Q2 2021 Altria Group Inc Earnings Call
Today's call will contain various operating results on both a reported and adjusted basis adjusted.
Our 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.
<unk> on our website at Altria Dot com.
Finally, all references in today's remarks to tobacco consumers or consumers within a 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 Bill.
Thanks, Matt Good morning, and thank you for joining us.
Altria delivered outstanding results in the second quarter. Thanks to the continued strength of our tobacco businesses and the hard work of our highly talented employees.
Our teams have continued their commitment to moving beyond smoking by deepening their understand.
And of tobacco consumer preferences expanding.
Expanding the awareness and availability of our smoke free product portfolio.
And amplifying our voice on harm reduction within the scientific and public health communities.
Their passion in pursuit of our vision gives me even.
Greater confidence that we can responsibly lead the transition of adult smokers to a smoke free future.
Let's now turn to our business results Altria grew its second quarter adjusted diluted earnings per share at 12, 8% to $1.23.
Primarily.
Understand through the strength of our tobacco businesses.
The smokable products segment continued to deliver on its strategy of maximizing profitability in combustibles, while appropriately balancing investments in Marlboro with funding the growth of smoke free products.
<unk> continued to lead the cigarette.
Category, while second quarter adjusted operating companies income grew 11% for.
For the first half the segment generated adjusted OCI growth of 5.3%.
And the oral tobacco products segment, Copenhagen continued to lead the MST category and delivered.
Merrily profit performance.
So are all tobacco products segment grew adjusted OCI by 3.5% in the second quarter and by 3.3% for the first half as strength in MST more than offset investments in support of all.
The all nicotine pouch category continued to grow and helix remains focused on expanding capacity.
Broadening distribution.
And driving awareness and trial.
The team has successfully achieved unconstrained manufacturing capacity for the current U S market.
The strength of the category grows helix plans to further increase Owen capacity ahead of expected demand.
Additionally, helix and AG DC broadened Owen retail distribution to 105000 retail stores, which represents approximately 80%.
Net of U S for all tobacco volume and 70% of U S cigarette volume.
In the second quarter on retail share of oral tobacco was 2 percentage points.
Up 3 tenths sequentially.
And a heightened competitive environment, we believe helix has.
<unk> made consistent progress against its 2021 goals.
Having achieved unconstrained manufacturing capacity increased distribution and nearly doubling on retail share over the first half.
Helix deploys a broad suite of marketing tools to continue.
<unk> to build on brand equity and transition smokers.
At retail helix uses disruptive point of sale and trial and awareness generating promotions.
Retail initiatives are complemented by 1 to 1 communications and digital marketing channels, which we believe provide a more emerging.
Immersive and educational on experience.
These communications are tailored based on consumer preferences, and insights to better resonate with individual smokers and dippers.
Turning to heated tobacco PM USA expanded iqos.
And marble heat sticks to retail stores across Georgia, Virginia, North Carolina, and South Carolina.
This 4 state expansion is helping PM USA garner key learnings about scaling new innovative products.
Over 2 thirds of U S cigarette volume is sold through the convenience store.
Store channel. So we believe the ability to effectively educate smokers about the iqos system in C stores is critical to the long term success of the products.
Although early we are encouraged that nearly half of second quarter Iqos device sales came from convenience stores.
This highlights the impact of our sales force and their strong relationships with key retail partners.
In line with our strategy to build Iqos in large metro markets PM USA expanded iqos and marble heat sticks to northern Virginia, It's fourth metro market.
We believe our commercialization team continues to improve its execution as we move into new Metro markets.
And early Northern Virginia Metro market results device penetration as a percent of the smoker population has surpassed the performance of the Atlanta and Charlotte Rollouts.
We've discussed for some time the importance of bringing a strong commercialization package to smokers to help them on that journey.
In the Northern Virginia market, we have deployed our full range of flexible marketing tools, such as kiosk mobile units and experts.
We also opened an iqos boutique.
And the Tysons corner Mall, which is the center point for the area.
We believe the favorable favorable results in northern Virginia reflect the strategic locations and enhanced execution within these marketing channels.
The availability of the Iqos 3 device.
And built up awareness.
This from the Richmond market.
We previously stated the importance of responsibility and discipline in our Iqos expansion approach.
PM USA has been mindful of the pending International Trade Commission case, which May result in a band on the importation of Iqos and marble heat sticks into the United.
Boutiques.
Due to this uncertainty PM USA has delayed further expansion of Iqos and marble heat sticks.
