Q4 2023 Altria Group Inc Earnings Call
Alexander Goffman: Alexander Goffman, Future dividend payments and share repurchases remain subject to the discretion of Altria's board. After your reports, it will present 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.
Factors that could cause actual results to differ materially from projections.
Future dividend payments and share repurchases remain subject to the discretion of <unk> 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.
Mac Livingston: Descriptions of these non-GAAP financial measures and reconciliations are included in today's earnings release and on our website at altria.com. Finally, all references in today's remarks to tobacco consumers or consumers within a specific tobacco category or segment refer to existing adult tobacco consumers 21 years of age or older. With that, I'll turn the call over to Billy. Thanks, Mac. Good morning, and thank you for joining us.
Are included in today's earnings release, and on our website at <unk> Dot com.
Finally, all references in today's remarks to tobacco consumers or consumers within a specific tobacco category or segment.
<unk> to existing adult tobacco consumers 21 years of age or older.
With that I'll turn the call over to Billy.
Billy: Thanks, Mac good morning, and thank you for joining us.
Billy: It was a pivotal year for altra as we made significant progress in pursuit of our vision by enhancing our smokefree product portfolio, while our businesses performed well in a challenging environment.
Billy: It was a pivotal year for Altria as we made significant progress in pursuit of our vision by enhancing our smoke-free product portfolio, while our businesses performed well in a challenging environment. We grew adjusted diluted earnings per share by 2.3% and continued our long history of rewarding shareholders by delivering nearly $7.8 billion in dividends and share repurchase. Throughout 2023, we took several transformative steps that we believe position us for sustained success in the U.S. nicotine space, including completing their acquisition of Enjoy and fully integrating it into our family company, making exciting progress on our promising smoke-free pipeline, including launching ON Plus internationally in Sweden, one of the world's largest modern old tobacco markets, and continuing preparations to bring heated tobacco products to market. This includes Heated Tobacco Stick Products, True Horizon, our joint venture with JT, and our heated tobacco capsule product, SWIFT, as well as advocating for a responsible and well-regulated e-cigarette market, including stepped-up enforcement against illicit disposable products. Our vision continues to guide our actions.
Billy: We grew adjusted diluted earnings per share.
Billy: By two 3%.
Billy: <unk> continued our long history of rewarding shareholders by delivering nearly seven 8 billion in dividends and share repurchases.
Billy: Throughout 2023, we took several transformative steps.
Billy: That we believe position us for sustained success in the U S nicotine space.
Billy: Including.
Billy: Completing our acquisition of enjoying and fully integrating it into our family of companies.
Billy: Making exciting progress on our promising smokefree pipeline.
Billy: Including launching on plus internationally in Sweden.
Billy: One of the worlds largest modern oral tobacco markets.
Billy: Continuing preparations to bring heated tobacco products to market.
Billy: This includes heated tobacco stick products through horizon, our joint venture with J T.
Billy: And our heated tobacco capsule product switch.
Billy: And advocating for a responsible and well regulated E vapor market.
Billy: Including stepped up enforcement against illicit disposable products.
Billy: Our vision continues to guide our actions and we believe that our growing portfolio of smoke free product.
Billy: And we believe that our growing portfolio of smoke-free products positions us well to lead in the evolving nicotine space. My remarks this morning will focus on our view of the U.S. nicotine space and our progress in each of the smoke-free categories. I'll then hand it over to Sal, who will provide an update on consumer and industry dynamics and further detail on our business and financial results.
Billy: <unk> positions us well to lead in the evolving nicotine space.
My remarks. This morning will focus on our view of the U S nicotine space.
Billy: And our progress in each of the smoke free categories.
Billy: I'll, then hand, it over to Sal, who will provide an update on consumer and industry dynamics.
Sal: In further detail on our business and financial results.
Sal: Let's begin with the operating environment.
We estimate the total industry equivalence nicotine volumes increased approximately 3% for the year.
Billy: We estimate that total industry equivalized nicotine volumes increased approximately 3% for the year and approximately 1% over the past five years on a compounded annual basis, driven by the growth of illicit flavored disposable e-cigarette products. This new estimate marks a change from our previously provided estimates of low single-digit declines in total nicotine over the past several years. Our new estimate reflects a deeper, ongoing analysis of the impact of illicit products on the e-cigarette category. We have previously acknowledged the challenges associated with reading illicit market activity that takes place in less traditional channels.
Sal: And approximately 1% over the past five years on a compounded annual basis.
Sal: Driven by the growth of illicit flavored disposable E vapor products.
Sal: This new estimate March state change from our previously provided estimates of low single digit decline in metal total nicotine over the past several years.
Sal: Our new estimate reflects a deeper ongoing analysis of the impact of illicit products on the E vapor category.
Sal: We have previously acknowledged the challenges associated with reading illicit market activity that takes place and less traditional channels.
Sal: And we believe we have deepened our understanding of market dynamics through improved data sources.
Billy: And we believe we have deepened our understanding of market dynamics through improved data sources. However, information gaps still remain. As a result, we make some informed assumptions to better reflect the dynamics at play. For example, we account for differences in liquid volume across products, device attributes, and usage patterns by equivalent e-vapor volume across different form factors.
Sal: Formation gaps still remain.
As a result, we're making some informed assumptions to better reflect the dynamics at play.
Sal: For example, we account for differences in liquid volumes across products device attributes and usage patterns by equivalence E vapor volume across different form factors.
Sal: We then equivalent E vapor volume back to cigarettes per base unit of equivalent volume.
