MO - Earnings call transcript Q3 2018

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Operator

Good day, and welcome to the Altria Group's 2018 Third Quarter Earnings Conference Call. Today's call is scheduled to last about one hour, including remarks by Altria's management and a 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

Bill Marshall

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

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

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

Howard A. Willard

return of to and adjusted continued third growth XX% quarter diluted amounts good earnings delivered cash to share Bill, morning, of excellent shareholders. Thanks, per and our Altria everyone. large

strategies, long-term are success. to strategic successfully investments making businesses while tobacco executing against their Our drive

may concerned e-vapor to in In FDA's address that I'd products. plans the rise products to our welcomed third with to underage e-vapor We reported immediate of for provide e-vapor reduction, companies, steps September, complex discussion taken Altria, recently long-term this promise harm address also to is with Consistent we action taken. opportunity to believe our including FDA action alarming FDA action should of the activity. agreed products and because Gottlieb and moving results, situation. address like immediate underage use. be that and Commissioner address to of use FDA that be met asked several e-vapor and could the jeopardize use underage reduction discuss the of harm products access Before we're to in We use We're the quarter recent taking e-vapor. with and we

the youth products addressed. order Apex Mark FDA is MarkTen Nu products will the or receive MarkTen and issue from market by Elite pod-based otherwise market remove First, until the these from a

cig-a-like flavor Second, Mark these other products the receive varieties. for remaining addressed. a issue discontinue Nu market Mark and otherwise will Green our products, products will MarkTen our menthol Nu tobacco, from of or youth variants mint the is and the only FDA all of sale cig-a-like sell Smoke order until

because current don't or our we products, the taking issue. don't with e-vapor are access we have action of to use we to we a this believe Although contributing want risk issue youth

will approach. makes support a it we sense think to age this Additionally, product. tobacco as the We establish through to purchase to phased-in minimum any federal accomplish legislation XX

XX% volumes, approximately For to industry (X:XX) harm context, that others. partners, reduction preserving suppliers and support and adult we We, of operate of age our fully quarter Marlboro promise We tobacco industry and consumer of approximately X.X Mark's was of and the to was written the consumers, third volume retail tobacco outlined e-vapor intend e-vapor in will course, long-term stabilizing XXXX in through the estimate variants, share for USA make the choice legal posted and Nu this point products. FDA, continues remain are a cigarette in market. through that These essentially epidemic opportunity prior XX% our e-vapor harm which youth quarter We e-vapor the we on reduction, the the pod-based have portfolio of for response of actions and these the to adult when actions After cig-a-like recognize FDA's X% volumes industry are use Nu to line from PM earlier equity. in in adjusted e-vapor XX, companies share review the is operating year, compelling X% XX.X%, product this Mark's consumers Through to age our will smokeless investments quarter progress smokers brand's essential these addressing trade believe XXXX third of expectations, addressed. and products of fourth detail Marlboro's to of let's removing decisions move in approximately Billy impacts flat unchanged the while share. e-vapor segment a on is the on or volumes. decreased of quarter adult additional products that, represents share tobacco X% smokeable to provide and the altria.com. are our underage The operating but products income vapors. pathways flavor with of now equity morning demographic in With results. its brand minute. our from investments will third performed

PM lead XX.X%, and heated of was IQOS remain are a USSTC's smokeless authorization of in income grew driven total On products delivered at for hopeful for USA's share ready third realization. Copenhagen Skoal XXXX. X% and third companies year-end. by XX.X%. fourth (XX:XX) plans X.XX share quarter share share in we was up growth quarter in a strong FDA largely combined of net by price point unchanged basis, market the the In the segment from the and initial to of a third the X.X tobacco, smokeless point Next, quarter quarter, operating adjusted

tobacco confident our our risk full through to plans. harm to forward believe our value pursuing tobacco maximizing leading ability by deliver in We responsibly year-to-date our So us on reduction. in products positions we year businesses, deliver innovative to well summary, industry our remain shareholders core long-term reduced and performance

result, a $X.XX for XXXX provide to a guidance base. revised As of the XX.X% adjusted our $X.XX, of on end of representing a Billy turn are we XXXX diluted XX% now I'll the guidance, to growth to our performance. over to detail more it tightening from range full-year $X.XX lower raising our rate EPS to quarterly

William F. Gifford

Thanks, Howard, and good morning, everyone.

the business adjusted investments, by declined quarter, margins strategic higher higher inventory pricing. share by offset an was After of me segment. by reported the cigarette losses, third cigarette volume higher trade were decline for smokeable the trade points OCI the primarily X% rate In estimated smokeable driven Let movements. declined with volumes smokeable adjusting segment's expenses, movements, cigarette start industry's and the inventory in retail X.X adjusted partially third prior the X.X% products unchanged products lower and volumes volume year percentage resolution third and by from the in quarter, in industry both cost, essentially as cigarette OCI including The declined the to shipment months. declined in and XX.X%. an offset Smokeable first estimated the quarter nine X.X% approximately nine that for estimate first We quarter X.X% months.

