MO - Earnings call transcript Q4 2019

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Operator

Good day, and welcome to the Altria Group 2019 Fourth Quarter and Full Year 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. [Operator Instructions]

I would now like to turn the call over to Mr. Mac Livingston, Vice President of Investor Relations for Altria Client Services. sir. ahead go Please

Mac Livingston

morning, you Good joining and Brandy. for thank us. Thanks,

and Willard, this discuss and quarter morning here Altria’s Altria’s business with fourth to We’re CFO Howard CEO; results. our Billy XXXX full-year Gifford,

we App. presentation quarterly website release, at today, results. on through and all and issued providing metrics release Earlier these press the The altria.com available are our a Altria Investor

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

marketplace actual Please and share and materially Our today’s repurchases forward-looking review cause of other from remarks and factors to results. subject forward-looking dividend on of contain at the earnings of various discretion payments repurchases the statements differ cautionary conditions end projections to section cautionary remain for Share Altria’s statement that and factors. projections. results board. could Future depends also future and the release

results Altria Adjusted these affect Principles. contain reported of call non-GAAP will Accounting our reports in with reported results. are today’s and on comparisons its financial altria.com. adjusted included Accepted results website the financial release U.S., items earnings reconciliations Generally Descriptions that Today’s exclude both special and and operating at in various with accordance measures on results basis.

the over turn I’ll that, With to Howard. call

Howard Willard

morning Thanks, the tobacco a Mac, category. and everyone. dynamic good was XXXX year for

performance responsibly tobacco with dividends earnings to unexpected share disappointing we in For shareholders with impairment less In and and the time shareholders alongside significant to growing reward for by we more cash characterized billion grew a results The led dividend increased X.X% which our delivered adjusted and charges JUUL, in XXth continue $X in businesses, reported paid our by years. core business our year outstanding investment XXXX, despite the with of XX Across to dividends. Altria, our our and platform, losses, Altria’s businesses per diluted accomplished was outstanding progress it two JUUL and distinct challenges performance employees stories. noncombustible investment. advancing from our

smokeless core income delivering significantly Our single-digit with leading operating performance, and strength adjusted margins product segments strong companies the smokeable adjusted growth, maintaining brands. and delivered businesses their high on operating income tobacco premium financial expanding their each of companies

performance smokeless on if basis years, smokeable you XXXX margin look products the our a for OCI of segments past and over expansion. a combined at and In the was combined high watermark adjusted fact, five

In exceeded significant we platform for on! the target, transaction. addition, lead business $XXX to of moving to advocated progress million social address purchase completion cost legal advancing of in tobacco among our markets launch access successfully to building And XX our the youth. we the reduction the made IQOS two concerns noncombustible and with products and all age

to Turning JUUL.

performance current form next down ultimate that e-vapor. review most decisions for smokers and usage create a category FDA’s that the its a forward needs path believe e-vapor looking category and We the on important our which the impairment are opportunity detail will in JUUL the investment, We protect the more manufacturers a the category, to disappointed discuss of the JUUL XXXX investment and e-vapor recorded critical of second the filings adult in of reset to we responsible and in for sustainable believe long-term we we steps short-term driving It’s shortly. must take a and PMTA in for are in alternatives. believe Billy presents steps time youth

will March including efforts end discontinue by supporting services prepare JUUL an revise governing to JUUL’s This other terms of And we affairs XXXX. JUUL submit May its services, providing all to announced the agreed investment. We’ve that agreement PMTA we’ve to continue of the regulatory with some morning, XXXX. and reached filings our with by we

JUUL achieve with and we’re Our committed collaboratively PMTA its critical on regulatory working helping JUUL affairs team to effort milestone. is this

a independent create new or to perspectives forward. will clearance and agreed after new dynamic structure e-vapor diverse help responsibly believe from board We board also the provide receive that structure going expertise successfully market the will independent the very JUUL antitrust JUUL’s FTC. we We team navigate and management

remain users from preventing non-tobacco XX% to its at using Monitoring to is kids more of a down low underage According For XXXX Altria, use tobacco Future, we X.X%, historic and at cigarettes committed XXXX products. from the peak. than

to support progress, in in rise the This this early significant with why is XXXX, alarming persistently national this minimum Although we purchase is and a worked age tobacco legislation. state e-vapor federal to lawmakers we’re campaign use. to by raise youth the launched XX troubled and

to federal legislation, enacted Congress age tobacco In products moving legal all the landmark purchase December, to XX.

more ahead half our to U.S. at are XX us continue reversing stop much efforts must Tobacco adult will have e-vapor advance work the and than interested smokers not There We approximately reduction. the XX. harm more today, youth in alternative million of in products. with We trends in

focused highly moving the these with While portfolio our and options we’re and We its category, responsibly approach forward resources. our portfolio e-vapor effectively in IQOS ever-changing with and noncombustible like products force, on JUUL and want organization, opportunities forges including building way advance alternative responsibly sales we on!. most our on remain to an increased we’re

