ALTRIA GROUP INC
For the period ended Jun 30, 2024. Filed Jul 31, 2024.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jun 30, 2024 · Filed Jul 31, 2024
MO$76.12-1.9%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-03-31; filed 2024-04-25.
0000764180-24-000057
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-06-30; filed 2024-07-31.
0000764180-24-000093
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 372 previous paragraphs and 423 current paragraphs.
274 unchanged; 87 reworded; 39 added; 8 removed; 3 previous and 23 current paragraphs rearranged.
Tables are not compared: 14 previous and 16 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (39)
Current report
Apart from the factors leading us to perform a quantitative assessment for the Skoal intangible asset as discussed below, there have been no events or changes in circumstances that indicate an interim quantitative impairment assessment was required as of June 30, 2024. We will perform our annual impairment testing during the fourth quarter of 2024.
Current report
At June 30, 2024, we used an income approach to estimate the fair value of the Skoal trademark. In performing the discounted cash flow analysis, we made various judgments, estimates and assumptions, the most significant of which were volume, revenue, income, operating margins, perpetual growth rate and discount rate.
Current report
For further discussion of goodwill and other intangible assets, see Note 5. Goodwill and Other Intangible Assets, net to our condensed consolidated financial statements in Item 1 (“Note 5”).
Current report
▪Acquisition and disposition-related items: We recorded a pre-tax gain of $2.7 billion upon the assignment of the IQOS Tobacco Heating System (“IQOS System”) commercialization rights to Philip Morris International Inc. (“PMI”) in April 2024, for the six and three months ended June 30, 2024. For a discussion of the sale of the IQOS System commercialization rights, see Note 5.
Current report
Also, in connection with the June 2024 issuance by the FDA of MGOs for four NJOY menthol e-vapor products, we recorded a pre-tax charge of approximately $140 million for the six and three months ended June 30, 2024 for the change in the fair value of the contingent payments associated with the acquisition of NJOY Holdings (“NJOY Transaction”). This charge was recorded as general corporate expenses and included in marketing, administration and research costs in our condensed consolidated statement of earnings. For a discussion of the MGOs, see Note 2. Acquisition of NJOYto our condensed consolidated financial statements in Item 1 (“Note 2”).
Current report
▪Asset Impairment: We recorded a non-cash, pre-tax impairment of the Skoal trademark of $354 million for the six and three months ended June 30, 2024 in our oral tobacco products segment. For further discussion, see Note 5.
Current report
▪Cronos-Related Special Items: We recorded pre-tax losses of $30 million, substantially all of which related to our share of special items recorded by Cronos for the six months ended June 30, 2023. We recorded a corresponding adjustment to the Cronos tax valuation allowance.
Current report
Marketing, administration and research costs decreased $30 million (2.1%), due primarily to lower general corporate expenses, partially offset by inflation impacts and higher investment spending in support of our Vision (including 2024 NJOY costs). The lower general corporate expenses were due primarily to lower charges to resolve certain JUUL-related litigation and the 2023 settlement of the shareholder derivative lawsuits, partially offset by higher acquisition-related costs primarily associated with the NJOY Transaction and transaction costs from the ABI Transaction. See Note 14 for a discussion of litigation items.
Current report
Operating income decreased $455 million (8.0%), due primarily to lower OCI (which includes a non-cash impairment of the Skoal trademark in our oral tobacco product segment), partially offset by lower general corporate expenses.
Current report
Provision for income taxes increased $542 million (39.2%), due primarily to higher earnings before income taxes, partially offset by favorable tax items as discussed above.
Current report
Net revenues, which include excise taxes billed to customers, decreased $299 million (4.6%), due primarily to lower net revenues in our smokeable products segment, partially offset by higher net revenues in our oral tobacco products segment.
Current report
Cost of sales decreased $79 million (4.7%), due primarily to lower shipment volume in our smokeable products segment, partially offset by higher per unit settlement charges and higher manufacturing costs in our smokeable products segment and higher NJOY shipment volume.
Current report
Excise taxes on products decreased $138 million (12.9%), due to lower shipment volume in our smokeable products segment.
Current report
Marketing, administration and research costs decreased $64 million (7.5%), due primarily to lower general corporate expenses, partially offset by inflation impacts and higher investment spending in support of our Vision (including 2024 NJOY costs). The lower general corporate expenses include lower charges to resolve certain JUUL-related litigation, partially offset by higher acquisition-related costs primarily associated with the NJOY Transaction.
Current report
Operating income decreased $372 million (12.8%), due primarily to lower OCI (which includes a non-cash impairment of the Skoal trademark in our oral tobacco product segment), partially offset by lower general corporate expenses.
Current report
Provision for income taxes increased $624 million (90.6%), due primarily to higher earnings before income taxes.
Current report
Adjusted net earnings of $2,258 million decreased $88 million (3.8%), due primarily to lower OCI. Adjusted diluted EPS of $1.31 remained unchanged as lower adjusted net earnings were offset by fewer shares outstanding.
Current report
▪the proliferation of products using nicotine analogues that are designed to imitate the effects of nicotine but are not subject to the FDA regulatory framework for tobacco products;
Current report
▪illicit trade in tobacco products, including illicit e-vapor and oral nicotine pouch products; and
Current report
Through the first half of 2024, we estimate the e-vapor category grew by approximately 40%, driven by illicit flavored disposable products, which we believe now represent more than 60% of the e-vapor category as of June 30, 2024. We estimate that cross-category movement to illicit disposable e-vapor products, which we discuss in more detail below, contributed to cigarette industry volume declines in a range of 2% to 3% over the last 12 months. These illicit disposable e-vapor products are largely distributed through non-traditional retail channels (including e-commerce and vape retail channels), making them more difficult to track. In addition, we believe illicit cigarettes are becoming more prevalent in the United States, based on the results of discarded pack studies we have conducted in select geographies. We believe the FDA’s inaction, lack of enforcement and slow pace of smoke-free product authorizations enables bad actors to disregard regulation.
Current report
For example, we believe the lack of effective enforcement against illicit disposable e-vapor products has allowed for the introduction of illicit products in other categories, such as oral nicotine, where we have seen a rise in illegal nicotine pouch products. These products are distributed primarily through e-commerce channels that are more difficult to track than traditional retail. As of June 2024, we have identified more than 350 illicit nicotine pouch products across retail and e-commerce channels. We have also noted the emergence of products using nicotine analogues, which are designed to imitate the effects of nicotine and are not subject to the regulatory framework for tobacco products. While illicit oral nicotine products and nicotine analogues have not had a material impact on our business to date, a lack of effective enforcement could lead to an increase in the introduction and volume activity of these products, which could have a material impact on our innovative tobacco products businesses.