Billy: We then equivalize the vapor volume back to cigarettes, our base unit of equivalized volume. Because of the volatility that exists in reading the illicit market, our estimates may change over time, and we plan to provide you with our latest and best thinking as it evolves. Of note, our estimate focuses only on usage among age 21 plus consumers.
Because of the volatility that exists and reading the illicit market.
Sal: Estimates may change over time, and we plan to provide you with our latest and best thinking as it evolves.
Sal: Of note our estimate focuses only on usage among age 21 plus consumers.
Sal: Looking now by category <unk>.
Billy: Looking now by category, industry cigarette volumes declined by an estimated 8% last year, primarily due to the historical secular rate of decline, the growth of eliciting vapor products, and continued macroeconomic pressures on smoking. And while we're deeply concerned about growth and illicit product use, we are encouraged that adult smokers continue to transition to smoke-free alternatives, which now represent approximately 40% of total nicotine space. E-cigarettes continue to be the largest smoke-free category, and we have observed an increase in the number of adult vapors, driven primarily by those choosing illicit products.
Sal: Industry cigarette volumes declined by an estimated 8% last year, primarily due to the historical secular rate of decline.
Sal: The growth of illicit vapor products and.
Sal: And continued macroeconomic pressures on smokers.
Sal: So while we're deeply concerned about growth in illicit product use we are encouraged that adult smokers continued to transition to smoke free alternatives.
Sal: Which now represent approximately 40% of total nicotine space.
Sal: E vapor continues to be the largest smoke free category and we have observed an increase in the number of adult vapers driven primarily by those choosing illicit products.
Sal: Based on our new estimate the E vapor category grew approximately 35% in 2023.
Billy: Based on our new estimate, the e-cigarette category grew approximately 35% in 2023. We believe the category growth was largely driven by illicit flavored disposable products, which we estimate represent over 50% of the category. We estimate that pod-based products declined approximately 50% and represent between 15 to 20% of the category.
Sal: We believe the category growth was largely driven by our listed flavored disposable products, which.
Sal: Which we estimate represents over 50% of the category.
Sal: We estimate the pod based products declined approximately 50% and represent between 15% to 20% of the category.
Sal: We continue to believe the E vapor category is in the beginning of a reset.
Billy: We continue to believe that the e-cigarette category is in the beginning of a reset, and the steps that we have taken since closing the Enjoy transaction will allow us to responsibly participate in the category's growth. Let's briefly recap our 2023 actions with Enjoy, following the completion of our acquisition on June 1st. First, we strengthen NJOI's supply chain to enable our expansion plan. Our teams worked diligently to solidify the entire supply chain from sourcing direct materials through shipment to retail. We now expect to have capacity to support our expansion plans for NJOI moving forward. Next, we prioritize closing inventory gaps at retail and expanding distribution of ACE. For example, prior to closing, a number of stores had ACE pods and distributions but no device, while other stores were missing various pod varieties.
And the steps that we have taken since closing the enjoy transaction will allow us to responsibly participate in the categories growth.
Sal: Let's briefly recap our 2023 actions with enjoy.
Sal: Following the completion of our acquisition on June one.
Sal: First we strengthened enjoy supply chain to enable our expansion plans.
Sal: Our teams worked diligently to solidify the entire supply chain.
Sal: From sourcing direct materials through shipments to retail.
Sal: We now expect to have capacity to support our expansion plans for enjoy moving forward.
Sal: Next we prioritize closing inventory gaps at retail and expanding distribution of base.
Sal: For example, prior to closing a number of stores had a pause in distributions, but no devices.
Sal: While other stores, we're missing various pod varieties.
Sal: Our teams have closed inventory gaps and stores that already had distribution.
Billy: Our teams have closed inventory gaps in stores that already had distribution, which has significantly improved in-stock conditions at retail. During the fourth quarter, we expanded distribution of AIDS to over 75,000 stores, surpassing our previously announced goal of 70,000 stores. These stores represent approximately 75% of e-cigarette volume and 55% of cigarette volume sold in the U.S. multi-outlet and convenience channels. We also introduced NJOY's first retail trade program, which we believe will help NJOY achieve optimal visibility and product fixture space at retail.
Sal: Which has significantly improved in stock conditions at retail.
Sal: During the fourth quarter, we expanded distribution of ace to over 75000 stores, surpassing our previously announced goal of 70000 stores.
Sal: These stores represent approximately 75% of E vapor volume and 55% of cigarette volume sold in the U S multi outlet and convenience channels.
Sal: We also introduced enjoys first retail trade program, which.
Sal: Which we will we believe will help enjoy achieve optimal visibility and product fixture space at retail.
Sal: Retailers can sign up for the program at various levels with Merchandizing options designed to position enjoyed strategically and responsibly to tobacco consumers, while creating further awareness of the brand.
Billy: Retailers can sign up for the program at various levels, with merchandising options designed to position Enjoy strategically and responsibly among tobacco consumers while creating further awareness of the brand. We're encouraged by our trade partners' response to the program, with approximately 70% of stores having chosen options that secure premium positioning and the e-vapor fixture for Enjoy, fix the resets are well underway. And we expect the majority will be completed in the first half of this year.
Sal: We are encouraged by our trade partners response to the program with approximately 70% of stores.
Sal: Having chosen options that secure premium positioning in the E vapor fixture for enjoy.
Sal: Fix the resets are well underway and we expect the majority will be completed in the first half of this year.
Sal: We believe that achieving manufacturing capacity supply chain security and optimal product distribution and placement at retail where necessary precursors to engaging consumers with impactful marketing and promotional offers offers.