Each quarter, we make progress toward our vision as we do so we strengthened the capabilities that we believe are necessary to effectively transition smokers.
<unk> to our current and future innovative product portfolio.
These capabilities include.
A flexible manufacturing system, which allows us to quickly redeploy our highly skilled employees and existing footprint in support of smoke free products.
A robust.
Consumer engagement system that includes enhanced data collection.
A portfolio of a smoker engagement tools and our trade partner relationships.
And strong regulatory capabilities, including the talent to develop compelling PMT as for smoke free products.
And the established.
<unk> of required post market surveillance infrastructure.
Tobacco harm reduction must be grounded in sound science encouraged by reasonable regulation and executed responsibly.
We believe it's critical to have transparent and constructive dialogue about the science.
And evidence supporting tobacco harm reduction with all stakeholders.
So far this year, we published 10 articles in scientific journals.
Participated on 4 panels.
And presented 24 posters at scientific and policy conferences.
Unfortunately not.
All stakeholders believe that industry participants should be part of these exchanges.
Recently, a scientific organization decided to band industry participation at its annual conference.
We believe this is a mistake and that limiting the exchange of scientific research impedes.
Tobacco harm reduction and hurts smokers looking for less harmful products.
We will continue to advocate for open and inclusive dialogue among all stakeholders, which we believe is essential to addressing the significant public health opportunity in front of us.
Let's now.
I will turn to guidance with our strong financial performance in the first half we've raised the lower end of our 4 year 2021, adjusted diluted EPS guidance to be in the range of $4.56.
To $4.62.
This range represents a growth rate of 4.
2% to 6% from a $4.36.
<unk> in 2020.
This updated guidance reflects continued confidence in our tobacco businesses.
Investment and smoke free products and the expected impact of the recently announced agreement to sell.
4 and a half shell wine estates business.
I'll now turn it over to Sal to provide more detail on the business environment and our results.
<unk> belief in the second quarter, the consumer behaviors, we've observed over the past few quarters largely continued.
Although overall consumer.
<unk> mobility increased workplace mobility appear to be relatively unchanged, which we believe contributed to more tobacco usage occasions during the quarter as compared to pre pandemic levels. Additionally.
Additionally, disposable income remained elevated.
Partially due to the residual effects.
Our St. Louis the third federal government stimulus package in March.
At retail, we estimate that compare to pre pandemic levels. The number of tobacco consumer trips to the store continued to be depressed, but to pack tobacco expenditures per trip remained elevated.
We are.
<unk>, a close eye on tobacco consumer behaviors, and we will continue to provide our insights on the factors impacting those behaviors as the year progresses.
Moving to our businesses the smokable products segment expanded its adjusted OCI margins by zero.
Keeping the 6 percentage points to 58, 4% for the second quarter and.
And by 1.5 percentage points to 58% for the first half.
Performance was supported by PM Usa's revenue growth management framework, which Leverages advanced analytics too.
The strategic and efficient allocation about promotional resources as a result PM USA achieved strong net price realization of 8.3% in the second quarter and 8.1% for the first half.
Smokable segment reported domestic.
<unk> volumes increased by 1.4% in the second quarter for.
For the first half reported domestic cigarette volumes declined by 5.3%.
When adjusted for calendar differences trade inventory movements and other factors second quarter and first half domestic.
<unk> cigarette volumes declined by an estimated 4.5% and 4% respectively.
At the industry level, we estimate that adjusted domestic cigarette volumes declined by 5% in the second quarter and by 4% in the first half.
Marlboro.
Nick sustain the strong retail performance demonstrated in recent quarters and benefited from the overall strength of the premium segment in the second quarter.
Marlboro's second quarter retail share of the total cigarette category was up 1 tenths sequentially to 43, 2%.
And up 5% versus the year ago period.
And discount total segment retail share in the second quarter increased 110th year over year, but declined 3 tenths sequentially to 25%.
Sequential share losses in both.
Branded and deep discount products drove the contraction as consumers benefited from the federal government's third stimulus package and continued heightened promotional spending among competitive premium brands.
We continue to observe some elevated promotional activity.
Within the branded discount segment during the second quarter.
And as a result, Marvel's price gap to the lowest effective price cigarette remained elevated at 37%.
In cigars Middleton continues to perform well.
And black and mild maintained its leadership position within the profitable tipped cigar segment.
Reported cigar shipment volume increased by 9.6% in the first half.
Turning to the oral tobacco products segment segment.
Segment, adjusted OCI margins decreased.