HeatSticks Richmond engagement, that have early provide With to ecosystem the more than launch journey in IQOS, focuses stores trials. combined. retail guided purchase we’re trial, XXX an IQOS We smokers and and than Both are Atlanta consumer markets more from excitement awareness, professionals now of encouraged distributed retail conversion. by innovative and from adult XXX trained trade. include interest the now on across

inform forward. our lead continue We to plans and commercialization advance to insights our going gathering are them from markets

Philip and authorization. with its FDA we IQOS Morris the pending about application optimistic remains International’s remain for MRTP

plans of the the We rapidly growing a our while more to modern offers quickly launch FDA-authorized our for the PMI a and coming The by for months on an premium considering to modern regulatory, authorized X. pouches, submit compared battery rapid the capitalize currently device X.X a first-mover design nicotine this to opportunities advantage, focusing oral IQOS PMTA Additionally, plans efforts. distribution and risk IQOS device. supplemental device. in claim plan in presented more on manufacturing category, and charge In we’re advancing reduced and X.X a

First, subsidiary its the Helix expects for our submit PMTAs May on! deadline. XXXX by to

engineers there our begin building best we expect quarter. manufacturing to at this manufacturing and Richmond for capability center our on! are manufacturing Second,

are USA, three and smokeless can Circle annualized a nationally branded manufacturing top verification of accounts million through We its volume. midyear the in and premium XX targeting capacity purchased of five of XX,XXX now the by for XX on! stores, cans on age representing sold and Murphy K, chain website cans robust platform is retail Sheetz million XXXX. including by end be

our to base with on! and responsibly will tobacco brand use adult portfolio. tobacco on! its broad adult The day consumer team communicate about consumers

equity, build and to range In addition, dippers. team plans the the broad enhance preferences increase to the of of visibility nicotine the adult varying to on! the strengths and of smokers packaging brand address flavors

portfolio. of on!’s of through As these heated flexibility nicotine. compelling we broad businesses an goes opportune on time capitalize core our provides in in period advantage our a tobacco invest and e-vapor we us transition, The proposition it’s oral further make in investments and to first-mover to with plans financial and tobacco tobacco as strength believe heated our the

sharing XXXX where products tobacco with for products. at enter a prefer adult noncombustible overwhelmingly harm consumers forward more and future combustible CAGNY. continued We We reduction focus to over preparing on look

financial Let’s our outlook. turn to

annual value to diluted receive JUUL We a item and over dividends of growth equity now previously of of first statement from objective to currently Upon for JUUL we equity next years. the HSR For adjusted received our announced expect clearance, option, to the antitrust fair diluted earnings X% cash XXXX. X% XXXX XXXX changes in investment EPS expect using through we’ve income X%. will expect our the option. treated be include fair Under special lowered we any of earnings investment contributions value investment, changes resolution from objective the from in will in don’t this to to the fair three the excluded the Quarterly and adjusted our half quarterly JUUL account our investment Therefore, EPS. the X% in investment. as value Altria’s from compounded

and For expect diluted The X% includes day in from extra from guidance platform base a EPS adjusted the deliver XXXX, of reduction XXXX in $X.XX. annualized in X% that, rate range diluted our our of growth $X.XX full-year per to $X.XX. you as to XXXX remind increased a program XXXX adjusted to up non-combustible shipping share benefits guidance, and of we cost one year This earnings We’ll ramped the represents investments progressed. uneven first our quarter. were the

I’ll it over now XXXX our more performance. detail on to Billy to provide turn

Billy Gifford

and Thanks, morning, Howard, everyone. good

significant and environment we’re We our for adult investment tobacco in Cronos. tobacco tobacco adult financial commercialize the cash alternatives in with to generate regulation. us to deliver through return performance this tobacco steady to dynamic the and category evolution allows to category tobacco participate business cannabis and enhanced products preferences consumer strong deliver in believe remain continued and to emerging positioned consumers, our continue well We results expect shareholders, in satisfying to platform adjacent that and provide non-combustible

adjusted price lower earlier, in strong adjusted segment, percentage the for segment strong cigarette the pricing, significant The more OCI core year. efficient drive than products the expanded their smokeable margins and stated Higher X.X% segment’s OCI to data In to our tobacco As X.X% delivered efficient contributed products savings year. growth through realization objectives. was X.X cost were spending analytics grew enabled net up pricing. and more offset promotional resilient XXXX, smokeable Howard mentioned the excellent points promotional the its for More spending against XX.X%. segments performance by volume income to by segment’s and

exceed XX.X%, remained with Marlboro’s retail launched packaging since remain equity launch. over versus pack expansions and equity program continue driving year tenth enrolled our are The resale Rewards Marlboro Marlboro million expectations, investments support repeat and a codes XXX purchases year. million brand number smokers to prior one other a entered item. coupons share ago redeemed with Marlboro down and the nationally continues adult X.X performance. at to its innovative Product stable

that quarter by full-year movements level, for trade when U.S. cigarette industry inventory the in and adjusted X.X% fourth by we other volumes the declined factors. and for X.X% At estimate the

