Q4 2021 Altria Group Inc Earnings Call
Good day and welcome to the Altria Group 2021 fourth quarter earnings Conference call. Today's call is scheduled to last about one hour, including remarks by Altria as management and a question and answer session.
Representatives of the investment community and media on the call will be able to ask questions. Following the conclusion of the prepared remarks.
I would now like to turn the call over to Mac Livingston, Vice President of Investor Relations for Altria client services. Please go ahead Sir.
Thanks Lee.
Good morning, and thank you for joining us this morning, Billy Gifford, <unk>, CEO and Sal Mancuso, our CFO will discuss <unk> fourth quarter and full year business results.
Earlier today, we issued a press release, providing our results.
The release presentation quarterly metrics and our latest corporate responsibility reports are all available at <unk> Dot com.
During our call today, unless otherwise stated we're comparing results to the same period in 2020.
Our 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.
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 disc.
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 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 Billy.
Thanks, Matt Good morning, and thank you for joining us.
Our team delivered outstanding results in 2021 across our businesses, including strong financial performance progress toward our vision.
Advancements in our ESG efforts.
This morning, we'll highlight our accomplishments in each of these areas.
First <unk>.
<unk> grew its 2021 adjusted diluted earnings per share by five 7%.
Driven in part by the resiliency of our cigarette cigar and moist smokeless tobacco businesses.
Additionally, we returned more than $8 $1 billion in cash to shareholders through dividends and share repurchases.
This total represents the third largest single year cash return in <unk> history.
And the largest annual return since 2002.
We have continued to make progress toward our vision of responsibly, leading the transition of adult smokers to a smoke free future.
Our teams took several steps forward in 2021, including accelerating the retail share growth the board and further enhancing the capabilities to expand heated tobacco and other new U S tobacco products.
Advancing the science research and development behind our smoke free products.
Advocating for tobacco harm reduction by encouraging the FDA and other stakeholders to address the widely held nicotine misperceptions in society.
We made excellent strides in establishing a best in class consumer engagement system to support smoker transition to smoke free products.
Our system Leverages robust transactional data and our advanced analytic capabilities to engage with consumers at the point of purchase.
Finally, some of our achievements across our responsibility focus areas included publishing six corporate responsibility reports summarizing our progress in critical areas, such as harm reduction and Andres prevention.
And publishing our inaugural task force on climate related financial disclosure report.
We were recognized for the second consecutive year with a double a rating from CDP for climate and water stewardship.
And we advanced our internal talent and cultural goals embraced workplace flexibility and.
In embedded inclusion and diversity considerations within our performance review process.
Hold our leaders accountable.
We're excited to share more about our responsibility efforts and our consumer engagement system next month at Cagny.
2021 was a dynamic year for the U S tobacco industry and total industry volumes were influenced by several factors, including pandemic induced shifts in consumer purchasing behavior and tobacco usage occasions.
A continued trend towards smoke free alternatives.
And under the evolving regulatory and legislative landscape.
Despite year over year volatility due to pandemic related factors total tobacco volume trends remained stable.
In fact, we estimate that overall tobacco space volumes have decreased by <unk>, 3% annualized for the past two years and by <unk>, 8% over the last five years on a compounded annual basis.
Diving deeper total estimated equivalent volumes for smoke free products in the U S grew to $3 8 billion equivalent units in 2021 and.
And represented approximately 24% of the total tobacco space.
We estimate the year over year increases in Smokefree volumes.
Driven by the E vapor category, which result resumed its growth after a temporary pause in 2020 and oral nicotine pouches, which continued to grow rapidly from a small base.
Okay.
2021, Smokefree volumes also benefited from the geographic expansion of Iqos in the heated tobacco category.
Pressured by modest declines in the MST category due to shifts in consumer purchasing behavior and movement to other smoke free categories.
And in combustibles.
<unk> declined to approximately approximately $11 8 billion equivalent units driven by several factors, which saw will discuss later in his remarks.