Greece to 71, 7% for the second quarter and 271, 9% for the first half.
We expect oral tobacco products margins to be impacted by increased investments behind on and shifting mix between MSP and oral nicotine pouches.
We remain extremely pleased with the strong overall margins for the segment.
Total reported oral tobacco products segment volume increased by 1.8% and by 1.2% for the second quarter and first half respectively.
The segments volume growth was driven by on which more than offset a moderate decline in MST volumes.
When adjusted for trade inventory movements and calendar differences segment volume increased by an estimated 1% for the second quarter and 0.5%.
First half.
Oral tobacco products segment retail share for the second quarter declined 2.2 percentage points versus the prior year and 3 tenths sequentially to 47, 8% due to the continued growth of the oral nicotine pouch category.
As Bill stated Copenhagen maintained its leadership position in the MST category and we continue to work diligently to execute our plans to transition smokers to on.
In E vapor total estimated volumes in the second quarter increased.
So the 15% versus a year ago, and 2% sequentially as a result of heightened competitive activity.
The category continues to undergo a transition period as FDA prepares to make market determinations on the millions of PMT as filed by the September.
2020 statutory deadline.
We continue to believe that E vapor products can play an important role in tobacco harm reduction and that is sustainable E. Vapor category will be 1 that consists solely of FDA authorized products.
We expect the categories long term trajectory.
To be determined by regulatory decisions legislative and tax policy and innovation that best addresses smoker and vapor preferences.
In alcohol, we recorded $113 million of pre tax adjusted equity earnings.
<unk> from Abi in the second quarter.
This was an increase of approximately 15% from the year ago period and represents Altria share of Abi's first quarter 2021 results.
In wine.
St Michelle second quarter adjusted OCI increased.
From <unk>, 80% to $27 million.
St Michelle's adjusted OCI growth was primarily due to higher volumes, including from the flagship Chateau St. Michelle brand and luxury brands Stags leap as wine consumer preferences trended to more.
Premium products.
3 weeks ago, we announced the definitive agreement to sell our St. Michelle wine estates business in an all cash transaction for a purchase price of approximately $1.2 billion.
And the assumption of certain St Michelle liabilities.
We expect the transaction to close in the second half of this year and we expect to use the net proceeds for additional share repurchases subject to approval by our board.
We believe this transaction demonstrates our <unk> continued commitment to value creation for shareholders and.
Our vision as it allows our management team to maintain its focus on responsibly transitioning adult smokers to a smoke free future.
St Michelle and its talented employees have built an outstanding portfolio of premium wine brands and we wish them future success.
Yes.
And in our all other operating category, we continue to make progress on our wind down of Philip Morris Capital Corporation.
As of June 30, the net finance assets balance was $261 million.
Down $59 million since the end of last year due to rents received and asset sales in the first and second quarters.
We expect to continue reducing this balance in 2021 and.
And expect to complete the PMC wind down by the end of 2022.
Turning to our equity investment in Kronos, we recorded a pre tax loss of $21 million.
<unk> share of Kronos as first quarter results.
In the second quarter, Kronos announced that it had purchased an option to acquire an ownership stake in pharma Khan of.
Of approximately 10, 5% on a fully diluted basis.
Foreign Mccann is 1 of the largest vertically integrated cannabis companies in the United States.
The option exercise will be based upon various factors, including the status of U S federal cannabis legalization.
<unk> and regulatory approvals.
In our in support of our investment in Kronos, We continue to advocate for a federally legal regulated and responsible U S cannabis market and we're encouraged by the current momentum towards federal legalization.
Next let's discuss capital allocation.
The highly cash generative nature of our tobacco businesses continues contributes to our strong balance sheet.
We believe this in turn allows us to invest in our vision, while rewarding shareholders with cash returns.
We were active in the capital markets during the second quarter as.
As we repaid $1.5 billion of notes upon maturity pay.
<unk> paid approximately $1.6 billion in dividends and repurchased 6.6 million shares totaling 325.
<unk> and <unk>.
<unk>.
We have won 3.5 billion remaining under the current authorized $2 billion share repurchase program, which we expect to complete by June 32022.
Because the current program is limited to $2 billion additional.
On share buybacks in connection with the sale of St. Michelle are subject to board approval.
Moving to corporate responsibility, we disclosed several updates in the ESG section of our release this morning. These.
These updates included following through on our commitment to transparency.
Currency around Altria is workforce data.
And publishing our ESG data tables, and our report on value chain responsibility.
