MO - Earnings call transcript Q1 2018

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Operator

Good day, and welcome to the Altria Group 2018 First Quarter Earnings Conference Call. Today's call is scheduled to last about one hour, including remarks by Altria's management and question-and-answer session. Representatives of the investment community and media on the call will be able to ask questions following the conclusion of the prepared remarks. I would now like to turn the call over to Mr. Bill Marshall, Vice President, Investor Relations for Altria Client Services. sir. ahead, go Please

William Marshall

first Good which this thank Investor Altria's morning Altria's at release through Altria's Billy Jennifer. we and Earlier us. a altria.com available issued CEO; for on We're app. Gifford, press XXXX discuss to here with these CFO, Altria business morning, you, results. you today results and providing joining and quarter is Thank the Marty website Barrington, our

same we're our XXXX. period today, the otherwise results During in stated, comparing call to unless

Our the cautionary remarks cautionary from Future The differ factors actual board. and and depends today's statements and discretion timing to Please review various projections of results. contain forward-looking cause at of share of to the statement marketplace dividend end of projections. for results could future conditions and repurchases Altria's special forward-looking the share U.S. release financial materially payments both on other Accounting a factors. subject on results its adjusted and items in and are comparability call repurchases that reports reported earnings over results that call Principles. remain excludes Altria earnings Descriptions accordance reported and turn to results today's I'll basis. Generally With contain operating Today's the reconciliations release. that, included financial non-GAAP Adjusted Accepted Marty. affect will various with of these results. the measures in of section

Martin J. Barrington

with tobacco to strong to of businesses, with performance leading Bill. the levers and of off adjusted Thanks, start growth first per a growth the provide earnings balance share long sheet streams the income strong XX.X% quarter. year We're to Good morning, us strong we've diluted everyone. numerous EPS diverse fast over deliver in term. which Altria's guided to

first of income For quarter rate we a a reform as benefited, result tax long tax something Federal advocated. which we example, from for lower the in

We paid increase quarterly earnings in million quarter, higher income in billion the shareholders and and segment. dividends higher adjusted an X.X%, from repurchased in nearly investment the reported dividend in out-of-cycle also Smokeless of operating company's $XXX equity $X.X product We shares. our first Anheuser-Busch InBev in announced

continued We U.S. reduced-risk of progress leadership products. toward in non-combustible, aspiration also authorized, our our

external As we include about reform a launches retail The product will strategic including investments development of an timing retail some vary concepts. as of areas tax growth. into benefit the from and future of FDA. discussed market segment long-term third our fixtures IQOS we've by for these by are our the innovative factors, equity to science, IQOS, reinvesting and brands, timing previously may be These and operating such enhancements regulatory impacted order

against encourage a a may be As focus strategies, full quarter-by-quarter result, noisier once than we year on segment performance result, our to usual. again which investors than rather

quarter were first that we financials. first pleased their contributions also In operating nonexecutive We share in of through a employees. reform million, our to our to the These quarter, company's fulltime employees expense success. invest to $X,XXX per $XX bonuses to or totaled portion recognize ongoing one-time flowed about our tax employee with and our our continue benefit

company's growing segments. Marlboro's expansions, segment, and that Mild. & the and menthol the is year discuss expand smokeable the with stabilize maximize share investing So This to to segment and super-premium overview, we're while share Marlboro Black momentum overall product brand our let's behind In on in results. innovations maintaining operating income product and equity our strategy packaging

brand. materials kind to further Marlboro far with We're our share. experience and in which rates. performance about Ice and and Marlboro eight For crisp to has thus prominent point-of-sale competitive the by awareness very appeals is the being encouraged and differentiating PM expectations example, of in menthol and adult Ice competitive supported a After trial. expanded USA stores retail smokers. Marlboro Marlboro is in the nationally. the to weeks, first XXX,XXX reorder Its U.S. intercepts stabilize innovative which cool-to-the-finish high first pack meeting menthol its adult retail offers Ice reseal further quarter, only Marlboro is unique, with sold Ice its smokers is promote helping

just digital investment new equity printed packs, unique Texas rewards over points Marlboro program in Through XXX,XXX gear, and West. brand smokers, PM which redeemed Points Another speed the adult manufacturing and these news in have It's which XX West, with is coupons their this that for earn by be be smokers, XX market, innovation. growing adult scanning engineering engagement USA scale donations. Marlboro worth major the smoker then called program, reach and to adult is at charitable a among that enables also can smokers brand unique a increasing loyalty. adult codes Points engaged is printed and plus, generating After weeks for codes inside and excitement highlighting