Turning to our smoke free product portfolio.
We're excited by the exceptional performance of on an all nicotine pouches.
On retail share of all tobacco increased by nearly a full share point sequentially, reaching three nine share points for the fourth quarter and nearly doubling its share over the past six months.
These strong results were primarily driven by an increase in multi cam purchases.
As of the end of the year <unk> was available for sale and approximately 117000 U S retail stores.
The old nicotine pouch category reached a total all tobacco retail share of $17 nine percentage points in the fourth quarter.
Growing seven four share points year over year.
We're encouraged that on represented more than one third of this growth and the brand is proving to be a highly competitive product in this space.
Our premarket tobacco applications for the entire portfolio remains pending with the FDA.
And we believe that the FDA should determined that the marketing of these products is appropriate for the protection of public health.
We are also working actively working on modified risk tobacco product applications for on and expect to submit these applications to the FDA by the end of this year.
We believe an <unk> TP claim would be an impactful point of differentiation for the brand and an important tool.
Indicating and ultimately transitioning smokers to less harmful products.
In heated tobacco, our teams made excellent progress with Iqos in the northern Virginia market with marble heat sticks, achieving a one 9% retail share of the cigarette category in stores with distribution for the month of October .
Unfortunately PM USA had to remove iqos from the market in November due to the national trade commissions importation ban.
Cease and desist orders.
PMI is responsible for Iqos manufacturing and we have been in contact regarding product availability.
At the present time, we do not expect to have access to iqos devices or mobile heat sticks.
In 2022.
However, we remain focused on returning iqos to the market.
As soon as possible.
Teams are actively working on reentry plans and we expect to be ready to bring iqos back to U S consumers when available.
Our agreement with PMI contemplates disruptions such as those caused by the ITC orders and requires the parties to negotiate in good faith to amend the agreement appropriately.
In the second quarter of 2020, we disclosed two milestones in our Iqos agreement with PMI.
<unk> for PM USA to maintain to maintain its exclusive license and distribution rights for Iqos in the U S.
And to add the renewal option for an additional five year term.
The initial five year term does not expire until April of 2024, but we believe that PM. USA has already met these milestones based on the strong performance of Iqos in the Charlotte and Northern Virginia markets.
PMI has communicated that a disagrees with our position we expect.
To continue discussing these matters with PMI.
We firmly believe that heated tobacco products can play an important role in U S harm reduction and we are continuing our efforts to support the categories growth.
We have gained significant knowledge from our from our Iqos commercialization efforts, which we expect to use going forward.
Our team has learned how to educate U S smokers on a brand new tobacco category and how to effectively support their transition to Ernie to smoke free alternatives.
We demonstrated improved performance in each successive market and gained valuable knowledge on leveraging <unk> claims to transition smokers.
Additionally, we have built a robust post market surveillance system.
All of which we will we believe will position us to successfully achieve our objective of moving beyond smoking.
Moving to the E vapor category.
2021 monitoring the future study was recently released and the data showed positive improvements in under age usage trends.
Both underage use of nicotine vaping products and Joel specifically showed continued signs of decline.
The latest data shows that jewel underage usage is down by 70% from 2019.
With total under age nicotine vaping down 27% over the same period.
We are encouraged by the progress, but more still needs to be done and we remain committed to continuing our work to reduce underage use of all tobacco products.
Turning to the regulatory environment.
The FDA is currently weighing several decisions that we believe will shape the future of harm reduction in the U S.
In the E vapor category. The FDA has issued marketing denial of orders for many E vapor PMT as predominantly applications for open systems and flavored E liquids.
These denial orders have resulted in significant litigation across the country.
In the meantime, PMT as for most leading E vapor products, including Joel are still an FDA review.
The FDA granted its first E vapor market or last year for the tobacco variant of our cig a like products.
The FDA has not reached a final decision for that manufacturers menthol variants, but did deny it submissions for its other flavored cartridges.