As a reminder, additional corporate responsibility information can be found on our true dot com.
With that we'll wrap.
And Bill <unk> will be happy to take your questions. While the calls are being compiled I'll remind you that today's earnings release, and our non-GAAP reconciliations are available on Algeria Dot com.
We've also posted our usual quarterly metrics, which include pricing inventory and.
In other items.
Let's open the question and answer period.
Operator, do we have any questions.
Thank you once again Anthony reminder, if you would like to ask a question. Please press Star then the number wine on your telephone keypad at this time.
Yesterday's analyst.
And media Representatives are now invited to participate in the question and answer session. We will take questions from the investment community first.
Our first question comes from the line of Pamela Kaufman with Morgan Stanley.
Hi, good morning.
Good morning panel.
Well I wanted to ask about your plans to delay iqos expansion in the U S. Until you have more clarity from the ITC I guess.
It's understandable that.
You would.
By expanding it until you have more visibility, but I guess I wanted to understand.
What your plans are in existing markets because it seems like you're still operating as usual all that and then can you give more detail on what your options will be if there is ultimately an adverse decision from the ITC.
Yes, thanks for the question Pamela.
I want you to interpret.
The light correctly, so the expansion markets that we're in so the 4 states existing markets, including Northern Virginia, We're staying in and we'll complete the state expansions. It was just beyond that where we had previously announced by the end of the year, we'd be in geographies, representing 25% of cigarette volume.
We wanted to let you guys know and are.
Corporate that Theres no that we're delaying that until we get some certainty around that as far as.
Plans if it should ultimately go against US and you know the process Im sure Youre well aware of the process that we will step through related to the actual case.
But we're working closely with PMI on contingency plans I think it's a bit.
<unk> early to share the details of what those contingency plans are or could be and so we will share those when it's appropriate.
Great. Thank you and then thank you.
Ask about how you're thinking about industry growth in the second half of the year and kind of discuss the puts and takes that might influence the category.
Bit jewelry relative to the performance in the first half and in relation to that we're seeing an inflationary pricing environment.
With companies across the CPG space, intending on raising prices I guess, what are the implications for cigarette volumes as you think about cross.
<unk> with Citi.
Relative to other categories and separately does that in any way influence the ability to raise cigarette price. It when you see other.
Higher prices elsewhere.
Yes, there was a lot in that question Pamela so I'll try to dissect it and make sure I get all the pieces.
Thank.
You look about and I'll refer to cigarette volume I know you said industry volume. So I'm, assuming that's what you're talking about I mean I. Appreciate the fact that you recognize that we had a strong first half I think when you think about the puts and takes all the headwinds tailwind and these could go either way I think the major factors that we're going to be watching for impact of volume, but really.
The stay at home practices of our consumer do they decide that are are they required by their employer to go back to the worksite or do they still have stay at home practices I think you've seen various news on unemployment rates and any associated stimulus how does that play out for the remainder of the year I think it's important to keep an eye on cross category.
<unk> movement, we know that the FDA has a lot of applications in front of them for <unk>. So we'll see what their decisions are and how they could impact it but most importantly, it's the consumer purchasing behavior. As you know, we believe they're adding nicotine occasions to their day and so how do they think about that in this whether it's a resurgence or vaccination.
<unk> rates or how the vaccine gets rolled out how does that impact consumer purchasing behavior. Your question related to pricing is and first I'll talk about the input side as far as we really haven't seen any material inflation impact the input side of our business as far as decisions that we take into consideration when.
And Asia pricing decisions, it's really the economic health of our consumer how are they feeling right now they still have elevated discretionary income.
It's the brand strength and you can see Marvel has been performing extremely well and we're very pleased with it.
The strength of that brand and I think last in.
When we most as company objectives, and how are we thinking about investing in.
Innovative product portfolios and expanding that and we mentioned some of the investment areas earlier. So those are the really the factors that go into our pricing decisions.
Great. Thank you thank.
Thank you.
Your next question comes from the line.
Of Bonnie Herzog with Goldman Sachs.
Thank you good morning good.
Good morning, Hi.
Hi, Billy I actually wanted to circle back on that.
Decision to delay the expansion of Iqos and maybe come at it from a different angle I guess first I assume your planned.
Stepped up spending this year will also be lowered.
If so I guess I'm surprised you werent able to take up the high end of your EPS growth guidance range. This year. So could you maybe touch on that and then finally I'd like to to understand how you think the delay and rolling out Iqos.
Might impact your ability.
