Q1 2021 Altria Group Inc Earnings Call
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Today's all its good luck, making remarks about trees.
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And my question is that in fact, a question session you will need to press star one on your telephone if you require any further assistance press star zero.
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 Mac Livingston, Vice President of Investor Relations for Altria client services. Please go ahead Sir.
Thanks, Stephanie good morning, and thank you for joining us.
This morning, Billy Gifford, Altria, as CEO, and Sal Mancuso, our CFO, who will discuss <unk> first quarter business results.
Earlier today, we issued a press release, providing our results release presentation and quarterly metrics are all available on our website at <unk> Dot com.
During our call today, unless otherwise stated we're comparing results to the same period in 2020.
All remarks contain forward looking and cautionary statements and projections of future results.
Please review the forward looking and cautionary statements section at the end of today's earnings release for various factors that could cause actual results to differ materially from projections.
Future dividend payments and share repurchases remain subject to the discretion of Altra as board.
Altria reports its financial results in accordance with U S generally accepted accounting principles.
Today's call will contain various operating results on both a reported and adjusted basis adjusted results exclude special items that affect comparisons with reported results.
Descriptions of these non-GAAP financial measures and reconciliations are included in today's earnings release and on our website at Altria Dot com.
Finally, all references in today's remarks to tobacco consumers or consumers with any specific tobacco category or segment referred to existing adult tobacco consumers 21 years of age or older.
With that I'll turn the call over to Billy Thanks, Matt Good morning, and thank you for joining us.
We're off to a strong start to the year and believe our businesses are on track to deliver against their full year plans I.
I guess the challenging comparison, our tobacco businesses performed well in the first quarter and we continue to make progress advancing our noncombustible product portfolio.
This morning, we announced another important milestone in the Altria journey to move beyond smoking.
We now have full global ownership of all oral nicotine pouches as we recently closed transactions to acquire the remaining 20% global interest.
We are excited about the opportunity we have with one to convert smokers and we have talented teams supporting the global plans for the brand.
Before discussing our first quarter results in more detail, we would like to honor the memory of Palm Farrell, our late chairman of the board.
Tom served 13 distinguish years on our board offered valuable insights and guidance during his tenure and was a true visionary.
We will Miss his leadership contributions and friendship.
The board will appoint a new chair at its meeting following.
Our annual shareholders meeting in May.
Let's now turn to our first quarter results.
Our first quarter adjusted diluted EPS declined one 8% per.
Similarly, driven by unfavorable timing of interest expense and a higher adjusted income tax rate.
And the Smokable products segment, we continue to execute our strategy of maximizing profitability in combustibles, while appropriately balancing investments in Marlboro with funding the growth of Noncombustible products.
Segment, adjusted OCI margins expanded.
Marble continued its retail share momentum from the back half of 2020.
For volumes reported smokable segment domestic cigarette volume declined 12% in the first quarter.
Reflecting year over year trade inventory movements, one fewer shipping day and other factors.
When adjusted for these factors cigarette volume declined by an estimated three 5%.
We believe that into first quarter of 2020 wholesalers built inventories by approximately 900 million units driven in part by COVID-19 dynamics.
Compared with a depletion of approximately 300 million units in the first quarter of 2021.
At the industry level, we estimate that first quarter adjusted domestic cigarette volume declined 2%.
Looking at smoker retail dynamics, we estimated that total cigarette chip trips in the first quarter remain below pre pandemic levels all.
Also estimated expenditures per trip remained elevated when compared to pre pandemic levels and were steady sequentially.
We are continuing to monitor the impacts from external factors.
Tobacco consumer purchasing patterns and behavior.
In March the federal government passed a third stimulus package.
An increasing number of people became vaccinated and consumer.
<unk> mobility improved sharply.
We're keeping a close eye on the tobacco consumer and we will continue to provide our insights on the underlying factors as the year progresses.
Moving to our non combustible products. We are pleased to now have full ownership of on oral nicotine pouches globally.
We completed transactions in December and April to acquire the remaining 20% of the global Owen business for approximately $250 million.
When we made the initial 80% acquisition.
For 2019, the oral nicotine pouch category in the U S was rapidly growing off of a small base.
Subsequently all nicotine pouch growth has exceeded our original estimates.
In the first quarter of 2021, we estimate that retail share for all nicotine pouches was approximately 13% of the total all tobacco category.
Double its share in the year ago period.
We expect continued growth from the all nicotine pouch products and estimate the category volume in the U S will grow at a compounded annual growth rate of approximately 25% over the next five years.
Since 2019 helix supported by the enterprise significantly increased or manufacturing capacity.
<unk> retail distribution.
Group tobacco consumer awareness and filed PMT as for the entire product portfolio.
Helix achieved at annualized manufacturing capacity of 50 million cans by the end of last year.
And as of the end of the first quarter Owen was sold in approximately 93000 stores.
In the U S market Orange momentum continued.
In the first quarter on share of the total all tobacco category grew significantly to one 7%.