quarter. the cigarette excise the and movement in tax impact industry estimate gas tobacco we the including tobacco and Oklahoma among had the to taxes consumer, state volumes X.X%. cigarette adult just affected environment of continued state in by adult While Kentucky on remains excise increases under We categories, volumes an for smokers prices, July believe e-vapor, increased economic positive X

engagement mentioned digital have share by Marlboro's in brand Howard Points rewards As USA's in with Marlboro. the West, for USA's limited for PM earlier, program Marlboro's increasing PM smokers. investments stabilize excitement expectations Texas, time exceeded helped creating adult

Texas the in West by PM in nationally XXX,XXX enrolled loyalty. engagement PM ended the Texas. of entered nine and Building enrollment to brand in XX% in pack goal leadership, of nearly the to USA's its launch and strong of Texas, January with of Rewards Rewards and codes. adult XX Marlboro Marlboro Marlboro's the increased Marlboro.com on excited already adult over brand up third older, And offer increasing engagement smokers success and program During month plans quarter, XX equity and two in which the digital the million over older, Points to in XXXX. frequency period, smokers, USA

the to to consumers first in for in USA expansion with quarter On is perform quarter, menthol this evaluating the than Nat Nat's to its pack. offering. And of And expanding volume well, United nearly further tobacco this the performed continued side, regional pursue In national quarter product X% a this across expansion solid Marlboro including PM business growing cigar favorably Sherman reseal packaging is continues other performance since adult offerings, packaging following technology innovative expansion and Western the States opportunities Ice has X% months. and innovative more third opportunities. has year. USA well Marlboro the team unique first super-premium The responding the PM to to in this future. nine shipment the Smooth, the the the earlier water reported delivered segment, use

reminder the to a fourth an for day segment prior As will the compared have the products shipping smokeable extra quarter, year.

first the adjusted our for higher Smokeless cost. driven to by an by the months. months. volume past Turning quarter, OCI in partially X% the products industry third grew X% segment pricing X.X% over adjusted an offset nine products smokeless primarily higher declined estimated segment, shipment Smokeless declined estimated volume six

products, products. by movement believe in to pricing e-vapor continue consumer the tobacco smokeless affected category being is volume higher We adult industry tobacco that and among including

Wintergreen standard USSTC to balanced application third this risk begin In September, differentiated comment. states. the Snuff. intense the FDA announced accepted and During filed, Copenhagen modified process, to flavor. XX wintergreen which for for This for review, tobacco will wintergreen USSTC's Smooth less includes offering scientific dippers expand The FDA now flavor a review Copenhagen's opportunities adult quarter, product public seeking a versus provides plans

application. with forward looking are engaging on FDA We to this

partially alcohol quarter higher favorable Michelle's AB third share in earnings quarter, AB million Altria's investment InBev million $XXX and results. our driven adjusted second quarter to expenses from were In marketing OCI our and adjusted lower by Turning shipment primarily which in of InBev's offset the third the by volume, beer, equity Ste. reflects decreased mix. in assets. sales $X

dividends August, in $X.X shareholders, October an first of X.X% dividend current XX.X%, We rate increased we dividend nine second as cash this annualized our the And continue year. return since through Altria's XX, XXXX. months to share annual $X.XX dividend increase XX.X% of to billion overall out the per in of beginning resulting of paying of XXXX. yield by of over year dividend the quarterly represents an the rate in increase

$XXX $X.X shares billion nine for first third over the approximately quarter in repurchased the months. also and of We million

second share Howard As wrap and of of which quarter, current $XXX your XXXX. I the approximately remaining we million the the we'll end of and program, take complete the of up in repurchase questions. happy to expect will by to With third quarter the end had we that, be

today's dynamics, that data our include reconciliations release you the While remind also included in usual altria.com. metrics, items. and quarterly our available earnings other We've non-GAAP housekeeping we on being and discount historical the category inventory some posted last calls are discussed quarter. compiled, I'll are We've which pricing,

Specifically, stable currently. With over overall relatively the retail even The that, I'll deep recent discount. open levels chart the between any experiencing time share, question-and-answer do and has discount discount and higher branded Operator, discount period. in have retail questions? share been the while shows category that deep growth, been at than the we has churn that past

Operator

you. Thank

comes Piper question Lavery Michael the first Our of Jaffray. from line of

Michael S. Lavery

morning. Good

Howard A. Willard

Hi, Michael.