To deliver and execute on your 10 year vision to accelerate the transition of smokers to noncombustible future.
Yeah, Bonnie so let's deal with the guidance first you know as we said all along we run a range of scenarios when we established guidance at the beginning of the year.
No different as we progress through.
Through the year, we run a range of scenarios so.
As far as any individual category. There are always puts and takes and so that's all incorporated in our guidance as far as a delay.
Just to be clear on the delay in your question about the 10 year vision I think when you think about the 10 year vision, it's important to step.
<unk> said remember, it's 10 years out and so that's a long time, if you just taken where we are today and look back 10 years, whether you think about the industry. Our ultra itself. There's been significant change in 10 years and so we thought it prudent to finish the expansions we were in the midst of but to delay those knowing that we have 10.
Years, and we know the consumer wants to move and we want to have the products that they want to move to and so certainly there could be bumps in the road, but we think we have a great plan and feel confident about achieving our 10 year vision.
Okay that telephone and all fair, but just thinking about what you just mentioned.
And we're thinking about you know the beginning of the year there.
As we looked for this year, there was going to be a level of stepped up spending to kind of pivot your business and.
How do we reconcile that now I mean, I guess I'd just like to understand that should I assume that the planned spending has been pulled.
Hold back this this year as you've delayed the rollout of iqos or you're still continuing to spend aggressively behind that interest state markets.
Sorry, Bonnie I didn't mean to cut you off yes. So when you think about it I. Appreciate the fact that you are recognizing that we can be agile in our investments we run a range of scenarios.
Scenarios, we're prepared for what takes place.
Any of our categories to be able to adjust and redeploy and so we feel good about it yet.
Certainly there was a level of investment in our base plan, but we run a range of scenarios around that base plan at the beginning of the year, so that we're able to adjust.
Other areas of the business that we've mentioned previously that will and that we were investing in and so we feel very good about the guidance, we provided today and being able to bring up the bottom end of that guidance with more certainty.
Okay that makes sense and then just wanted to clarify something else on Iqos.
I know you have this agreement.
Of course, with Philip Morris and you shared some of those details I think it was actually a year ago. So I'm curious can can you share with us if you've reached 50 bps of dollar share in any of the markets, where Iqos is sold which was defined in the agreement with P. M and the reason I'm asking because I think that was.
We 1 of the areas that you needed to maintain or to get to to maintain your exclusive distribution agreement for iqos.
Yes, Bonnie the answer is yes, we believe we have achieved it related to the exclusivity we've shared that data with PMI.
And Thats why you saw us moving to other expansion areas.
Perfect and then final question if I may just on switching gears to oral tobacco just any color you could share with us on your strategy with with promos in your all tobacco business.
Asking you know as I look at your price realization, which is step down I guess a fair amount.
So I'm wondering.
How big of a concern this could be in terms of sustaining any future topline growth for this business you know in other words I guess I'm wondering how are you finding that you need to promote more than anticipated to possibly drive any volume growth and our trial. Thanks, Yes, It's a great question Bonnie.
I think when you think about our approach and novel all we have been behind our manufacturing capacity constraints that we've been somewhat limited now that that's behind us and we will keep it behind us as best we can.
It allows us to turn our marketing and brand colleagues loose and they can really be disruptive in the marketplace to disrupt the consumer as they're.
They are making their purchasing decisions they can fully engage with consumers with 1 to 1 in digital channels and so we look forward to being able to turn them loose, which they are now and have them disrupt in the marketplace. I think when you ever you think about a new category you have to think about there is going to be competitive activity and we've seen it in this space.
Space, and so youre going to want to dislodge the consumers, but at some point in time that typically settles down even if you take it outside of tobacco and so we feel very good about our.
Being able to achieve tobacco like margins in the future right now we're focused on consumer engagement and making them aware of our own products in the marketplace.
Plus.
Okay. Thank you so much for that.
Yeah.
Your next question comes from the line of Vivien <unk> with Cowen.
Hi, good morning.
Good morning Vivien.
So just 1.
Housekeeping item on Iqos, sorry to belabor the issue, but can you give us.
Since the anticipated timing of any kind of decision from the ITC. Please.
Yeah. So when you think about the ITC just to level set on where we're at in that process.
So you think about that in May we had the administrative law judge found in favor of the 2 of the plaintiff's patent patent challenge.
<unk> and so they recommended that the administrative law judge recommended the importation.
For band all the Iqos system, but you saw earlier this week that the ITC accepted review of the ALJ findings and recommendations will certain issues and that included the patent infringement claims and the scope of remedies and.