We and the category other usage accelerated adult incremental smokers decline. movement categories, continue to believe to year-over-year drove e-vapor, of exclusive increased that primarily e-vapor

taxes, manufacturer remind price retail the we’ll this that component pricing rate margin and include changes. changes decline cigarette excise elasticity, based that is trade on For price of investors

For the result impact of volume approximately negative cigarette the the this retail for is X.X% full-year coefficient increased the industry X%. is prices multiplied When of elasticity by X.X, XXXX, by a at year.

to Given move XX industry into factors these regulatory volume X%. account, legislative as to all the to the trends XXXX adjusted in cigarette developments expect project X% dynamic. tobacco products, we e-vapor and legal Taking volumes purchase industry recent we to age remain national and the to decline cigarette full-year

volatility a However, continued to we’re multi-year no for U.S. forecast our cigarette due longer expectations declines. for providing tobacco across volume categories, industry

four-tenths share estimate discount, in discount remained but full-year, that with the XX.X%. at In we levels was total for share up line the historical category

While its branded have continues some L&M’s to increased over performance profitability we time. with pleased ceded discount, PM in USA share be and

X.X% large great exceeding a had JMC category. the cigars, year, In cigar with volume machine-made growth

pleased cigar Black strength segment with smokeable growth. the cigars and the and segment tipped continued of profitable the Mild to We’re & adjusted contribution OCI business’

more spending adjusted Our and XX.X% smokeless higher expanded product and adjusted by pricing, percentage The promotional $X.X delivering to offset by three costs X.X% more in more efficient segment margins product maintaining OCI adjusted in well volume. strength OCI and lower as behind segment’s OCI lower performed XXXX, Copenhagen. billion points than than smokeless increased

XXXX. to six to calendar an continued volumes an for the XX.X%. declined last share trade by for volume estimated When estimated the inventory category and X%. decreased year adjusted months, three-tenths the In Copenhagen and adjusted grew differences, total industry in smokeless smokeless by movements X% its lead by

volumes. that pouch continue oral and and smokeless categories We impacted to dipper believe the interest adult e-vapor nicotine

in rapid category regulatory illnesses growing JUUL. products. survey declined to the the through quarter, XX%. youth in JUUL’s In of to Several sequentially X% or vapor-related driven XX%. to and Moving showing and almost drove we significant e-vapor market Late year-over-year. months, e-vapor quarter, nine a slowed and government from was in the approximately Also, XX% growth entirely e-vapor, action. experienced flavored nearly fourth third quarter, e-vapor first news growth The of growth of all the use the estimate states to and share the data rise release the deaths sequentially volume by legislative e-vapor ban moved category’s category fourth X% declined the

we a quarterly our preparing In analysis of valuation in our and investment year-end performed JUUL. financials,

has against increased this to investment, by that XX, JUUL cases cases earnings announcement a more billion the cases and JUUL October pending increase. our XXXX, number number analysis, the As of result an quarterly by we’ve additional against of last against recorded legal $X.X our the on driven legal JUUL pending continue to the will of XX%. number of Since than primarily JUUL impairment increased expectation

the brief due to quarter, expected various adjusted third a the For from growth likely e-vapor action and in cash JUUL e-vapor the in bans category reflect U.S. slower to we review, result the flows future increased just regulatory rate greater the U.S. of In we legal quarter, in reflect described, and as international. the cash flows. future environment JUUL’s we to around uncertainty a fourth discount

$X.X The value current latest our impairment the billion. brings investment to of

said the year performance of forward more can in move and hope we earlier, constructively. we’re past As disappointed JUUL the

the acquisition of CBD building vaporizers. of we’re tremendous opportunity. significant Cronos has rapidly for its including and and Lord brand. filling building They And cannabis Canada’s differentiated U.S. presents strategic intellectual legalized key market, brands of manufactures which Cronos’ business through capabilities Last and with We entered business derivative with our if U.S. Redwood distributes regulated been talent growing the pleased a year, hiring Cronos and property. platform. legalization preparing progress products its at the to made believe Turning investment, Cronos. Jones in progress Cronos executing cannabis disruptive a Holdings, level, also market federal and critical against are luxury reasonably roles. acquisition, strategy the

primarily in year in the work higher reflect and nearly Ste. they digital brand ongoing for down invest and alcohol, which our to In Michelle’s promotional was packaging, continues in marketing wine address. XX%, $XX cost to innovative driven Michelle segment by business, Adjusted OCI results million, investments. challenges the to optimization. continue Ste.

stores. number For selling Hands X-XX is example, XX now one in the canned premium wine

dividends adjusted delivered an In ABI in earnings, increase cash $XXX equity also in million X.X% representing in $XXX year. XXXX. beer, nearly ABI contributed for of million the

quarter. the allocation. $XXX fourth in million to We repurchased Turning capital in shares

expect We the XX previously remaining $X complete we this to time in million program XXth last have And our the and $XXX the for dividend under billion our by share of August, announced year. increased buyback program end the years.