Michael S. Lavery

the and and role elaborate distinctions with that you on But the this reinforces leadership the thinking a stuff. might FDA I as proactive little you're make the with just announcement? your be cig-a-likes, stance of regulatory think, pods the approach, this about two between bit some you had thinking what on can versus you've Your

Howard A. Willard

puts risk, and the I this and we convert Yes. rapid But to about lot we we the increase significant And from the thought increase, is we and usage that I the products. I significant that think of flavored in the think data I necessary. looked that a medium of adult was we of think driver think, believe at in concluded the the products long mean, products action of term. has short, youth think is pod-based opportunity at FDA, e-vapor cigarette the as we and is smokers recent clearly, way some and available remarks the that

the forward should course, to Because the decision support addressed the And to federal level have issue. we we increased took XX, a usage past from going social purchase this address here minimum primary that age of the help run. that. of these in raised XX is think, thought e-vapor we've if of on seen can two the we then shows a source the age access the so also youth think products minimum that data the to significant access, to study that the is to and purchase we impact our of at actions short And drivers

Michael S. Lavery

one of year, And elaborate you. just Rewards, of been bit Thank a you've making of know that helpful. more Marlboro That's like? color, touched little brand more then color this more some West look programs at reinvestments those just as the little and Points just little you some, some you what the maybe I those and you give could you can involved give expansion understand us look just on or a to life help on bring what a

William F. Gifford

Sure, Michael.

at think launches. we've I would as spent the on overall look (XX:XX) product that if equity well brand you as

sure that, in something the call part have year standpoint support SKU the out of consumers. marketplace sort the want you the quarter, the to you of like make to third launch and So, that the beginning a right of through from in launches had you the we when right

we and are expansion had occurred the launches Copenhagen we that the nine year. of those Smooth, first through of had so the Marlboro Ice, we So have product Nat's, months

Howard A. Willard

digital And have we step Marlboro it, seen consumers engagement Michael, in available that going can essentially, West, which a with significantly and their to Marlboro.com. consumer availability program year, it's our on the it know in unique only drives And enter was with Points course, think engagement pack I national next that engagement resources, to specifically might to our And up we that Texas you assets. earn they for found digital broaden order big which rewards. or is between scan forward of so where we're not a codes increased on

Michael S. Lavery

been And are what program program kind part ago, had I know the the believe isn't that branded rewards but merchandise that rewards the long it way of includes? I the

Howard A. Willard

make if digital the it's It of approach. a might passes can contributions digital those behalf way right. variety ago. on it or get have includes charitable lower rewards, much use of not of a consumer more decades branded merchandise you kinds we'll cost It's been exactly way digital movie It's You're they of of it things. the whether cards a do the or or couple a – to

Michael S. Lavery

very Thank Great. much. Okay. you

Howard A. Willard

Thanks.

Operator

comes Stifel. from question of next Your of line the Growe Chris

Christopher R. Growe

Hi. Good morning.

Howard A. Willard

Chris. Hi,

Christopher R. Growe

Hi.

Just had you question I for a if could.

behind and and spend end, it I And you number to to its that Just happens growth? part share we're you that had two some by to to is some pushing of that, the progress plans enter with obviously had related your Marlboro. you has Marlboro's the would this savings, year one. market satisfied to of are and would year, seeing as performance quite the One year business success tax you good that for your occurred spending year related understand that. spending hoping guess that rate behind that to like spending yet, I did is you're aggressively obviously, then that stabilizing be questions or the more include share, showing behind IQOS try question (XX:XX) not XXXX, accelerate

William F. Gifford

that part standpoint the related the and we investment right, Chris. take investment the spending, money I'll From had first of you're tax IQOS. to of Yeah.

that prepared We year, FDA be that to if standpoint launch and in behind pushes ready think IQOS, of next the of investment have made money launch. list guidance. make. spend From the that into to and I that excited to this that. a approved to we've We to it year, From we of by incorporated year for have when so a we're spend want always the that impact investments the the some right, brand it of we're the a that's don't we standpoint you're certainly of fully

favorable that's to of IQOS, business. us other in parts a in allowed that one out point invest you the So

Howard A. Willard

it a up to XXXX X.XX is And share in nice in this outcomes a XXXX. points, before portfolio of category that and And Marlboro the your the in Marlboro the think the launch and have share performance very both much the total I our discount were investments X.XX months of architecture you And if performance in category, you compare PM point. down Group brand, category generated Marlboro address first L&M, are take portfolio the long-term back the our share feel share tell they margins I of we refer category. with on and I'll we I you to would of how Marlboro's of point, in about in up XXXX is quite the And to discount the question and might performance nine we cigarette kind pleased X.X year. the course, the than Altria are USA I cigarette feel our that discount across at and higher of that XXXX.

though X.XX to manage there's the little the for X.XX a a to (XX:XX) we long term even movement very year, cigarette the So about and this year bit of feel of last tend business. or compared good performance

Christopher R. Growe

that Okay, could to that is process FDA, or to you quick great. for And ability you. relation products, where wait that you approval kind pod-based just curious through I one these and prepared going Thank your to the the seek in to – seek you're that? of approval. will ask do to something PMTA to if stand Just one

Howard A. Willard

Yes.

those withdrawing in to other like when youth to file of on is don't but think one means that feel PMTA. this light file today, products the expect those action products or PMTA a to in address going until dramatic announce the a is path either new to we're filed we we products increase forward. we that usage, usage. us that or is in really know to for that I we file you're position to withdraw market a those products is What youth until one until I And announced we're get PMTA FDA right. path takes that pod-based

Christopher R. Growe

much. so Thanks Okay.