Current report
In June 2024, the U.S. Department of Justice (“DOJ”) and the FDA announced the creation of a federal multi-agency task force to combat the illegal marketing and sale of e-vapor products in the United States. The announcement noted that, in addition to the DOJ and the FDA, the task force will leverage the criminal and civil law enforcement capabilities of the U.S. Bureau of Alcohol, Tobacco, Firearms and Explosives, U.S. Customs and Border Protection, the U.S. Marshals Service, the U.S. Postal Inspection Service and the FTC and that additional agencies may join the task force in the future. The DOJ and the FDA stated that the task force will focus on many topics, such as investigating and prosecuting new criminal, civil, seizure and forfeiture actions under various U.S. laws, including the FSPTCA.
Current report
Net revenues, which include excise taxes billed to customers, decreased $509 million (4.7%), due primarily to lower shipment volume ($1,435 million), partially offset by higher pricing ($927 million), which includes higher promotional investments.
Current report
Reported OCI decreased $103 million (1.9%), due primarily to lower shipment volume ($930 million) and higher per unit settlement charges and manufacturing costs ($155 million), partially offset by higher pricing, which includes higher promotional investments, and lower marketing, administration and research costs ($47 million), which include lower tobacco and health and certain other litigation items.
Current report
Adjusted OCI decreased $123 million (2.3%), due primarily to lower shipment volume and higher per unit settlement charges and manufacturing costs, partially offset by higher pricing, which includes higher promotional investments, and lower marketing, administration and research costs ($33 million).
Current report
Net revenues, which include excise taxes billed to customers, decreased $325 million (5.6%), due primarily to lower shipment volume ($846 million), partially offset by higher pricing ($524 million), which includes higher promotional investments.
Current report
Reported OCI decreased $39 million (1.4%), due primarily to lower shipment volume ($550 million) and higher per unit settlement charges and manufacturing costs ($50 million), partially offset by higher pricing, which includes higher promotional investments, and lower marketing, administration and research costs ($38 million), which include lower tobacco and health and certain other litigation items.
Current report
Adjusted OCI decreased $59 million (2.0%), due primarily to lower shipment volume and higher per unit settlement charges and manufacturing costs, partially offset by higher pricing, which includes higher promotional investments, and lower marketing, administration and research costs ($18 million).
Current report
Reported OCI decreased $327 million (38.1%), due primarily to a non-cash impairment of the Skoal trademark ($354 million), lower volume/mix ($69 million) and higher costs ($22 million), partially offset by higher pricing, which includes lower promotional investments.
Current report
Adjusted OCI increased $27 million (3.1%), due primarily to higher pricing, which includes lower promotional investments, partially offset by lower volume/mix and higher costs.
Current report
Reported OCI decreased $346 million (78.1%), due primarily to a non-cash impairment of the Skoal trademark ($354 million), lower volume/mix ($30 million) and higher costs ($22 million), partially offset by higher pricing, which includes lower promotional investments.
Current report
Adjusted OCI increased $8 million (1.8%), due primarily to higher pricing, which includes lower promotional investments, partially offset by lower volume/mix and higher costs.
Current report
Six Months Ended June 30, 2024
Current report
Three Months Ended June 30, 2024
Current report
Reported domestic shipment volumes for the three months ended June 30, 2024 for NJOY consumables(1)increased 14.7% sequentially to 12.5 million units. Reported domestic shipment volume for the three months ended June 30, 2024 for NJOY devices increased 80.0% sequentially to 1.8 million units.
Current report
(1)On May 6, 2024, Moody’s changed its outlook for our indebtedness to Negative from Stable.
Current report
(2)Balance at June 30, 2024.
Current report
NJOY Contingent Payments- On June 21, 2024, the FDA issued MGOs for four NJOY e-vapor menthol products. As a result, we became obligated to make cash payments totaling $250 million under the acquisition agreement, which payments occurred in July 2024. For further discussion on the NJOY contingent payments, see Note 2.
Current report
▪the risks associated with illicit trade in tobacco products, including counterfeit products, illegally imported products, illegal disposable e-vapor products, illicit oral nicotine products, and products designed to avoid the regulatory framework for tobacco products, such as products using nicotine analogues, each of which contribute to reductions in the consumption levels and shipment volumes of our businesses’ products;
Removed paragraphs (8)
Previous report
Marketing, administration and research costs increased $34 million (5.9%), due primarily to transaction costs from our ABI Transaction, inflation impacts and higher project spending, partially offset by lower tobacco and health and certain other litigation charges (including an agreement in 2023 to resolve shareholder derivative lawsuits).
Previous report
Operating income decreased $83 million (3.0%), due primarily to lower operating results in our smokeable products segment and all other category, partially offset by lower general corporate expenses and higher operating results in our oral tobacco products segment.
Previous report
▪illicit trade in tobacco products, including illegal e-vapor products; and
Previous report
In April 2019, the FDA authorized the PMTA for the IQOS System, and in July 2020, the FDA authorized the marketing of this system as a modified risk tobacco product (“MRTP”) with a reduced exposure claim. In December 2020, the FDA authorized the PMTA for IQOS 3, an updated version of the IQOS devices, and in March 2022 authorized the marketing of the IQOS 3 device as an MRTP with the same reduced exposure claim. In January 2023, the FDA authorized PMTAs for three new tobacco-flavored varieties of Marlboro HeatSticks.
Previous report
In September 2021, in connection with a patent dispute, the ITC issued a cease and desist order, effective as of November 29, 2021, banning (i) the importation of the IQOS devices, Marlboro HeatSticks and infringing components into the United States and (ii) the sale, marketing and distribution of such imported products in the United States. As a result, PM USA removed the products from the marketplace. For a further discussion of the ITC decision, see Note 13.
Previous report
Net revenues, which include excise taxes billed to customers, decreased $184 million (3.6%), due primarily to lower shipment volume ($589 million), partially offset by higher pricing ($403 million), which includes higher promotional investments.
Previous report
Reported and adjusted OCI decreased $64 million (2.6%) and (2.5%), respectively, due primarily to lower shipment volume ($380 million) and higher per unit settlement charges and manufacturing costs ($105 million), partially offset by higher pricing, which includes higher promotional investments, and lower marketing, administration and research costs ($15 million).
Previous report
(2)Balance at March 31, 2024, which is classified as long-term debt on the condensed consolidated balance sheet.
Reworded paragraphs (87)
Previous wording
In smoke-free products, we own U.S. Smokeless Tobacco Company LLC (“USSTC”), the leading global moist smokeless tobacco (“MST”) manufacturer, Helix Innovations LLC (“Helix”), a leading manufacturer of oral nicotine pouches, and NJOY, LLC (“NJOY”), currently the only e-vapor manufacturer with market authorizations from the U.S. Food and Drug Administration (“FDA”) for a pod-based e-vapor product. Additionally, we have a majority-owned joint venture, Horizon Innovations LLC (“Horizon”), for the U.S. marketing and commercialization of heated tobacco stick products (“HTS”). As of this filing, there are no products in the U.S. marketplace from the joint venture.
Current wording
In smoke-free products, we own U.S. Smokeless Tobacco Company LLC (“USSTC”), the leading global moist smokeless tobacco (“MST”) manufacturer, Helix Innovations LLC (“Helix”), a leading manufacturer of oral nicotine pouches, and NJOY, LLC (“NJOY”), an e-vapor manufacturer with a commercialized product portfolio fully covered by marketing granted orders (“MGO”) from the U.S. Food and Drug Administration (“FDA”). Additionally, we have a majority-owned joint venture, Horizon Innovations LLC, for the U.S. marketing and commercialization of heated tobacco stick products. As of this filing, there are no products in the U.S. marketplace from the joint venture.