$X.XX X.X% of Our yield of current January share XX, XXXX. of a rate represents as annualized dividend dividend per

take That to our your Howard results. I be and wraps will up happy questions.

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

questions? period. open do I’ll that, With Brandy, question-and-answer up the any we have

Operator

Chris Thank you. comes Growe Stifel. first the [Operator question from moment Instructions] of please. line One of Our

Chris Growe

good morning. Hi,

Howard Willard

Good morning.

Chris Growe

just I category. I cigarette question, just wanted volume, looking to the ask a at if in could, first, on – particularly

seemed understand, for to You as had volume the to in XXXX the performance of there I look of a in little guess, number want – a quarter. ahead. be number stronger takes and I to fourth we a category [ph] puts

been could which seems has curious movement. big ahead, a deceleration on XX, in look It which e-cigarettes, pretty marked a category there. volume. guess, have we As I’m seeing I you tobacco a the like be cross drag we’re about drag

in that’s for XX And to you XXXX? e-cigarette affect understand expect help going cigarettes just tobacco how perform then, maybe category to the the how in XXXX. volume and to So,

Howard Willard

X% volume when legal range think With our XX. first half last industry to X% XX, cigarette you year, X%. declines, I we look in to to with estimated cigarette volume tobacco of at about of age regard is the

I would going that And say age states legal had an at XX we that this certain so, already of already number a of certainly, made to impact But you to be purchase before year forward. a going that’s that measurement. were

U.S. more than factored got of of that by covered some XX the was mid-year. volume in by XX% And as

base is some So, that rate. the decline of the decline in of

that we that’s really the And of to predict see a to was just what’s But going you I over e-vapor, decline maybe I think category. continued X%. slowdown turn in e-vapor fourth even to its it’s think result to that years. if hard expect less on that the rate cigarette to this regard think going couple we’re year, year-over-year in category to category. of or the And pressure only precisely quarter a happen next the going with growth I to

cigarette that nicotine products potentially and could impact our business. pouch tobacco-derived heat-not-burn other though, of the IQOS and course, The the category,

Chris Growe

I in follow-up achieved is question, thank Okay, that. in which cost relation XXXX. for had savings you to one you other the just

$XXX annualized you You had you year. noted the that about million rate a exited

that Just $XXX in actions And puts through around in way clear, you you to from to you be the fourth in million XXXX? undertook discuss quarter. there coming any what left XXXX the is have

Billy Gifford

Chris. Yes,

ramping were headcount dollars the the we headcount went because through toward the of end come quarter. the biggest first remember up year You’re will right. the exited related We XXXX. that as The reduction from of most annualization

be of the annualization. part that biggest So, the will

Chris Growe

how And say, savings is are in Billy, you you terms of much able expect to left XXXX? in

Billy Gifford

the I Yes, million go rate. an of probably level is a I into think good run from that detail, but won’t number $XXX annualized

Chris Growe

Okay, thank you.

Operator

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

Vivien Azer

Good morning.

Howard Willard

Morning.

Vivien Azer

So, I be. has some cigarette touch wanted how on of volume just your industry market share to given the dynamic proven to backdrop aspirations, base

So. relative possibly a to think, or four think holding modestly Howard, about not about does guys what to Thanks. it’s growing cigarette you three worse share? anymore, to change that as how think market a outlook your used you you

Howard Willard

it’s were we had We I down in had last a on modest higher cigarette we our on level say had the of strong We stability growth from with and step have at to share our Marlboro. profitability a pleased L&M, that but profit much year. performance category.

the and last we quite acceptable. performance year had believe strong quite we that was So,

Vivien Azer

versus internationally? your at And Okay, over about can JUUL, comment years next what just domestic mix are JUUL, Thank that’s all now you. revenue the helpful. on for you to expectations for follow-up few

Billy Gifford

be had that know announced process taken they that are of internationally. between the that’s From certainly their there’s split level international roll out. both reset Vivien. the in U.S. detail we going they’ve up resets to We plans into valuation incorporated you into the the a announcements Yes, place until of making I’m of in – – But both standpoint the U.S. analysis. the hesitant we to the of of some and a some continuation see has know go JUUL and of

Vivien Azer

Understood. much. you very Thank

Operator

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

Nik Modi

provide maybe that? with around everyone. that morning, shelf helping anticipation no outside this areas the that that can of Is some regulatory. means other any can previously Howard, you just mean, in of you ceasing review? discussed. Good and JUUL assuming coupons of FTC just I spacing context of Yes. about I you’ve am talk

overall then, your guys about we reviewed And out data you for just potential in that some of I areas out at increases? just us XXXX, be you could big looking thinking thoughts Thanks. hikes. tax the should terms there, but maybe and haven’t any give that areas just of excise watching tax are