benefiting in responding X.X a of Colorado. adult XX.X% result sequentially water tobacco is to we're Sherman tobacco application. these products, very is building XXXX and In its these system a the performance. world, submitting and most to its Nat promising advertising to the Nat's Copenhagen super-premium smokers the heated completion Sherman other that PMI's perform Snuff, smokeless on growth tobacco, will company As risk X.X intrigue share into and quarter. to packaging. in the risk already The XX company quarter dual plan. are FDA growing activating U.S. as market largest Marlboro e-vapor It market the application. of expanded the market pleased heated ready, a products users. the Nat's its strong adult Southern Skoal Copenhagen, markets. product tobacco. share to grew with modified in adjusted step lead a behind XX% In harm: build additional profitability, to regard Total in pursuing and upon announce share oral the March, Nat the first and expand application expanded looking of USSTC the second retail the its seeking in fourth segment, the to and XX.X% point, smokeless and Nat's states competitive In In X.X MarkTen across also to plans innovative in share will while with the important marketing the USSTC of lead to for for we'll FDA's reduced focuses PM And demand and the await retail led grew its claims. adult location by we're and the will voluntary Snus on USA in distribution first and authorization quarter USA pricing. closed results quarter that points also point, USSTC XX.X%. among quarter the Nu tobacco segment awareness, smokers OCI efforts, IQOS an XX Based its non-combustible reduce in the USA's the June, over which segment e-vapor, spearmint plans and delivered the share declined grew tobacco Mark XXXX lead and awareness quarter. Copenhagen Nu of tools the by PM the most products and share blends in versus build alternatives. and grew to range well use continues smokeless on to and sourcing FDA the Blend broaden we're Skoal expanded segment, first non-combustible while behind preparing western the product business Elite, company product, quarter, nicotine in the Skoal smoker inventory in recall In strong western is X.X retail on lapped At category points Altria's states of share in FDA to our product in it appeal approximately market, share while stores share. Mark quarter from authorization. took into to platforms non-combustible volume pod-based point to the among with adult engaging by driven as aspiration, update in forward by U.S. potential blend additional grew continues adult initial investing review USSTC and expanded packaging and growth. three pouches are with PMTA trial investing begin campaign snus across in positively for Nat's smokers X,XXX profitable quarter share pursuit also is smokers product, XX.X% first of PM a product

touch on briefly FDA Let's news.

was when month combustible announced three which agency, since the provisional including for applications expecting of cigarettes. a regarding recall a the policy agency its substantial proposed active we've actions notices quarter regulatory you'll equivalence new first its July that this on The FDA proposed these framework. been of one treatment advanced for the announced rulemaking, nicotine standard for And change an one Earlier published products. last

we've potential As complex and actively ANPRMNs multiyear the process. evidence-based We're and on undergo nuanced standard each issues these our any and before, preparing science product and engage of are said a process. rigorous, will we'll throughout submissions this

growth XX% turn XXXX reaffirming XXXX. provide again, base XX% over deliver from $X.XX. our we're from a per Thus, to $X.XX a EPS start. earnings full-year per once off I'll XXXX a represents to it to of This adjusted So $X.XX of that, to adjusted good guidance share of to Billy diluted detail. more we're to share With diluted range rate

William F. Gifford, Jr.

Thanks, morning and Marty, good everyone.

declined quarter. segment in deeper inflated effects percentage a amplified the year-ago number into Smokeable partially declines, impact of went higher X.X industry quarter, margins factors volume Products to the in pantry which offset most X.X% primarily X% the first SCT further believe the in cigarette We resolution investments of April state the look the loading declined excise at about year. We tax of driven Smokeable this with higher adjusted play that expenses, California Smokeable in here, by that quarter and at the notably period. of segment. are to XX.X%. volume effect last the decreased were adjusted volume strategic OCI estimate the increase, business start cigarette Let's There OCI points due California by a pricing.

could while also be to as price consumer, decisions net the category growth positive the increases see tobacco of moving tobacco adult the categories consumers continued in be gas to We we recent short between term. purchase by impacting evidenced and continue tobacco strength adult about e-vapor

place all and monitor We volume scenarios. have closely plans and factors continue good to other these in for

segment, quarter, the and Smokeable USSTC adjusted When OCI flat first perform retail grew Our XXXX Adjusted well, grew primarily product declined declined Smokeable the cigarette industry's offset points partially growing an to The estimates X.X% movements. comparing OCI smokeless cigarette pricing. to Smokeless volume X% volume In USSTC's domestic reported estimated by was decline margins the and for quarter. movements, inventory trade the months, adjusted cigar XX.X% caution the the volume the voluntary in reported year-over-year volume percentage when of inventory trade recall first X% in by it X%. as shipment over urge estimated an segment. rate segment past domestic declines declined while continues driven We essentially segment business share industry six volume XX%. the quarter. X.X lapped for in reported volume shipment expanded smokeless

quarter was noisy. XXXX First volume particularly

fresh product As the from volume then with significant the recall volume product. replenishing marketplace involved voluntary removing that and

Michelle to volume assets. up revenue in quarter XXXX, Ste. challenging a X.X%. After Turning the shipment and volume wine our with alcohol grew

repurchase to expect them repurchases. to that, With billion $XXX we'll were Marty in will earnings complete payout a reward share share dividends $XXX million by million due fourth to the While cost all continue for was approximately year. And This we be bonuses target of to total by In of our repurchased reflecting equity declined happy through our Marty the of and XXXX We employee at maintain AB significant the course, dividend I of In remaining Anheuser-Busch average $XX.XX Altria's adjusted that million. one-time diluted $X questions. InBev to quarter we quarter, to to price returning cash up, the approximately shares quarter of $XXX of in reflect shareholders our March, million, final and adjusted results adjusted first which dividend raised program, share OCI of end and we million and investment we expect wrap take the InBev's eight an ratio current $X in results. discussed. leaves from substantially your beer, of EPS. XX% first the X.X%

pricing, our today's inventory also calls and which posted I'll you we are the being usual While our are We've altria.com. non-GAAP items. and compiled, remind available Operator, on earnings metrics, that any other quarterly include do reconciliations release questions? have housekeeping

Operator

analysts participate invited and are representatives Investors, to media the in now session. you. question-and-answer Thank

community question the take first. investment a will from We

Your from come first Stifel. with question Chris will Growe

Christopher R. Growe

morning. Good Hi.