Billy: We believe that achieving manufacturing capacity, supply chain security, and optimal product distribution and placement at retail were necessary precursors to engaging consumers with impactful marketing and promotional offers. Turning to Enjoyed Business Results Android consumables shipment volume was approximately 11 million units for the quarter, and 23 million units since closing. Enjoys retail share in the multi-outlet and convenience channel was 3.7% in the fourth quarter. In November, we began testing trial generating bundle offers in a limited number of retail accounts, and the results were very encouraging.
Sal: Turning to enjoys business results enjoy consumer consumable shipment volume was approximately 11 million units for the quarter.
Sal: And 23 million units since closing.
Sal: Enjoys retail share in the multi outlet and convenience channel was three 7% in the fourth quarter.
Sal: In November we began testing trial generating bundle offers offers and a limited number of retail accounts.
Sal: And the results were very encouraging.
Billy: Despite the limited reach of these offers, Enjoy Retail Share increased three-tenths of a percentage point nationally in November and another three-tenths in December. While still early, we are excited by NJOY's momentum and remain optimistic about its potential in the U.S. market. We expect to further expand Enjoy promotions and marketing activations in the first quarter, and we anticipate submitting a PMTA for NJOI's age-restricted Blue Tooth device with non-tobacco flavors in the first half of this year.
Sal: Despite the limited reach of these offers enjoy retail share increased three tenths of a percentage point nationally in November and another <unk> in December.
Sal: While still early we are excited by enjoys momentum and remain optimistic about its potential in the U S market.
Sal: We expect to further expand enjoy promotions and marketing activations in the first quarter.
Sal: And we anticipate submitting a PMA for enjoys age restricted Bluetooth device with non tobacco flavors in the first half of this year.
Sal: We look forward to sharing more detail about our plans for the year at Cagny.
Billy: We look forward to sharing more detail about our plans for the year at CAG. Looking more broadly at the e-cigarette category, we continue to believe that the current state of the market is intolerable, for both legitimate manufacturers and consumers. As I previously stated, the total nicotine space grew in 2023, largely because of illegal flavored disposable e-cigarette products. These products are being distributed by companies violating virtually every rule and guidance the FDA has issued since 2016.
Sal: Looking more broadly at the E vapor category, we continue to believe that the current state of the market is intolerable.
Sal: For both legitimate manufacturers and consumers.
Sal: As I previously stated the total nicotine space grew in 2023, largely because of illegal flavor disposable E vapor products.
Sal: These products are being distributed by companies violating virtually every role and guidance. The FDA has issued since 2016.
Sal: We are actively engaging with regulators state and federal lawmakers, our trade partners and other stakeholders to build awareness of the serious issue and drive marketplace enforcement.
Billy: We are actively engaging with regulators, state and federal lawmakers, our trade partners, and other stakeholders to build awareness of this serious issue and drive marketplace enforcement. While we believe there is still significant work ahead to eliminate these illicit products from the market, we have seen some encouraging action. In December, the FDA, in collaboration with U.S. Customs and Border Protection, announced the seizure of approximately 1.4 million unauthorized e-cigarette products, including Elphar and other brands that are popular with underage users.
Sal: While we believe there is still significant work ahead to eliminate these illicit products from the market.
Sal: We have seen some encouraging actions.
Sal: In December the FDA in collaboration with U S customs and border protection announced the seizure of approximately $1 4 million unauthorized E vapor products.
Sal: Including <unk> and other brands that are popular with under age users.
Sal: We believe that adopting comprehensive border protection programs is an important step towards clearing the market of illicit products.
Billy: We believe that adopting comprehensive border protection programs is an important step toward clearing the market of illicit products. Additionally, we have worked with legislatures in a number of states that have passed or are considering legislation requiring manufacturers to certify that they have either submitted a PMTA, which is pending, or received a marketing order in compliance with FDA regulations. We also initiated litigation in the United States District Court in California relating to the sale of an unlawful product.
Sal: Additionally, we have worked with legislators and a number of states.
Sal: That have passed or are considering legislation requiring manufacturers.
Sal: To certify that they have either submitted a PMA, which is pending four received a marketing order and compliance with FDA regulations.
Sal: We also initiated litigation in the United States District Court in California relating to the sale of unlawful products.
Sal: And although this litigation isn't facing some initial procedural challenges we remain committed to explore and pursue all litigation opportunities again.
Billy: And although this litigation is facing some initial procedural challenges, we remain committed to exploring and pursuing all litigation opportunities against manufacturers, distributors, and online retailers related to the sale of unlawful products. A strong course correction is needed to protect tobacco harm reduction for the millions of adult smokers in the U.S. We've learned from past experiences that complex issues like this require the work of many stakeholders. For our part, we're working with regulators, legislatures, law enforcement, and others to address the illicit market. Meanwhile, the FDA and other authorities are stepping up enforcement. More action is needed.
Sal: <unk> manufacturers distributors and online retailers related to sale of unlawful products.
Sal: A strong course correction is needed to protect the tobacco harm reduction for the millions of adult smokers in the U S.
Sal: We've learned from past experiences that complex issues like this require the work of many stakeholders.
Sal: For our part we are working with regulators legislature's law enforcement and others to address the illicit market.
Sal: And while the FDA and other authorities are stepping up enforcement.
Sal: More action is needed.
Billy: Turning to oral tobacco, the nicotine pouch category experienced sizable growth once again, resulting in an estimated 7.5% increase in total U.S. whole tobacco volumes over the past six months. In the fourth quarter, all NICS team coaches grew 11.8 SharePoints year over year and now represent more than 35% of the total U.S. oral tobacco category, and continue to participate in the category growth. As reported, shipment volumes increased nearly 33% in the fourth quarter and 39% for the full year.