On a 12 month moving basis in store selling and providing point of sale data <unk> retail share was three 1%.
An increase of <unk> <unk> from the 2024 year share.
Going forward, we intend to report on share of the total U S. All tobacco category as helix expects to be in stores covering 90% of the industries, all tobacco volume by mid year.
Our primary focus continues to be on increasing <unk> growth in the U S.
Internationally, we see potential to strengthen on in the Swedish market.
We also see longer term prospects in Europe to expand on and gain consumer feedback on potential noncombustible products for the U S.
To explore these additional opportunities we have expanded the international team.
We believe Owen presents a compelling non combustible alternatives for smokers and we look forward to supporting their conversion journey.
Moving to E vapor, we estimate the total category volume increased 24% versus the year ago period.
As a reminder, in Q1 2020, the FDA restricted the sales of all flavored E vapor products among pod systems with the exception of tobacco and menthol.
Sequentially, we estimate that the category volume increased 7% as competitive marketplace activity continued.
As a result of these dynamics Jules first quarter retail share of the total E vapor category decreased to 33%.
We continue to believe that a responsible E vapor category, consisting solely of FDA authorized products can play an important role in tobacco harm reduction.
As for our Juul investment the FTC trial is now scheduled for June of this year and we remain committed to vigorously defending our investment.
In heated tobacco PM USA is continuing to expand iqos and mobile heat sticks.
Beginning this month heat sticks are available in retail stores statewide across Georgia, Virginia, North Carolina, and South Carolina.
While for heat sticks retail volume and share continued to grow in the first quarter and Atlanta stores with distribution.
Heat sticks retail share of the cigarette category was one 1%.
An increase of two tenths sequentially.
And in Charlotte heat sticks retail share was 1% an increase of $3 <unk> sequentially.
Last month PM USA began selling the iqos three device, which offers a longer battery life and faster recharging as compared to the $2 for version.
The new devices being offered through device and heat stick bundles and through the lending program, which has been effective at generating trial and driving purchase.
We are encouraged to see that many consumers are upgrading their $2 for devices.
Representing approximately 25% of all Iqos three device sales in the first quarter.
Along with geographic expansion PM USA is increasing the use of its digital platforms like <unk> dot com and get Iqos dot com to engage with smokers and communicate the benefits of iqos, including the MLR TP claim on the Iqos two four system.
For Marvell Dot Com Iqos content is now available nationwide.
Smokers can sign up to receive communications and be notified with Iqos is available in their area.
PM USA is also using its marbles rewards program to drive iqos awareness and value delivery.
Smokers can earn mobile rewards points by learning about Iqos and can also redeem their points for discounts on the Iqos device.
In June PM USA plans to open Iqos boutique and the Tysons corner Mall, which is a center point for the highly populated northern Virginia Metro area outside of Washington DC.
As a reminder, PM USA plans to expand Iqos three additional metro markets throughout the year and to expand the availability of marble heat sticks to geographies current approximately 25% of U S cigarette volume by year end.
We're making progress in driving awareness and availability of on at Iqos, while investing in future innovative bond combustible products.
And we continue to acquire more tobacco consumer insights to inform our strategies to actively transition smokers to noncombustible portfolio.
Our smoker Smokable products segment continues continues to support our vision generating significant cash that can be invested in noncombustible products.
And returned to shareholders.
Turning to our financial outlook, we reaffirm our 2021 guidance to deliver adjusted diluted EPS in a range of $4 49.
To $4 62.
This range represents an adjusted diluted EPS growth rate of 3% to 6% from a $4 36 space in 2020.
The guidance includes continued investments to support the transition of adult smokers to Noncombustible future.
We will continue to monitor various factors that could impact our guidance.
Our employees continue to drive the success of our businesses they've risen to the challenge together to deliver results and are supporting each other and their communities.
Over the past years, the challenges associated with the pandemic had been compounded by the continued social injustice and in equities that black and Brown Americans.
<unk> face every day.
And the Asian American community is hurting as violent and hateful attacks on Asia skyrocketed.
We condemn any form of hatred and discrimination against any person.
Sure our Asian, Black and Brown employees, we will continue to stand with you and we stand for you.
We recently released a report on supporting our people and communities, which details the many ways, we're making progress enhancing our culture and positively impacting our communities.
It is part of a series of corporate responsibility progress reports.
We are issuing this year and it is available on Altria Dot com.
I'll now turn it over to Sal to provide more detail on our first quarter results.
Thanks Billy.
I Echo your sentiments and to our employees. Thank you for all you do.
Moving to our results our tobacco businesses continue to perform well in the first quarter.
The smokable products segment delivered over $2 3 billion in.
And adjusted OCI and expanded adjusted OCI margins by two two percentage points to 57, 5%.
PM Usa's revenue growth management framework.
Supported this segment's strong net price realization of <unk>, 8% for the quarter.
We continue to be pleased with more gross performance and category leadership in.