Operator

question Judy next the comes of from Goldman Sachs. line Your Hong of

Unknown Speaker

Hi This is Judy. everyone. on (XX:XX) Jack for line the

couple down seeing you So generally be a Kentucky X.X%, from dig or questions is performance minus you and share that'd is of was I bit have we're from if maybe some just loss great. little there, more I So trading, could a minus slight start off, just that all of color versus wondering give that your Oklahoma? industry if underlying could X% of to into

Howard A. Willard

Sure.

down adjusted X%. the industry basis volumes on right, a year-over-year was our You're adjusted were and cigarette cigarette volume down X.X%

just stable that and literally now stable really since out bit. fourth California because was is tax impact I that our quarter of think point year, of I the would feel excise But down further basis, decline this that share little and bit quite we a share been that our a lapped year-over-year we've Marlboro's a on performance state the satisfying. increase has is

Unknown Speaker

briefly the cash there's well in cut, as flowing income, net their now dividend forward? then in results going might for going do and And on their based dividend share policy, through, as payout volatility ABI just how of assess Okay. what the given your the less you on investment forward, mean ABI like your

William F. Gifford

Yeah.

you I the look standpoint policy. a think that, today, where that or still the earnings of the that a term. year, dividend liquidity, at dividend stream if dividends last long that, investment received, we has of From cut significant impact announced they to it were you actual no our it's our really great think we think when about for they rebased XX% our

Unknown Speaker

anything I balance thoughts there. what out expenses margin your that? the then What more of in expect and Is quarter? year just we in those on sneak you'd for And going if the this are one might on were call of there terms Okay, where you. got could flow-through

William F. Gifford

Yeah.

year. from investments of think business going, those out at standpoint calling you that I we've are been the a where it's when all look

we It's brands place and you'll capabilities that recall, filed. the R&D we product the through around in quarters. were and around the taken that have three applications the reinvestment So launches investing first

but far fourth quarter, point looking to can the I As forward. as the guide overall guidance, don't you to margins we

Unknown Speaker

All you much. right, great. Thank so

Howard A. Willard

you. Thank

Operator

of line from comes Vivien the question of Cowen. next Azer Your

Howard A. Willard

Vivien. Hi,

Vivien Azer

morning. good Hi,

X% headwind benign we've for also and to back wanted of state the to talk if in so correctly incremental the kind and I I used state tax course. kind totally normal prior to the to from on were because X%, to of decade, obviously So environment elasticity. go but last if the XXXX, year, X% volumes. and of changing been recall gas, and excise declines XXXX, kind down cigarette was I taxes, to much prior appreciate from that's tax a to a like up excise and I weighted-average XX% embedded in underlying reverting about of industry that basis, think price back But a volume

the having range. driving declines are year, generally hard commentary reconciling price the the holding is the these excise time thing incremental I'm volume your So of historical past elasticities over up, taxes outside cigarette are a but

So be any color there. you can helpful offer would Thanks.

Howard A. Willard

Sure.

deep we price even more ample have are elasticities increase, the excise have with that exception the line recent been right we California of in not was continue the And changed. the increases out think of not that I you with tax significant, to had which increases that have tax the evidence excise history. tax excise state

the I I it in – again, So price less over it's aside think the here last is the in And a into is category. it's that of less think it secular e-vapor elasticity tick I causing movement the partially to California, setting and decline quarter, a category. increased decline really X.X% it's think the bit up action is – related

Vivien Azer

you about category? makes that FDA on Okay, from how perhaps have the you competitors color e-cigarette any action your And for gotten in Thank that. thinking the sense. are

Howard A. Willard

don't any FDA into the actions really we then, to announced what last at this the to competitor or, morning. them met perspective not. them have on really visibility We frankly, ultimately. actions will talking ultimately issue, address our And And we were have firmed considering. decide We since the that, time up how and that we spent and with about them we We them time, week. do, our on briefed

Vivien Azer

Terrific. Thanks much. very

Howard A. Willard

you. Thank

Operator

from comes the Your next of Fargo. question Bonnie Wells line Herzog of

Bonnie L. Herzog

you. Thank right. morning. Good All

Howard A. Willard

Bonnie. Hi,

Bonnie L. Herzog

what as achieve characterize brand? out your would now you the opinion, with set you on is guess, want to Marlboro. you question first more Marlboro to stabilized or see hear, to My would in I like Hi. as I

Howard A. Willard

I been a would a stabilizing the any last you sequential point share stable. year. I fact mean, it it characterize And it it, wouldn't since was (XX:XX) down as at has that of quarter if alarm look basis. of I X.X from the third draw on

we investments going I with good the to we're the think about and the stabilized make brand forward. that feel share trend going is

Bonnie L. Herzog

And going is so investments it behind investments, that given expecting answer see? those you're to is I you're assume behind acceleration I fair something increase that yes, Marlboro to given guess to would the brand.