Martin J. Barrington

Hi, Chris.

Christopher R. Growe

Hi.

just I there's in around been of if and the cigarette volumes. could, rate to ask weakness in Marty, off So, I growth you e-cigarettes controversy first resulting wanted the vapor and some the

how just the think if what expect to affecting if your total. in we give you of this measured wonder that, which There's just if cited just if you remarks be idea in us I can know and did, but give And then, give a see. may You volume. of cigarette it channels can of Billy is on you the through some you I number category possible. perspective e-vapor than what the growth more don't there, an could year kind

Martin J. Barrington

Yeah, category has so the grown. vapor

along the expect are which period into This fast, when the we then it's time that's adult innovation migration and growing and able think I over better and is and consistent particularly is get grew as was as market, learn been flattened You'll technologies saying we've all it aspiration first we're, we remember that a the have would the it smokers there with what again. products why do. came when about now Chris, to

this hard to I than the by least was is very So, numbers at It the look e-commerce industry channels. the as and pretty It's which hard the know. cigarette affect shops. of about at us faster you up there measured XX%. vape much channels' can looks are happens and category are XXXX well, And to in time. number in Billy volume in measured come channels it over moving that like year. of of terms We around some get to volume, in cigarette Listen, the think other covered the volume factors a numbers which it is

we're rate but we remind bit you the example the know have this, out XXXX, don't which about at lap X%, all But then won't also in through XXXX know rates And number X%, you other guide migration I go I of this Chris. which be little by SET. remind California go very to on X.X%, a that people we model smoothed for and X.X% everybody look technology. I'd the because it secular expect tend and X.X%, in a look elasticity. to know, going monitor as decline comprises range. we and that rates through long-term volume, to view is because I the at as mechanics this, both including Our decline I a rate the to If lumpy. factors quarter, we the were on we price moderate secular rates, for the to of highly-developed smokers to

plans the that. reaffirmed, So we're But good for we confidence keeping on we in XXXX. have eye have an We've plan.

out not there I and was As around materialized. an have turned and about And it that cigarette just remember going the predicting been XXXX other then be decline true. were, and vapor, disruptor ourselves breaks going over immediate reminding did time to we up. or better, that predictions probably to gas XXXX not lastly, to consumers the it go worth in were about trend and volume other once prices have some be we side on was dropped it remember

we'll and whatever be at it it comes. over ready look time. monitor regularly, we We So for

Christopher R. Growe

just follow-up thank just, there. you. Okay, had is... color one Good I which question

Martin J. Barrington

Sure.

Christopher R. Growe

into attribute Marlboro need bit. aggressively some of back to but has of is sequentially – And, tax we don't ...in a that improve little the incremental spending to of still And already? some spending behind here, spending that of started know savings terms Can already? saw the spending Or to you're your we business. that some we quarters get we this come?

Martin J. Barrington

we're plans It's for in Yeah, spending. our XXXX. No.

think you MarkTen by go. a flow got right. of Elite, last you can and filing if of from the national investments those You're But, for we've expansion the those launch if snuff we're the long-term at are sequentially by that look you to forth, so look application Marlboro quarter. year guide We're the And MRTPA Ice, at not you to look through encouraged going places. the the starting Chris, at of Marlboro I Copenhagen quarters. stabilizing important again, see But in if to

Christopher R. Growe

Thank you.

Martin J. Barrington

questions. for thanks Chris, the Okay.

Christopher R. Growe

Appreciate it.

Operator

Your with is Fargo. next question Herzog Wells from Bonnie

Bonnie L. Herzog

Good morning. Thank you.

Martin J. Barrington

Hi, Bonnie.

Bonnie L. Herzog

U.S.? a you have think you on questions give IQOS I prospects your hear for to Do Could curve limitations to couple you're Hi. you on from you in Japan Morris hear adoption the learnings adoption IQOS. guys the they're the are light then expectations highlighted PMTA us And on for like in update just Philip the foresee what an again, the U.S. And now? similar in guys taking what you the I'd from, that timing? what in right in Japan. like from along of curve seeing

Martin J. Barrington

Sure.

