strategy of maximizing profitability While appropriately balancing investments in Marlboro, with funding the growth of smoke free products. The segment grew its adjusted operating company's income by 5 0.5% in the 4th quarter and by 2% for the full year. Adjusted OCI margins expanded to 61.2% [indiscernible] for the 4th quarter and full year, respectively, [indiscernible] This performance of 11.3% for the quarter and 10.1% for the full year. Smokeable product segment reported domestic cigarette volumes declined 8.8 and 10.2% for the full year. When adjusted for calendar differences, and trade inventory movements, domestic cigarette volumes for the 4th quarter and the full year declined by an estimated 11%. At the industry level, we estimate that adjusted domestic cigarette volumes declined by 8% in the 4th quarter and 9% for the full year. As Billy described, the pace of change within the nicotine space has been rapid over the past 2 years. These changes have resulted in significant shift in adult tobacco consumer preferences. With an increasing number of adult consumers, entering the nicotine category, primarily through smoke free products. We have been monitoring these ships and their effects on cigarette industry decline rates and are making 2 updates to our latest cigarette category decomposition estimates.

First, we believe that the cigarette category secular decline estimate of 2.5% represents the impact to cigarette industry volume due to the decline in adult smokers excluding any cross category movement, 2nd, we estimate cross category impacts contributed approximately 3% to 4% to the cigarette industry decline over the last 12 months. Turning now to share dynamics. Total Discount segment share grew by 1.7 share points in the 4th quarter and by 1.3 share points for the full year. With most of the growth coming from deep discount. Marlboro Altria share of the Cigarette category declined 1 share point in the 4th quarter [indiscernible] Consistent with the recent historical seasonality in the 4th quarter. Within the highly profitable premium segment, Marlboro expanded its share of premium to 59.4% for the 4th quarter an increase of 0.1 sharepoint year over year and sequentially. For the full year, Marlboro grew its share of premium to 59.3 percent an increase of 0.4 share points versus the prior year. [indiscernible] We believe that Marlboro remains the aspirational brand in the cigarette category. And we are encouraged by its performance in 2024. In cigars, reported shipment volume increased 2.9% in the 4th quarter Middleton continued to contribute to Smokable Products segment financial results in a highly profitable machine made large tip cigar segment.

The oral tobacco product segment reported strong 4th quarter results. Adjusted OCI and adjusted OCI margins increased and ongrew its retail share of the oral tobacco category year over year. For the 4th quarter, adjusted OCI grew 13% and the segment expanded adjusted OCI margins, to 69.5 percent an impressive increase of 6.4 percentage points versus the prior year. For the full year, the segment grew adjusted OCI by 5.2 percent with adjusted OCI margins of 67.8% up 0.4 percentage points. Total segment reported shipment volume decreased by 0.4% [indiscernible] for the 4th quarter and full year respectively, When adjusted for trade inventory movements, and calendar differences, segment volumes were essentially unchanged for the 4th quarter declined by an estimated 2% for the full year. Oral Tobacco Products segment retail share declined by 3.1 percentage points in the 4th quarter As declines in our MST brands were partially offset by on share gains. Within the MST category, for the Q4 full year, Copenhagen remained the undisputed leader Approximately 1 in every 2 MST cans purchased, was a USSTC brand. Turning to our investment in ABI, We recorded $159,000,000 of a for the 4th quarter down 8.1% versus the prior year.

These earnings reflect the impact of a lower ownership interest compared to the year ago period due to the partial sale of our ABI investment last year. We continue to view the ABI stake as a financial investment And our goal remains to maximize the long term value of the investment for our shareholders. We demonstrated our commitment to returning significant value to shareholders and maintaining a strong balance sheet during 2024. For the full year, we returned over $10,200,000,000 of cash to shareholders through dividends and share repurchases. We paid $6,800,000,000 in dividends and our Board raised our dividend by 4.1% in August marking our 59th increase in the last 55 years. We also completed our previously authorized share repurchase repurchasing 73,500,000 shares for $3,400,000,000 representing our largest single year share repurchase in over 2 decades. Our share repurchases were supported by the proceeds from our partial sale of our investment in ABI. We effectively balanced our and we maintained a strong balance sheet Our total debt to EBITDA ratio as of December 31, in line with our target of approximately 2 times. Moving to 2025, I am pleased to announce that our Board authorized a new $1,000,000,000 share repurchase program which we expect to complete by the end of this year.