Previous wording
We continue to monitor the evolving macroeconomic and geopolitical landscapes. The annual rate of inflation remains above the Federal Reserve’s target of 2%, which is a key benchmark for the Federal Reserve in determining the timing and magnitude of changes to the Federal Funds Rate. We continue to observe discretionary income pressures on adult tobacco consumers as a result of the cumulative effects of inflation and higher consumer debt levels. During 2023 and the first quarter of 2024, cigarette retail share for the industry discount segment increased year-over-year and compared to the fourth quarter of 2023. We will continue to monitor the effect of these dynamics on adult tobacco consumer purchasing behaviors, including overall tobacco product expenditures, mix between premium and discount brand purchases and adoption of smoke-free products. We expect discretionary income pressures to continue to influence adult tobacco consumers’ purchase behaviors in 2024. Inflation also has a direct and adverse impact on our direct and indirect costs.
Current wording
We continue to monitor the evolving macroeconomic landscape. The annual rate of inflation remains above the Federal Reserve’s target of 2%, which is a key benchmark for the Federal Reserve in determining the timing and magnitude of changes to the Federal Funds Rate. We continue to observe discretionary income pressures on adult tobacco consumers as a result of the cumulative effects of inflation and other factors. During the first half of 2024, cigarette retail share for the industry discount segment increased year-over-year. We will continue to monitor the effect of these dynamics on adult tobacco consumer purchasing behaviors, including overall tobacco product expenditures, mix between premium and discount brand purchases and adoption of smoke-free products. We expect discretionary income pressures will continue to influence adult tobacco consumers’ purchase behaviors in 2024. Inflation also has a direct and adverse impact on our direct and indirect costs.
Previous wording
In the e-vapor category, illegal disposable product usage increased in 2023 and comprised over 50% of the e-vapor category. We believe usage of these products continued to increase in the first quarter of 2024. The primary impacts of this trend have been an increase in the rate of cross-category movement among adult cigarette smokers, contributing to higher than expected domestic cigarette industry volume declines as well as declines in pod-based product volume within the e-vapor category.
Current wording
Product assortment, regulation and enforcement continue to evolve in the e-vapor category. In June 2024, the FDA issued MGOs to NJOY for four of its menthol e-vapor products. Through the first half of 2024, we estimate the e-vapor category grew by approximately 40%, driven by illicit flavored disposable products, which we believe now represent more than 60% of the e-vapor category as of June 30, 2024. The primary impacts of this trend have been an increase in the rate of cross-category movement among adult cigarette smokers, contributing to higher than expected domestic cigarette industry volume declines as well as declines in pod-based product volume within the e-vapor category. In response to the proliferation of illegal disposable e-vapor products, states and the federal government took various regulatory and enforcement actions in the first half of 2024. Select states have established e-vapor product registries based on pre-market tobacco product application (“PMTA”) submissions or approvals. In June 2024, the federal government created a multi-agency task force in an effort to combat the marketing and sale of illegal e-vapor products in the United States. We have also noted the emergence of products using nicotine analogues designed to imitate the effects of nicotine and evade the FDA regulatory framework for nicotine products. Additionally, we are beginning to see increased illicit activity across multiple tobacco categories, including nicotine pouch products and cigarettes that are available to U.S. consumers.
Previous wording
Tobacco companies are subject to broad and evolving regulatory and legislative frameworks that could have a material impact on our business. For example, the FDA has submitted for final review proposed product standards regarding menthol in cigarettes and characterizing flavors in cigars, and the Biden Administration published plans for future potential regulatory actions that include the FDA’s plans to develop a proposed product standard that would establish a maximum nicotine level for cigarettes and certain other combustible tobacco products. In California, where a ban on flavored nicotine products went into effect in late 2022, we continue to observe indications of negative unintended consequences of the ban, such as adult tobacco consumer adoption of unregulated products and the development of illicit markets.
Current wording
Tobacco companies are subject to broad and evolving regulatory and legislative frameworks that could have a material impact on our business. For example, the FDA has submitted for final review proposed product standards regarding menthol in cigarettes and characterizing flavors in cigars, which were indefinitely delayed in April 2024. In addition, the Biden Administration published plans for future potential regulatory actions that include the FDA’s plans to develop a proposed product standard that would establish a maximum nicotine level for cigarettes and certain other combustible tobacco products. In California, where a ban on flavored nicotine products went into effect in late 2022, we continue to observe indications of negative unintended consequences of the ban, such as adult tobacco consumer adoption of unregulated products and the development of illicit markets.
Previous wording
We expect volatility in domestic and global economies and disruptions in the supply and distribution chains to continue in 2024, resulting from several factors, including supply and demand imbalances across many commodity sectors, raw materials availability and geopolitical events. We continue to work to mitigate the potential negative impacts of these macroeconomic and geopolitical dynamics on our businesses through, among other actions, proactive engagement with current and potential suppliers and distributors, the development of alternative sourcing strategies, entry into long-term supply contracts and prudent oversight of our liquidity.
Current wording
Volatility in domestic and global economies and disruptions in the supply and distribution chains have continued in 2024, although these factors have shown some improvement during the year. This volatility and disruption is the result of several factors, including supply and demand imbalances across many commodity sectors, raw materials availability and geopolitical events. We continue to work to mitigate the potential negative impacts of these macroeconomic and geopolitical dynamics on our businesses through, among other actions, proactive engagement with current and potential suppliers and distributors, the development of alternative sourcing strategies, entry into long-term supply contracts and prudent oversight of our liquidity.
Previous wording
ABI’s business has been and continues to be impacted by foreign exchange rate fluctuations, inflation and commodity cost headwinds. We will continue to monitor these conditions and other factors as they could affect our equity earnings, the dividends that we receive from ABI and the fair value of our investment in ABI.
Current wording
ABI’s business is exposed to foreign exchange rate fluctuations, inflation and commodity price movements which may impact financial performance from time to time. We will continue to monitor these conditions and other factors as they could affect our equity earnings, our other comprehensive earnings/losses and the dividends that we receive from ABI, and the fair value of our investment in ABI.
Previous wording
▪Operations: The decrease of $102 million in operations (which excludes the impact of special items shown in the table above) was due primarily to lower OCI.
Current wording
▪Operations: The decrease of $201 million in operations (which excludes the impact of special items shown in the table above) was due primarily to lower OCI.