So we should future. that see correct? the Marlboro accelerate be in Would

Howard A. Willard

Yeah. I don't that. know with agree that I would

necessary in And I did pretty a of that been other a with we're we're stability. that stability. we've in and significantly – business is to forward. equity going an among many side, I we're happy investment things, And, but to trying trying bit we with think don't on our in think going profitability, grow share Marlboro think increase performance, pretty forward stable I retain frankly, comfortable particularly investment to a that where maximize that don't have I the Marlboro feel stepped-up Marlboro, we like think

Bonnie L. Herzog

That's the you second, then have? see then interesting why as really category, for confirm then a maybe helpful. actually might Okay. so be On completely recently cannabis, commented on what and topic. competitive I you how question might exploring category, And advantages us this a you this could different have this. a share approach might And you potentially first that you guys you've opportunity,

Howard A. Willard

Yeah.

because confirm at federally And are but opportunities we is we category in conference, category. that our of said hold we the I early we kind view in U.S., we the explaining, in detail, which exploring exploration. think worth in the because might is acknowledge think that can the back the currently I on Barclays in it's that And I how exploring illegal I'll relatively think category more the change what we're it future.

Bonnie L. Herzog

value business. into comments spectrum, if fair. your question has some lot Constellation And their rethink one the for the it's then me, on recently about industry, of that's especially at and challenges strategy I of to rationalize business. it's may, and noted of causing wine the state final that made the end a them their Okay,

– like Thanks. maybe And how of seeing broadly, you you take really essentially, for then your to there? just what your I'd advantage for business. your brands So add you're then is to ongoing outlook hear long-term guys what in and And of the your to positioning from trends wine or what's trends? potential in us comment this terms for (XX:XX) (XX:XX) yourself strategy portfolio, to you're

Howard A. Willard

Sure.

I think you last I some are wine through water. that, say, would right business has the two over the gone years, choppy

business, reposition this wine their a but investing drove had performance the been past. as First growth to premium I think other businesses, what And nice of which the many slowed $X to result which wine all, was had year respond position. Ste. we've of to there had to our secondly, And that in a of only portfolios nice actually term long-term strong weaker growth long essentially, of from and where And not part had very activity. then and down. that's end above, been what the rate growth that, the a above. strong business, $XX And above the rates was Michelle moved of in $X than consumer are and

same to business regard $XX nice not the to been is also for but to as a nice investments saw three team next We that it's are strengthened wine in category, add growth, where view the get the going a the increasing wine confident years and favorable significant investment clearly us. or make you to Historically, I do with not that we it we're contributor and we think portfolio. would our year. tell two dynamics that But a business, it's innovation it performance that category the to ago. non-core is business so we'll above we

Bonnie L. Herzog

Okay. Thank you.

Operator

question RBC Modi of Nik comes Capital the Your from next Markets. line of

Nik Modi

Yeah. Good morning, everyone.

Just...

Howard A. Willard

morning. Good

Nik Modi

your waiting morning, Howard regarding been just FDA, end in your something curious the commentary suggested on IQOS year. prepared meetings approved in to quite by your specifically we've that question good wanted some – that. just just a expecting the clarity I'm on – Because to question quick of happen, around for ...a for get you this made with you And to you're quick approval get more remarks, there was on, some time so said? that

Howard A. Willard

time, said near them, that, rather was strength and new like, tell gave application hopeful in due year. reviewing of to feel is here of I application that was I FDA be the tobacco the know, quickly the this how on a what think the heated sort I of given PMI I've end guidance term. but patient knowing that beyond the the as you respond. category passage know, But the that I as been the I FDA that's approved relatively of it you course, really would to the the in they'd have already you of should be we're answer by

think the hard it wouldn't all pin down I to it's between now So me end it But came year. if would that out come exactly out. when really of surprise and the at

think says to that an the to that answer. I passage getting of get time it's ready be got

the hear from ready wouldn't about gotten come something it near the not is that. expect necessarily term, to act, Normally, the FDA I have you'd FDA would specific in that they We tell any you getting definitive out response. information because but when

Nik Modi

rates, XX realization been than And the it, helpful, normalized last, let's a also decline is little then Thanks. call but what that's or we've the it's over situation a category higher you on the months. question trend, growth in the seen the the taken other above – just have Howard. normally industry Very bit pricing where

been because that. if deceleration Do think wondering you maybe has the was the than in I there's comment you kind some So increasing on category higher normal? of just can pricing

Howard A. Willard

continue quarters of performance I a I to believe, this of think being drive a impact category to bigger that rate probably the probably in I if something elevation business pricing. of think elevated But has rate that that given rather secular driver pull levers is it's into do of decline future. for you number is persists the to of than to we few decline the from probably PM But or that's the think a the – elasticity have short-term a even I more order which X% That USA think out the price nice I point impact Yeah. small X.X% it X%.