With that, we'll wrap up 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. Inventory and other items. Let's open the question and answer period.

Operator, we have any questions? [indiscernible] Investors, analysts and media representatives are now invited to participate in the question and answer session. We will take questions from the investment community first. We'll take our first question from Matt Smith with Stifel. Your line is open.

Hi, good morning. Billy, maybe to start out, the guidance for the year the 2% to 5% EPS growth. Can you talk about the phasing of earnings growth You have lower MSA costs in the 1st 3 quarters, but one less shipping day in the 1st quarter. So just as we consider the shape of the year, can you help us with in terms of phasing?

Yes. You know, Matt, we don't guide to the quarter. But I think as you think the year nothing is really distorting in 2024 as we look [indiscernible] You remember 'twenty four to 'twenty three we ramped up spending in Enjoy ownership of that brand. Nothing like that would stand out for 2025 as we go forward. We did want to highlight the one less shipping day in the quarter So just to make sure people understood that that was occurring in the Q1.

Thank you, Billy. And as my follow-up, Marvell continues to perform well in terms of market share of the premium segment, but discount share trends picked back up in the 4th quarter.

You called out continued discretionary income pressure on adult tobacco consumers. You talk about the trends you're seeing in those adult consumers? Is there incremental pressure? Or is this continued cumulative impact over time and a mix shift given the proliferation of cigarette alternatives? And how do you see that playing out through 2025? Yes. And that's one of the things we'll continue to monitor, Matt, to your point. We do see the cumulative impact really affecting our consumers. And you can see it outside of the tobacco industry. You can see it in credit card late payments, things of that nature and the amount of credit card debt that consumers are carrying. So the consumer continues to feel that pressure And it really we believe is the cumulative impact of inflation. So we'll see how that shapes up in 20 20 5 but we feel good about the guidance we gave. And as you know, take very many things into considerations before we provide that range. But it is something that we'll monitor. As far as cross category, we're continuing to see that pressure. We try to highlight that in our decomposition of cigarette industry volume.

It really is and you heard in my remarks, the illicit vapor market flooding the market with flavors. If you step back, you can take an optimistic view as what we've been saying that consumers are ready to move if they can find alternatives.

We just need a regulatory system that authorizes legal products and enforces against illegal products.

Thank you, Billy. I'll pass it on.

We'll take our next question from Bonnie Herzog with Goldman Sachs. Your line is open.

All right. Thank you. Good morning.

Good morning. I was hoping you could provide a little more color on the possible options you have for Enjoy and what a potential settlement would JUUL be on the table? I guess, how are you guys thinking about playing in the e vapor category right now, especially given how the market has evolved with illicit, etcetera. Billy, you did discuss some of this and also asking given your comments about no longer being able to hit your targets for Njoy. So Is it maybe not worth being in e vapor right now and possibly better to prior in in smokeable drive growth in Nick pouches with On as well as pursue HNB, while at the same time returning cash to shareholders with your strong dividend and buyback program. So just kind of love to hear your thoughts on all of this.

Yes. You brought up a lot of good points, Bonnie. I'll try to give you a concise answer, but if I missed anything or you have follow-up, please do. I think when you step back as far as pathways, there are a number of pathways. There's still some steps in the process I talked about the the review of the trade representative. While that has been If you look back in history, it's been very rare I think there are special circumstances here. If you think about public health, you have a market that's flooded with illegal vapor products, specifically disposables that have completely shirked the regulatory process there in the market. While you have enjoyed [indiscernible] authorized on the tobacco flavors and the only authorized thus far on the Mint Ball side. So when I think you think about that from a public health perspective, I really believe public health and the improvement of public health through time should be a determining factor as we go through that process. But you mentioned settlement. And you mentioned the factors that we'll be considering. 1, you need a reasonable party on the we're going to be disciplined about it. When you think about the e vapor market, the pod segment declining at roughly 15%.

You have to be and we will be disciplined on what you consider reasonable. I think when you think about what's winning in the marketplace, is illegal disposable products. And that clearly the winner in the marketplace.

The brands may change names, but that is what's winning it. We're certainly taking that into consideration as we consider pipeline products to meet consumer demands in the e vapor space.

We There are a number of avenues to continue. We've shared with you We filed SD exemptions for 3 patent where we work our engineers work to not infringe on the patents And I think when you come to the bottom line, from the patent standpoint, nothing changes that goes into [indiscernible] and nothing changes that comes out to the consumer. It's really some modifications to the device itself. And so I'll pause there and see if I hit all of your points. But that's how we're thinking about it.

