Financial Data and Key Metrics Changes - In Q2 2025, the company achieved growth in net sales, organic sales, and earnings per share despite facing significant raw material pressure and negative foreign exchange impacts [6][10] - Organic sales growth accelerated by 60 basis points to 2.4% in Q2, driven by improvements in North America and Africa-Eurasia [7][10] - Gross margin was down year-over-year due to higher raw material inflation and tariffs, with guidance for gross margin remaining roughly flat for 2025 [44][46] Business Line Data and Key Metrics Changes - The North America business showed improvement in volume, with good plans in place for the second half of the year [21][22] - The Hill's pet food segment delivered mid-single-digit organic growth, with a strong performance in therapeutic products [50][52] - The total relaunch of core products was strong in Latin America, with good incremental share and growth [27][30] Market Data and Key Metrics Changes - The company noted a cautious consumer environment in North America, with expectations for categories to normalize over time [20][21] - In Latin America, there was a slight deceleration in categories in Brazil, while Mexico showed some improvement [29][30] - The Asia market experienced softness, particularly in urban markets in India and challenges in the Holly and Hazel business in China [85][88] Company Strategy and Development Direction - The company remains committed to its long-term growth strategy, focusing on household penetration and brand health as key drivers of organic sales growth [11][12] - A productivity initiative was announced, aiming for $200 to $300 million in charges over three years to optimize supply chain and enhance capabilities [18][95] - The company is prioritizing innovation and digital transformation as part of its 2030 strategic plan [12][16] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism about the second half of 2025, expecting modest improvements in category growth and consumer behavior [93][94] - The company is focused on balancing top-line growth with margin restoration, particularly in North America [106][108] - Management acknowledged the challenges posed by inflation and raw material costs but remains confident in the strategies in place to drive growth [60][61] Other Important Information - The company closed the acquisition of Prime one hundred, a leading fresh pet food brand in Australia [7] - The company is leveraging AI and data analytics to optimize its portfolio and promotional spending [10][12] Q&A Session Summary Question: Details on the restructuring program and its timing - Management indicated that the restructuring program is designed to accelerate growth initiatives and is a natural evolution towards the 2030 strategy [15][16] Question: Insights on U.S. category growth and consumer behavior - Management noted a cautious consumer in North America, with expectations for categories to normalize over time despite recent setbacks [20][21] Question: Update on Latin America performance and potential pivots - Management reported strong initial results from the total relaunch in Latin America but acknowledged some cautiousness in Brazil [29][30] Question: Gross margin outlook and raw material cost drivers - Management highlighted that gross margin was impacted by raw material inflation, particularly in palm oil and fats, but expects some easing in the back half of the year [46][47] Question: Performance of Hill's pet food segment - Management reported strong growth in the Hill's segment, particularly in therapeutic products, despite challenges from private label competition [50][52] Question: Confidence in EPS guidance amidst market uncertainties - Management expressed confidence in low single-digit EPS growth expectations, citing effective strategies and investments planned for the second half of the year [58][60] Question: Evolution of the Asia market and specific challenges - Management noted softness in urban markets in India and challenges in the Holly and Hazel business in China, but remains optimistic about future improvements [85][88]

Financial Data and Key Metrics Changes - The company reported good Q2 results with strong pricing, although volume mix remained flat after accounting for downsizing [5] - The bottom line was slightly better than expected, indicating overall financial health [5] Business Line Data and Key Metrics Changes - The chocolate category showed significant pricing increases and revenue growth management (RGM) actions aligning with expectations [6] - The biscuits category in North America is experiencing a decline in volume, while emerging markets are showing double-digit growth [10][12] Market Data and Key Metrics Changes - North America is facing consumer anxiety and a focus on essential items, leading to a decline in the biscuits category [9][10] - Emerging markets, particularly Brazil, India, and Mexico, are experiencing sustained volume and value growth despite softer consumer confidence [11][12] Company Strategy and Development Direction - The company aims to boost productivity and implement incremental pricing in North America to counteract inflation and improve profitability [14][16] - There is a focus on maintaining share gains in alternate channels such as club and dollar stores [16] Management Comments on Operating Environment and Future Outlook - Management does not anticipate a material rebound in the North American category for the remainder of the year, citing ongoing consumer sentiment challenges [13][17] - The company remains cautious about the impact of cocoa prices and consumer behavior on future earnings, with a focus on maintaining gross profit dollar