IQOS afraid hopeful offer because we remains continue it to from about less from at the We And, as We we'll bringing as think and parallel that at we hear cigarettes. we're you But There's they I'm look So the has ash, And U.S. very to it. of sensory no timelines, to experience excited a those odor. FDA. marketplace. reduction it's the don't soon. a good it's Bonnie, know, them product know, have the very you much on good harm application. opportunity, to remain compelling a good prospects timing there's with satisfaction

I the we It's that So, of try also people been has approach you'll doing that we've to a each from a refrained to reduction. its turns I in out we've some the apply that to harm to know asked reminding market we that the like, been what be so. think when there about to know have discussion we And worth will in Japan. I happen portfolio gain trying performance remember market. pick that think markets, We're insights U.S. from right. them to

while going to working business. we have the the very is convert And hard we're about So be adult to obviously, already profitable. and vapor largest very IQOS excited we world, smokeless a business also building which are we're smokers, in

that's we IQOS. long-term So And about information about it how excited strategy. our the short-term we too in don't about get think context of

in We U.S. it excited about really continue to bringing believe market. to the we're it and

Bonnie L. Herzog

developed interacting question for envision see you But a do here. that Thank does you you the because U.S., the beg the with follow-on more of terms products. that's your Okay. certainly of reduced-risk IQOS case than of you market in that. what how on outside And then guys just touched e-cigs full portfolio then

help understand portfolio? you how to your us So expect interact that within own

Martin J. Barrington

question. most know lines a Well, categories, good remember we're has what I presentation product go like been is that's we're consumers, going to the not is U.S. And segment from we to belief – our we there with to be market. along going will market. you is, our out want in Day to when leading introduced the sure, This That's Okay. Investor that to that product and what get find options. that

the we're the observe as until put behind will and leading answer get it honest market soon we of bets. it as that's the is that, will investments the learn And it make to can we consumer how know we as one and interact so, there. And things segment, going the one will in no

Bonnie L. Herzog

was very is growth, for guys. on I final your Okay. which income just smokeable me, negative, operating if unusual question for which may, One you

looking And in planned. want going this that talked much you of spending how just you share should think how really I this for Thanks. to about I the think resulting about stabilization guys the just Marlboro. want understand we forward? for, is But do know then up stepped-up So, spending. to stepping was you're understand

Martin J. Barrington

Yes.

EPS said now, should investors in I we are and at see year in investments. the back, to when year early is XX% including think, time we're guided and that we we quarter. growth the first why our paying full guiding XX% think investments year, the these this I including for some have to long-term look, performance golly, our against a by XX% strategies, And,

dividend not into And the how some growth it's in And way, it think same for quarter, to that I think long-term the think know segment I into it. way, each places So by ratio. should in through about the cash bore EPS. investors reporting but payout which converted the we gets tempting about is that's

Bonnie L. Herzog

Okay. Thank you.

Martin J. Barrington

right. questions. for All the Thanks

Operator

is Judy question next Goldman Your from with Hong Sachs.

Judy Hong

morning. Good Thank you.

Martin J. Barrington

Judy. Hi,

Judy Hong

couple of from So, away kind to I e-vapors. just I investors to the adjusted industry interaction about taking your price and combustibles question guess combustible between really are particularly much wanted how is JUUL, And and stock last category, months, e-vapor in of performance back go concerned the product. Marty, share clearly, the the

just us So, across that if I'm you you the interaction in wondering data that brands. to any share of can any have response terms or those

Martin J. Barrington

this presentations going we've know will as about harm. innovative Well, they know you interaction, them products there if or be for because that remember reduced a is previously, offer that bring been there half the are we to we is but and as migrate interaction nicotine looking again made that we've and products them to to marketplace, predicting offer may from need, you of adult smokers to want

time. So expect that would we over

then Now, again, category at over rates counted looked, growth another back and least e-vapor historical and time. just had I fell earth in went and the brands back have significant We very to early five that we footnote.

about so, have billion category. And to about category States. the what of retail we're you is about $XX $X think that some dimensionalize learning United we that And seen in have this billion The the is XXXX. time category is a excitement vapor of is not that the growth. is, the first We in size probably

category. a migrate. remains the time And as overall So adult fraction of will tell smokers it

long-term So again, we're the people.

products. trajectory. worth But have some that the rockets before history there think been innovative remembering haven't their that is them Our I move long-term strategy to to it's sustained

Judy Hong

been combustibles? retailers. sense that e-vapor that concern positive development of bit of when undermine around a to Nu little kind category does of as seems your the to Do Mark a category, just the on develop youth terms in actions, sort dynamics kind letters some is there's – allows think a some of issue about and some I as lot of sent to of of those just though, then, plan in Or you the access And you the e-vapor shift obviously of FDA your being think Okay. favor it like in a there guess, IQOS that actually well kind the of that product? more is

Martin J. Barrington

the it terms work on prevention we of the we've There those may this doesn't. have trying of it's comes entered to reach is not access, taking limit that a hard I our think people. in market. hope we're of companies nothing responsibility category actions their that And, take, important. understand with And trade and And this that who programs the the access particularly with innovative have I of It's develop But and so think while that they've the time I we us in running as that why most like. business. how responsibility. youth youth important my understand adults for it are that everybody area for e-vapor in we is view, to to steps in been some here young for done that's seen, our have understood products developments reflect decades inconsistent, other some

Judy Hong

then Okay. Billy. question And for you,

in $XXX the of you bought quarter. million shares back about Just, first obviously,

got But your pretty balance left $XXX You've in sheet strong. million is your another authorization. still

more the in price suggest you of could stock recently You're reaction would much buybacks. generating terms cash, that be seems the it aggressive like actually and

thoughts the year? the have you for the updated terms how of buyback any about in So you of do balance think

William F. Gifford, Jr.