No, I think that's helpful. But to your point about the SCs, I mean, I think what's maybe missing is that 4th, right? And it doesn't solve for the 4th patent, I guess. So I think maybe still Right. Okay.

I hear you, Bonnie, and our engineers are vigorously working on that final you will change that would allow us not to infringe on the determination to be the ITC.

Okay. Thank you. And then maybe just another quick question for me. Just on your guidance. First, I did want to verify that your guidance includes the likely potential you're going to have to pull Enjoy ACE from the market at the end of March I think it does, so I just want to double check. And then second, assuming that happens, is it realistic to think about your ability to hit the high end of your EPS guidance range or just that being more likely given that Enjoy is still operating at a loss and therefore has been a drag on earnings and if it's pulled, that would actually boost your income this year? Bonnie, we run, as you know, a number of scenarios as we're thinking about 2025. There are always puts and takes across the plan. And that's why we provided a range related to the EPS guidance. So we'll see how the year plays out. Obviously, we've got a lot of levers that we can pull to deal with anticipated variability in the marketplace. So we feel good about the guidance we [indiscernible] If there's anything to update as the year progresses, of course, we will.

Thank you.

Thank you. And we'll take our next question from Vaham Bhay with UBS. Your line is open.

Good morning, guys. I just have one follow-up and and then maybe 2 actual questions. Just going quickly back to the question on Enjoy and the 4th.

Patent that your engineers are furiously working behind. If you are able to successfully navigate that that patent and are able to submit an SE application for that, When do you expect to receive approval for that SE application and thereby you could be able to bring that Enjoy product back on the market. The second question that I have was just on the Q4 results and particularly in the smokable division your controllable costs in the final quarter was up around 13%, which is a sharp move in movement particularly from the previous quarter. Could you just maybe explain the dynamic in the Q4, which resulted into that? As well as how we should think about controllable costs going into [indiscernible] And the final question is on nicotine pouches. Was a bit surprised that the oral tobacco category didn't grow faster in 'twenty 5 versus sorry, 'twenty 4 versus 'twenty 3, given the rapid growth. But how do you see the growth of nicotine pouches in 2025 and particularly the competitive dynamics from both your legal players as well as some of the illicit ones?

Yes. I'll answer the question on the 4th patent and the nicotine cartridge and then I'll let Sal answer the one on smokeable cost. Think when you think about that 4th patent, it really depends on the final lockdown of the change that we would make to be able to not infringe on the JUUL patent If it follows the other 3, it would be the SD exemption process.

And as you recall, the SD exemption process is a more rapid while not predictable, a more rapid process to get authorized by the FDA. As far as nicotine pouches, I think as you see introductions of new categories, they always have fits and starts as far as growth depending on what consumer base they're reaching. I think you saw nicotine pouches grow so rapidly in the introduction because you had the Traditional smokeless tobacco consumer movement over who was used to putting if you will, tobacco or nicotine enjoyment products in their mouth. So that's intuitive. I think what will continue to grow is if it can speak to and consumers can make the change [indiscernible] other forms of nicotine such as cigarettes over to nicotine pouches. And so while we don't guide on volume, we think we have a great product with ON. We're looking to ON plus to be authorized so that we can bring that to market. And continue to engage the consumers to switch them over to smoke free products. Yes. And in terms of costs, I think when you look at the Q4, I would just point to timing. I think you got to look at costs over a longer period than just 1 quarter.

So So timing definitely a factor in Q4. As far as 2025, we don't guide at that granularity of a level for controllable costs. I will tell you though, obviously, we're smokeable category is a declining category. Are going to be disciplined in how we think about resource allocation. Guess one other thing I would point to when it comes to cost management, there are controllable costs. And then, of course, we are using data analytics and the revenue growth management tools to allow us to be more efficient with how we continue to allocate our promotional resources in support of our our cigarette brands. So there's more than just controllable costs when we think about financial discipline. Thanks everyone.

Thank you.

Thank you. We'll take our next question from Gaurav Jain with Barclays. Your line is open.

Hi. Good morning, everyone. Thank you for taking my questions. So a few from me. So the first is on, you know, your [indiscernible] nicely in Q4. And despite that, the volume growth remains impressive. So is that something now how we should think upon that you can keep pricing up given especially the spread still exists with the market leader and yet your volumes can continue to compound at the rate at which industry will join.