Sal: Turning to oral tobacco.
Sal: Nicotine pouch category experienced sizable growth once again.
Sal: Resulting in an estimated seven 5% increase.
Sal: In total U S bold tobacco volumes over the past six months.
Sal: In the fourth quarter, all nicotine pouches grew 11 eight share points year over year.
Sal: And now represent more than 35% of the total U S oral tobacco category.
Sal: <unk> continued to participate in the category growth.
Sal: <unk> reported shipment volumes increased nearly 33% in the fourth quarter and.
Sal: And 39% for the full year.
In the fourth quarter Helix continued its focus on volume growth, while improving profitability.
Billy: In the fourth quarter, Helix continued its focus on volume growth while improving profitability. Helix applied its analytics and revenue growth management capabilities to be more flexible and efficient with its promotional investments in the marketplace. As a result, Oren's retail price increased over 47% versus the year-ago period, while growing its retail share by 1.1 percentage points.
Sal: Helix applied its analytics and revenue growth management capabilities to be more flexible and efficient with its promotional investments in the marketplace.
As a result, <unk> retail price increased over 47% versus the year ago period, while growing its retail share by one one percentage points.
Sal: Encouragingly, we continue to see increasing levels of both trial and adoption of the brand with.
Billy: Encouragingly, we continue to see increasing levels of both trial and adoption of the brand, with repeat purchases up more than 30% year over year. We remain excited about OnePlus and its potential in the U.S. market. We believe its long-lasting flavor system and proprietary softened materials are differentiators in the category. We continue to see encouraging results from the OMS Plus test launch in Sweden. Consumer Research from the fourth quarter indicates that ONPLUS is competitive with the market-leading Olmectin pouch product in Sweden and is seen as a unique offering with strong, with a strong repeat purchase rate of over 30% in the e-commerce channel. Given the success of OrmPlus Mint and Smooth Mint in December, we introduced OrmPlus Berry and Citrus in 6 and 9 mg strength variants in the e-commerce channel.
Sal: With repeat purchases up more than 30% year over year.
Sal: Despite the substantial increase in retail price.
We remain excited about <unk>, plus and its potential in the U S market.
Sal: We believe it's long lasting flavor system and proprietary software material.
Sal: Differentiators in the category.
Sal: We continue to see encouraging results from the <unk> plus test launch from Sweden.
Sal: Consumer research from the fourth quarter indicate the one plus is competitive with the market, leading all nicotine pouch product in Sweden.
Sal: <unk> is seen as a unique offering with strong.
Sal: With a strong repeat purchase rate of over 30% in the E Commerce channel.
Sal: Given the success of loan plus net and smooth met in December.
Sal: We introduced oneplus Berry, and citrus and six and nine milligram strength variance and the E Commerce channel.
We also plan to expand one plus two additional retail accounts and sleep.
Billy: We also plan to expand OnePlus to additional retail accounts and suites. Our teams are on track to submit the PMTA for ONPLUS in the first half of this year, and upon FDA authorization, we expect it will contribute meaningfully to Helix's growth. And Heated Tobacco, we believe are compelling portfolio products, will appeal to the millions of adult smokers seeking innovative and scalable alternatives to e-cigarette products. We are continuing regulatory preparations to bring heated tobacco stick products to the U.S. market through Horizon, a joint venture with J.D.
Sal: Teams are on track to submit the <unk> for <unk> plus in the first half of this year.
And upon FDA authorization, we expect it will contribute meaningfully to helix is growth.
Sal: In heated tobacco, we believe our compelling portfolio of products.
Sal: Will appeal to the millions of adult smokers seeking innovative and favorable alternatives to E vapor products.
Sal: We are continuing regulatory preparations to bring heated tobacco stick products to the U S market through horizon.
Sal: Our joint venture with J T.
Billy: We remain on track to follow up TMCA for Plume in the first half of 2025, and we're making continued progress on our heated tobacco capsule product, SWIFT. While we believe heated tobacco products can play an important role in achieving harm reduction, the category remains non-existent in the United States.
Sal: We remain on track to followup TNK for plume and the first half of 2025.
Sal: And we're making continued progress on our heated tobacco capsule product switch.
Sal: While we believe heated tobacco products can play an important role in achieving harm reduction.
Sal: Category remains nonexistent in the United States.
Sal: We are encouraged by the progress we made in 2023, and we are committed to achieving long term leadership in each of the smoke free categories.
Billy: We're encouraged by the progress we made in 2023, and we're committed to achieving long-term leadership in each of the smoke-free categories while delivering strong shareholder returns. Last March, we introduced our 2028 Enterprise Goals.
Sal: While delivering strong shareholder returns.
Sal: Last March we introduced our 2028 enterprise goals.
Sal: We provided updates on our progress in this morning's press release, and we expect to provide progress updates annually moving forward.
Billy: We provided updates on our progress in this morning's press release, and we expect to provide progress updates annually moving forward. We look forward to discussing our exploration of non-nicotine and international nicotine markets at Cagney later this month. Turning to our 2024 financial outlook, our plans include a continuation of our strategy to balance earnings growth and shareholder returns with strategic investments toward our vision. For 2024, our planned investment areas include marketplace activities in support of our smoke-free products and continued smoke-free product research, development, and regulatory preparation. We believe the external environment will remain dynamic in 2024.
Sal: We look forward to discussing our exploration of non nicotine.