Howard Willard

the to quite file their of With important to two the teams to XXXX Sure. not it’s providing that review. regard continue where in the FTC are to the them most related May to change one with And regulatory affairs working year. I We’ve services provide we’re to services, JUUL, and together, priorities, a this of think in application compelling effectively. I complete think that’s agreed

recall a number were there you last that them. services we As offered year, may of

other own turned own places, and of but infrastructure. our the an them, force. services such built then utilized as Some built of they they some down on basis, infrastructure sales their hoc their ad in And

at both of JUUL it sometimes really personnel get out that personnel executing most created effective confusion for that sales that were organization. retail, way was having in Altria Altria and the it found JUUL wasn’t the that we to an and What involved

gives and them tobacco to and we in of distribution a ultimately sole pleased back to services that they we’re think IQOS segments have our capacity they’d to with businesses. two us sales well of effort, the as for impact on the as the our provide core distribution opportunity supporter back. can pull exclusively the organization on!. are we’d other invest we having I they And really and and kind our and know that expansion of our have some continue agreed And focus of JUUL sales of and So, when that that number the

Nik Modi

Great. Thank you.

Howard Willard

Thank you.

Operator

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

Pamela Kaufman

morning. good Hi,

any So, at have elasticity to Billy your And the been changed. pricing availability of touched that on changes which there realized to cigarette Are category, rate? his in do continue surprised pricing do have risk increase comments, your not lower-priced elasticity in given high alternatives? you to a ability have single-digit pricing the to you not appeared to see

Billy Gifford

we’ve at Pamela. we increases. Yes, price When price recall, look had you’ll elasticity and significant

If into other consumers, at given it history, alternative that go elasticity held we you negative whether in price factor when pricing the and of excise From reasons was reasons to out. is or a X.X% for really talk state, coefficient. MSA a related mentioned. doesn’t taxes in back to There standpoint switching are products, top

So hasn’t pricing as are we’ll it note of be to forward. that the bit reluctant is is future I’m talk not that a about and and but also assess will to P&L, that puts changed. part little we going our pricing. surprising move algorithm, takes that, I across the there an important

Pamela Kaufman

in Okay, Tobacco thanks. JUUL’s any I Survey? your outlook you PMTA JUUL’s JUUL’s to the youth ask an on wanted to would recent of improvement a submission. for based performance meaningful there improvement Youth expect next surveys? in trends in usage evidence And Is see about also And

Howard Willard

I available the of before as a for that the do But since before will expect last there quarter about the deadline know that that to second Yes. second data I be decisions FDA quarter don’t they of filed. publicly there’s of accept survey available won’t publicly year. released filing any it going while to make will is government May, the And completed. certainly be I it PMTAs be been expect time, be on bit would

is be think, products significant think improvement going reduction to an is I there optimistic be of usage of very because or a to two that that developments. e-vapor youth I reason there in

have one a first now nationwide. age we is purchase that The minimum of XX

for secondly, to effect nationwide that’s And effect menthol. that and now then provided for restrict, is in three certainly flavors measure FDA an to before that youth a tobacco that the going I survey guidance products, be starts to think full pod-based has will availability e-vapor the of usage. months

rates. I think down on well. And that that would decline usage driving I expect usage certainly, would should have youth the a JUUL positive impact as

and how we’re have think I fast to think going see. it I goes to down, wait

Pamela Kaufman

Okay. Thank you.

Operator

with Your comes the line next question Barclays. Ohri-Gupta Priya from of

Priya Ohri-Gupta

much. you so Thank Okay.

follow-up question, a around potentially last products came e-cigarette that of you $X had then you on from guys And Just month. sort mitigate how the expect quick bond due disposable benefits billion to usage. this of youth earlier that secondly, some a

Just wanted to understand cash have paid just if we should expect sort down. you you. to you your of refinance to that expect Thank that or healthy given flows,

Howard Willard

Sure.

I fact market FDA products the the system think other restricting pod-based you’re other than they quite going enforce the that were products, flavored the implemented availability referencing when some the were formats. and for to And any were closed that product that, clear against with in not tobacco as of clear their to guidance product menthol. they they of regard

that products, specific found e-vapor certainly product quite contributing that going product also regardless the was any were they that were of usage But to enforce they I they think youth format. of to

products than switch other formats well. enforce your Billy I it question. if So, FDA you products, I in the youth and as to over against product turn see to expect usage, think other I’ll step to would pod-based bond on those

Billy Gifford

Yes, you’re right. exactly

core our the available cash. of generation businesses, with debt pay from strong we’d cash the With

Priya Ohri-Gupta

Thank much. Okay. so you

Operator

question line Piper from comes next Lavery of Your Michael of Sandler.

Michael Lavery

you. morning. Thank Good

Billy Gifford

Good morning.