Yes, I appreciate the question. I think when you think about the space, it's getting more and more competitive. Both with illicit product in the marketplace as well as what we see is the FDA is applying enforcement discretion against synthetic nicotine products in the marketplace that had followed PMTA. Even though it appeared that the statute was pretty clear. So I think their application of enforcement discretion has bled over to the synthetic in that area. I think when you think about ON, I think it's the product itself. It resonates with the consumer. We certainly have gotten a bit sharper how we put promotional spending in the marketplace. Allows us to continue to generate Altria, while being able to increase, if you will, the profitability of the product in the marketplace. We were extremely pleased to be able to meet our profitability target ahead of time. And we'll continue to use data analytics to get sharper to generate trial but to keep loyalty with the brand as well. And you heard in the remarks the loyalty percentage of the consumers year over year who are returning to purchase lawn, we feel like is very impressive. [indiscernible] actually your comments on the synthetic nicotine market. [indiscernible] [indiscernible] They are the market differently in terms of what the what their deal can do or cannot do.

So isn't that a market you also want to participate in? Not only on the nicotine pouch side, but also on the e cigarette side because we make a lot of new new companies have launched products using synthetic nicotine, then you should also be evaluating that.

Certainly. And we have been evaluating it all along. We were surprised with the application of enforcement discretion in that area. Based on what we felt like was clarity in the statute when it was passed. Certainly with them applying enforcement discretion is something that's moved up on our radar.

Sure. And lastly on the cigarette market share loss, I think we all have discussed it over the years. That you want to maximize profitability. And so is there like larger share losses of Westlake? Where the industry growth rate is. So does that start confirming you at some point [indiscernible] I think when you back up, Gaurav, we've been highlighting you that when you look historically, when the consumer is under pressure, they react to their current economic situation and you see some down trading that takes place. I think when you look at it historically, what you see is certainly want to give consumers a safe place to stick with Marlboro because Marlboro is the aspirational brand. And you see us apply those tools I think you see with the growth in premium through time of Marlboro that we've been applying those tools correctly. Certainly, as I highlighted, it's something that we'll continue to monitor. I think the other thing is, as we saw we've been highlighting for your illicit vape and that whole distribution process. We've been highlighting that it bled over to nicotine pouch, and we're seeing it begin to bleed over into cigarettes as well as we're seeing I'll call it, white label product, but it's product that's legal outside of the U. S. But it's starting to bleed into the U. S. Thank you so much for taking my questions.

Thank you.

Thank you. We'll take our next question from Eric Serrano with Morgan Stanley. Your line is open. Great.

Just wanted to circle back on the EPS guidance for 20 25. You called out one less [indiscernible] obviously one last day in the Q1. But you called out a somewhat lower tax rate and lower pension income. Are there any other items we should think of? And can you help us quantify the pension income. Just trying to bridge to mid single digit EPS algo, given You do have a benefit from the tax rate, but kind of offset by the pension income. Thank you. [indiscernible] I'll start us off and then I'll ask Sal to just mention on tax rate. I think we you think about it, look every time you start a year, you have puts and takes and you see that historically through time. What we tried to highlight is the things that we incorporated into that range of scenarios that we look at for the the EPS growth rate When you think about it, that last that 1 shipping day is in the Q1, but it's year impact When you think about we wanted to highlight from enforcement, we don't really see any impact of stepped up enforcement in 2025. We mentioned net periodic [indiscernible] that's really just the performance in the marketplace of the asset that's related to the pension investment.

And then I'll let Sal speak to the tax rate.

And the only thing I would add to the pension is we have a very well funded pension plan. So we feel really good about management of the overall defined benefit plan. Tax rate is favorable on a year over year basis. You're right, to call that out. If you look at the past few years, you have seen variability in the It's been driven by various factors, including tax credits, changes in state taxes and other business activities. So the guidance we've provided for the tax rate is is our best estimate based on the 2025 plans that we've put in place and we'll continue to monitor it. You also asked about the mid single digit algorithm. I would tell you, if you think about those goals for EPS, it is a compounded annual growth rate. We knew and we expected that would be some variability year to year as you're making investments in the long term vision and in the Smoke Free product. So feel really good about the guidance we were able to provide today.

Okay. And then hoping to get some color as to what you're seeing in terms of the tobacco consumer.