And oral tobacco PMT as for the leading oral nicotine pouch products, including on remains pending with the FDA.
Last year, the FDA granted the first market authorizations, among innovative all tobacco products for our Verve discs and shoes in.
And the flavors of Green and Blue Man.
These were also the first flavored product authorizations for newly deemed tobacco products.
Additionally, <unk> TP applications previously submitted for Copenhagen, snuff and competitive Snoose products remain an FDA review.
Finally in combustibles. The FDA has stated that they are on track to issue a proposed product to issue proposed product standards by April 2022 regarding menthol in cigarettes, and characterizing flavors in cigars.
As a reminder, the FDA rulemaking process for these and all potential product standards has multiple steps and provide several opportunities for stakeholders to provide input.
There are formal requirements related to public notice and comment.
Steps, requiring the office of management and budget to assess economic consequences at several points in the process.
Importantly, if the FDA chooses to move forward with the final rules. They must address all comments received throughout the rulemaking process.
Of course, any final rule must take into account the potential for unintended consequences and would be subject to legal challenges.
We plan to review the proposed rules and detail and intend to engage with the FDA throughout the rulemaking process on each of these issues.
We remain optimistic about the future of harm reduction in the U S.
We believe we have an unprecedented opportunity to lead the way and shifting millions of smokers away from cigarettes, if we follow the science and foster innovation with the support of reasonable regulation.
We are encouraged that the FDA has authorized the product in each of the three major smoke free categories.
Going forward. This year, we expect the FDA to carefully consider the scientific merits of each remaining application.
And we're hopeful for significant progress in product marketing and claim authorizations.
I would now like to end my commentary regarding 2021 with a message to our <unk> employees.
Thank you for your dedication passion and creativity through a difficult period.
We experienced several challenges last year in both our professional and personal lives and I admire your resiliency and fortitude.
You are a driving force in moving beyond smoking and we are very appreciative of your efforts and commitment.
Let's now move to our financial outlook for 2022.
Our plans for the year ahead include a continuation of our strategy to balance earnings growth and shareholder returns with investments towards our vision.
For 2020 to our planned investment investment areas include digital consumer engagement.
Smoke free product research development and regulatory preparations and.
And marketplace activities in support and support of our smoke free products.
The external environment remains dynamic however, and we're monitoring various factors such as the economy, including the impact of increased inflation.
The impact of current and potential future COVID-19 variance and mitigation strategies.
Tobacco consumer dynamics, including tobacco usage occasions and available disposable income.
And regulatory and legislative developments.
Taking these factors into consideration, we expect to deliver 2022 full year adjusted diluted EPS in a range of $4 79.
So $4 93.
This range represents an adjusted diluted EPS growth rate.
Up 4% to 7% from a $4 61 set base in 2021.
We expect 2022, adjusted diluted EPS growth to be weighted towards the second half of the year.
Our guidance includes anticipated inflationary increases and master settlement agreement expenses and direct materials expenses and our current expectation that we will not have access to the iqos system in 2022.
I'll now turn it over to Sal to provide more detail on the business environment and our results. Thanks Billy.
I'd like to begin with an update on consumer disposable income mobility and retail store traffic.
We believe rising gas prices inflation and the reduction of COVID-19 relief programs led to a decrease in disposable income on a sequential and year over year basis.
In addition.
We continue to have a strong balance sheet and our goal is to maintain an investment grade credit rating.
Speaker 1: We continue to have a strong balance sheet, and our goal is to maintain an investment-grade credit rate.
Speaker 1: As of year-end, our debt to EBITDA ratio was 2.3 times and our weighted average coupon was 4%.
As of year end, our debt to EBITDA ratio was two three times and our weighted average coupon was 4%.
Speaker 1: With that, we'll wrap up and Billy and I will be happy to take your questions.
With that we'll wrap up and Billy and I will be happy to take your questions. While the call is while the calls are being compiled I'll remind you that today's earnings release, and our non-GAAP reconciliations are available on <unk> Dot com.