It will review the benefits of public health and so it's.
A bit different with the ITC, if you think about the factors around.
Iqos.
It's the only inhalable smoke free products authorized by the FDA and in authorizing iqos the FDA found that the product.
Would benefit the public health and so we would expect.
To have a final ITC decision in September or October and then Youll remember the process. After that is it can be.
It goes to presidential review and that can take up to a period of 60 days. After the ITC decision is final and then any decision from the ITC.
And their appeal in the U S quarter Appeals for the federal circuit, and so that will be the process that plays out depending on how things progress.
That's really helpful. Thank you for that.
Moving on to your Smokable segment, you called out heightened competitive activity as being a contributor to the expanding Marlboro price gaps.
Can be all year you.
And you should be fine with that given that Marlboro gained year over year share.
But how are you thinking about kind of the durability of that to the extent that you see heightened competitive activity persist.
Given that you do have some incremental resources.
It was all with.
We see new investments on Iqos would would you be willing to reinvest.
Yeah, we think of those those decisions somewhat independently vivien, but as far as your question specifically to smokable Enmarble specifically were greatly pleased with the performance we've seen a marvel over the last 4 to 5 quarters and when you look at the price realizations.
<unk> that was realized in the Smokable segment and then you look at the performance of marble in that segment, we're very pleased with where we're at and so it's something to your point, we always monitor but we feel good about how the strategy is playing out thus far.
Perfect. Thanks very much.
Thank you.
Your next question.
Question comes from the line of Chris <unk> with Stifel.
Hi, good morning.
Good morning, Chris Good morning, I just had a question for you just a very quick 1 on inventory and it was a positive this quarter and I know you don't like to talk about kind of future inventory moves but is it just if you could characterize or inventories or is.
Peter.
And then any how that would how do you believe that sets in relation to where inventories have been historically.
Yes, I think it's a great question, Chris and when you look at where we're at the end of the second quarter and you look back through history, maybe it's slightly elevated for the second quarter, but it's certainly not elevated to the positions we've seen wholesale loss carry.
This quarter.
With the pandemic and the way, it's a hold up and down we've seen it bounce around a lot you'll remember through time, we typically see it level out, but certainly the pandemic has had it bounce around a bit more than what is typical.
And I missed it bouncing around during the pandemic inventory rates have been higher overall is that fair.
And then where you would expect them to be.
I would say, maybe slightly higher I wouldn't call it out as something significant but maybe slightly higher I think also wholesalers in the beginning of the pandemic as well as retailers may be got caught short a bit on inventory because they were nervous about what the pandemic was going to do to them I think they saw.
All consumers as Sal mentioned in his remarks make larger purchases. So I think they're taking a position to have a bit more inventory just to meet consumer demand okay.
And I had a second question just thinking when you thought there could be any more questions on Iqos I had 1 more.
Just want to understand.
There were a couple of markets, especially the earlier markets like Atlanta, and I think you said North Carolina.
Carolina, where where sequential share was down a little bit you talked about moving resources to northern Virginia.
I understand that concept, meaning that in this early stage I would expect to have expected more overall dollars being committed and therefore, not just moving resources around but I want to understand kind of how you looked at that and then how you redeployed resources the northern.
Other than Virginia from some of those initial markets.
Yes, I appreciate the question, Chris and let me take a couple of things that went into that consideration I think first and foremost you remember we had flexible marketing.
Tools that are disposal, whether you consider kiosks mobile units and so you move those from launch markets of launch market I think the other.
Other thing that's important to remember as we've always said, we wanted to put our best commercialization foot forward and as we got through to Charlotte remember when we first launched Charlotte we had the 2.4 device that did not have an MLR TP authorization, nor did we have authorization on 3 point out and so as you move into a market youre going to put your best foot forward we feel.
Bill like that is the right package and I think you've seen the results from the learnings as well as those.
With version 3 and the <unk> authorization in Northern Virginia, and so it doesn't mean, we won't go back and re launching some of those markets with those added benefits to the consumer and consumer engagement, but we thought it was prudent to move that.
And then the last note is as you move from densely populated areas to a fully expanded across the state you evolve your commercialization practice and we know to launch across the total U S. We're going to have to have that C store experience and so it's perfecting that and and we feel good about as you saw in the.
You heard in the remarks, the net amount of device sales that we had through.
Through the C store channel if you step back and just look into the second quarter volume consumer takeaway overall volume was up 40% and so I would consider that.