Previous wording
We report our financial results in accordance with GAAP. However, our management also reviews certain financial results, including OCI, OCI margins, net earnings and diluted EPS, on an adjusted basis, which excludes certain income and expense items that our management believes are not part of underlying operations. These items may include, for example, loss on early extinguishment of debt, restructuring charges, asset impairment charges, acquisition, disposition and integration-related items, equity investment-related special items, certain income tax items, charges associated with tobacco and health and certain other litigation items, and resolutions of certain non-participating manufacturer (“NPM”) adjustment disputes under the MSA (“NPM Adjustment Items”). In addition, our management reviews the ratio of debt-to-Consolidated EBITDA, which we use as a factor to determine our ability to access the capital markets and make investments in pursuit of our Vision. Consolidated EBITDA is calculated in accordance with our Credit Agreement (defined below in Liquidity and Capital Resources) and includes certain adjustments. Our management does not view any of these special items to be part of our underlying results as they may be highly variable, may be unusual or infrequent, are difficult to predict and can distort underlying business trends and results.
Current wording
We report our financial results in accordance with GAAP. However, our management also reviews certain financial results, including OCI, OCI margins, net earnings and diluted EPS, on an adjusted basis, which excludes certain income and expense items that our management believes are not part of underlying operations. These items may include, for example, loss on early extinguishment of debt, restructuring charges, asset impairment charges, acquisition, disposition and integration-related items, equity investment-related special items, certain income tax items, charges associated with tobacco and health and certain other litigation items, and resolutions of certain non-participating manufacturer (“NPM”) adjustment disputes under the Master Settlement Agreement (“NPM Adjustment Items”). In addition, our management reviews the ratio of debt-to-Consolidated EBITDA, which we use as a factor to determine our ability to access the capital markets and make investments in pursuit of our Vision. Consolidated EBITDA is calculated in accordance with our Credit Agreement (defined below in Liquidity and Capital Resources) and includes certain adjustments. Our management does not view any of these special items to be part of our underlying results as they may be highly variable, may be unusual or infrequent, are difficult to predict and can distort underlying business trends and results. Our management also reviews income tax rates on an adjusted basis, which may exclude certain income tax items from our reported effective tax rate.
Previous wording
We conduct a required annual review of goodwill and indefinite-lived intangible assets for potential impairment, and more frequently if an event occurs or circumstances change that would require an interim review. When performing a quantitative assessment of our reporting units and indefinite-lived intangible assets, we use an income approach to estimate fair values. The income approach reflects the discounting of expected future cash flows to their present value at a rate of return that incorporates the risk-free rate for the use of those funds, the expected rate of inflation and the risks associated with realizing expected future cash flows. This calculation may be affected by several factors, including general macroeconomic conditions; governmental actions, including FDA regulatory actions and inaction; changes in category growth (decline) rates as a result of changing adult tobacco consumer preferences; success of planned new product expansions; competitive activity; unfavorable outcomes with respect to litigation proceedings, including actions brought against us alleging patent infringement; and income and excise taxes.
Current wording
We conduct a required annual review of goodwill and indefinite-lived intangible assets for potential impairment, and more frequently if an event occurs or circumstances change that would require an interim quantitative impairment assessment.
Previous wording
At December 31, 2023, the estimated fair value of the Skoal trademark exceeded its carrying value of $3.9 billion by approximately 6% ($0.2 billion).
Current wording
At December 31, 2023, the estimated fair value of the Skoal trademark exceeded its carrying value of $3.9 billion by approximately 6% ($0.2 billion). Sales volumes of MST products, including Skoal, have continued to be negatively impacted due in part to evolving adult tobacco consumer preferences, which has resulted in consumers increasingly moving across tobacco categories. In connection with the preparation of our financial statements for the period ended June 30, 2024, we evaluated the accelerated growth of innovative tobacco products, including oral nicotine pouches, and the related increase in competitive activity among tobacco categories, which have continued to contribute to reductions in sales volumes for MST products, including Skoal. We concluded that the expected impact from the sales volume declines on the Skoal trademark represented a triggering event, and as a result of this conclusion, we performed an interim impairment assessment. As a result of (i) lower projected revenue and income due to lower volume assumptions, (ii) a decrease in the perpetual growth rate to 0% (1% at October 1, 2023 valuation) and (iii) an increase in the discount rate to 11.5% (11.0% at October 1, 2023 valuation), we determined the estimated fair value of the Skoal trademark was below its carrying value and recorded a non-cash, pre-tax impairment of $354 million for the six and three months ended June 30, 2024 in our condensed consolidated statements of earnings. Our estimate of the fair value and carrying value of the Skoal trademark at June 30, 2024 was $3.6 billion, after recording the impairment.
Previous wording
We believe if there is further acceleration in the decline in sales volume for Skoal that results in material revenue declines, there may be a material adverse effect on the significant assumptions used in performing our valuation, including volume, revenue, income, perpetual growth rate and discount rate. A hypothetical 1% increase to the discount rate used in our quantitative assessment as of December 31, 2023, which was our most sensitive assumption, would have resulted in an impairment charge to the Skoal intangible asset of approximately $150 million during 2023.
Current wording
We believe if there is further acceleration in the decline in sales volume for Skoal that results in material revenue declines, there may be a material adverse effect on the significant assumptions used in performing our valuation. For example, a hypothetical 1% increase to the discount rate or a 1% decrease in the perpetual growth rate used in our quantitative assessment as of June 30, 2024, would have resulted in an additional pre-tax impairment to the Skoal trademark of approximately $300 million and $120 million, respectively, in the second quarter of 2024.
Previous wording
Although the above referenced conditions indicate there has been a shift in adult consumer preferences, specifically related to MST products and oral nicotine pouches, considering the approximately 6% headroom as of December 31, 2023 and the current quarter operating results for Skoal, these conditions did not indicate an impairment was more likely than not as of March 31, 2024. However, if Skoal’s actual revenue and income or long-term outlook are significantly different from forecasted performance used to estimate the fair value or if the discount rate used to estimate the fair value increases, we could have a material non-cash impairment of our Skoal trademark in future periods.
Current wording
While our management believes that the estimated fair value of the Skoal trademark at June 30, 2024 is reasonable, if Skoal’s actual revenue and income or long-term outlook are significantly different from forecasted performance used to estimate the fair value or if the discount rate used to estimate the fair value increases, we could have an additional non-cash impairment, which could be material, to the Skoal trademark in future periods.
Previous wording
The following special items affected the comparability of statements of earnings amounts for the three months ended March 31, 2024 and 2023:
Current wording
The following special items affected the comparability of statements of earnings amounts for the six and three months ended June 30, 2024 and 2023:
Previous wording
▪Loss on Disposition of JUUL Equity Securities: We recorded a non-cash, pre-tax loss of $250 million related to the disposition of our JUUL equity securities for the three months ended March 31, 2023 as (income) losses from investments in equity securities in our condensed consolidated statement of earnings. We recorded a corresponding adjustment to the JUUL tax valuation allowance.
Current wording
▪Loss on Disposition of JUUL Equity Securities: We recorded a non-cash, pre-tax loss of $250 million related to the disposition of our JUUL equity securities for the six months ended June 30, 2023 as (income) losses from investments in equity securities in our condensed consolidated statement of earnings. We recorded a corresponding adjustment to the JUUL tax valuation allowance in 2023.