Speaker 1: While the calls are being compiled, I'll remind you that today's earnings release and our non-GAAP reconciliations are available on altree.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 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 Pamela Kaufman of Morgan Stanley .
Hi, good morning, Hi.
Hi, Paul This is Mac just one quick second before your question, we understand that there are some technical issues associated with the webcast. So I apologize for the disruption to those listening there we will work to get our.
The recorded remarks up on the website as soon as possible.
Go ahead Pam.
Thanks.
How would you characterize the current competitive environment within the cigarette category.
Deep discount segment continues to invest in price.
It's gaining share given the headwinds that you highlighted that are impacting the tobacco consumer how are you thinking about managing price gaps versus the discount segment and are you prioritizing stabilizing marlboro market share. Thanks.
<unk>. Thanks for your question.
I think I would start with Marlboro share I mean, when you look at mobile share performance over the past eight quarters. It has been stable. So you can look at kind of this period and the pandemic to pre pandemic.
Pandemic levels and you see Marvel has remained strong throughout that period.
When we went through the pandemic, though there were several macroeconomic tailwind. So we've mentioned that before there was lower consumer mobility, there was higher government stimulus payments.
We believe led to increased smoke indications.
When you think about that led to increase our higher discretionary income for competitive adult smokers, who then traded up tomorrow and I think that really showed the continued appeal of premium brands now as we start seeing some of those pressures youre, referring to put pressure or decrease the discretionary spend.
Of some of our consumers.
The more price sensitive adult smokers moving back to discount brands and I think that would be expected, but we believe that the current discount share to your point is at the high end of historical norms.
But we do expect quarterly of quarterly fluctuations in share to continue until the economy begins to stabilize from this pandemic I think overall from a pricing standpoint, and I'll be careful not to talk about future pricing you'll recall the four factors that we look at to make pricing decisions strength of the brand the economic health of.
Our consumers the demographics, our relevancy of the brands across their various age cohorts and corporate objectives and I think when you think about the strength of the brand.
I'd remind you that like marble has over 90% loyalty and that I think has shown through the eight quarters of stability.
Thanks, That's helpful. And then just a question on the smokeless segment.
<unk> ability and margins have been under pressure in smokeless over the last several quarters can you elaborate on the investments you are making there and how are you thinking about smokeless investments and profitability in 2022.
Yes, it's a great question I appreciate Ray's and that I think when you think about it Pamela.
<unk> talked as we progress through 2020 that we're really focused on getting past the manufacturing capacity constraint and that would allow us to really start engaging with the consumer so now being in the 117000 stores you want to have a nice look at retail you don't want to.
Engage with smokers with equity messages that go to go.
Go to the consumer.
Whether through direct mail and through digital and then because you are introducing a new category and is growing you want to have some disruption at retail both with the look and with some price often so you have price promotions that take place in the marketplace. So those are the major factors that as we are investing in on and it's growing.
Impacted overall, all tobacco category from a margin standpoint, I know you would like me to say this is the exact date, we expect to earn that but I think as you think about a growing category and.
Certainly participated in that growth, we're going to invest appropriately as that category continues to grow.
Thank you.
Yeah.
We will take our next question from Bonnie Herzog of Goldman Sachs.
Alright. Thank you good morning, everyone. Good morning Guy.
Hi, I have a question on your 2002 EPS guidance you mentioned you plan.
To balance earnings growth and shareholder returns with investments towards your vision, which include increased smoke free product R&D.
The same time, you don't expect to have iqos in the market. So two questions.
One can you give us a sense of your investment spend in R&D for instance, well your investments in this effort D elevated above 21 levels and then two can you share maybe just a little bit more with us about your.
2030 vision and how the development of an additional smoke free product could fit into your portfolio be curious to hear what that product might look like when it might be ready to test you know just be curious to hear if it's closed or is this still a year or two out.