<unk> achievement.
So really in that regard bill.
The most recent market at least in this case of where you stand today is the best representation of your selling model and we don't need to if we look back at other markets because youre kind of changing as you move into these new markets is that fair to say.
I think that's fair to say I don't know if I would characterize it is it certainly we feel like that's the best commercialization package, we've had to date.
I think it's too early to read and to say Okay. This is exactly what we're going to do as we go forward, we're going to continue to get learnings and evolve.
Yes, the best commercialization package, we've had to date is that that we've put in northern Virginia.
And I did have 1 other quick follow on which is on an all in an oral tobacco and just to think they're there.
At what point or I think you've talked about before getting being having on available in more stores that sell oral tobacco products mean, whether it's 90% or 100%. So should we just thought there just to continue to kind of build through the second half of the year now that you're unconstrained on manufacturing capacity.
Yes, I think right now you can consider.
<unk> focus on really disrupting the consumer making them aware of the.
Qualities of wanting the marketplace engaging with them through the 101 and digital channels, we feel good about where we're at but we always assess the amount of stores, we are in and Youll see adjustments through time. Okay. Thanks, So much for your time thank.
Thank you.
Your next question.
<unk> comes from the line of Gaurav Jain with Barclays.
Hi, Good morning Bill.
Good morning.
All right.
Couple of questions..1 is on the cigarette industry volume decomposition.
The table, which is in your quarterly metrics.
In other additions.
No class gathering momentum only minus <unk>, 3% over the last 12 months and we know that oral nicotine pouches have gained about 1 percentage point of share.
And then on the day that you have on slide 23 of the presentation. It seems E. Cigarettes have also gained 1 percentage point of share so that would.
Other cross category movement.
It has significantly reduced versus what we saw in 2018.2019.
Is that a correct way of looking at the data.
Yes that is correct, Rob when you think about it remember in secular decline to your point about 1% was cross category.
Implant and then anything above that 1% outside of secular decline that's cross categories, what we called out a net day comp and so you can see in the chart that as of 632.21 on a 12 months ended it was <unk>.
3 above that and so that is really what is the impact to the cigarette industry from.
Category movement and it includes novel oral it includes E vapor I think when you think about E vapor if I understand the gist of your question.
What's going to impact how E vapor progresses in the U S and we believe it can play a significant role in harm reduction is really 3 things.
Cross dilatory decisions and you recall, all other products or with the FDA for their review, it's the legislative in tax policy, how will excise taxes evolve in that space and to <unk> earlier remarks innovation, how well companies think about innovating in the future and applying for authorization from the FDA.
So those will be the 3 major factors that play, but yes. It is less than what we experienced in 2019.
But then I guess that leads to the question that is it leading to additional consumption of nicotine in other.
Other additional consumers coming in and where are these consumers coming from.
Which leads to a lot of other questions as well.
Yes.
Yes, I think when you look at the factors underneath whether you think about total the total nicotine space and you've seen us before volume equivalents and stack that up historically, if you look over the past 5 years down about 1%. So that would say overall consumption is.
Coming down not increasing certainly during the pandemic and we've highlighted to you guys and investors is that we saw consumers add nicotine occasions to their day, which we believe was a stay at home practices and some of those factors and so certainly there has been some short term nicotine occasions added to the day, but overall.
Total volume when you stack up nicotine on equivalent volume basis is still been declining.
Sure.
I could ask 1 quick follow up on pricing.
The company that is clearly pricing quite.
Quite aggressively right now, which is helping you and everybody else and you're all pricing realization is also quite a stir.
Not as much as your key competitor, but I would have thought that you were thinking does benefit them and lifting more on the discount side of your business under stabilizing some of the volume share losses. There. So could you just help us understand how youre thinking on the discount side of things.
Yes, and I appreciate the question I think when you step back and think about the strategy.
Employing that category, it's to maximize profitability through time, while balancing investments were marble and funding the future grow categories and so that's what guides us as far as competitive pricing and worried about what they took our who went first those are not the factors.
I really gave the factors.
<unk> earlier to Pamela it's economic health of our consumer its brand strength and company objectives and so that's the way we think about our pricing decisions in the marketplace competitive actions don't factor into that I think when you think about our pricing and look I would say 8 over 8% both in the quarter.
And for the first half is pretty nice based on the results we've seen across the entire company here. We're pleased with that remember we have 2 factors that come into our price realization..1 is list price, which youre, referring to the other is as we implement and some people refer to it as revenue growth.