Yeah, through a back we'll Judy, evaluate on as we conditions. based shares look, we program buy the that and said currently as we've market in progress before, We're year.

Judy Hong

Thanks. Okay.

Martin J. Barrington

you. to with Good speak

Operator

is question next Your Cowen. with Azer Vivien from

Vivien Azer

morning. Good Hi.

Martin J. Barrington

Vivien. Hi,

Vivien Azer

you necessarily industry your just you the kind – have color would takes for exclude what wondering – an been do have from perspective if number thank sense on on volumes cigarette you for of the and that California? industry puts a I not So was of volumes. if,

Martin J. Barrington

I don't.

Vivien Azer

problem. No Okay.

I end cigarette think last we've the category. within of some of quarters in dynamics that over the Marty, at the discussing few are the the dynamics Just of terms lower the been happening category,

Martin J. Barrington

Yes.

Vivien Azer

continue And deep it gain disclosure, your looks per to discount share. like, does

that the offer you seeing could color at please? end, on more So dynamics you're a the bit low little

Martin J. Barrington

Maybe Sure. One then from doing and of consumer end. is the things, Vivien, two movement sort how is the within our discount.

continue So mean But on full good positive side the and the a we're starts the at us. things, net to remains be employment. of on be few And we positive sure. I to look to confidence watchful housing consumer. we're okay

the marketplace are trying are think question of are income. in away On brand the in environment. you sure they're wage that course, up that think seen deep year-over-year, costs discount. might And you that see other others kind eating though watch-out employment I prices that investing distributed. about the price Gas the the the evenly you in we're that some noted. haven't behind disposable store. there is no at But is And, manufacturers aren't not are there also full to in lowest list to you There cigarette net-net I get gains we of a have expect positive. that And XX% as watching and make remain

XX% been. a about up It's our discounts about three it had tenths, up tick So where estimate. which is to according from

quite like from comes manufacturers the the basically roughly, that then from of is to not deep end. discount All this And it's take, remaining give of about Looks but other XX% three-tenths, discount. the us precise, from switching or half that there. out Vivien,

store. there for are consumers, some offering ask brand who the and So the them. it be companies And sure, go in to channel cheapest trade will a there are are into that to

Marlboro. not So of focus premium, on I think as that an Obviously, probably for us, explains our especially view category. of the what's area happening discount we're focused it's in

Vivien Azer

really That's Absolutely. helpful.

that, and when If you take prices really appreciated were gas good... a Marty, yeah, step comments I your back,

Martin J. Barrington

Yeah.

Vivien Azer

And last it we the of was any evolution apparent if go to elasticities? three price with notice over cigarette in XXXX ...clearly years, and kind you look have volumes. back

Martin J. Barrington

And something – all seen we not there. the we we it's have change any No. at look time, and

Vivien Azer

going good question sure All question try to comment – FDA for but going the I'm on I'm not you're Last me. On right. to news. anyway. ask if this, to That's

Martin J. Barrington

Okay.

Vivien Azer

a profile. tightly-regulated you whether I'm and matters FDA flavors, they're e-cigarettes, a if profile you're they flavor be. you whether of pharmacokinetic into think within combustible what think or IQOS the ANPRM different certainly you aspiring whether about that curious that, looking flavors very is about as wonder the how you. think be profile anything cigarette, kind I at do that whether should characterizing appreciates on fits and Thank thinking because more that And whether around pharmacokinetic characterizing I can the guys much – informs are they, to the

Martin J. Barrington

Sure. of for that FDA, that, with the will things. I speak look at I'm confident can't but host a along they

Our experience product think look going performances they them to will and up. they're ANPRM, has very sure been the I'm is with and come flavor that with the thorough, that I this at

that would I while me seems for it that. can't So, sensible them speak to they do

Vivien Azer

Terrific. Thank you.

Martin J. Barrington

Sure.

Operator

Matt Morgan Your from with is Grainger Stanley. next question

Matthew C. Grainger

Good morning. Hi.

had this measured absolute to of segment to question. I'm that rapidly are a technologies investment Elite channel constraints guiding given And, rather before capacity more Are own stores in taking new the our it just all-other other you're but fully MarkTen constraints the this more a relative – commit there in asking Just year? all approach the growth guess highlighted category, is bit quarter one you supporting the than more expectations, that The are but in I expanding segment? one the you e-cigarette against that measured accelerating what investment X,XXX of that or the expectations. magnitude made my in in you was below into really

William F. Gifford, Jr.

you you'll There're from no move year-over-year, as the quarter. Matt. really standpoint. year. Yeah, by see It's when that, we takes be puts a when see quarter through you and There'll capacity really compare fluctuations constraints

And limiting us. certainly so no disciplined constraints but as the are are category we that e-vapor we approach

Matthew C. Grainger

Okay. Great. Thanks.

Martin J. Barrington

Thanks, Matt.

Operator

is with Your from next question Bank. Deutsche Steve Powers

Stephen Robert Powers

Good guess... morning. I

Martin J. Barrington

Hi, Steve.