Yes. Thanks for the question Bonnie and it was it was pretty packed up so I'll try to unpack it but if I Miss any points. Please follow up I think when you think about guidance overall, we run a range of scenarios across all of the categories. We participate in and there are always puts and takes in those various scenarios and it's important to remember when mindful that we're still in a pandemic.
<unk>.
And that we want to ensure we have the flexibility to adapt to our adult consumers as we progress through the year and they are making different choices as far as the investment areas. I know you would like us to say this is exactly when we're going to bring this product in here is what it looks like.
Think it's important to step back and think about where we are investing in it really is marketplace activities for support of the products. We have in the marketplace. It's also investing in the digital consumer engagement being able to get closer to the consumer on a one on one basis and we'll share more details with that at Cagny and then it's not just research and development.
It's also the regulatory preparations that take place. So for instance in 2022, we're preparing the <unk> application for their own portfolio and so there is a vast array of investments. It does include product development and R&D.
So that's kind of how we look at 2022 and how we're moving forward I think when you look at the vision.
Even if you look overseas, where theyre able to innovate much quicker you see the consumer constantly moving.
From a technology standpoint through the various options that are available to them and so we want to make sure that we're investing appropriately these state pace or actually be ahead of where the consumer is going to be as we progressed through time and so that's how we think about product development and the.
From a fitting into the portfolio to address that point of your question.
Okay. That's helpful. And then just speaking are thinking about your 2030 vision could.
Could you give us maybe an update on that and you know I just keep thinking about.
Any guidepost you guys could share with us that you expect to hit for this business or your business or I should say in the next three to five years.
What ultimately is a realistic target in terms of converting your business to Noncombustible products, you know and then in the context of that and executing on this vision.
Curious to hear if you're open to M&A to accelerate this or are you going to continue to remain focused on you know things.
Things that you develop in house.
Yes, I think from a guidepost standpoint, and we get this question often is I think it's a bit different in the U S, where we're predominantly base versus overseas remember everything has to go through the FDA authorization process and really the entire harm reduction opportunities in front of us in the U S and so.
As we progress and we start seeing some of the FDA authorizations come through we'll be sure to share some guideposts on how we're thinking about measuring going forward I know thats, what you and the investors want it's just that we need to get through the FDA authorization process and understand how they're going to think about and authorize these products going forward and then we can provide some some guide.
Post to be measured against in that regard I think overall, though and we've shared this before call it roughly half to slightly over half of adult consumers cigarette consumers in the U S.
Prefer or would desire an alternative product that satisfies them and has the potential to reduce the risk associated with using nicotine through time. So we want to consistently provide those consumers the products and transition them to the smoke free products from.
A standpoint of the 2030 vision.
I mentioned that the entire RFP.
Opportunities in front of us and what we feel like we have is we have the infrastructure to support that whether you think about government affairs regulatory affairs.
Our top notch sales force, we have product development.
We engage with the largest number of U S adult tobacco consumers through our brands premium brands in our digital capabilities.
You have to step back and we have strong core businesses that produce lots of cash that allow us to fund our investments.
I believe if you ask consumers, we have credibility with the adult tobacco consumer. So your last question. If I recall the mall correctly was M&A versus internal what we monitor what's taking place around the world and we are extremely focused on our organic development staying close to the consumer as we continue with that process.
Alright, Thank you I'll get back in queue. Thank you.
Our next question is from Owen Bennett of Jefferies.
Good morning, Ken So Paulo well.
I just got a question around some of the details on the automatic renewal of the Iqos agreement.
Firstly did you need to hit.
Our market share levels.
April 24, and then some.
Sounds like from what Youre, saying, you believe you already hit the levels in 2020.
And would that be valued it sounds like he's not vacate the share targets, we set really low and then free if you believe you've already shared target what exactly is being re negotiated with PMI.
Hey, guys.
I appreciate it I want to I. Appreciate your question look we disclosed what we felt like we could from our standpoint remember we have cross confidentiality in place with PMI and we disclosed that in 2020, because we thought it was important for you guys and the investors to know that there were performance objectives in the contract.