Sal: And international nicotine markets at Cagny later this month.
Sal: Turning to our 2024 financial outlook.
Sal: Our plans include a continuation of our strategy to balance earnings growth and shareholder returns with.
Sal: With strategic investments toward our vision.
Sal: For 2020 for our planned investment areas include marketplace activities in support of our smoke free products.
Sal: And continued smoke free product research development and regulatory preparations.
Sal: We believe the external environment will remain dynamic in 2024, and we will continue to monitor the economy, including the cumulative impact of inflation.
Billy: And we will continue to monitor the economy, including the cumulative impact of inflation. Tobacco Consumer Dynamics, including purchasing patterns and adoption of smoke-free products. Felicity, and Regulatory Litigation and Legislative Development.
Sal: Tobacco consumer dynamics, including purchasing patterns and adoption of smoke free products.
Sal: Solicit EBIT.
Sal: Okay.
Sal: And regulatory litigation and legislative developments.
Billy: Considering these factors, we expect to deliver 2024 full-year adjusted diluted EPS in a range of $5 to $5.15. This range represents an adjusted diluted EPS growth rate of 1% to 4% from a $4.95 base in 2023. We expect 2024 adjusted diluted ETS growth to be weighted to the second half of the year. Their guidance assumes the impact of two additional shipping days in 2024 and assumes limited impact from illicit e-vapor enforcement on combustible and e-vapor volumes. Before I turn it over to Sal, I'd like to take a moment to recognize Murray Garnett, who recently announced his decision to retire from healthcare. During his remarkable career, Murray represented Altra and its subsidiaries for nearly 40 years, both as outside and in-house counsel, including his last seven years as general counsel leading the Law and Regulatory Affairs Department.
Sal: Considering these factors, we expect to deliver 2020 for full year adjusted diluted EPS in a range of $5 to $5 15.
Sal: This range represents an adjusted diluted EPS growth rate of 1% to 4% from a $4 and 95 base in 2023.
Sal: We expect 2024, adjusted diluted EPS growth to be weighted to the second half of the year.
Sal: <unk> includes the impact of two additional shipping days in 2024 and assumes limited impact from illicit E vapor enforcement on combustible and E vapor volumes.
Speaker Change: Before I turn it over to <unk> I'd like to take a moment to recognize Murray Garnick <unk>.
Speaker Change: Who recently announced his decision to retire from Australia.
Speaker Change: During his remarkable career Marie represented our true and its subsidiaries for nearly 40 years, both as outside and in House Counsel.
Speaker Change: Including his last seven as general counsel, leading the law and regulatory affairs departments.
Speaker Change: Under his guidance, we have successfully manage significant litigation challenges.
Billy: Under his guidance, we have successfully managed significant litigation challenges and established Altria as a leading advocate for tobacco harm reduction policies in the U.S. We will continue to benefit from Murray's guidance through the first quarter, at which time Bob McCarter will assume the role of General Counsel. Bob Curley leads the management of Tobacco Health and other litigation. Bob has been with Altair since 2015 and spent 18 years before that representing the company outside campus. Please join me in thanking and congratulating Murray on an incredible career, and we look forward to introducing Bob to many of you at Cagney and in the years to come.
Speaker Change: And established our Korea, as a leading advocate for tobacco harm reduction policies in the U S.
Speaker Change: We will continue to benefit from Murray's guidance through the first quarter.
Speaker Change: At which time <unk> will assume the role of general counsel.
Speaker Change: Bob currently leads the management of tobacco health and other litigation.
Speaker Change: Bob has been with Altra since 2015 and spent 18 years before that representing the company is outside counsel.
Speaker Change: Please join me in thanking and congratulating Murray on an incredible career.
Speaker Change: And we look forward to introducing Bob to many of you at Cagny and in the years to come.
Sal: I'll now turn it over to Sal to provide more detail on the business environment and our results. Thanks, Billy. Let's begin with a review of the macroeconomic backdrop and its impact on U.S. tobacco consumers. We believe that discretionary income levels remained under pressure through the fourth quarter.
Speaker Change: I'll now turn it over to style to provide more detail on the business environment and our results.
Style: Thanks Billy.
Style: Let's begin with a review of the macroeconomic backdrop and its impact on U S tobacco consumers.
Style: We believe that discretionary income levels remains under pressure through the fourth quarter.
Style: While slightly lower gas prices in the fourth quarter were a modest tailwind we believe the cumulative effects of inflation and higher consumer debt levels led to lower discretionary income for tobacco consumers.
Sal: While slightly lower gas prices in the fourth quarter were a modest tailwind, we believe the cumulative effects of inflation and higher consumer debt levels led to lower discretionary income for tobacco consumers. Late last year, we conducted research to understand how tobacco consumers were adjusting their purchasing behaviors to the current macroeconomic environment. Our research indicates smokers will continue to feel economic pressure throughout 2023, and they're more likely to search for deals when purchasing tobacco products in the fourth quarter. We will continue to monitor tobacco consumer behaviors and changes in marketplace conditions in 2024. Moving to our results, our tobacco businesses generated solid financial performance again this year in a challenging external environment. In the smokeable product segment, adjusted operating company's income declined by 1.3% in the fourth quarter and was essentially flat for the full year. Adjusted OCI results in the fourth quarter and full year were primarily driven by elevated industry volume declines and higher promotional investments. Adjusted OCI margins expanded by six-tenths and nine-tenth Net pricing remained robust, and net price realization for the segment was 5.5% for the fourth quarter and 8.8% for the full year.