In the first quarter Marlboro's retail share was 43, 1%.
An increase of four tenths versus prior year.
We believe that Marlboro was continuing to benefit from smoker preferences for familiar products during disruptive times and is lapping the year ago comparison quarter, where we observed for older consumers coming back to cigarettes from E vapor.
In the first quarter marbles price gap to the lowest effective price cigarette increased to 37%.
Primarily driven by heavy competitive promotional activity in the branded discount segment.
Despite this activity branded discount share declined by four tenths in the first quarter as deep discount gained share.
The total discount segment retail share was 25, 3%.
An increase of 110 versus the year ago period.
In cigars Black and mild continues its long standing leadership in the profitable tipped cigar segment.
Middle teens reported cigar shipment volume increased over 11% in the first quarter.
Turning to non combustibles.
Oral tobacco products segment, adjusted OCI grew by three 1% and adjusted OCI margins declined by 0.9 percentage points to 72, 1%.
Adjusted OCI results were driven primarily by higher pricing, partially offset by higher investments behind on.
Total reported oral tobacco products segment volume increased 0.6%.
Given by on.
When adjusted for trade inventory movements calendar differences and other factors.
<unk> volume increased by an estimated <unk>, 5%.
First quarter retail share for the oral tobacco products segment was 48, 1%.
Down two three percentage points due to the continued growth of oral nicotine pouches.
Copenhagen continued to be the leading MST brand and on gain traction in the oral nicotine pouches.
And alcohol.
St Michelle's first quarter, adjusted OCI increased approximately 46% to $19 million.
Driven primarily by higher pricing and lower costs.
And in beer, we recorded $190 million of adjusted equity earnings in the first quarter, which was unchanged from the year ago period.
And represents our share share of Abi's fourth quarter 2020 results.
Moving to our equity investment in Kronos, we recorded an adjusted loss of $27 million, representing <unk> share of Kronos. This fourth quarter 2020 results.
We continue to support our investment in Kronos by advocating for a federally legal regulated and responsible U S cannabis market.
We joined the recently launched coalition for cannabis policy agitation and regulation.
This coalition is comprised of members across diverse industries and public policy experts, who plan to inform the development of comprehensive cannabis policy that prevents under each use advanced science creates quality and safety standards and address this.
Social and equity.
And finally on capital allocation, we paid approximately $1 6 billion in dividends and repurchased approximately $6 9 million shares totaling $325 million in the first quarter.
We have approximately $1 $7 billion remaining under the currently authorized $2 billion share buyback program, which we expect to complete by June 32022.
Our balance sheet remains strong.
And as of the end of the first quarter, our debt to EBITDA ratio was two five times.
In the first quarter, we executed a series of transactions to take advantage of favorable market conditions to adjust our debt maturity profile and extend the weighted average maturity of our debt.
We issued new long term notes totaling $5 5 billion and repurchased over $5 billion.
And outstanding long term notes.
In May we expect to retire one 5 billion of notes coming due with available cash.
With that we'll wrap up and Billy and I will be happy to take your questions.
While the close are being compiled.
I'll remind you that today's earnings release, and our non-GAAP reconciliations are available on our dot com.
We've also posted our usual quarterly metrics, which include pricing inventory and other items.
Let's open the question and answer period.
Operator, do we have any questions.
Thank you once again as a reminder, if you would like to ask a question. Please press the star key followed by the number one on your Touchtone phone at this time investors analysts and media reference then it is all.
Now invited to participate in the question and answer session. We will take questions from the investment community first are.
Our first question comes from Pamela Kaufman with Morgan Stanley.
Good morning, Thanks for the question.
I wanted to see if you could comment on what youre seeing with respect to smoke or behavior as things begin to reopen and how youre thinking about the industry volume performance throughout 2021.
Do you expect to see elevated consumption per day continue.
Continue throughout this year.
Okay.
Yes, good morning, Pamela Thanks for the question.
You ask a good one because the market is very fluid as we mentioned in our remarks I think when you look at the first quarter and we provided the 12 month moving day, you can see that we still have.
Somewhat of a tailwind and we believed as we believe that the end of last year that that is the consumer stay at home practices as they added nicotine occasions to their day certainly as we progress for we highlighted that we are seeing mobility for our consumers increased significantly.
But then you also have the all sets you have the government government stimulus that just came out and we'll see how the consumer thinks about that as the mobility has increased and what other areas of discretionary spend they could use that stimulus towards so.
Certainly through the first quarter, we saw a continuing its even though it was a tough comp a continuance of what we saw at the end of the last year I think it remains to be seen what trends that consumer has picked up during the COVID-19 pandemic that will remain and what will revert back to an all use your phrase to pre pandemic or normal levels.
That they had in place prior to the pandemic, but thanks for the question.
All right.
All saw obviously revenue leasing at top of mind for investors given all of the headlines in recent week can you discuss your view of the regulatory backdrop.
You might be anticipating from the FDA and then separately you our thoughts on the FEP proposal from last week.