Previous wording
▪ABI-Related Special Items: We recorded net pre-tax income of $86 million from our equity investment in ABI for the three months ended March 31, 2024, which consists primarily of a gain related to the ABI Transaction. For further information on the gain related to the ABI Transaction, see Note 5.
Current wording
▪ABI-Related Special Items: We recorded net pre-tax income of $62 million from our investment in ABI for the six months ended June 30, 2024, which consists primarily of a gain related to the ABI Transaction. For further information on the gain related to the ABI Transaction, see Note 6.
Previous wording
▪Income Tax Items: We recorded income tax items of $71 million, for the three months ended March 31, 2024, due primarily to an income tax benefit from the partial release of a valuation allowance on JUUL-related losses. The valuation allowance release was due to our capital gain on the ABI Transaction. For further discussion, see Note 12. Income Taxes to our condensed consolidated financial statements in Item 1 (“Note 12”).
Current wording
▪Income Tax Items: We recorded income tax items of $52 million for the six months ended June 30, 2024, due primarily to an income tax benefit from the partial release of a valuation allowance on JUUL-related losses, partially offset by interest expense on tax reserves recorded in prior years. The valuation allowance release was due to our capital gain on the ABI Transaction. For further discussion, see Note 13. Income Taxes to our condensed consolidated financial statements in Item 1 (“Note 13”).
Previous wording
Net revenues, which include excise taxes billed to customers, decreased $143 million (2.5%), due primarily to lower net revenues in the smokeable products segment, partially offset by higher net revenues in the oral tobacco products segment and the all other category.
Current wording
Net revenues, which include excise taxes billed to customers, decreased $442 million (3.6%), due to lower net revenues in our smokeable products segment, partially offset by higher net revenues in our oral tobacco products segment and our all other category.
Previous wording
Cost of sales was essentially unchanged, as higher per unit settlement charges and higher manufacturing costs in our smokeable products segment were mostly offset by lower shipment volume in our smokeable products segment.
Current wording
Cost of sales decreased $76 million (2.4%), due primarily to lower shipment volume in our smokeable products segment, partially offset by higher per unit settlement charges and higher manufacturing costs in our smokeable products segment and higher NJOY shipment volume.
Previous wording
Excise taxes on products decreased $97 million (10.1%), due to lower shipment volume in our smokeable products segment.
Current wording
Excise taxes on products decreased $235 million (11.6%), due to lower shipment volume in our smokeable products segment.
Previous wording
Interest and other debt expense, net increased $25 million (10.9%), due primarily to 2023 interest income associated with the sale of the IQOS Tobacco Heating System (“IQOS System”) commercialization rights. For further discussion regarding the sale of the IQOS System, see Operating Results by Business Segment - Business Environment - FSPTCA and FDA Regulation below.
Current wording
Interest and other debt expense, net increased $29 million (6.0%), due primarily to 2023 interest income associated with the sale of the IQOS System commercialization rights, partially offset by 2023 interest expense and fees for the term loan facility associated with the NJOY Transaction. For further discussion regarding the sale of the IQOS System commercialization rights, see Note 5.
Previous wording
(Income) losses from investments in equity securities, which were favorable $375 million (100+%), were positively impacted by the 2023 loss on the disposition of our JUUL equity securities and favorable results from our equity investment in ABI (due primarily to our gain on the ABI Transaction.)
Current wording
(Income) losses from investments in equity securities, which were favorable $367 million (100.0+%), were positively impacted by the 2023 loss on the disposition of our JUUL equity securities and favorable results from our investment in ABI (due primarily to our gain on the ABI Transaction.)
Previous wording
Reported net earnings of $2,129 million increased $342 million (19.1%), due primarily to favorable results from our investments in equity securities and favorable income tax items, partially offset by lower operating income. Reported basic and diluted EPS of $1.21, each increased by 21.0% due to higher reported net earnings and fewer shares outstanding.
Current wording
Reported net earnings of $5,932 million increased $2,028 million (51.9%), due primarily to the gain on the sale of the IQOS System commercialization rights, favorable results from our investments in equity securities and favorable income tax items, partially offset by lower operating income. Reported basic and diluted EPS of $3.41, each increased by 56.4% due to higher reported net earnings and fewer shares outstanding.
Previous wording
Adjusted net earnings of $2,022 million decreased $96 million (4.5%), due primarily to lower OCI. Adjusted diluted EPS of $1.15 decreased by 2.5%, due to lower adjusted net earnings, partially offset by fewer shares outstanding.
Current wording
Adjusted net earnings of $4,280 million decreased $184 million (4.1%), due primarily to lower OCI. Adjusted diluted EPS of $2.46 decreased by 1.6%, due to lower adjusted net earnings, partially offset by fewer shares outstanding.
Previous wording
▪restrictions and requirements imposed by the FSPTCA, and restrictions and requirements (and related enforcement actions) that have been, and in the future will be, imposed by the FDA;
Current wording
▪restrictions and requirements imposed by the Family Smoking Prevention and Tobacco Control Act (“FSPTCA”) and restrictions and requirements (and related enforcement actions) that have been, and in the future will be, imposed by the FDA;
Previous wording
▪potential adverse changes in prices, availability and quality of tobacco, other raw materials and component parts, including as a result of changes in macroeconomic and geopolitical conditions.
Current wording
▪potential adverse changes in prices, availability and quality of tobacco, other raw materials and component parts, including as a result of changes in macroeconomic, geopolitical and climate and environmental conditions.
Previous wording
For the first quarter of 2024, we estimate that, when adjusted for trade inventory movements, calendar differences and other factors, domestic cigarette industry volume declined by 9% versus the first quarter of 2023. We believe these declines primarily are attributable to the historic secular rate of decline, the growth of illegal disposable e-vapor products and continued macroeconomic pressures on adult tobacco consumer discretionary income. We continue to estimate that the growth of illegal disposable e-vapor products, which we discuss in more detail below, contributed to cigarette industry volume declines in a range of 1.5% to 2.5% over the last 12 months. By design, these illegal disposable e-vapor products are largely distributed through non-traditional, untracked retail channels, and this is a trend we will continue to carefully monitor. We expect cigarette industry volume trends for the remainder of 2024 to be most influenced by (i) continued macroeconomic and discretionary income pressures on adult tobacco consumers (including inflation, interest rates, gasoline prices and unemployment levels), (ii) cross-category movement, including to illegal e-vapor products, and (iii) regulatory and legislative (including excise tax) developments.
Current wording
For the second quarter of 2024, we estimate that, when adjusted for trade inventory movements, calendar differences and other factors, domestic cigarette industry volume declined by 9.5% versus the second quarter of 2023. We expect cigarette industry volume trends for the remainder of 2024 to be most influenced by (i) continued macroeconomic and discretionary income pressures on adult tobacco consumers (including inflation, interest rates, gasoline prices and unemployment levels), (ii) cross-category movement, including to illegal e-vapor products, and (iii) regulatory and legislative (including excise tax) developments.