Michael Lavery

that now what recording that is contribution expectation related or reflect Or does that years, the more – would those your for income dividends? cash to equity three earnings years the over three not four look that any accounting next might like? expectations the treatment, have On JUUL

Billy Gifford

through. that the components you look two Yes, option, value Michael. you When fair have come at

to you You value if if you you the only quarterly adjustment change equity related have, the fair a record, to then, or will, And income will, dividends. on basis.

expectations line include receive don’t since only dividends And next the have would that years. any so dividends, over that we we equity would three

Michael Lavery

pushed to delay clarification. you’d the now, helpful That’s thought and out just you And be Thanks. FTC you on resolved the cause it review, quarter Is first for in half. color that it’s the give first would a concern? some said obviously, there? any Can

Howard Willard

significant think think some driven for but There I going anything scheduling don’t delays concern. than And a pushed were it it’s activity I that of of quarter, the there amount more is is out it cause don’t likely first that. a on.

Michael Lavery

Okay, that’s helpful.

the Just for the the reason change lastly, here? Is upside million should the or should and there expect full that? any bit are outlook you about buybacks, would to why quarter in How $XXX think now, that did against year. from $XXX million guiding maybe little pace fourth we on we of the a

Billy Gifford

Yes, the We as to market going I’m not I Michael, at decisions. repurchase, far as share look Yes. think, those to pace. make speak really the and

is We’re that program, current repurchase make to and we we’ll pace future. share assess in the whether what changes in the the any and

Michael Lavery

very Okay. Thank you much.

Operator

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

Adam Spielman

the can be imposed you states, questions. a guess? on would Can the with In that seen I the for tobacco where while, Thank my if question rate, there’s been you a couple say That you’ve I very much. run I volume in XX? of start a XX. first tobacco have difference quite

Howard Willard

question, Thanks for the Adam.

way when the has that they the of that happened. in the impact think look at you individual differ states; I

XX. a earlier, referring much but know on early. states tough it’s so it’s a out. the the you’re a to And bit that I level, nationwide with able couple We’ll went that to federal of to now certainly see tease – be

able be to better that provide we So, we’ll forward. move input to as

Adam Spielman

Okay, thank you.

I that, two to the tobacco related also XX impacts. So, has guess

future. how the think have of in not wondering in think also – rate point, tobacco you in whether but buy just the whether is might – almost guess, you have people that but declines smokers ongoing whether because, might an decline I volume XXXX, you think does year US. the impact you Firstly, because about was it, And this volume might worse, the that get second can’t it potentially there they only just immediately, you’re also run I fewer recruiting fewer

Howard Willard

Yes.

were we age that law. legal I the XX up are tobacco at product way we of think and Clearly, it think fall as legal and longer that about the tobacco looked we to don’t before you hope they end it. that of up to impact know the are users divide out XX, that there the legal obeying the no purchase I category

to I actually but have their entering advertise that And we of don’t think delay on research might while consideration future category. non-tobacco certainly, do don’t We impact a users, tobacco could cause the secondly, tobacco on that. category people volumes. XX to

Adam Spielman

then agreed less to if going And like obviously, what much. very JUUL. provide. for with now got change of to less value you JUUL wondering in to provide previously services if thank agreements I in to return back come I than them was looks And And just can Okay, the them. has the had anything just you you’re

Howard Willard

Well, the think looked the agreement changes I agreement. think JUUL, of number there to you were as I with at a ultimately, that

both agreed think that I ultimately both an we and why to that like we value sides that’s to provided agreement was felt it.

Adam Spielman

forward? in to will Why And Fine. think we the that that noticed in XXXX I share, increase the discount terms see category, the category, should to continue think discount it non-branded that deep in And discount was growth sort we slightly that you going than just do was? one higher final of previous about you market incrementally. years, switching non-branded do something of question. – and of was

Billy Gifford

Yes, Adam.

for that’s in I had most churn been the to being about what it that, the year think I year. occurred related think talking of we and primarily

churn. outside slightly right, just in XXXX; You’re of it stepped

a they down consumer that us will, discount, And a you’re of the aging consumer I there’s base, category, seeing the to and bit think into more think will, others – in cheaper the the cigarette – to adult but the move always present group are seen deep skew the in as the of see consumers as tend I smokers, that you the looking for of on discount discount. if or store. if you the cheapest profitability take you’ve AOM we branded

Adam Spielman

Thank Okay. much. very you

Operator

next Your from of Jefferies. Owen question line comes Bennett of

Owen Bennett

back also, release in that in And you questions you guys. like, obligation you then And get would just U.S. that. therefore, good part And MarkTen scenario morning, on right happen, Good question the to a – finally, few the you’re quickly? before it around did a tried some get it a Or and Hope that if with from be to well. MarkTen be that, around can you could assuming, all where for non-compete instance, in a in would you market? it market? little the on PMTA MarkTen available, where had is to you then need get PMTA in of get it the pretty would are is first A spot,

completely it’s the So, removed not been shelf. off

that again So, you ramp could quickly. pretty up

Howard Willard

performing would product we certainly, to placed be particularly level XXXX. it through at market on that the to that not don’t put think of would after we a that to renegotiation any we too wouldn’t have I were that. point and flexibility on assuming the May with that products; found they out need we us that I the much future to Sure. a plan, potentially our if decide JUUL well-defined had go And to satisfying. I be that although gives were was in execute e-vapor read into more compete some PMTA market would Certainly, authorization,

Owen Bennett

much. Appreciate Thanks Okay. very it.