Yes, I think when you think about the regulatory framework. The two topics that had been in the headlines and look we expect to have continued headline news in the tobacco industry.
A new administration net tends to take place.
Let's just take them in turn if you think about menthol.
<unk> has been considering this for years.
And.
When you step back from it and you really think about it we have a common goal, which is to transition the adult cigarette consumer to a noncombustible future, where we disagree is prohibition just doesn't work. It has unintended consequences and criminalizing menthol has significant consequences. We think a better approach is to have.
In established marketplace of FDA authorized noncombustible products.
We've only heard what you've heard so certainly whatever the FDA announces will review what the FDA announces in and we'll engage in and continue to focus on the science and evidence of what would be a multi year process I think when you think about lowered nicotine in cigarettes.
Its very similar its something they brings to centering for years, we know theyre running studies related to this.
Again, we don't believe prohibition works because it has so many unintended consequences. The better approach is to have that established portfolio of FDA authorized noncombustible products.
In addition to that we don't think it's practical or feasible for.
A standpoint of whats been suggested and so when you look at overall, the science and evidence and you can see the comments that we submitted to the FDA as they were considering these previously there are significant hurdles there from a science and evidence based that it has.
The impact that they have suggested.
From an FTC standpoint, I think it remains to be seen there hasnt been a lot of discussion as you mentioned it was <unk>.
Net of a headline news last week.
When you step back from the specifics, it's something that's been introduced before and it didn't get very far I think when you think about some of the statements that president Biden has made about not wanting to raise taxes on for an.
Individuals, making less than 400000 a year.
Excise tax increase.
<unk> counter to that.
I'd just remind you we have an excellent government affairs team is ready to engage on all of these topics in our regulatory affairs team as well so we're ready, but I would caution that we will see we believe continued headline news.
Thank you thank.
Thank you.
Your next question is from Vivien <unk> with Cowen.
Hi, good morning.
Good morning Vivien.
Thank you very much for.
For.
More detailed outlook in terms of your growth expectations for the modern oral category I was hoping to.
To expand on that that five year CAGR outlook and just understand what your underlying assumptions are in terms of cross category.
And Goldman if you can offer any detail around how youre thinking about.
Competitive threat.
Dress category.
Sure. Thanks for the question Vivien I think when you think about modern all it's a very exciting category. We're extremely excited to now have a 100% of the economics of AV on both in the US all on a global basis.
When you think about the novel oral I think it's very intuitive that it will interact with the adult differ from the traditional MST that consumer is used to putting things in the mouth I think what has us. So excited about Owen is its engagement with the adult cigarette consumer and so.
As we do always we run various scenarios I think certainly that you can see the adult dipper converting to it and it depends on how successful we are engaging with the adult cigarette consumer of how big that category can get through time. So we're extremely excited and will be.
Very excited to get past the manufacturing capacity constraint, which we expect to do by mid year I think from a competitive standpoint, you can expect that in new categories as volume grows.
The various manufacturers that are participating in the category are trying to capture consumers and have them choose their products and brands.
Through time, I think all companies that are in it for profitability. So there will be some competitive activities as volume grows and consumers are at play and then you would expect for a turn towards profitability.
That's really helpful. Thanks, and well, perhaps maybe the Clos.
Cross category movement is all a bit more niche technology.
Yes.
For the migration from cigarette smokers into the modern oral or novel or category over index credit and then also know Chris.
Yes, I don't have those factors in front of me Vivien I think when you think about it certainly we have seen and we tried to have some of this available <unk>.
Previous presentations it tends to.
Higher.
More than normal from the MST category interaction with the female cigarette consumers because they just don't appreciate putting tobacco in their mouth and so it's certainly over indexes to that a bit compared to MST.
But from a standpoint of that interaction I think right now it's too early to tell and it is very small when you can try to diagnose who's coming over from the cigarette category.
Understood if I can squeeze one last one.
<unk>.
The cash for.
For EMEA.
In the United States.
Can you just walk us through like what mechanisms would be necessary for for the heat not b pack for the cigarette.
Yes, I think the biggest one I would highlight Vivien is the activity that our government affairs team has been able to secure now in seven states and with a different definition of heat sticks in the state of Virginia. So a total of eight and that is that a product that has a designation of MLR TP coming out of the FDA.
That they have authorized at to have that claim has a step function down in excise taxes in seven states and again the different definition and the state of Virginia. So I think that's going to be the best mechanism of any reduced risk products is those that have the designation of MRC TPP and authorized by the FDA.
Perfect. Thank you very much.
<unk>.
Your next question comes from Chris Growe with Stifel.
Hi, good morning.
Good morning, Chris severely I heard your commentary before about the transitioning and the consumer and to reduce risk.
Risk products and as a backdrop for maybe perhaps the underlying.
Factors and regulation I guess, all Im curious by is if you think about the products that the FDA has approved so far there is reduced risk products has been two of them and it feels like you need to have a larger stable of products and products that consumers are aware of before they could ever really implement.