Stephen Robert Powers

the your near for Continuing guess segment less really anything smokeable term the e-vapor? direct from e-vapor is on and or between make as what core franchise analytics overlap jour, more with consumer. optimistic JUUL your cannibalization when robust and about and specifically, topic in you the your just growth consumer – demographic JUUL MarkTen e-vapor about you there today's grows. that to remains risks there I wondering I the I'm on you Thanks. smokeable du your Especially adopter example brands guess think might tell I'm trying and Because

Martin J. Barrington

the can cohorts. the and great topic also a the take and terms we have to hope I information going particularly interplay when that sharing so one other the think efforts in as cohorts is products to that's smokers a But be for adult of I are true I'm that not that. I'll adult we're which I'm across sure a we're we adult as looking looking on female for up between which call. age brand our take on age about smokers and discuss at can that think focusing care male level, Maybe so they and widely that's we Steve, not in that know say on commenting cigarette pretty forth. people's interested do don't, our competitive what both smokers, we well among held I brand, I it's you and call. that appreciate make I alternatives But

Stephen Robert Powers

try. do. I thought just I I'd

Martin J. Barrington

I appreciate it.

Stephen Robert Powers

topic. on tact the separate guess I

Martin J. Barrington

Sure.

Stephen Robert Powers

grows of profitability the considering? vapor is there about growth builds might some towards on you're bringing newer where how segment scenarios products how margins and market, ramp in business rate on thinking you're various the the to that your you that dimension As that run and any update mature under you're

Martin J. Barrington

margins at I United e-vapor company superior way. be for Investor products that we and our who want it in that cigarette-like helps Jody aspiration Yeah, them. continues – what when States is how we to people cigarette us aspiration as in the along comes leading took to and it, us and offers scale vapor that thought through presented the the margins he's volume at our have be thinking that to Day about And

So margins. we are right about And of over possibility. build ability bullish there's now pretty of early we're bullish spend, has a course cigarette-like and the investing. business a there that FDA about lot but we're time, that It's to

Stephen Robert Powers

can in more. squeeze I one If That's great.

Martin J. Barrington

Sure.

Stephen Robert Powers

advanced the you that issued months, various notices remind mentioned over proposed of can the The that several had last FDA us... rulemaking you

Martin J. Barrington

Yes.

Stephen Robert Powers

stock. given your your FDA-related certainly an that from of have saw associated Because in news perceives expected just around obviously, how it? market impact you the headlines and ...of on the timeline can with here March, what risk responses the see we likely flow

on So, remain not I ahead front. that important to I or just, may what think may it's lie clear about

Martin J. Barrington

if about get day head so can my this you of there the all I within of date correctly, that. but came ANPRMs Yeah, the out moment, are response each at XX each we or the have so to they remember and deadlines a week I in other. don't

asked you, of may Bill topics I'll so have discussion for of days, on, those asked get that they dates. just that's as replies. I we the probably the don't them of extended. These you be enormously Steve, and and trigger have top extensions. for complex some well. And but to extensions have think replies interest those they've And nominally if But I are be there mind. others may will XX

Stephen Robert Powers

much. Thank Perfect. you so

Martin J. Barrington

Thanks All right. calling. for

Operator

with Bennett is Your next Jefferies. question from Owen

Owen Bennett

Good well. morning, guys. all Hope

Martin J. Barrington

Owen. Hi,

Owen Bennett

Just just think, Vivian's. one up I me, question for following on

competition, discount about spoke environment but ex discount brands, the you. the could Thank the you please? deep So on deep you promotional comment

Martin J. Barrington

Yeah, would think quarter I are and there's some would it continues, call forth any first don't it's fourth from promotional. to place. you the they changes been don't different significant on devices anything I quarter. Naturally, have and folks competitive. back that typical that I expanding think say, the the put brands, But I in from in promotional the out stay materially

Owen Bennett

Cool. Thank guys. you,

Martin J. Barrington

Owen. Thanks,

Operator

from is Citi. with question Spielman next Adam Your

Adam J. Spielman

if much. Two questions, I very you Thank may. Hi.

does is The start that cigarettes. segment have first How question? before about you the concerned it, the first to getting would big one within on discount be get

Martin J. Barrington

such say on had and and to there. carefully to remember, grew premium at been stable, business, a past given you periods I discount Well, obviously the the effectively you'll there Okay. our would category see it's watch us probably job. of compete good do we have continuing action take that to market, more Adam, it focus where the in we XX% relatively

wire don't trip monitor. that something I'll have out, it's we we but that call So, a

Adam J. Spielman

What back not it you're is – my that, XX.X% going sort point? of suddenly... sort issue. beyond remind was in of know of it in memory was was just sort to us you of period, Can an – percentage the at say sort was sort a I of that mid-XXXX in suddenly

Martin J. Barrington

Right.

Adam J. Spielman

do XX%? talking Are of sort ballpark, are we ...going XX%? But we XX%? something. talking to Are talking we

Martin J. Barrington

a different you we that give metric monitor... I'll

Adam J. Spielman

Yes.