Howard Willard

you. Thank

Operator

next from of the of Gaurav question Your Barclays. Jain line comes

Howard Willard

Good morning.

Operator

is line open. your Gaurav,

Okay.

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

Steve Powers

in causes we past. to what if you going discussed that guess could, We’ve an category brand may back and year. the standing clearly, I dynamics, share the versus saw a I update, is But little just the bit – relative And thanks. with loss equity. discussed about brand just any this we just in your the in satisfaction to need some Yes, you – and of that see the there anything there action? guess, terms concern Marlboro its past you market share cigarette overall corrective that

Howard Willard

No.

USA had and presented We brand. brand. PM the around done fantastic really mentioned that us has with earlier. a the are job stability Marlboro team Marlboro pleased They’ve Rewards some programs. very think equity We with excellent I

look purchases back to we I strong eight Marlboro. stability. you’ve provided engaged and think with stability it that’s very consumers huge that a the want saw itself. necessarily you a with quarters, those consider over Yes. call the Marlboro to seven – And I driving wouldn’t last be brand I that really if the, consider in that it, repeat seen We decline.

Steve Powers

remove profit lack maybe, your of And to just on other that the managing great. the guess, that as outlook, more to impetus to action trying reflect volume is metrics Okay, that intended visibility part optimize removing guess, focus simply communication. cigarette towards more motivation you I decision a just your secondly, then you or as on does behind us kind I work and understand, the across of I’m growth see to portfolio? your important from the long-term number

Billy Gifford

Sure.

forecast and cigarette continuing like falling And number level we forward we’d like trend the within we the reasonable we’ve that experience if for to of think confidence it’s volumes are probably we’re going forecast, about based that. on that on better were better to are position impacting to to based found think of I it going with provide thought the not in And we that it. our I – than one-year past three-year trend. we a do that, a things off provide just we’re feel that

Steve Powers

Thank you much. Okay. very

Billy Gifford

you. Thank

Operator

from line comes the question next of Your Rampton of UBS. Robert

Robert Rampton

were you. question Pods? volumes quarter-on-quarter. from looks implications the rest thank like trying for think imminent Mint of Thank the My JUULpods so it to the you. JUUL ban market. after came of of first cartridge the I’m that Hello, about How down XX% is, much

Howard Willard

those instead that, can’t the remove that that after break – I of withdrawing came the be the volume for down of didn’t that November of and quarter. think was other I decline flavored in how mint them don’t decline fourth step-down the removing market. a JUUL proactively really their products first right remove volume FDA the of volume think driver impacted Sure. how to came products that that from quarter, you impact companies are there an and for to primary their and I force I JUUL, will But course, waited of announcement much impact the while mint before. them is in And likely to for be much

Robert Rampton

decline estimate that next I that e-cigarette XXXX then that or implication looking at mean, in my total, drag And is Okay, two-point for your year sales – for assuming year-on-year thank I – you. question so, incorrectly? am XXXX, is interpreting of disappears two-point the this drag

Howard Willard

would precisely. declined, it’s you estimate volume We’ve our I other you’d impacts up to of cigarettes for cigarettes. probably related I the XX. Well, or the the measure e-vapor decline of away. decline think X% to given I factor The in of go what to hard – impact an movement either But of course, question bit you other then, of think a categories. any would have had Tobacco think stepped that X% potential that be to to and then are e-vapor that if category that little heat-not-burn

Robert Rampton

how happy color you. That’s Thank color very helpful. will thank fall? more sorry, any the U.S. to the think to Germany going then where my on iQOS. on Okay, on you Are you of on And final that’s Japan? question give you. spectrum Any

Billy Gifford

We we’ll And have to and We what Yes, us at it’s subsequent getting I is in still a and in much be looking started do the Richmond. learnings. CAGNY. know future launch both I expecting bit adjustments Atlanta you’re say Atlanta our had plans more that, early. we’ve think we learnings in are but sharing at and some

Robert Rampton

you. right. All Thank

Operator

from the We media. will now take questions

Journal. question line Street Your from of comes Wall of Jennifer first Maloney

Jennifer Maloney

is question my for you. Howard,

bet for on made the big case personally JUUL. You this

in your sooner your for feeling in You in having are JUUL act to address I feelings own to frustrated feeling what shareholders, made case moment. that regret concerns? invested the you the board didn’t now you regulators’ wonder And members. Are place? to JUUL first this Are