Implement significant regulation at the risk of creating unintended consequences that's all.
Honestly in my opinion, but I just wanted to get your your.
Your thoughts on that and I guess with that backdrop does that influence or define the timetable. The FDA has to pursue this regulation has got a lot more to do it seems like on approving new products before they move forward with regulation.
So we would agree with your opinion, Chris that that's the appropriate way to do it as you remember I call. It roughly half of our conventional cigarette consumers are looking for a non combustible products that satisfies them and certainly something that would reduce risk through time, and so certainly focusing on having a <unk>.
<unk> portfolio of Noncombustible products that are authorized by the FDA and then eventually receive an <unk> TP.
Cigarette consumers will move.
They just need those products that satisfy them and meet their needs and so certainly add to your point prohibition tends to be fraught with unintended consequences that can take place based on provision.
Okay, and then just one other question I know youre pricing over the last.
A few months left for the last year, it's at all different from some of your competitors, especially in the premium side and I'm. Just curious as you look at retail today has there been any meaningful change in price gaps I know, we always look at it versus the lowest price product in the market, but I'm talking even amongst the kind of the premium brands have you seen any real deviation in the price.
Cash and those products Marlboro versus other other products.
Yes, nothing that other highlight Cristina we make our pricing decisions independent I think when you look at price realization in the first quarter of 8% that's pretty substantial in insurance and the total result for the company mobile is rock solid.
You mentioned the price gap to lowest that was really driven by.
Major manufacturer and being very competitive in the branded discount category and we highlighted that it didn't seem to gain a lot of traction. So you always have a little movement through time and in various periods that you'd look at but nothing that I would highlight that substantial.
Okay. Thank you for your time today.
Thank you.
Your next question is from Bonnie Herzog with Goldman Sachs.
Thank you good morning, everyone.
Bonnie.
Good morning, I actually wanted to circle back on your all tobacco Beckman and just looking at the.
Performance over the last couple of quarters and years.
Volume growth really hasn't main magadan, so I guess I'm.
Im trying to understand ultimate growth how incremental.
Do you anticipate on cash I guess.
I'm wondering why we haven't.
In more of a lag on your total are all tobacco volume yet.
Has this been more of a capacity constraint issue.
In the last few quarters or has the cannibalization and greater maybe than you anticipated.
That would be helpful. For can you just share some color on that and then Nick Hi.
As you purchase an outright how should we think about the potential global opportunity for that business.
Yeah.
Yes, thanks for the questions Bonnie and I will try to take them in turn but if I Miss one follow back up.
I think when you think about the growth in the category certainly we had a competitor had a great head start on US we've seen significant growth in the category, we have been constrained from a capacity and manufacturing and so we look to be passed at mid year and then we can have it in the stores, we want it to be in and engage with the consumer the way, we would like to engage with the.
Consumer I think for the upside.
From a total standpoint of growth I think we're excited about all of them because not only is it us engaging.
With the adult Dipper, but as I mentioned also engaging with the adult smoker. So the more successful we are with that you can see the size of the consumer base that you are able to engage with.
The question related to international it's important to remember that Owen already had.
Internationally. So we highlighted in our remarks, we're going to certainly pay attention to where it's at that end market.
Make sure that we have the right look in the right products in the marketplace.
Introduce products that are in the pipeline through time, and then we'll look at what other opportunities we have and we've.
For the international team supplementing what was already existing with some <unk> employees to get consumer insights.
For the international market, but as well as to get consumer insights for future products in the U S.
Okay. That's helpful. That's all.
What I was thinking that could be a <unk>.
It's all for Kennedy.
I did want to ask also if I could.
Iqos connect and marquee and the marketing plan as it relates credit I think you touched on this a bit but I guess.
Wanted to see if there's anything more you could share on really how you are marketing are cool.
And importantly, no all right.
Given the fact that I could does have the <unk>. Thank you Steven mentioned last quarter that you've started to do some of that in certain markets. So love to hear any feedback on that in terms of how consumers have responded has it.
Help you drive trial or conversion and some of those markets I think that would be helpful. Thank you.
Sure. Thanks for the question Bonnie Yes, it's still a bit early yet, but certainly we're looking to engage with the consumer both at retail through guided trials through the heat sticks at C stores, but just as importantly, and that was part of our investments we highlighted at the beginning of the year is investing in what we would consider industry leading consumer.
Engagement system, and really being able to engage with the consumer digitally so that we can connect with the consumer if you think about it not only when they are in the store, but from a 360 view of when they want to be engaged with and Thats what were really on the path to do I think from the standpoint of highlighting what the claim does is certainly in research.
It was it showed that the consumer once they understood. The claim that was there is that they were more inclined to both engage with the product and understand it as well as try other products. So we'll have more to share as we move through the year.
Okay that definitely makes sense and would be great. Appreciate it. Thank you.
<unk>.