Previous wording
Despite overall improvements in macroeconomic conditions (stabilizing inflation, low unemployment and stable wage inflation), discretionary income pressures persisted for adult tobacco consumers through the first quarter of 2024 due to the cumulative effects of inflation. The March 2024 Consumer Price Index (CPI) was 3.5%, exceeding the Federal Reserve’s target of 2%. Although inflation rates remained lower than prior years, increased prices on certain expenditures, such as groceries and gas, continued to put pressure on adult tobacco consumer discretionary income. Gas prices throughout the first quarter of 2024 were lower overall than prior years but remained consistently above $3.00 month-over-month and began to increase through March 2024. The average gas price for the month of March 2024 was $3.43 per gallon. In addition to rising costs of certain expenses, the Federal Funds Rate has remained above historical levels, although stable at 5.33% through the first quarter of 2024.
Current wording
Despite some improvements in macroeconomic conditions, discretionary income pressures persisted for adult tobacco consumers through the second quarter of 2024 due to the cumulative effects of inflation. The June 2024 Consumer Price Index was 3.0%, exceeding the Federal Reserve’s target of 2%. Although inflation rates remained lower than prior years, increased prices on certain expenditures, such as groceries and gas, continued to pressure adult tobacco consumer discretionary income. Furthermore, adult tobacco consumer wage increases have failed to keep up with the rising prices of everyday expenses over the past several years, and we have observed increases in consumer debt and credit card delinquencies. Gas prices throughout the second quarter of 2024 experienced seasonal increases, reaching an average price of $3.46 per gallon for the month of June 2024. While gas prices were lower than in the second quarter of 2023, they remained consistently above $3.00 month-over-month in the second quarter of 2024. In addition, the Federal Funds Rate, although stable, remained above historical levels at 5.33% through the second quarter of 2024.
Previous wording
The macroeconomic and discretionary income pressures on adult tobacco consumers, as well as seasonal trends in the discount segment influenced discount share performance. For the first quarter of 2024, the discount share of the cigarette category was 29.1%, an increase of 0.4 share points sequentially and an increase of 0.8 share points versus the first quarter of 2023.
Current wording
The macroeconomic and discretionary income pressures on adult tobacco consumers influenced discount share performance. For the second quarter of 2024, the discount share of the cigarette category was 29.3%, an increase of 0.2 share points sequentially and an increase of 1.0 share point versus the second quarter of 2023.
Previous wording
Marlboro share was 42.0% in the first quarter of 2024, a decrease of 0.3 share points sequentially and unchanged versus the first quarter of 2023. Marlboro share in the premium segment of the industry remained stable sequentially at 59.3% and increased 0.7 share points versus the first quarter of 2023.
Current wording
Marlboro share was 42.0% in the second quarter of 2024, which is unchanged sequentially and a decrease of 0.1 share points versus the second quarter of 2023. Marlboro share in the premium segment of the industry grew to 59.4%, an increase of 0.1 share points sequentially and an increase of 0.7 share points versus the second quarter of 2023.
Previous wording
Through the first quarter of 2024, NJOY distribution grew to over 80,000 stores. During the same period, reported shipment volume of NJOY consumables (including NJOY ACEand NJOY DAILY) was approximately 10.9 million units, and NJOY device shipment volume was approximately 1 million units. The NJOY share of the e-vapor category reached 4.3% in the first quarter of 2024, an increase of 0.6 share points sequentially.
Current wording
Through the second quarter of 2024, NJOY distribution grew to over 100,000 stores. During the same period, reported shipment volume of NJOY consumables (including NJOY ACE and NJOY DAILY) was approximately 12.5 million units, and NJOY device shipment volume was approximately 1.8 million units. The NJOY share of the e-vapor category reached 5.5% in the second quarter of 2024, an increase of 1.3 share points sequentially.
Previous wording
The U.S. nicotine pouch category continued to grow significantly throughout the first quarter of 2024 to 40.1% of the U.S. oral tobacco category, an increase of 13.8 share points versus the first quarter of 2023. on! maintained year over year share momentum through the first quarter of 2024 to achieve 7.1% of the total oral tobacco category, an increase of 0.2 share points versus the fourth quarter of 2023 and an increase of 0.2 share points sequentially. Oral nicotine pouch growth primarily has sourced from adult smokeless tobacco and cigarette consumers, negatively impacting smokeless and cigarette product volumes. For the first quarter 2024, the traditional smokeless category (including MST and Snus) share of the total oral tobacco category declined to 59.9%, down 13.8 share points versus the first quarter of 2023. Copenhagen had an oral tobacco category share of 20.1% for the first quarter of 2024, a decrease of 5.2 share points when compared to the first quarter of 2023.
Current wording
The U.S. nicotine pouch category continued to grow significantly throughout the second quarter of 2024 to 41.6% of the U.S. oral tobacco category, an increase of 12.3 share points versus the second quarter of 2023. on! maintained year-over-year share momentum through the second quarter of 2024 to achieve 8.1% of the total oral tobacco category, an increase of 1.2 share points versus the second quarter of 2023 and an increase of 1.0 share point sequentially. For the second quarter 2024, the traditional smokeless category (including MST and Snus) share of the total oral tobacco category declined to 58.4%, down 12.3 share points versus the second quarter of 2023. Copenhagen had an oral tobacco category share of 19.5% for the second quarter of 2024, a decrease of 4.7 share points when compared to the second quarter of 2023.
Previous wording
We continue to monitor changing conditions within the tobacco business environment and impacts on our business. For example, we monitor changes in macroeconomic conditions that increase discretionary income pressures on adult tobacco consumers, which can impact domestic cigarette industry volume decline and discount segment share growth and reduce purchases at retail. We are also monitoring growth of illegal disposable e-vapor products and the related negative impact on domestic cigarette and e-vapor industry volumes. In addition, the growth of the nicotine pouch category has reduced the size of the MST category and could impact the carrying value of our assets such as our tobacco product trademarks. Changes in these and other conditions could have a material adverse effect on our business, results of operations, cash flows or financial position.
Current wording
We continue to track the growth of nicotine pouch volumes and the related impact on the size of the MST category. Decreases in the size of the MST category could impact the carrying value of our assets, such as our smokeless tobacco product trademarks. For example, in the second quarter of 2024, we recorded a non-cash, pre-tax impairment on the value of the Skoal trademark. For more information on this impairment, see Note 5. We continue to monitor changing conditions within our business environment and impacts on our businesses. Changes in these and other conditions could have a material adverse effect on our business, results of operations, cash flows or financial position.
Previous wording
Effective April 2022, the U.S. Congress expanded the statutory definition of tobacco products to include products containing nicotine derived from any source, including synthetic nicotine. See Pre-Market Review Pathways for Tobacco Products and Market Authorization Enforcement below for additional information on the effects of the statutory change.
Current wording
Effective April 2022, the U.S. Congress expanded the statutory definition of tobacco products to include products containing nicotine derived from any source, including synthetic nicotine. See Pre-Market Review Pathways for Tobacco Products and Market Authorization Enforcement below for additional information on the effects of the statutory change. Currently, however, the statutory definition of tobacco products does not cover products containing nicotine analogues, which are designed to imitate the effects of nicotine. As a result, products containing nicotine analogues are not subject to the FDA regulatory framework for tobacco products, including the requirements that manufacturers submit a PMTA to, and receive a MGO from, the FDA before marketing such products in the United States.
