“And while refunds of taxes and duties paid on imported cigarettes for the quarter were flat sequentially due to timing factors, we continue to expect export volume and related tax refunds to be higher in the second half of the year with a more balanced benefit across the third and fourth quarters.”

In context

“Heather Newman (Chief Financial Officer): Thanks, Sal, and good morning, everyone. Altria delivered strong second quarter and first half financial performance. Adjusted diluted earnings per share increased by 2.8% to $1.48 in the second quarter and by 4.9% to $2.80 for the first half. Robust smokeable products adjusted OCI growth continued to be a key contributor to earnings. In the segment, adjusted OCI grew by 2.4% to $3 billion in the second quarter and by 4.2% to $5.7 billion in the first half. Adjusted OCI margins expanded to 64.8% in the second quarter and 64.9% in the first half. The decline in our smokeable volumes continued to moderate during the quarter. Reported domestic cigarette volumes declined 3.2% in the second quarter and 2.8% in the first half. When adjusted for trade inventory movements, domestic cigarette volumes in the second quarter and the first half declined by an estimated 4.5% and 4%, respectively. At the industry level, when adjusted for the same factor, we estimate that domestic cigarette volumes declined by 5% in both the second quarter and in the first half, marking the fourth consecutive quarter of moderated cigarette industry declines. This trend continues to primarily be driven by reduced cross-category movement between cigarettes and illicit-flavored disposable e-vapor products. Economic pressure on adult smokers continue to impact cigarette industry dynamics. In the Discount segment, persistent discretionary income pressures, especially among low-income consumers remain the primary driver of growth. This included elevated gas prices and the compounding effects of inflation exceeding overall wage growth. As a result, for both the second quarter and the first half, discount retail share grew by 2.6 share points. This trade-down dynamic impacted Marlboro's overall retail share, which declined 1.5 share points versus the year ago period and 0.2 share points sequentially. However, Marlboro maintained its long-standing leadership in the profitable premium segment. In the second quarter, Marlboro's share of premium was 59.6%, unchanged versus the prior year and up 0.1 share points sequentially. Basic continues to support PM USA's portfolio strategy by providing a competitive offering in stores where discount brands are most relevant. During the quarter, retail share expanded by 0.3 share points sequentially and 2.3 share points year-over-year. Throughout the first half, PM USA applied the same RGM-driven precision that guided Basic's repositioning from the start, expanding targeted promotional support to roughly 35,000 stores while refining investment levels based on marketplace learnings. This disciplined data-driven approach to Basic's retail footprint and brand investments helped capture share that we believe otherwise would have been lost to competitive discount brands while limiting incremental impact to Marlboro. PM USA's total portfolio strategy continues to support both share performance and long-term profit growth. Total PM USA retail share expanded 0.1 of a share point sequentially and 0.3 share points versus a year ago. This balance between premium and discount reinforces long-term profitability while supporting overall share stability within PM USA. Reflecting this balance, smokable price realization for the quarter was 4.5%, driven by strong net pricing for Marlboro, partially offset by mix impact of Basic volume growth. In cigars, reported shipment volume increased 5% in the second quarter as Middleton continued to significantly outperform in the large mass cigar industry. All other manufacturers continue to experience volume declines with the industry down 6.4% in the same period. Turning now to the Oral Tobacco Products segment. Second quarter results reflect the continued evolution of the category towards nicotine pouches. Segment performance was impacted by a difficult prior year comparison when 2025 volumes benefited from promotional timing and competitor supply disruptions. Additionally, financial results were impacted by strategic investments behind on! PLUS introductory trial offers as we expanded beyond the initial launch dates. As a result, adjusted OCI decreased by 8% in the second quarter and 4.2% in the first half. Adjusted OCI margins remained strong at 66.7% for the second quarter and 67% for the first half. Total segment reported shipment volume decreased 8.5% for the second quarter and 6% for the first half as growth in on! was more than offset by lower MST volumes. When adjusted for trade inventory movements, we estimate that second quarter and first half Oral Tobacco Products segment volumes declined by approximately 2% and 5.5%, respectively. Oral Tobacco Products segment retail share was 29% for the second quarter and for the first half. Retail share was stable sequentially, reflecting the growth of on! and resiliency of our MST brands. In the highly profitable Moist Smokeless Tobacco segment, Copenhagen continued to maintain its long-standing premium leadership. Turning to ABI's financial results. We recorded $158 million in adjusted equity earnings in the second quarter, up 21.5% versus the prior year. We continue to view our ABI stake as a financial investment, and our goal remains to maximize the long-term value of the investment for our shareholders. We remain committed to returning significant value to shareholders. During the first half of the year, we paid approximately $3.6 billion in dividends and repurchased 5.3 million shares for $335 million. At the end of the second quarter, we had $665 million remaining under our current share repurchase program, which expires at the end of the year. In addition, our balance sheet remains strong. Our debt-to-EBITDA ratio as of June 30 was 1.9x, in line with our target of approximately 2x. Finally, let's turn to our financial outlook. As we've discussed this morning, our business performed extremely well during the first half of the year. As a result, we are raising the lower end of our full year 2026 guidance. We now expect to deliver adjusted diluted EPS in a range of $5.61 to $5.72, representing a growth rate of 3.5% to 5.5% from a base of $5.42 in 2025. We are mindful of the challenged state of adult nicotine consumers, and we will continue to closely monitor their purchasing behaviors. And while refunds of taxes and duties paid on imported cigarettes for the quarter were flat sequentially due to timing factors, we continue to expect export volume and related tax refunds to be higher in the second half of the year with a more balanced benefit across the third and fourth quarters. With that, we'll wrap up, and Sal and I will be happy to take your questions. While the calls are being compiled, I'll remind you that today's earnings release and our non-GAAP reconciliations are available on altria.com. We've also posted our usual quarterly metrics, which include pricing, inventory and other items. Operator, let's open the question-and-answer period.”