Howard Willard

have JUUL highly the had the in valuation, is I you, most what disappointed recent think investment. substantially I performance to below the in that is reflected which financial that we tell expected. And I’m of Well,

a have year. the at the was appearance that, there lung the that look of think unexpected I think drivers number I to as one outcomes forecast of in of serious you injury. were the the Probably, was hardest

recommending Essentially, vaping THC black to had serious driven products. and CDC it consumers the consumers, they of all THC injury took get quite that lung both by time e-vapor primarily bit nicotine to a the market stop and that you clarification was

it’s a So, I think disappointing performance.

to was note and an going appropriate are to a JUUL that positioned I in the more in reset share the XXXX. I be drive there that in usage, volume would, youth the the And is however, that have growth do following down well leader success is think the I to leader future. category think they while I market reset reset think

Jennifer Maloney

on be I an Thanks. agreement the one and And if out off the by law. This JUUL gives may. it market non-compete taken you federal might that revised new more, acknowledges

did now higher you a So, do possibility you as than see that before?

Howard Willard

deadline. happen change to of the on I to a things be additional certain May always and we there a something our clearly, into But go we you that in of might think focus optionality to those view have PMTA necessarily the by having market under don’t thought compete, that that driven the compelling to is a primary FDA happen have in by were in value. our future and could JUUL that JUUL. we I option to like elect change is with the what helping now; file XX happen circumstances back our tell But right the complete had thought decided able that and the chance agreement to

Jennifer Maloney

much. very Thanks

Howard Willard

you. Thank

Operator

Kary the is next of Bloomberg. line from Tiffany of question Your

Tiffany Kary

Hello, good morning.

Howard Willard

good morning.

Tiffany Kary

are you. indemnifying? agreement Howard, steps How And was isolate of can for JUUL? structured you the terms deal yourself, calculating to take there from not risk are the a the in the given way Or question litigation indemnification you agreement?

Howard Willard

Why I Sure. take Billy that? let don’t

Billy Gifford

Yes.

So, rate whether the or not to JUUL. assessing the of the you successful look is, really did a at at in would risk related merits cases, it it assessed they really fourth looked at if against the was uncertainty really assessing we be the looked We way change We not quarter the – impairment. litigation. assess the for the we of discount

higher price from share itself quarter our but a to in history was gone when you in back we go the the price, suits, the that’s compared reflected market discount facing if level recall, has even share that S&P. were suits that, tobacco fourth Subsequent You’ll put our impairment. similar on and AG what our to of

for be in, meritless are as and far would merits we’re they As motion agreement, we of the we structure filing cases we the I will do a you, remind that of to named the dismiss. and think assess the

Tiffany Kary

more if has PMI may. you. a another deal made with I Thank company. one Korean And thing, just

X. Would Morris Philip company products your already ever U.S. You’re moving you overseas? sorts other in iQOS of the to selling on sell that is sister

Howard Willard

that on comment won’t time. I but this open-minded, at always We’re

Tiffany Kary

Thank you.

Operator

next line of from the Barclays. Your comes question Gaurav of Jain

Gaurav Jain

Hi, had a just Number of through I the the volume one the of on thank questions. couple apologies you. drop. for cadence And was year.

QX So, QX was minus industry volumes easy XXXX XXXX comps when comp were volumes to minus down X%. industry XXXX QX X%. XXXX X.X% are very QX And were when

be better the year? will second in volumes volumes that that’s the through tobacco and expect much half how and the in we should impacts So, progress first half, XX

Howard Willard

each it’s I know with cigarette level predict decline that possible that of precision. to volume Yes. quarter’s don’t

you be, the kind I quarter-over-quarter provided puts our I think of a we basis. perspective what but on and forecast with takes hesitate on would might to

Gaurav Jain

the but question My Sure. remind MRTP you will an that PMTA, us Copenhagen mentioned be of with a as could where filing on! also well? filing on you you thinking MRTP? are would be is also you second you And

Howard Willard

had has priority think reduced on MRTP. deadline, to first by after task a you turn risk And a right May you expect that think we the And to are good I completed. now. filing the been right our to to Copenhagen Copenhagen. file that, receive hear the we’ll since is We an PMTA out product anytime get that Sure. TPSAC we but regard it’s a Right that is I the as potential now, hearing year to that to a we also point product on and would that potentially Copenhagen about May with thought hearing are

Gaurav Jain

lot. Well, a thanks

Howard Willard

Thank you.

Operator

for any I will management comments. turn back over to you. floor Thank now the closing

Howard Willard

business flexibility non-combustible JUUL our In delivering providing with invest challenging, and you. resilient, to tobacco remain category e-vapor the significant the and Thank are our in businesses us while cash strong platform. and investment summary, core

business continue best positions believe platform that various category enhanced future us scenarios. under We succeed to Altria’s to

accomplishments Because please And our greater joining to for dedication team if contact the in over questions. Relations relentless and Thanks again, past Investor to the you thank their Lastly, I for even employees succeed and our future. confidence us. importantly, ability want most into have have I further of them, our year.

Operator

today's conclude call. does Thank you. That conference

disconnect. now may You

Altria (MO) 30 Jan 202019 Q4 Earnings call transcript