Previous wording
Subject to certain limitations arising from legal challenges, the Final Tobacco Marketing Rule took effect in June 2010 for cigarettes and smokeless tobacco products, in August 2016 for all other tobacco products, including e-vapor and oral nicotine pouch products containing tobacco-derived nicotine, and in April 2022 for tobacco products, including e-vapor and oral nicotine pouch products, that contain nicotine from any source other than tobacco, such as synthetic nicotine.
Current wording
Subject to certain limitations arising from legal challenges, the Final Tobacco Marketing Rule took effect in June 2010 for cigarettes and smokeless tobacco products, in August 2016 for all other tobacco products, including e-vapor and oral nicotine pouch products containing tobacco-derived nicotine, and in April 2022 for tobacco products, including e-vapor and oral nicotine pouch products, that contain nicotine from any source other than tobacco, such as synthetic nicotine. The Final Tobacco Marketing Rule currently does not apply to products containing nicotine analogues.
Previous wording
Although the FDA, in conjunction with other federal entities, has engaged in some enforcement activity, insufficient actions against certain product categories that violate the law, including disposable and flavored e-vapor products and products targeted to minors, have allowed such products to proliferate on the market. In addition, the FDA’s failure to clearly define product pathways and accelerate PMTA decision making has resulted in a market with few authorized smoke-free products available to adult tobacco consumers.
Current wording
Although the FDA, in conjunction with other federal entities, has increased enforcement activity, insufficient actions against certain product categories that violate the law, including disposable and flavored e-vapor products and products targeted to minors, have allowed such products to proliferate on the market. In addition, the FDA’s failure to clearly define product pathways and accelerate PMTA decision making has resulted in a market with few authorized smoke-free products available to adult tobacco consumers.
Previous wording
Helix submitted PMTAs for on! oral nicotine pouches in May 2020. As of April 22, 2024, the FDA has not issued marketing order decisions for anyon! products. In addition, as of April 22, 2024, Middleton has received market orders or exemptions that cover over 99% of its cigar product volume.
Current wording
Helix submitted PMTAs for on! oral nicotine pouches in May 2020 and PMTAs foron! PLUS oral nicotine pouches in tobacco, mint and wintergreen flavors in June 2024. As of July 29, 2024, the FDA has not issued marketing order decisions for anyon! oron! PLUS products.
Previous wording
In October 2022, we agreed to assign the exclusive U.S. commercialization rights to the IQOS System to PMI effective April 2024 in exchange for a total cash payment of approximately $2.7 billion (plus interest). The U.S. government has asserted that the agreement to assign those rights required district court approval and was subject to PMI becoming bound by a court-ordered injunction against engaging in certain conduct and requiring the communication of corrective statements. The issue has yet to be litigated before the district court.
Current wording
In October 2022, we agreed to assign the exclusive U.S. commercialization rights to the IQOS System to PMI in exchange for a total cash payment of approximately $2.7 billion (plus interest). The assignment became effective in April 2024. The U.S. government asserted that the agreement to assign those rights required district court approval and was subject to PMI becoming bound by a court-ordered injunction against engaging in certain conduct and requiring the communication of corrective statements. In May 2024, we signed an agreement with the U.S. government resolving its concerns regarding our assignment of the exclusive U.S. commercialization rights to the IQOS System to PMI. For further discussion of the agreement with the U.S government, see Note 14.
Previous wording
In June 2023, we completed our acquisition of NJOY Holdings, the parent of NJOY. As a result of the acquisition, NJOY became a wholly owned subsidiary of Altria, and we gained full global ownership of NJOY’s e-vapor product portfolio, including NJOY ACE, currently the only pod-based e-vapor product with market authorizations from the FDA, and NJOY DAILY, which also has a market authorization. In March 2020, NJOY submitted PMTAs to the FDA with respect to two NJOY ACEmenthol products and two NJOY DAILY menthol products, all four of which remain pending. The FDA issued marketing denial orders (“MDOs”) for four NJOY ACE and four NJOY DAILY flavored products. NJOY filed for a supervisory review by the FDA of the marketing denial orders for the NJOY ACE and NJOY DAILY flavored products, all of which are pending.
Current wording
In June 2023, we completed our acquisition of NJOY Holdings, the parent of NJOY. As a result of the acquisition, NJOY became a wholly owned subsidiary of Altria, and we gained full global ownership of NJOY’s e-vapor product portfolio, including NJOY ACE, a pod-based e-vapor product with an MGO from the FDA, and NJOY DAILY, which also has an MGO. In June 2024, NJOY received MGOs with respect to two NJOY ACEmenthol products and two NJOY DAILY menthol products. In May 2024, NJOY submitted a supplemental PMTA to the FDA to commercialize and market the NJOY ACE 2.0 device, which leverages Bluetooth® connectivity to incorporate access restriction technology designed to prevent underage use by authenticating the user before unlocking the device. Also in May 2024, NJOY re-submitted PMTAs for blueberry and watermelon flavored pod-based e-vapor products that work exclusively with the Bluetooth®-enabled NJOY ACE 2.0 device. These products previously received marketing denial orders (“MDOs”) on the basis of FDA concerns regarding underage use.
Previous wording
Effect of Adverse FDA Determinations: FDA review time frames have varied. It is therefore difficult to predict the duration of FDA reviews of SE reports or PMTAs. An unfavorable determination on an application, the withdrawal by the FDA of a prior marketing order or other changes in FDA regulatory requirements could result in the removal of products from the market. A “not substantially equivalent” determination, a denial of a PMTA or a marketing order withdrawal by the FDA on one or more products (which would require the removal of the product or products from the market) could have a material adverse impact on our business, results of operations, cash flows or financial position. Also, adverse FDA determinations on innovative tobacco products could have a material adverse effect on our ability to achieve our Vision.
Current wording
Effect of Adverse FDA Determinations: FDA review time frames have varied. It is therefore difficult to predict the duration of FDA reviews of SE reports or PMTAs. An unfavorable determination on an application, the withdrawal by the FDA of a prior marketing order or other changes in FDA regulatory requirements could result in the removal of products from the market. A “not substantially equivalent” determination, a denial of a PMTA or a marketing order withdrawal by the FDA on one or more products (which would require the removal of the product or products from the market) could have a material adverse impact on our business, results of operations, cash flows or financial position. Also, adverse FDA determinations on innovative tobacco products could have a material adverse effect on our innovative tobacco businesses and our ability to achieve our Vision.