Style: Late last year, we conducted research to understand how tobacco consumers were adjusting their purchasing behaviors to the current macroeconomic environment.
Our research indicates smokers continued to feel economic pressure throughout 2023, and we're more likely to search for deals from purchasing tobacco products in the fourth quarter.
Style: We will continue to monitor tobacco consumer behaviors and changes in marketplace conditions in 2024.
Style: Moving to our results our tobacco businesses generated solid financial performance again this year in a challenging external environment.
Style: In the Smokable products segment adjusted operating companies income declined by one 3% in the fourth quarter and was essentially flat for the full year.
Style: Adjusted <unk> results in the fourth quarter and full year were primarily driven by elevated industry volume declines and higher promotional investments.
Style: Adjusted OCI margins expanded by six tenths and nine times in the fourth quarter and full year respectively.
Style: Net pricing remained robust and net price realization for this segment was five 5% for the fourth quarter and eight 8% for the full year.
Style: Marvel displayed resiliency during a period of continued uncertainty for consumers.
Sal: Marble displayed resiliency during a period of continued uncertainty for consumers. In the fourth quarter, Marlboro's retail share was 42.2%, unchanged versus the year-ago period, and down just one tenth sequentially. Marlboro also grew its share within the highly profitable premium segment to 59.2%, an increase of eight-tenths versus a year ago and three-tenths sequentially. In 2023, PMUSA uses a sophisticated suite of RGM tools to make investments in Marlboro Black to support its shared performance. The investments in Marlboro Black gave consumers under economic strain a place to stay within the Marlboro portfolio while positioning PMUSA to maximize profitability over the long term. Historically, we have seen similar investments improve brand loyalty during times of economic uncertainty, which has contributed to Marvel's long-standing leadership in the category.
Style: In the fourth quarter Marlboro's retail share was 42, 2%.
Style: Unchanged versus the year ago period.
Style: And down just 110 sequentially.
Style: Marble also grew its share within the highly profitable premium segment to 59, 2% in.
Style: An increase of eight tenths versus a year ago.
Style: 310 sequentially.
Style: In 2023 PM USA uses sophisticated suite of <unk> tools to make investments in Marlboro black to support its share performance.
Style: The investments in Marlboro Black gave consumers under economic stream a place to stay within the <unk> portfolio.
Style: While positioning PM USA to maximize profitability over the long term.
Style: Historically, we have seen similar investments improve brand loyalty during times of economic uncertainty.
Style: Which has contributed to Marvel's long standing leadership in the category.
Sal: We continue to believe that Marlboro remains the aspirational brand in the cigarette category, and we are encouraged by its performance in 2020 grades. Total discount segment share was 28.6% in the fourth quarter, up four tenths sequentially and nine tenths versus a year ago. We believe that results were driven in part by seasonal trends in the discount segment and the macroeconomic factors that I just discussed. Turning to volumes, the smokable product segment reported domestic cigarette volumes declined by 7.6% in the fourth quarter and 9.9% for the full year. When adjusted for trade inventory movements, domestic cigarette volumes for the fourth quarter and full year declined by an estimated 9% and 10%, respectively.
Style: We continue to believe that <unk> remains the aspirational brand in the cigarette category.
Style: And we are encouraged by its performance in 2023.
Style: Total discount segment share was 28, 6% in the fourth quarter.
Style: Up four tenths sequentially and nine tenths versus a year ago.
Style: We believe that results were driven in part by seasonal trends in the discount segment and the macroeconomic factors that I just discussed.
Style: Turning to volumes Smokable products segment reported domestic cigarette volumes declined by seven 6% in the fourth quarter and nine 9% for the full year.
Style: When adjusted for trade inventory movements domestic cigarette volumes for the fourth quarter and full year declined by an estimated 9% and 10% respectively.
Style: At the industry level, when adjusted for trade inventory movements and other factors, we estimate that domestic cigarette volumes declined by 8% in the fourth quarter and for the full year.
Sal: At the industry level, when adjusted for trade inventory movements and other factors, we estimate that domestic cigarette volumes declined by 8% in the fourth quarter and for the full year. For cigars, reported shipment volume decreased 1.4% for the fourth quarter and increased 2.8% for the full year, while Black and Mild continued to maintain its leadership in the profitable machine-made tit-cigar segment. The oral tobacco product segment reported strong fourth-quarter results, adjusted OCI and OCI margins increased, and ON continued to grow its retail share of the oral tobacco category year over year. For the fourth quarter, adjusted OCI grew 10.3%, and the segment expanded adjusted OCI margins to 63.1%, an increase of nearly two percentage points versus the prior year. This performance was supported by Robots Net Price Realization, due in part to lower promotional investment behind odds. For the full year, the segment grew adjusted OCI by 5.5% with adjusted OCI margins of 67.4%, up more than one percentage point. Total segment reported shipment volume decreased by 2% and 2.2% for the fourth quarter and full year, respectively.
Style: And cigars reported shipment volume decreased one 4% for the fourth quarter and increased two 8% for the full year.
Style: While black and mild continued to maintain its leadership in the profitable machine made tipped cigar segment.
Style: The oral tobacco products segment reported strong fourth quarter results.
Style: Adjusted OCI and OCI margins increased.
Style: On continue to grow which retail share of the oral tobacco category a year over year.
Style: For the fourth quarter adjusted OCI grew 10, 3% in the segment expanded adjusted OCI margins to 63, 1%.
Style: An increase of nearly two percentage points versus the prior year.
Style: This performance was supported by robust net price realization.
Style: Due in part to lower promotional investments behind on.