Martin J. Barrington

price gap. is ...which

that's think So way the about probably I it. think to easier

this the know then a but and can from at, at Marlboro look You number of that's bit, about line, others. probably to The right Friday XX%. mindful we be expand it remember have Net to that. we of better Adam. gap probably gets now And gap's and out

Adam J. Spielman

Fine.

Okay, talked that's Q&A. smokeless about very good. – haven't flat. And then the much secondly, Obviously, we roughly about volume's in

you that of recall, the we've your As I thinking be or again, we thing you But think from sort margin? And whether surprised should other gradual of the strip recall. the about the if medium category out here? now? sort upside going the it's see in on was whether the the flat Or is more really much a effects margin. got And strong term about was be significant next of quarter OCI two, this we thing

Martin J. Barrington

XX%. isn't it's that it's because it margin category, for thanks observe to well, Yeah, margin mean, hard grow I it? very from to high a that me allows

Adam J. Spielman

Yes.

Martin J. Barrington

Obviously, of no denying quarter we flatter Adam, a bit the business. in delta recall. between but that, first a this it's a because lot so costs that, flatter a XXXX, the of had by bit is There's it. of quarter margin That's and the high

products; moving. terms and consumers X%, the little on category growth. in be talked fair had has or and a couple been an has reasons is probably to retail bit up is are about looking little of to pricing clearly and secondly, think been call which down its effect over at. growth that it's it, a a It of more used XXXX the XXXX slowed One that. think on category it down flattish about six-month it's to is I bit that for And is something the flattish something volume There's there than also observe in we I earlier are XXXX. that's which other trying we're go

Adam J. Spielman

you. Thank a And partly I was tax Pennsylvania? rise, that in remember, if Okay.

Martin J. Barrington

year, excise also MST an and increase tax too. in last had Yeah, California

Adam J. Spielman

Okay. Thank you.

Martin J. Barrington

All for the Thanks right. questions.

Operator

Markets. with Your Capital Modi RBC next from question is Nik

Nik Modi

everyone. Yeah. Good morning,

Martin J. Barrington

Nik. Hi,

Nik Modi

Marty. Hey,

from questions two just my end. So

early a response. MarkTen if consumer question on areas? is first lot the general maybe Marlboro trends, is First can be it I'm question. give just California, on how any in of can you just of curious on broad-based isolated then markets Bold, That's more us the certain regions, like you thoughts second And outside is you where just tactical? an it pinpoint could guys update versus the kind

Martin J. Barrington

you Billy, talk Sure. to Marlboro? about want

William F. Gifford, Jr.

related to standpoint something of being very Yeah, it standpoint of does of of always PM Marlboro. the I'll Nik. broad-based, talk team that and state-by-state look are And a From they'll That's USA the From process is our about we a adjust effectiveness the well. fine-tuning, fine-tuning. spending broad-based, Marlboro. to fine-tune in

Martin J. Barrington

good good is MarkTen there. are off who to it similar very product, think, looking start, to I for particularly Bold, I appeals, think, smokers Nik. experience adult as a It's

good. And is early the so, with very it's MarkTen feedback early but Bold, days

Nik Modi

really MarkTen your trying with Obviously, first been explicit. salt I'm what Bold get technology. the guess I And to is I have foray more at, maybe should

Martin J. Barrington

Yeah.

Nik Modi

obviously, that other that very done technology. have well products certain And with marketplace there's the in

versus actual So of about lot is I'm with can consumer much just experience? try MarkTen And is experience stuff a the more with trying do this because the to the to better? understand, it, consumers to the obviously get Bold how salt you brand technology,

Martin J. Barrington

Yeah, also it's And true. I format. think it's

the flavor. in So satisfaction bundle product both the I category, think the e-vapor the the and is format,

is a And product, is so a e-vapor. under in and And flavor pressure some got, do is to I cig-alike different devices. segment obviously, which what match pod-based through different a expectations has good that trying there, it MarkTen we is a to very product, think have formulation. We've and But is we're in good it there Elite, satisfaction. consumer that

brand. has trying competitive there, example about meet want pod where we're as twice the to be through much to liquid another for techniques. know, And the different they that may You as consumer

when they going allow given products satisfaction to a but on I the rules both others, formats, worked complexity in we were the we're are flavors of marketplace. have and Nik, some launch And see to for as the remember, FDA while, you not that in think also the category. this

bundle So have of in things has cig-alike. we're when Mark look I very working we a good through. what offering that's that at the Nu done, But

in our about I product. pod-based Avail, offering the we're a a think lot learning through now have we a segment. very in good interest And open

So strategy. that's think I the right

Nik Modi

Great. Thanks, Marty.

Martin J. Barrington

talk Nik. to to you, Good

Operator

Piper is Lavery from Jaffray. with question Michael next Your

Michael S. Lavery

morning. Good

Martin J. Barrington

Hi Michael.

