Earnings Call Insights: Altria Group (MO) Q2 2025
Management View
- CEO William F. Gifford highlighted continued strong and profitable performance in core businesses, specifically citing the on! brand as the “substantial driver of the segment’s growth.” He stated, “We continued to press for actions that will shape a fully regulated industry and provide expanded product choices for adult nicotine consumers.” Gifford also noted, “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.”
- Gifford reported, “on! nicotine pouches grew 10 share points year-over-year and now represent more than half of the category.” He also stated that on!’s retail share reached 8.7%, up 0.7 share points versus the prior year.
- In the e-vapor business, Gifford addressed ongoing patent litigation with JUUL and mentioned, “We completed the product design of a modified NJOY ACE solution that we believe addresses all four disputed patents.”
- On regulatory progress, Gifford noted an uptick in enforcement actions against illicit e-vapor imports, stating, “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.”
- CFO Salvatore Mancuso stated, “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.”
- Mancuso also reported, “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.”
Outlook
- Altria raised the lower end of its 2025 guidance, with Mancuso stating, “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.”
- Management expects EPS growth to moderate in the second half, citing the expiration of legal fund benefits and prior share repurchases.
- Altria remains cautious about the macroeconomic environment, with Mancuso explaining, “Inflation is still an unknown variable going forward… the macro economic environment remains dynamic and somewhat unsettled.”
Financial Results
- Adjusted diluted EPS for Q2 rose 8.3% to $1.44, supported by strong operating company income (OCI) growth and share repurchases.
- In the smokeable products segment, adjusted OCI increased by 4.2% to $2.9 billion for the quarter. Marlboro expanded its share of the premium segment to 59.5%.
- The oral tobacco segment saw adjusted OCI growth of 10.9% for the quarter, primarily driven by on! performance. Total oral tobacco shipment volume decreased 1% for the quarter, as on! growth offset lower MST volumes.
- Middleton cigars’ shipment volume increased 3.7%.
- The company recorded $130 million in adjusted equity earnings from ABI, reflecting a decline due to a lower ownership interest.
- Total debt-to-EBITDA ratio was 2.0x as of June 30, consistent with the company’s target.
Q&A
- Matthew Edward Smith, Stifel, asked about the raised EPS guidance and expectations for the second half amid uncertain consumer conditions. Mancuso responded that “the macro economic environment remains dynamic and somewhat unsettled… most recently, we have seen an uptick in consumer confidence. But again, the macro economic environment remains dynamic and somewhat unsettled.”
- Smith followed up with Gifford on NJOY e-vapor and product development timelines. Gifford replied, “We’re actually encouraged by the fact that we’re excited to be able to bring that to market.” He added, “While I can’t satisfy giving you an exact date, we’ll continue to update you as we make progress.”
- Bonnie Herzog, Goldman Sachs, questioned confidence in delivering mid-single digit EPS growth through 2028. Gifford reiterated, “We still have that as a goal of the way we’re managing our business.”
- Herzog also asked about the Basic brand strategy. Gifford explained, “We can be very precise and targeted. You saw the results from Basic in approximately 30,000 stores.” He emphasized keeping value-seeking consumers within the brand family.
- Mirza Faham Ali Baig, UBS, asked about illicit vape enforcement and excise tax. Gifford responded, “It’s too soon to call it a trend one way or the other… we need consistent action.”
- Baig inquired about the impact of tariffs. Mancuso responded, “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.”
Sentiment Analysis
- Analysts raised concerns about the sustainability of growth, competitive pressures, and regulatory developments, with a neutral to slightly cautious tone as they probed for details on guidance, consumer conditions, and regulatory headwinds.
- Management maintained a confident tone in prepared remarks, emphasizing strong results, increased guidance, and ongoing investments, but shifted to a more measured and cautious language in the Q&A when discussing macroeconomic risks and regulatory uncertainties. Gifford stated, “We’re excited to be able to bring [NJOY] back… but the state of play in the e-vapor market hasn’t changed.”
- Compared to the previous quarter, management’s tone remained steady in its confidence during prepared remarks, while the Q&A reflected continued caution about external risks. Analysts’ skepticism regarding guidance and market conditions persisted quarter-over-quarter.
Quarter-over-Quarter Comparison
- The company raised the lower end of its EPS guidance range this quarter, compared to maintaining its range in Q1.
- Strategic focus on the on! brand intensified, with higher volume growth and increased marketing activations, while the Basic brand’s targeted discount expansion became a more prominent theme.
- Management’s approach to the NJOY e-vapor business shifted toward product workarounds and legal strategies, whereas last quarter’s focus was on regulatory challenges and appeals.
- Analysts continued to focus on guidance credibility, regulatory impacts, and volume trends, with persistent concerns about illicit e-vapor market dynamics and consumer pressures.
- Key metrics such as OCI and segment margin growth were repeated, but volume declines in cigarettes moderated versus the steeper declines highlighted in the previous quarter.
Risks and Concerns
- Management cited ongoing macroeconomic pressures on adult tobacco consumers, particularly inflation and its effect on purchasing behavior.
- The illicit e-vapor market remains a significant business risk, with Gifford stating, “We continue to estimate that flavored e-vapor disposable products… represent more than 60% of the category.”
- Regulatory uncertainty and slow FDA product authorizations continue to challenge long-term smoke-free market development.
- Tariffs and excise tax policy changes were observed, but management does not view them as material short-term risks.
Final Takeaway
Altria delivered strong second quarter results, led by robust growth in oral tobacco and a targeted approach to discount cigarettes, enabling the company to raise the lower end of its full-year EPS guidance. While management remains confident in its ability to generate returns and drive smoke-free innovation, it continues to monitor macroeconomic headwinds, regulatory developments, and the evolving illicit e-vapor landscape as it executes against its long-term growth objectives.
Read the full Earnings Call Transcript