Nik Modi

Thanks, Great. Howard.

Howard A. Willard

Thank you.

Operator

comes question Your of next of Deutsche the line Powers Steve from Bank.

Howard A. Willard

Hi. Steve.

Stephen Powers

you I actions of don't I we we but as more regulation as the do position voluntary – today, just is you at incremental application the And conceivably you that market, few the a as for deadline kind see conceivable now, if the a as pulling terms August in this from that, also think And related, follow about forward in product an next XXXX, FDA would consider then FDA products might Thank of and about did months? might know be secondarily, e-vapor e-vapor the it earlier Hello. see your took – conversations revised timeframe itself know based they all think that the you do guess, on it on to you you. template to date? comply?

Howard A. Willard

don't bit think actions spent think of have about we any ultimately to FDA to thinking had that on have the week, made. significant we quite community I I has were rest But that talking time going comments do, and pretty I FDA the a listening I tell FDA the that perspective you, has Sure. then deeper meeting know of is the taking. what been we we good last about a the with to

youth if committed I how, take contribution to we risk and down. wanted the usage took what not going is convinced by that address we you the and the the tell take increased So potentially at that exactly I FDA they're make don't they're use to would it they actions to issue. addressing long-term biggest address we that issue, the the to doing we of thought in we think impact help that think but take. addressing that that as significant to drive could smokers Because know the we actions that. actions think And I this I opportunity I'm youth. action frankly, to to going we address e-vapor to products increase don't it on I products are were cigarette converting would youth know e-vapor is adult have sure well. that am exactly a going And present

Stephen Powers

driven a agree being something so, in secular following Okay. decline little step called guess, we by up is up bit, incremental I Thank out maybe the you you. around earlier with. the that just point rate which X or maybe e-vapor, about

Or this even to this you're forward, you As consumers you penetration way talking negatively something one-time you is even that to do Maybe about step think see do e-vapor that if more consider or that up? more continues in amongst do a look as do a like grow? continues transient perhaps you accelerate up, as you tobacco adult of see – more it it. sounds the But nature? temporary fixed step

Howard A. Willard

to agree decline gave numerical now, an that think as I rate probably two outside But Sure. drivers of I to e-vapor with e-vapor I increasing cigarette that trying increased range, of X.X%, is growth I are don't probably you recently, look the the would of X% X% rate of the of in contributor. you most that gas which the think contribution think I long-term probably the decline another I estimate the cigarettes. that at smokers of actual and do is prices, increasingly think also

and X.X%. has cigarette of it I quarters, impact rate do us with quarters, hard in before, about that has What and had of growth persist. been think e-vapor least, has over the the last, to for long the e-vapor been four on gas we think to that it's it's the at stepped-up that's is decline growth moderated, and going both those then four also the how us been I But know rate and know prices significantly decline with tell we category. in

a to whether with think on to of we're e-vapor prices the relative down. basis have So gas what and going I see not growth slows or wait both and rate happens

Stephen Powers

I for in of discount and say in that it other one is it half In of likely to glass made category more. want understand half overall of that empty? the proliferation glass that great. comments read has been If was that on portion full risk or stable be Just is category squeeze the you and I share the around higher discount especially could to I data sure Okay, you comments deep to discount the more and it's take will? of to what as the The guess, the your data it question and make think more do my definitely today contained? Or we words, saying provided past, incremental sort by that, you're go noting that is relatively useful. you're earlier you a there's precedent trying is to higher communicate.

Howard A. Willard

trend, it and just packaged four I on the We years. my Yeah. shared would subject we have goods last we of to seven investors alarmed of periods, that and out or some like the data last that's a point When opinion. been last a data because overall or discussion you, I has over about felt lower it's five like really category a the of discount did reinforce in been three category something And you be or XXXX about the there's I good of three than belief. the fundamentals, six months. And for anything lot been category the provided stable, has to it's that has and alarmed kinds the discount think XXXX, XXXX there to tell discount that our year-to-date, feel those to be over was much felt about. this don't we consumer

discount are since very X complicated that But premium, it's we to small up a because of you've had deciding by on know cigarette don't there that at at when was than some to buying the discount. fact given we with car, portion of it find it. to are the causing that's consumers XXXX. to doesn't don't we've all look seen the a more rather share you alarm brand a address of in the that. of fact we impacted don't nice bit and economy interacting that be discount than year-ago alarming, margin a group point from branded need of when may costs their expansion that relatively you, think maybe back be deep strong And and a And adult branded it gas I gas because I to is bit have given invest natural up XXXX, levels, them little Now folks. think seem consumers that try and feel outcome And and a above and tell discount their be discount the go I choice environment. in save they the that prices little $XX But well to deep I more think that most

Stephen Powers

so you much. Okay. Thank Perfect.