growth [45][46] Other Important Information - The company is actively managing its debt and share repurchase strategy, indicating a pragmatic approach to capital deployment [65] - There is no significant impact from GLP-1 drugs on current volumes, with economic factors being the primary driver of consumer behavior [67][69] Q&A Session Summary Question: Insights on key geographies and North America actions - Management highlighted a strong quarter in Europe but acknowledged challenges in North America, emphasizing the need for demand-driving actions [4][6] Question: Clarification on guidance for the second half - Management confirmed that the guidance reflects a realistic view of the tougher areas, particularly in chocolate and the U.S. market [20][23] Question: Cocoa market outlook and pricing strategy - Management discussed favorable cocoa market fundamentals and potential pricing strategies for 2026, indicating a cautious but optimistic approach [25][44] Question: Impact of consumer behavior on pricing and volume - Management reassured that the planned pricing increases are selective and aimed at protecting key consumer price points [54][56] Question: Retailer destocking in North America - Management attributed retailer destocking to cash flow management and a slowdown in consumption, indicating a strategy to shift focus to value channels [75][76]

Financial Data and Key Metrics Changes - The Smokable Products segment grew adjusted operating company's income (OCI) by 2.7%, with adjusted OCI margins increasing by 4.2 percentage points to 64.4% [16][18] - Total domestic cigarette volumes declined by 13.7%, with an adjusted decline of 12% when accounting for calendar differences and trade inventory movements [17] - The company paid approximately $1.7 billion in dividends and repurchased 5.7 million shares in the first quarter [23] Business Line Data and Key Metrics Changes - The Smokable Products segment reported a decline in domestic cigarette volumes, while the Oral Tobacco Products segment delivered over $400 million in total adjusted OCI, with adjusted OCI margins at 69.2% [20] - Oral nicotine pouches drove an estimated 10% increase in oral tobacco industry volume, with ON! growing its share to 8.8%, an increase of 1.8 share points year-over-year [8][9] - The Cigars segment saw a reported shipment volume decrease of 2.9%, while Middleton continued to outperform in the large mass cigar industry [20] Market Data and Key Metrics Changes - The e-vapor category included over 20 million vapers, with disposable vapers increasing by approximately 4 million to around 14 million [10] - Illicit e-vapor products now represent more than 60% of the category, significantly impacting legitimate market players [10][12] - The company recorded $146 million of adjusted equity earnings from ABI, down 11.5% year-over-year due to a lower ownership interest [22] Company Strategy and Development Direction - The company aims to refine and strengthen its e-vapor product portfolio, focusing on consumer preferences and regulatory compliance [14] - The strategy includes advocating for regulatory reforms to address the illicit e-vapor market and enhance enforcement against illegal products [10][11] - The company plans to maintain its investment in the ON! brand while exploring opportunities in synthetic nicotine products [14][62] Management's Comments on Operating Environment and Future Outlook - Management noted that consumers are under economic pressure due to inflation, which is affecting purchasing behavior and driving some to seek price relief [17][31] - The company expects full-year adjusted diluted EPS in the range of $5.3 to $5.45, reflecting a growth rate of 2% to 5% from a base of $5.19 in 2024 [24] - Management emphasized the importance of monitoring consumer behavior and the potential impact of tariffs on purchasing decisions [70][74] Other Important Information - The company recorded a noncash impairment charge of $873 million due to ITC orders affecting Enjoy [22] - The company has $674 million remaining under its current share repurchase program, expected to be completed by the end of the year [23] Q&A Session Summary Question: Current state of the consumer and inflationary pressures - Management acknowledged that consumers are under pressure from cumulative inflation, impacting their purchasing behavior and leading to increased interest in illicit products [30][31] Question: Confidence in pricing strategy for cigarettes - Management expressed confidence in the strength of the Marlboro brand and the ability to implement pricing strategies effectively using data analytics [32][34] Question: Approach to the discount segment with the Basic brand - Management clarified that the repositioning of Basic is not a strategy shift but a response to market conditions, maintaining a focus on premium products [36][38] Question: Growth trajectory of ON! and competition - Management remains optimistic about ON!'s growth despite competitive pressures and is excited about upcoming product authorizations [39][41] Question: Strategy for e-cigarettes and market exit - Management emphasized the importance of participating in the e-vapor market long-term and is focused on regulatory compliance and product development [42][44] Question: Impact of tariffs on imports and consumer sentiment - Management noted that while tariffs may impact costs, the primary concern remains the sustained economic pressure on consumers due to inflation [68][70] Question: FDA and regulatory environment for unauthorized vapes - Management highlighted the need for quicker product authorizations and enforcement against illicit products to meet consumer demand [78]