We feel like we have hit those as.
As far as.
The.
The extension or renegotiation, that's taken place, but we described that we felt like we hit <unk> and disagreement with that and there are mechanisms in the contract to be able to settle any distributions take place you can see with any two parties that have an agreement there can be disputes or disagreements and that.
Was all contemplated in the agreement.
Okay.
Helpful.
You.
Well take our next question from Vivien <unk> of Cowen.
Hi, Thanks very much.
I really appreciate the commentary on the health of the consumer and in some of the normalization in terms of down trading behavior.
I guess I kind of think back to the evolution of the Marlboro franchise over the last decade, there was a big push if I recall correctly coming out of the last recession.
Balanced out.
The price points that were available for Marlboro. So can you just remind us kind of where a special blend footprint total Marlboro franchise and I recognize your revenue growth management tools have gotten a lot more sophisticated over the last decade, but the role that you envision special blend playing today's kind of we see sustained downgrading. Thank you.
Yes. Thanks for the question Vivien I think when you think about the entire mobile portfolio remember that that services four out of every 10 consumers that go to the marketplace you have consumers that the Marvel brand appeals to them.
That earlier those price sensitive consumers, it's still appeal to them and when they have extra discretionary income they want to trade up across the portfolio with the tools that you mentioned, we can provide the consumer a safe landing.
Various parts of the portfolio, where they can stay in the mobile franchise, and we see that's better for them than actually losing them or having them trade out and try to win them back later and so we have the advanced analytics. We have this robust data coming in from retail and now with those tools, we're trying to provide it closer and closer to the individual.
Consumer and we feel like we have the tools that allow us to navigate this type of pressure that the consumers under I think it's important though to remember that our goal is not to grow marble share through time is to stabilize it. So that we can grow profitability through time and so that's what our overall goal is specific to the mobile franchise and.
When we use the tools and the portfolio to be able to do that.
That's really helpful. Thank you for that and then just my follow up question is on the on franchise clearly the promotional investments that you guys were making or are translating into market share gains, which is great to see I was wondering if you could offer any color on where you see on promotional spending relative to the broader competitive backdrop. Thanks.
Sure I think when you think about the promotional spending there.
We had to get past manufacturing capacity constraints. So we certainly had a competitor get out there much earlier than us and so we want to be a bit disruptive in the marketplace to disrupt the consumers from their normal purchasing behavior in the category or if they are thinking about the category.
Same tools that debt.
I think agree with that we have in the cigarette category.
Using those tools in this space as well so we're constantly using those tools with the data we're getting from retail with the feedback we're getting from consumers and understanding what's effective and what's not effective and so we'll be continually adjusting those as we move through time to improve the share growth and through.
Once we get past the investment period to get <unk>.
Increased margins profitability.
Understood. Thank you.
<unk>.
Our next question is from Chris Growe of Stifel.
Hi, Good morning, good morning, Chris.
Good morning.
A question first of all and this is not.
Even in the situation in the last kind of year and a half or two but you did not provide a volume outlook for the year. For example for your cigarette business or cyclical business overall and I. Just was curious maybe to get into a number but just to understand is that volatility in volume maybe the uncertainty around that kind of the main factor that could push your EPS around within that range is the worst.
In conclusion for the year would likely drives.
The lower end of your EPS range, and a better volume performance towards the higher end is that one of the main driving factors of your of your guidance range for the year or do you see it.
I think when you think about zero volume is certainly an important factor in that but there are always puts and takes that take place in the P&L. So as I mentioned, Chris we run a range of scenarios and then those scenarios, we have puts and takes that take place across the various categories. Certainly cigarette volume is one of the factors, but it's not the only factor.
Okay.
Just had a question in relation to Marlboro and sure. There's been a few questions on that on that front, but I'm. Just wondering I was curious why is it in some of your price increases over the last year year and a half maybe last year.