Operator

question line next Pamela Your of Stanley. Kaufman from comes the of Morgan

Unknown Speaker

then is Pam. even the morning. This you've detail good Appreciate to on for discontinuing (XX:XX) after Hi, some flavors. given removing products regard with Rose the volume levels, the pod-based and

anticipate how these revenue just and much an you removing could products. a you If give for on impact us sense from of profitability

Howard A. Willard

Yes, ahead, go Billy.

William F. Gifford

pod-based, through marketplace to the we from impact, I'm numbers of with of was withdrawal going were those an the allows When the of – products proactive standpoint in through way orderly the here. clearly the the think about to I e-commerce. approach, We from think us think have those think sell and marketplace. it's immaterial, the available and Apex in a taking those not products actual products, launch you transition standpoint quote I of Yeah, the

Unknown Speaker

flavored thanks. it e-vapor And clarify, just to or in products removal this the sort Okay, cig-a-likes? is of is strictly all of

Howard A. Willard

Yes.

were other e-vapor. had Our addresses cigarette business. to branded I And we on we flavors tobacco the action mint going guess, products, that those appealing we're most think that results whole pod particularly moving our PMTA smokers remove to to in not flavored going to our the or menthol would green, or other products, a action e-vapor are our say, you youth remove for in into or us removing, market. volume that products, are brown cig-a-like of then pending stay products, which adult increase we're the regard our will is to cig-a-like With pod in

Unknown Speaker

one more really thank if can in you. I That's there. just helpful, And sneak

the products request volunteer proactively You to about the this the to talked about take decision of your to off driven just wanting addressing these how market? issue, youth by be FDA's proactive versus actions much was

Howard A. Willard

Yes.

emerged announcement certain the the thing any there's into contemplating. was not a we action we FDA, a from right we'll there's when a And further this we of FDA, more met think is with on more FDA do, that were felt the set take Our that step. should I think we part good came at whether was of but do. the But when actions we we to the like I meeting, if or certainly look first this

Unknown Speaker

you. Thank Great.

Operator

Your the of line Citi. of Spielman Adam next question comes from

Adam J. Spielman

a couple I much. very of Thank questions. you have

cutting First feel in you if suppose you of didn't to other all, in said investment a share. you my decrease in that the on share, you within answer question to think Bonnie to hold Marlboro, cut were market could share? equity So think sufficiently the you is in would do do is that's your and that result I increase or needed to (XX:XX) first investment do reason you strong maintain equity Herzog, Marlboro, question. you still

Howard A. Willard

it about way. I know I Yeah. that think don't that

We of we investments, always stable to sure share, we that have with variety profitability. regard sure to to things elements want and at make want next And decisions to we're we're we the make any grow have future. the is on four strong in investments good given well feel think maintaining equity against to do pricing to we I equipped feel that – overall and promotional we that I think those we our focus a we want equity, year, Marlboro. a four and make having success we sure year and we think continue to like we make have demographics, want around

brand the in equity to question up you can you. it the brand equity, short run, think with I cut but run money, save catches the always about I in long think

we long-term able feel in and like makes be we've the future. with well that deliver against had sense to feel we positioned to approach like Marlboro So the it's

Adam J. Spielman

portfolio. got Okay. Thank you And very your non-Marlboro then question much. I've on a

sequentially, declining, also discount interesting was that I which this grew. bit And quarter, same think, this it three the was know flat Now been time at has impressed it's deep a I previous by quarters. I because quite quarter-on-quarter, for

you your was just one got deep quarter. to XX move hand, discount if wondering other growing But you've declining So, trend allow this a on a the trend. hand, to stable. any was to on the portfolio bps flat taken you from I action And

William F. Gifford

Yeah.

think I term, a tough it trend, in quarter-to-quarter. call Adam, when you're short the at to looking sequential it's

basically we of And and call that those the and period certainly, a with would other segment look U.S. the effective well we've brands. you to trend, in western our allocate it launched time the expanded to longer a across as we efficient that way recall more smokeable over part think I but become resources we of Nat's the

well. think we that benefit of the as So we're seeing

Adam J. Spielman

bit just efficient And on taken a a you're can Nat's on actions? thing more the might your said little the that you you specific and have be other I again, you portfolio bit little get recently.