Previous wording
▪Electronic Nicotine Delivery System Products: As of April 22, 2024, many manufacturers of menthol and other flavored e-vapor products have received MDOs for failure to provide sufficiently strong product-specific scientific evidence to demonstrate that the benefit of their products to adult smokers overcomes the risk that their products pose to youth. The FDA has communicated in these MDOs that vapor products with non-tobacco flavors present unique questions relevant to the FDA’s “Appropriate for the Protection of Public Health” standard and that successful applications require strong, product-specific evidence. A number of these manufacturers are challenging the MDOs for their products. In January 2024, the U.S. Court of Appeals for the Fifth Circuit ruled that the FDA process and procedure for addressing an e-vapor PMTA violated federal law and that, among other things, the FDA failed to give the manufacturer plaintiff fair notice of, and repeatedly changed positions with respect to, the information required to obtain a PMTA. The court decided the caseen banc, with all judges on the court hearing the case. Other U.S. Courts of Appeal have upheld adverse FDA determinations, and there are pending requests that the U.S. Supreme Court review these decisions.
Current wording
▪Electronic Nicotine Delivery System Products: As of July 29, 2024, many manufacturers of menthol and other flavored e-vapor products have received MDOs for failure to provide sufficiently strong product-specific scientific evidence to demonstrate that the benefit of their products to adult smokers overcomes the risk that their products pose to youth. The FDA has communicated in these MDOs that vapor products with non-tobacco flavors present unique questions relevant to the FDA’s “Appropriate for the Protection of Public Health” standard and that successful applications require strong, product-specific evidence. A number of these manufacturers are challenging the MDOs for their products. In January 2024, the U.S. Court of Appeals for the Fifth Circuit ruled that the FDA process and procedure for addressing an e-vapor PMTA violated federal law and that, among other things, the FDA failed to give the manufacturer plaintiff fair notice of, and repeatedly changed positions with respect to, the information required to obtain a PMTA. The court decided the caseen banc, with all judges on the court hearing the case. In July 2024, the U.S. Supreme Court agreed to review the U.S. Court of Appeals for the Fifth Circuit’s decision. Other U.S. Courts of Appeals have upheld adverse FDA determinations, and there are pending requests that the U.S. Supreme Court review these decisions.
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Current report — wording carried from elsewhere
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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Consolidated Results of Operations for the Six Months Ended June 30, 2024
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The changes in net earnings and diluted EPS for the six months ended June 30, 2024, from the six months ended June 30, 2023, were due primarily to the following:
Current report — wording carried from elsewhere
For a discussion of special items and other business drivers affecting the comparability of statements of earnings amounts and reconciliations of adjusted earnings and adjusted diluted EPS, see the Consolidated Operating Results section below.
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▪Fewer Shares Outstanding: Fewer shares outstanding were due to shares we repurchased under our share repurchase programs.
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▪Operations: The decrease of $99 million in operations (which excludes the impact of special items shown in the table above) was due primarily to lower OCI.
Current report — wording carried from elsewhere
For further details, see the Consolidated Operating Results and Operating Results by Business Segment sections below.
Current report — wording carried from elsewhere
The following table provides a reconciliation of adjusted net earnings and adjusted diluted EPS for the six months ended June 30:
Current report — wording carried from elsewhere
Reported net earnings of $3,803 million increased $1,686 million (79.6%), due primarily to the gain on the sale of the IQOS System commercialization rights, partially offset by lower operating income. Reported basic and diluted EPS of $2.21, each increased by 85.7% due to higher reported net earnings and fewer shares outstanding.
Current report — wording carried from elsewhere
As of July 29, 2024, Middleton has received market orders or exemptions that cover over 99% of its cigar product volume.
Current report — wording carried from elsewhere
Six Months Ended June 30, 2024 Compared with the Six Months Ended June 30, 2023
Current report — wording carried from elsewhere
Shipments of premium cigarettes accounted for 95.7% and 94.5% of our smokeable products segment’s reported domestic cigarettes shipment volume for the six months ended June 30, 2024 and 2023, respectively.
Current report — wording carried from elsewhere
Marlboro share of the premium segment was 59.3%, an increase of 0.7 share points.
Current report — wording carried from elsewhere
Total cigarettes industry discount category retail share was 29.2%, an increase of 0.9 share points, primarily due to increased macroeconomic pressures on adult tobacco consumers’ discretionary income.
Current report — wording carried from elsewhere
Our smokeable products segment’s reported and estimated adjusted domestic cigarettes shipment volume decreased 13.0%, driven primarily by the industry’s decline rate (impacted by macroeconomic pressures on adult tobacco consumers’ discretionary income and the growth of illicit e-vapor products), trade inventory movements and retail share losses. When adjusted for trade inventory movements, our smokeable products segment domestic cigarette shipment volume decreased by an estimated 11%. When adjusted for trade inventory movements, total estimated domestic cigarette industry volume decreased by an estimated 9.5%.
Current report — wording carried from elsewhere
For a discussion regarding discount category dynamics in 2024 and the economic conditions, including a high inflationary environment, that impact adult tobacco consumer purchasing behavior, see Operating Results by Business Segment - Business Environment - Summary above.
Current report — wording carried from elsewhere
▪Effective July 14, 2024, PM USA increased the list price of Marlboro(excluding Mainline Menthol and 72s Menthol), L&Mand Basic by $0.17 per pack. PM USA also increased the list price of all its other cigarette brands by $0.22 per pack.
Current report — wording carried from elsewhere
Our oral tobacco products segment’s reported domestic shipment volume decreased 2.5%, driven primarily by retail share losses, partially offset by the industry’s growth rate, calendar differences and other factors. When adjusted for calendar differences and trade inventory movements, our oral tobacco products segment’s reported domestic shipment volume decreased by an estimated 3.5%.
Current report — wording carried from elsewhere
Our oral tobacco products segment’s retail share was 37.9%, as share declines for MST products were primarily driven by oral nicotine pouch segment share growth.
Current report — wording carried from elsewhere
The U.S. nicotine pouch category grew to 41.6% of the U.S. oral tobacco category, an increase of 12.3 share points versus the prior year. In addition, on!’s share of the nicotine pouch category was 19.4%, a decrease of 4.2 share points versus the prior year and an increase of 1.8 share points sequentially.
Current report — wording carried from elsewhere
▪Effective July 23, 2024, USSTC increased the list price on its Copenhagen, Skoaland Red Seal brands by $0.10 per can.
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Our NJOY e-vapor business is reported in our all other category.
Current report — wording carried from elsewhere
For the six months ended June 30, 2024 NJOY retail share in the U.S. multi-outlet and convenience channel was 4.8%.
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Previous report — wording carried elsewhere
Our management also reviews income tax rates on an adjusted basis, which may exclude certain income tax items from our reported effective tax rate.
Previous report — wording carried elsewhere
MST products, including Skoal, have continued to be negatively impacted due in part to evolving adult tobacco consumer preferences, which has resulted in consumers increasingly moving across tobacco categories. The accelerated growth of innovative tobacco products, including oral nicotine pouches, and the related increase in competitive activity among tobacco categories in 2023 continued to contribute to reductions in sales volumes for MST products, including Skoal.
Previous report — wording carried elsewhere
Provision for income taxes decreased $82 million (11.8%), due primarily to an income tax benefit from the partial release of a valuation allowance on JUUL-related losses. The valuation allowance release was due to our capital gain on the ABI Transaction. For further discussion, see Note 12.