It seems we've seen a modest pickup or a moderate pickup in sort of low end consumer spending in the convenience channel kind of from the depth of the summer to kind of October and then post election. We've seen that number of other categories in the channel overall. Wondering if you have any color as to what you're seeing with respect those channels?

Yes. I mean, there are always headwinds and tailwinds. I would tell you that the biggest headwind is the cumulative impact of inflation. When you look historically, and I mentioned this earlier, the consumer our consumer specifically is at the lower end of the socioeconomic status. And so they react immediately to their current economic situations. If things stay steady for a period of time, they adjust to that. It's been this cumulative impact of inflation that they haven't been able to adjust to. And that's why we highlighted, look, we'll continue to watch [indiscernible] impact of cumulative inflation, if it continues to compound, would expect our consumer to stay under pressure If it will moderate, we expect the consumer to be able to adjust to that through time. And that's what we'll continue to watch.

Great. Thanks. I'll pass it on.

Thank you.

Thank you. We'll take our last question from Emma Rumney with Reuters. Your line is open.

Hi, guys. Thanks a lot for doing the call and the opportunity to ask questions. I wanted to hear a little bit about your expectations for policy changes under the new administration. So first of all, on combustibles, obviously, the menthol ban has been scrapped. What about about the proposed nicotine cup? Do you see any prospect of that being picked up by the Trump administration?

Yes, we'll wait and see on that. We will certainly be excited to hear the outcome of that. I would remind you that that was a proposed rule at the time. We see it as completely technically feasible and we [indiscernible] [indiscernible] we really believe that the future should be harm reduction. You heard me mention in my remarks earlier, If you step back and think about what that regulatory system was designed to do, was to have a 3rd party look at the sign. Authorized products and enforce against illegal products and none of that is really happening to any scale thus far. So what I believe expect from the current administration is that they will look at this and really get the agency function in the way it was intended.

Yes. Okay. Well, that was kind of my next question on the policy around vapes or new nicotine products and the FDA's approach. I mean, it sounds like you think the sort of the change in administration is an opportunity push for some change kind of possible scenarios do you think they're considering or are you sort of preparing for?

Yes. What we would like to see is that very similar to what I just mentioned, which is an agency we know that the adult cigarette consumer at least slightly over half of them, are looking for alternatives that satisfy them. And so what we need is an agency that is Expedient diligent but expedient on authorizing products, and an agency that enforces against the listed products in the marketplace.

Think you can go to a majority of the states across the U. S. And see a plethora of these products that just basically thumb their nose at the agency and the federal government. Being sold throughout the U. S. And so better authorization of of legal products and enforcement against illegal. That's what we would be looking for. That sets the U. S. Up for harm reduction through time.

Yes. And is there a risk though that the administration could just say let's just scrap this PMTA process altogether if the F can't meet its own deadlines, sort of if you've got a pending application go ahead and market kind of thing? Is that a threat?

We would certainly prefer as we supported the FDA along passing of it as it was intended is that you have a third party really regulate the marketplace, so that it's you have manufacturing standards You have a science standards legitimate products in the marketplace. And so we would continue to want to see the FDA have authority over nicotine products in the marketplace, so it doesn't turn into what we were seeing in the e vapor market early on, which is a Wild Wild West and continues because of lack of enforcement. We just need an agency to function as it was proposed to function.

Okay. And just lastly, the other sort of policy and [indiscernible] Vaping business mostly, although correct me if I'm wrong on that point. It'd be great to know if there would be an impact there, how you might be able to mitigate it Would it be through price or could you do anything in terms of shifting production It'd just be great to know what options you're considering if tariffs do come in force.

Yes. There's been a lot of tariffs mentioned in the media. I haven't seen any path I think if you're referring to e vapor, we've heard some comments where everything is sourced out of China. We would have limited impact to any tariffs that were put in place on China.

Okay. And so sorry, could you explain why? Because I thought Enjoy was produced in China, but again, I might be wrong.

No, we actually have alternative production facilities that we utilize that are outside of of China. Okay. Is that in like Indonesia?

Yes, I'm not going to get into specifics for competitive reasons, but we have other we have other manufacturing facilities around the globe.

Okay. That's helpful. Thanks very much guys.

Thank you.

Thank you. And there appears to be no further questions at this time. I would like to turn the call back over to Matt Livingston for any closing remarks.

Great. Thanks everybody again for joining us and have a great day.

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