Style: For the full year. The segment grew adjusted OCI by five 5% with adjusted OCI margins of 67, 4%.
Style: More than one percentage point.
Total segment reported shipment volume decreased by 2% and two 2% for the fourth quarter and full year respectively.
Sal: The segment's volume decline was primarily driven by declines in MST volume, partially offset by the growth of OND. When adjusted for trade inventory movements and calendar differences, segment volumes declined by an estimated 2.5% for the fourth quarter and full year. Oral tobacco product segment retail share declined by 5.8 percentage points in the fourth quarter as declines in our MST brands were partially offset by the year-over-year growth of odds. Turning to our investment in ABI, we recorded $628 million of adjusted equity earnings for the full year, up 10% versus 2022. We continue to view our stake in ABI as a financial investment, and our goal remains to maximize the long-term value of the investment for our shareholders. In our all other operating category, we recorded $74 million in adjusted losses for the year.
Style: The segment's volume decline was primarily driven by declines in MSP volume, partially offset by the growth of <unk>.
Style: When adjusted for trade inventory movements and calendar differences segment volumes declined by an estimated two 5% for the fourth quarter and full year.
Style: Oral tobacco products segment retail share declined by five eight percentage points in the fourth quarter as declines in our MSP brands were partially offset by the year over year growth of on.
Style: Turning to our investment in Abi, we recorded $628 million of adjusted equity earnings for the full year up 10% versus 2022.
Style: We continue to view our stake in the Abi as a financial investment and our goal remains to maximize the long term valuable investment for our shareholders.
In our all other operating category, we recorded $74 million and adjusted losses for the year.
Style: And we continue to return significant cash to shareholders, while maintaining a strong balance sheet.
Sal: And we continue to return significant cash to shareholders while maintaining a strong balance sheet. Last year, we paid approximately $6.8 billion in dividends and raised our dividend by 4.3% in August, in line with our new progressive dividend growth goal. This marked our 58th increase in the last 54 years and repurchased 22.7 million shares, which completed a previously authorized $1 billion program. Our balance sheet remains strong. As of the end of the fourth quarter, our debt to EBITDA ratio was 2.2 times, in line with our new capital structure goal of approximately two times. In the fourth quarter, we issued $1 billion in debt that we plan to use to retire approximately $1.1 billion in maturing debt in the first quarter.
Style: Last year, we paid approximately $6 8 billion in dividends and raised our dividend by four 3% in August in.
Style: In line with our new progressive dividend growth goal.
Style: This marked our 58 increase in the last 54 years and.
Style: And repurchased $22 7 million shares, which completed our previously authorized $1 billion program.
Style: Our balance sheet remains strong.
Style: As of the end of the fourth quarter, our debt to EBITDA ratio was two two times in line with our new capital structure goal of approximately two times.
Style: In the fourth quarter, we issued $1 billion of debt that we plan to use to retire approximately $1 1 billion.
Style: And maturing debt in the first quarter.
Style: Earlier this week, our board authorized a new $1 billion share repurchase program.
Sal: Earlier this week, our board authorized a new $1 billion share repurchase program, which we expect to complete by the end of 2024. With that, we'll wrap up, and Billy and I 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 altria.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 touch-tone phone at this time.
Style: Which we expect to complete by the end of 2024.
Speaker Change: With that we'll wrap up and Billy and I will be happy to take your questions.
Speaker Change: While the clothes are being compiled I'll remind you that today's earnings release, and our non-GAAP reconciliations are available on <unk> Dot com.
Speaker Change: We've also posted our usual quarterly metrics, which include pricing inventory and other items.
Speaker Change: Let's open the question and answer period.
Speaker Change: Operator, do we have any questions.
Speaker Change: 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 many are referenced in our lives are now invited to participate in the question and answer session.
Operator: 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 will come from Matt Smith with Stiefel. Hi, good morning, Billy and Sal. Good morning, Matt.
Speaker Change: We will take questions from the investment community first.
Speaker Change: Our first question will come from Matt Smith with Stifel.
Matthew Edward Smith: Hi, good morning, Billy and Sal.
Matthew Edward Smith: Good morning, Matt.
Matthew Edward Smith: Wanted to ask a question if we could start with the EPS guidance for the year when we consider the 1% to 4% growth you noted it will be weighted towards the second half can you talk about the factors supporting the higher growth in the second half how much of that is the difference between an incrementally higher investment in the first half before you anniversary some higher investment levels in 2023.
Matthew Edward Smith: I want to ask a question if we could start with the EPS guidance for the year. When we consider the one to 4% growth, you note that it'll be weighted towards the second half. Can you talk about the factors supporting that higher growth in the second half? How much of that is the difference between incrementally higher investment in the first half before your anniversary and some higher investment levels in 2023?
Matthew Edward Smith: First is your outlook for the cigarette volumes, including the additional shipping days in the second half.
Billy: Here's your outlook for cigarette volumes, including the additional shipping days in the second half. Yeah, thanks, Matt, for the question. I think when you think about it being weighted to the second half of the year, I think there are two major components you should think of, the biggest being NJOI.
Speaker Change: Yes, Thanks, Matt for the question I think when you think about it being weighted to the second half of the year I think there's two major components you should think of the biggest being enjoy you remember we closed that on June <unk>. So we had amortization of that acquisition and so youll have the investments that we highlighted in our remarks of course in the first half of the year, where you did.
Billy: Remember, we closed that on June 1st, so we had the amortization of that acquisition. And so you'll have the investments that we highlighted in our remarks, of course, in the first half of the year, where you didn't have them in the first half of last year. I think the other thing to note is that you remember the two extra shipping days. One of those will occur in the third quarter and one in the fourth quarter.