If you set aside some funds that youre going to put towards investing behind Marlboro I guess I just want to get a sense of based on the performance in a largely flat performance and share even though it's been up and down.
I guess are those funds being utilized as you expected behind Marlboro of do you see the need based on some of the growth in deep discount share for example to continue to increase that rate of spending behind Marlboro.
It's something we'll certainly monitor Chris going through time and we.
Talked about look we're mindful of keeping pace and understanding how we need to adapt to our consumers across all of our categories I think.
I go back to the comment I made to Vivian R.
Goal with marble was not to grow share through time is to have stable share and be able to grow profitability and I think you were you see we were very successful at that in 2020.
Okay. Thank you for your time, Thank you Chris.
We will take our next question from Callum Elliot of Bernstein.
Thanks for the question.
I appreciate the color on the dispute resolution process with <unk>.
Yes.
My question is do you guys have contingency plans in place in heated tobacco in the event that that dispute resolution process.
It goes against you.
And then licensing agreement is an extended beyond 2024.
Yeah, I'm not going to go into the hypothetical there <unk> I think you can appreciate that we feel like we can resolve it it was pre thought out it with the agreement that the mechanism is in place to settle disputes.
And so we'll go through that process, but we are in continued discussions with PMI.
Okay. Thanks, and just a quick follow up on the <unk>.
<unk> question about the sort of promotion environment in nicotine pouches and I guess my question is are you concerned at all that that heavy promotional environment.
Mike damage the brand equity and selling today at a huge discount to the market later as you mentioned.
Not too concerned about might impact the long term brand perception here.
We are not if you think about even if you go back to the cigarette category when we launched Skus and.
Whether it be on a marble of any of our other brands you always had introductory price promotions.
It is important to remember when a consumer is going to in C. Stores is one of the primary locations. They go too, they're making that decision and 10 to 15 seconds. Its the snap and I almost and so when you think about that you don't want to disrupt them at retail not only with price promotions, but with a great look at retail or disrupt them either in there.
Box or their E mail box with through digital and so we're going to use all of those tools available to us.
We feel like we have strong equity and build a strong equity with one.
Okay. Thank you. Thank you.
At this time, we'd be happy to open up to Q4, our media Representatives will take a question from Jennifer Maloney of the Wall Street Journal.
Hi, good morning.
Wanted to follow up on Bonnie's question.
R&D and your 32030 vision.
Can you speak specifically to hear how E vapor fits into your 2030 vision and our portfolio.
Yes, I think from a.
R&D portfolio I'll take that first you remember our agreement with Jerome.
Precludes us from being able to do any organic development in E vapor.
So that's one category that we do not have any organic development going on if you think about the 2030 vision. The way we think about the E vapor category. Shortly added the entire category is going through the FDA authorization process as they make decisions. The E vapor category will be in a bit of transition, but we believe the E vapor category.
Ori and <unk> included in that I can play an important role in the U S and harm reduction in the future of harm reduction. So when you think about that E. Vapor can play an important role, but it's going to be in a bit of a transition as it goes through the FTA authorization process.
So you only have a minority stake in two so do you I mean, what's your strategy. There for this 2030 vision in the E vapor category. It just you'll only be able to participate in the labor category through your minority stake in juul or do you have some other strategy there.
There are only participation in the E vapor category would be through our minority investment in juul and I think if you step back and see the success <unk> had in the marketplace with converting adult smokers to the E vapor category, you'll see that it still has the leading market share in the U S with adult tobacco consumers.
Okay. Thanks.
Thank you.
Okay.
Thank you at this time I would like to turn the call back to Mac Livingston for closing comments.
Thanks, Leo and thank you all for joining us I'll remind you once again, we're going to work quickly to get there.
The recording of the remarks backup on the on the webcast for those who were disrupted there so apologies for that again.
If you have any other further questions. Please contact the investor relations team. Thanks.
This does conclude today's call you may now disconnect your lines and everyone have a great day.
Yes.
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Yeah.
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