Your next question comes from Priya, <unk> Gupta with Barclays.
Thank you Ian I was hoping that we could just.
Talk a little bit about your elevated cash balance and.
How we should think about that trending through the year given the various puts and takes.
And understanding that you've already identified.
Intent to repay that maturity that you have coming up but are there other sort of pieces that we should be mindful of as we look out and where do you expect to land.
Land that cash balance as we get into 2022. Thank you.
Good morning per unit. This is Sal and thank you for the question.
At the end of the first quarter, you did see an elevated cash balance.
As I stated in my opening remarks, you talked you spoke to.
We do plan on.
Paying the debt coming due.
With cash available.
I'll also remind you of some rather large payments we have.
Post the first quarter, which include our master settlement agreement payment, our quarterly taxes our dividend.
So that cash begins to get depleted.
In April and May as we make those payments and.
And of course, we still have our share buyback program in place.
Great. Thank you so much you are welcome.
Your next question comes from Owen Bennett with Jefferies.
Good morning, Gents hope all well.
Good morning Owen.
So I wanted to follow up on a comment by P&L. It's recent results for the acquired with this is Nick.
PMT eighth data in the U S. At some point and so to me those are.
Pay a clear day, we will be retaining for the global competitive environment going forward. So I was just wondering how does this make you think about the need to have full control.
All the vapor business in the U S or indeed globally.
A link to this especially now you are expanding with more than all of all globally. How are you thinking about the need for <unk>.
Co products on a global basis. Thank you.
Yeah. Thanks for the question Owen and I will be careful not to talk about anything from a merger acquisition or anything in the future I think the way. We think about it is we are primarily U S focused because we have all of our infrastructure sales force relationships with retailers and wholesalers are all primarily U S focused and so that.
Will be our focus on getting those consumers.
In their conversion journey from combustible to non combustible that will be our primary focus but the learnings that we have and you mentioned modern oral the learnings that we have in the conversion journey that consumers take is very similar to the consumers around the world and so we certainly want to pay attention to that and participate that in that when it's appropriate.
I think from a standpoint of.
The comments made by PMI, they're probably better directed to PMI, but certainly our primary focus is U S, but will certainly seasonal opportunities when appropriate around the globe.
Okay. Thank you.
Thank you.
Your next question comes from Gaurav Jain with Barclays.
Hi, good morning, Thank you.
So my question is on June so their investment in June in all of our renewed at about $1 5 billion.
And if you could just remind us that day.
Value falls below 10%, which would be about $1 $3 billion, you would be out of the non compete clause for June.
So how should one think of all.
The valuation that Youre now is clamoring for June.
Okay.
Thank you for the question. This is Sal first let me just state when we do our valuation analysis that is independent of any.
Agreement, we have as it pertains to the Jews ownership.
You are correct that.
If the valuation were to drop below 10% of the original investment, which is slightly below $1 3 billion.
We would have an option.
As it relates to our non compete.
But with that option comes some other minority investor rates, we have so it is not an automatic trigger it is something that we as a management team would obviously have to analyze and discuss.
Sure. Okay. Thank you my second question, along the orders per macro market growth you are seeing that and other for.
For the next five years, the market for 25% CAGR and if I look at just six.
Six months data that do share that seems to be progressively decent rating over the last nine months.
Is there any seasonality in the business.
Is it just becoming bigger than moving us on law of large numbers and applying our how should one think of these deceleration in oral tobacco market growth yes.
Yes, I think when you look at that what Youre seeing is youre exactly right. The larger the base gets certainly from a mathematics standpoint, the growth rate reduces I would remind you when we show all tobacco that's the total category, So thats MST and the novel all pouches and so you've got a total look at that growth of the category over the last year.
Six months, so youre going to have some cannibalization of traditional moist smokeless tobacco as novel or pouches growth, but you're also correct as I mentioned.
Just as the base gets larger or novel oral that growth rate slows.
And if I could just squeeze in one last question.
Any other again is to responsibly lead the transition of adult smokers to Noncombustible future.
Which requires a lot of regulatory support and regulators all right not planning non.
And policy group band process again.
You would be opposing but would you be more support on wells per month being initiate this.
At the same time I think all three boxes created that helps you achieve year over year.
Certainly we're looking for a regulatory pathway that helps us achieve the vision you heard my earlier remarks on an outright prohibition, whether it be menthol are great reduction in nicotine.
Cigarettes, we believe having that portfolio of Noncombustible thats authorized by the FDA and then eventually through the <unk> process is a much better pathway because the consumer that uses conventional cigarettes has already shown an inclination that they want to transition and so we believe we can get there with the right products.
And with the insights we have on the consumer certainly having a regulatory pathway that allows that to happen in the right order makes perfect sense to us.
Okay brilliant thank you thank.
Thank you.
Your next question comes from Michael Lavery with Piper Sandler.
Good morning, Thank you.
Good morning, Michael.
Just wanted to come back to Iqos, you mentioned how.