Michael S. Lavery

you You that mentioned assuming on that obviously it's lead would marketing authorization, approved other markets. market for a and lead then IQOS, have

something build think a And how could sounds accelerate some the do so there things approach. that capacity think an Is presumably are limitations? the that you it it national click? scenarios? little about measured have towards responses range expansion? trajectory the you ultimate frame you Is like of you'll What would bit a How about of the if

Martin J. Barrington

three Yeah, depend good that question. scenarios We built the consumer to at least it. on reaction

don't make go scale have IQOS, the in do faster learn, place and to an need, do us new be learn place adjustments plans people to things market. allows the some underestimate, its in and Capacity we we this fast has in to a brand I We to issue. not pricing to mean, that to it got is and to faster is program I optimistic we've continue scale upon to how all know, scenarios. expect contingency about We've we which about. be performance, as What as we PMI with tried to you have depending want to experienced. quickly,

Michael S. Lavery

you you. prices just depending two point helpful. to so it, couple for minute. a back as or And lift no. benchmark a four Oh, It on Thank exactly a where That's ago. was, well gas even to years about

But magnitude, the category how years. do some are pressure? that much ability have quantify last may now prices few higher In the be driving terms than of of you obviously, to any in

Martin J. Barrington

many as I of the same when they think dramatic effect It's dropped. factors. not it's one

I maybe year-over-year because figure, – But to and it's say. I through convenience $X.XX think fair that's it's up moves so if the saw much insignificant. Michael, a think, of volume I not gas, –

our the volume, we're probably, has keeping but affected on And magnitude, the factors think it. view. so It's not of close a in that it's one eye same many I

Michael S. Lavery

Okay. on tremendous a And obviously, stores Ice, reach. is XXX,XXX Marlboro

Or Is maybe twice that between? potential? you something is you close expect it maybe that. places think call somewhere expansion that, something Or further the to I on in right in have already? or to

Martin J. Barrington

distribution. out, Well, wider when so the we're then, continue the succeed, to get a to right to fast. about way try brands But places weeks obviously, in get And eight them we we'll is to track this me set target Ice. Marlboro at dates on all see surprise and right and do time. with its we over distributions we it And expand given success, we're it wouldn't

Michael S. Lavery

timing One you. is has Thank obviously that their when some clock MRTP not for targeted of to Okay. the last starts, snuff I it that's on sort think accepted formally sort you accepted but been it is finally officially submitted began when already? application Because but FDA's of know they I – of the the them? by own one strict, countdown. understand theoretical just

Martin J. Barrington

No.

technically through You're them it which this application, T's. Michael. for go to filed getting been the takes and I's, time the been stuff has knowing It's some this about but at the technical cross pretty not all good dot accepted

the to I started yet run. in view, So, has FDA's not clock guess

Michael S. Lavery

Okay. Thank very you much.

Martin J. Barrington

right. for calling Thanks All in.

Operator

questions the invite time. ask at to We media this

question Your from come next Darphil Gil with will Alexandre Associates.

Gilbert Alexandre

morning. Good

Martin J. Barrington

Good morning.

Gilbert Alexandre

a I tax have where second estimate from be level an us give of at may And you Could state excise question. coming the this year? increase

Martin J. Barrington

them. was one in proposals about pack. which had for was of have been pack that Sure. been Kentucky this year. There's We've which a two and $X.XX there a had Oklahoma, passed a $X in second XX was We

starting those risks anyway up now the to I this so those but of but Some two called state to we see out. year continue as legislatures far are wrap

Gilbert Alexandre

I California you. excise the And XX what declines be (XX:XX)... next tax indication over the an past now that you could volume thank I you're months? could know us give

Martin J. Barrington

Yeah, sure.

rate back quarter. may to Let California the volume it on that volume. second call We expect where don't the me observation into was we is be early. would lap going our started, were guide we to for go we as What you on not decline the moderate

Gilbert Alexandre

I thank you.

Martin J. Barrington

you Thank for your right. All questions.

Martin J. Barrington

Thanks.

Operator

Fargo. from a do question have Wells Bonnie with Herzog We follow-up

Bonnie L. Herzog

back Hi. I in. to just wanted get

Martin J. Barrington

Hi, Bonnie.

Bonnie L. Herzog

to give now how lapped April so could on in continuing increase? Marlboro. see the had brand tax you sense I in have California is improvements a again. you question far another I the Are performing was monthly share? guys us hoping Hi, of that sequential you

Martin J. Barrington

to second you surprise won't comment that it until going I'm to quarter. second on not quarter know get guess we the the I Bonnie to

to forgive have You'll me.

Bonnie L. Herzog

All guys may. right. One wanted acquisitions. talk final clarify something to to or you if I I with

you past open it's that technology. You've exploring suggested or guys to them businesses in whether are the

I So if your asking, this balance I'm still the is given strength guess sheet? of true especially

Martin J. Barrington

Yes. That remains true.

both our I willingness about to think true. at organically our and Day in CAGNY continues business to the right and scenario Investor be the description non-organically Billy's grow at

Bonnie L. Herzog

Okay. Thank you.

Martin J. Barrington

back called All you Glad right. in.

Operator

conference this would Mr. Marshall At for comments. you. back time, like to closing to Thank turn Bill the over I

William Marshall

call you all morning. Thank our joining for this

have Relations. any follow-up contact questions, please us you If Investor at

Operator

This does Thank conference you, call. ladies and today's conclude gentlemen.

now may You disconnect.

Altria (MO) 26 Apr 182018 Q1 Earnings call transcript