But it's how do we become more efficient with the retail promotional dollars we have in the marketplace and so I think you see those 2 factors play into our price realization.
Thanks, a lot Bonnie.
Thank you.
Your next question comes from the line of Michael Lavery with Piper Sandler.
Thank you good morning.
Good morning, Michael.
So I actually still have.
And I guess question too.
Can you just start by confirming for the ITC decision would that apply to the device only.
And then related to that if it does it.
Manage any potential for production in the U S or is that just really not.
They're not the ecosystem for that because it would be just an import ban correct.
That is correct the ITC deals with importation of products and so you are correct in that assessment as far as if you read the details around the the administrative.
Is there all judges decision.
They've made decisions on both the device and heat sticks and so it would apply to both.
As far as contingency plans, Michael as I stated earlier, it's a bit too early to get into the details of the contingency plans that we will be sure to come back to you as those are ready to be unveiled.
Okay.
Sure and just on the device sales in C store, obviously, just a huge jump this quarter.
Can you just give a sense of of some other drivers there.
No for the other 2 quarters they were available at least on a limited basis or at least in some some areas.
<unk> is.
It's the kind of device you don't really impulse buy most likely and it's a high price point.
At least in isolation is there is it driven primarily by digital engagement that sends the consumer in is it direct mail paper mail or.
How do you really see this boost.
Taking shape.
Yes.
It's a great question, Michael and it's something that we're very proud about I think it speaks to the strength of our a D. D C. Our sales force and the relationships they build at retail so when you think about it.
And it includes those other channels 1 to 1 digital.
Regular paper mail. It includes all of those our team is doing a great job of engaging with.
Adult smoker, but I think when you think about what <unk> has been able to do is really look at our retailers think about how to display the product at retail to your point our consumers are more of a 10 to 15 second decision how do you disrupt them at retail where they're making that purchase decision and really give them the guided trial.
For instance, they built relationships with retail clerks that where smokers previously and walk them through this transition from smoking cigarettes to using the heated tobacco product and so I think when you think about that now you have the retail clerk can speak from personal experience to smokers to also disrupt their.
<unk> seen decisions and so it's really still about the guided trial. It is about engagement through those channels, but disrupting them right at the point of purchase.
Okay. That's really interesting thanks, and just 1 more on can you give a sense of of usage rates and specifically what I'm curious about is.
<unk>.
Purchased.
How much a smoker who switches.
Maintains a similar usage rate.
Does it go up or down and I assume obviously there's.
People, who completely switch and some dual usage and sort of a progression there, but do you have a sense of some other consumer dynamics around that.
It's certain.
Something that we're monitoring and we're trying to monitor it as close as we can on an individual by individual basis because to your point people are at different places in their journey and so I think it's too early to get into here is exactly the usage rate of somebody that comes from cigarette versus somebody that comes from dipping.
But it's certainly something we're tracking and understanding because.
Because you've got to meet the consumer where they're at in their journey and help them to continue that transition over and so again I completely understand your question, but I think it's just too early to get into the details.
Okay, great. Thanks, so much.
Thank you.
Thank you.
Your last question comes from the line of play.
Certainly following Gupta with Barclays.
Hi, This is Tiffany out for <unk>, thanks for taking our question.
Wondering given the recent movement in that.
Right.
How are you thinking about the opportunity to correct Jeff.
Finance all of your maturities over the next.
Thank you.
Yeah.
Okay, I'm, sorry, I missed the end of that question could you repeat it I apologize.
Hi.
Steven.
Backdrop, how are you guys thinking.
All opportunity.
Hi, Jeff.
All of your maturities.
Thank you.
Yes.
Yes, I think that was able to hear it I think when you think about it we're going to assess those market conditions.
We're certainly not going to give guidance exactly what we're going to do with any maturities, but we look at the market conditions. When we see maturities salad would tell you that.
With our cash.
So businesses it gives us flexibility when we have maturities upcoming based on what the market conditions are and how we would assess those.
Thank you yeah, I agree with Bill and I would point out that we have taken a very balanced approach to capital allocation. When you look at 2021, including.
We did execute an opportunistic liability management transaction earlier in the year.
That allowed us to extend maturities on low interest debt, while managing our maturity towers.
Thank you very much.
Thank you.
At this time I would like to turn the call back to Mac Livingston for closing comments.
Thank you all for joining US please contact the Investor Relations team. If you have further questions have a great day.
Thank you all for joining US please contact the Investor relations team if.
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All right.
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