With your digital capabilities and.
Website, you've got the ability now for for adult smokers to receive a notice when iqos is available in their area.
We've seen online.
Chats and things comments lots of.
People outside.
[noise] launch markets.
Asked how to get them. So so this makes a lot of sense can you give us a sense of of what response, you've had so far and if and how much that might stick.
Steer where you choose to expand in.
Next or in what order.
Yes, it's a bit early Michael certainly we've announced the areas that we're expanding too.
Certainly across the for States and then Northern Virginia, and then three additional metro markets, which we Havent discussed what they are and so certainly it's going to be informed by the consumer and informed by where we believe we can get the heavy foot traffic. Just a reminder, we want to launch initially in a densely populated area and then grow from that once you have a foothold growth from there.
Net across states and so certainly we're going to be influenced by the consumer and the insights we have on the consumers both from them and what we've seen in the existing markets to inform where we go next.
Okay. That's helpful and just one more on Iqos you've mentioned that.
Marlboro rewards can be redeemed for discounts on the Iqos device.
Certainly this seems like it could to help build momentum and.
Some trial.
But certainly the risk a little bit more cannibalization, but how do you balance those two.
We have a lot of incremental.
Momentum already in the markets.
Given some color on that.
Hey.
Can you just give us some other thinking here is it as simple as getting a bigger push even if it might be a little bit of cannibalization.
The right way to think about some of that strategy.
Certainly Michael we always have incremental <unk> from a total profitability standpoint, but I think when you look at the vision, we know that our conventional cigarette consumers want to move and we want to now proactively look at moving them certainly incremental <unk> and you would know the various ways. We go to market and we assess that Frank for mentality to see where we can really reach.
Competitor consumers, but we don't want to ignore our consumers either we know they want to move and so we want to reach out when they are ready to move and have them stay on our portfolio of products and so that's the fine balance, but certainly at retail and the way we reach out to consumers, we assess where we can get instrumentality.
To the greatest extent.
Okay. That's great. Thanks, so much.
Thank you.
Your next question is from Adam Spielman with Citibank.
Thank you very much so two questions first of all on.
Michael in Atlanta, I think you said it went to if I remember right day $1 one market share in the stores when you distribute.
I'm interested to know how many stores using the Atlanta.
Thank you.
Sure.
Yes, Adam we go to select retail changed because we want to make sure that we get great execution, the right look and high quality, because we want to learn when we have that what does it look like for consumer engagement. We haven't mentioned the specific number of stores in Atlanta, but our goal even when we expand to the state is half.
Great execution across the state and habit, where each consumer regardless of where they live have access to the product to drive awareness and availability and interest and so we may not be in every store and a certain locale, but we want to make sure that the consumer in any locale has access to the products.
And then if I if all your estimates at that about in Metro Atlanta Iqos has included all stores around.
Uh huh.
Alright.
Is it around 30 bps of market share would that be about right.
Yes, we haven't done that Adam to go through that.
I'm hesitant to say all of that's exactly the way to go about it the way we look at it is we take the geography by ZIP code and then say okay based on that think about how the what are the cigarette uptake and what is iqos offtake for the total geography and so.
<unk>.
Hesitant to try to guesstimate or give you assurance on your estimate.
Your next question comes from Robert Rampton with UBS.
Good morning, and thank you for taking my questions.
First one is just on pricing so it's running at record levels, despite moderate tax increases.
And I would also argue that volumes are being more robust and maybe if you could expect it towards the tail end of last year.
How do you think about the trade off between I guess being more competitive on price is taking that incremental margin.
And investing it in your efforts to.
Transition to reduce price that's the first.
Christian Thank you.
Yes. Thanks for the question Robert I would take you back to the overall.
Strategy, we have for the category, which is to maximize the profitability of combustibles through time, while balancing appropriate investments back into Marlboro and funding the growth initiatives as you've mentioned and so it is a balance is something that we look at but I would agree with you I would say, 8% in the first quarter for our price realization was a gray.
Results for the quarter.
All right and then just a quick clarification on modern oral.
Are you, saying the category the nicotine pouch category doubled versus Q, 'twenty and that Youll share within that is now roughly 13% is that correct.
Great way to understand yocum.
So we were saying novel all the total category had a share so the novel oral tobacco other total all space was 13%.
All right.
Yes, it does that make sense of the total oil space.
Perfect very clear.
Okay, and then just a follow up on monaural specific film Hopkins.
For example, Marlborough can you comment on their effectiveness.
And then how much of that are you doing in I guess the broader question is why not put up on package.
Every pack of Marlboro.
Yes, it's certainly something that we wanted to test and learn about understanding the engagement understand the most efficient way to engage with consumers that just one avenue, we're looking at digital avenues and ways to engage with consumers that way and so what youre doing with our investments as we're looking at what are the various ways that we can engage with the consumer and meet them.
When theyre trying to make those decisions for their conversion and then support them on that conversion journey as their commencement and so that's just one avenue, but certainly we'll test and learn there and understand what the engagement successes and the efficiency of getting that consumer to convert.