William F. Gifford

Yeah.

and I greatest think brands where around portfolio we have standpoint sharpened more other our to including L&M. those with they those resources resources a efficient from became allocating the impact of tools

those able the even a of greater and with or the resources impact with same to analytics we're (XX:XX) so sharp less. that, And have around tools end the

Howard A. Willard

we a why that decline Slims brands, loyal I that have see smoker also look other might Adam, when at our And a are rate. of some very base I stage those the chooses moderation Parliament, where that's Virginia like instance, we think think you part the at, you, premium core would tell for you or the reason brands. of I in

Adam J. Spielman

level were and this you there and long-term it's said back is, question discounts start coming you you? if would where branded to final be deep us the X%, Thank that you think? you of gave causing chart things would comfortable Okay. you. really Is to got then concern you, do my concern. very with mean, that And discount to an I back discounts, deep you not you are on now, any to issue for much

Howard A. Willard

impact us are in we category I of Yeah, primarily I concern and dramatic would premium brands. have increase discount to the tell you that be portfolio, a our premium what overall think that that focused growth would our would on

be grow more, and the growth trend getting continued Marlboro we discount kind particularly our lower performance the long as business deep a would were as that we think performing don't if profit I past, USA of nice share quite wanted, of I that's PM bit the than In have today. significantly at think had think I with we discount a growth well to portfolio is alarming.

formula know that we So works.

I'm it delighted share with – margin, we've it in or Although of is delighted it, it's Marlboro. the I grown and not this L&M tell I'm one six its taking opinion, away has delighted with the But the and done equity. to it's management grown to you I'm my a without about its last L&M shout-out from years, success is team, five over strong only share got have brand that the but reasons had

Adam J. Spielman

much. very thank Okay, you

Operator

Your from line next Lavery question a of Piper Michael the of follow-up is Jaffray.

Michael S. Lavery

the from HeatSticks Thanks. Marlboro into ones. if but I think quick the the two about it is would have I HeatSticks, have Marlboro be come and branding, gets market, a how considered FDA it? share of the just would approved hasn't yet, you part and approval do your know objectives that

Howard A. Willard

is, between the distinguish versus cigarette way measure and share think our I volumes cigarette and our we'll volume it we will share. is HeatStick

clarity to provide products is cigarettes. tobacco as So traditional we'll heated versus which

Michael S. Lavery

option on approved ahead would earlier an I'm again, a it's it able but be to just that's entirely Okay. you it available just if an application not to looking newer device. launched? the recognizing you the the bit, approval, device have to would of yet, a get Can speak got the Is generation And you what process does or to and new SE even PMTA? process do FDA be subsequently there,

Howard A. Willard

No, an PMTA. entirely I think don't needs new it

change tend that it's we bridge get new and the I the we done. that with on filed vapor, a the that to PMI believe to HeatSticks one that better changes we doing can and on, in the given versus are application some file of original device that working we'll And information bridging product, between the piece don't think we we work when they particularly hardware. current the of the just that

Michael S. Lavery

very you Thank much. great. Okay,

Howard A. Willard

you. Thank

Operator

question Jennifer next The Journal. Maloney Your Wall from comes the line of of Street

Howard A. Willard

Hi, Jennifer.

Jennifer Maloney

Hi. you? How are

Howard A. Willard

Good.

Jennifer Maloney

FDA clarify for products? in fees support user wondering you mean the what when e-vapor your I'm if letter you you could to

Howard A. Willard

that they the and products to products Food FDA the make of to the the Drug are payments set legislation (XX:XX) minds by because category on tobacco the in the products fund Administration initial manufacturers of The regulated when regulation. was cost certain require I And of was Sure. on think e-vapor FDA the significant do regulation. as now as their cost think not it's of pay legislation, share. we time long to opening the even update the everybody we're numbers up fair are there the passed, though the products pay of have to support market, into and that And

Jennifer Maloney

restricting Okay. Commissioner Thanks. think sales stores shops, That's in or stations. may indications e-cigarettes in helpful. sales convenience Also gas couple of words, of e-cigarettes wonder what other online vape sale restricting you through he the of weeks banning support past Gottlieb's that of and their over

Howard A. Willard

he judgment plan we I'm to science to I not is would they're is lot address here has. tell their what a you out evidence I And I said but talked that of that FDA wait think data whatever FDA on have that data, was to to this the comprehensive understand have they about intuitive been and reserving take think epidemic, to concluded there's the until takes that to exactly until going the going products to action to communicate be Yeah. I and what from we're convenience going when but do. really stores, it youth he action and I understand based going and me taking know

Jennifer Maloney

for your Thanks Okay. help.

Operator

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

Bill Marshall

for joining call this all morning. you Thank our

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

Operator

This today's concludes you. Thank conference call.

You may now disconnect.

Altria (MO) 25 Oct 182018 Q3 Earnings call transcript