Great that's all.
And if I may sneak in one more policies.
Just in terms of Michael curious as to what in your mind drive the pace of the rollout, but right now it looks like it's very tied to those tax break.
I mean, I guess at what point would we expect a big Bang in terms of.
National launch at all.
It gives them getting tax break because this slow process being more incremental.
All right.
Yes, the way we think about it is it's just important to remind everyone look PMI has been on this pathway for a long time, they've been talking about it certainly you guys have been talking about it we have it is brand new to the U S. Consumer so we want to make sure that we're doing it the right way I would say in a disciplined fashion versus your terminology a big Bang.
And once we feel like we have it right. We have plans in place to continue the expansion certainly we're going to be influenced by always being able to put our best foot forward now having the iqos three device approved having the MLR TP claim on the two point for system gives us a much better indication in a much better engagement plan.
For the consumer, but we all learning along the way I would say the Charlotte launch was more successful based on the learnings, we had enrichment and Atlanta and so we're going to continue that disciplined approach, but I don't want you to think that we're all.
We're trying to get that the SEC.
Agreements with the state legislatures to influence how fast or how we think about the launch that will not be an influence.
And how we proceed with the Iqos launch.
Great that's very clear thank you for taking my question.
Thank you.
Once again, if you would like to ask a question. Please press Star then the number one on your telephone keypad Thats Star. One. Your next question is from Jennifer Maloney with Wall Street Journal.
Hi, good morning.
So the FDA just.
Published a press release at formally announcing that they intend to pursue.
Martin Menthol ban.
I wonder from your perspective.
Impact would this have on cigarette consumption.
How many people would quit cigarettes, how many would move too.
Reduced risk products, how many would just switch from say Newport Tomorrow for example.
Yes, it's a great question and again, you've caught me off guard because I've been having the phone calls so I haven't had a chance to read it I think it all depends on what the proposal is how they think about that proposal through time and how they think about implementing it.
I'd remind you that the science and evidence we see and based on the comments that we had provided previously we don't see the science and evidence that would support that we don't think prohibition works, it's fraught with unintended consequences, but this is exactly the reason why we pursued a portfolio approach that if there are any actions by the regulatory.
Any specific category that put the consumer at play we.
Wanted to make sure we had the right products right brands in each of the categories and have those products and brands in their consideration set as they are faced with different choices, but we'll certainly be engaged with the FDA.
And continue to encourage them to focus on the science and evidence.
Do you think that if it were implemented I know and I know, that's a big ask Bennett with happened overnight, but.
Could it accelerate the decline in U S cigarette volume.
I think thats, a tough hypothetical to answer we will have to see how it's implemented.
If it's implemented and how they go about it and how the consumer considers that from a standpoint of what are the unintended consequences and access they have to to menthol cigarettes outside of the legal system and then are they at play for other products to <unk>.
Again their satisfaction.
Over the past few years.
Company has been trying to expand its presence in the menthol category, noting an investor presentation that.
That meant all represent a growing share in cigarette U S cigarette down.
Could you speak to the importance of the menthol category for Altria and for the U S cigarette industry.
Yes, I think when you think about it for Altria.
I remind you that we're under indexed in share in the menthol category, we tend to be over index to non menthol and so from a total standpoint as a category I would really direct you to the comments, we provided to the FDA of our concerns of an outright.
Ban on menthol that we provided previously when they've been looking at them.
All right thanks very much thank.
Thank you.
Your next question is from Nik Modi with RBC.
Thank you good morning, everyone.
So just wanted to follow up on the the Menthol question Bill maybe you could just remind us the process from here right in terms of the steps that need to happen. Just so we can kind of square it and make sure we're thinking about it the right way.
We believe it will be a multiyear process, Nick when you think about the administrative process and again, you've caught me a bit unaware because I cant read what they have published and how they how they stated it. So we will certainly be reading that in diagnosing it.
But theres a rulemaking process that takes place they have to come out with <unk>.
Proposed rule, if thats, where they are at right now they have to receive comments they have to consider all of those comments and then they have to go to final rulemaking and so that's a pretty lengthy process.
That we will certainly be engaged in with the FDA to share a point of view.
Okay, and then and that was kind of my question, but I guess, which is that everything resets right because obviously we've gone through this.
Several times in the last 10 years that so I just wanted to make sure I'm thinking about that the right way that they have to go through the whole process again.
Yes, I don't know, what they announced so I can't speak to the specifics, but the normal process that they would go through as a proposed rule there would be comments then there would be a final rulemaking.
So again I can't speak to specifics based on not having read what they announced.
All right. Thanks Bill.
Thank you.
Thank you at this time I would like to turn the call back to Mac Levenson for closing comments.
Thanks, everybody for joining us please contact the Investor Relations team. If you have further questions. Thanks.
Thank you. This concludes today's conference call you may now disconnect.
Okay.
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