Speaker Change: Have that in the first half of last year I think the other thing to note as you remember the two extra shipping days.
Speaker Change: One of those will occur in the third quarter and one in the fourth quarter. So they are both back half of the year weighted.
Billy: So they're both back half of the year weighted. I think those are the two major things. Of course, they're always puts and takes, but those are the two major things I would highlight. Thanks for that, Billy. In fact, I could ask a second question here.
Speaker Change: Those are the two major things but of course, there are always puts and takes but those are the two major things I would highlight.
Speaker Change: They should affiliate if I can ask a second question here when we look at the price realization on a per pack basis in the smokable business that year over year contribution decelerated through 2023, especially in the second half with realized pricing well below the rate of list price increases can you talk about the.
Billy: When we look at the price realization on a per-pack basis in the smokable business, that year-over-year contribution decelerated through 2023, especially in the second half, with realized pricing well below the rate of list price increases. Can you talk about the offsets to the price announcements that you have made? How much of that difference is between list and realized prices is due to trade-down mix within Marlboro with Marlboro Black Gold and other extensions versus increased promotional spending? Yeah, it's a little bit of both.
Speaker Change: Offsets to the price announcements that you have made how much of the differences between list and realized prices is due to trade down mix within Marlboro with Marlboro Black gold and other extension versus increased promotional spending.
Speaker Change: Yes, it's a little bit of both I think when you think about it we tried to highlight that are consumers under pressure.
Billy: I think when you think about it, Matt, we tried to highlight that our consumers are under pressure. And we felt like we could use the Marble Black franchise, as well as rounding up that portfolio for the marble with the Marble Gold pack. I think if you look back in history, you see we use these tools; it allows us to take a small segment of marble and provide a place for consumers under pressure because marble is still the aspirational brand in the market. Those that are facing economic pressures have a place to continue to interact with Marlboro and purchase Marlboro. You'll see historically when economic pressures ease a bit for our consumers, we're able to But in essence, we've kept them in the Marlboro franchise, the brand itself, and it's much more effective and efficient to do it that way than try to win them back if they trade it down. I would encourage you to think about price realization over the long term. When you look at it on a quarterly basis, you have timing of pricing, things of that nature. But even if I can't encourage you to look at it over the long term, at least look at it and look at costs year over year.
Speaker Change: And we felt like we could use the normal black franchise as well as rounding out that portfolio.
Speaker Change: The mobile with the mobile gold pack I think if you look back in history, you see we use these tools as it allows us to take a small segment of marble and provide a place for consumers under pressure because normal still the aspirational brand in the marketplace. Those that are facing economic pressures to have a place to continue to.
Speaker Change: Interact with marble and purchased Marvel you'll see historically when economic pressures.
Speaker Change: He's a bit for our consumers were able to lessen those promotional but in essence, we've kept them in the mobile franchise. The brand itself and is much more effective and efficient to do it that way than trying to win them back if they traded down.
Speaker Change: I would encourage you to think about price realization over the long term when you look at it on a quarter basis, you have timing of pricing things of that nature, but even if I can't encourage you to look at it over the long term at least look at it and look at comps year over year and I think if you look last year Youll see the fourth quarter was a <unk>.
Speaker Change: Hi, Mark compared to the other quarters from a price realization, so comps will affect affected to a certain degree as well.
Billy: And I think if you look last year, you'll see the fourth quarter was a high mark compared to the other quarters from a price realization standpoint. So costs will affect it to a certain degree as well. Thank you for that, Billy. I'll pass it on.
Speaker Change: Thank you for that I'll pass it on.
Speaker Change: Thanks.
Speaker Change: We'll turn now to Pamela Kaufman with Morgan Stanley.
Pamela F. Kaufman: Good morning, Congrats Tim Murray and thanks.
Pamela F. Kaufman: For all of the house over the years.
Speaker Change: Thanks for that Pamela.
Pamela F. Kaufman: Question on <unk>.
Pamela F. Kaufman: Guidance for low single digit earnings growth in 2024 and this follows.
Pamela F. Kaufman: Thanks. We'll turn now to Pamela Kaufman with Morgan Stanley. Good morning. Congratulations to Murray and thanks to him for all of the help over the years.
Pamela F. Kaufman: The year low single digit growth in 'twenty, three but you are.
Speaker Change: The growth algorithm costs from mid single digit earnings growth. So do you think that your longer term targets are still achievable and what do you anticipate changing over the next few years that can put you on that path.
Billy: Yeah, thanks for that, Pamela. So, question on the guidance for low single-digit earnings growth in 2024. This follows a year of low single-digit growth in 2023, but your growth algorithm calls for mid-single-digit earnings growth. So, do you think that your longer-term targets are still achievable, and what do you anticipate changing over the next few years that could put you on that path? Yeah, thanks for your question, Pamela. I think there are a number of factors you should think about.
Yes. Thanks for your question Pamela I think there are a number of factors you should think about.
Speaker Change: When we put that enterprise goal out there we've talked about it on a compounded annual basis and we highlighted for you that there would be variability throughout.
Speaker Change: That process, because theyre going to be years, where you have investment and you heard the answer to the previous question. We closed enjoy in the second half of the year and so now you have a full year of investment on the other hand, you have puts and takes across it because you saw the increase in profitability with long so azure investing the various categories is going to be at.
Billy: When we put that enterprise goal out there, we talked about it on a compounded annual basis, and we highlighted for you that there would be variability throughout that process, because there are going to be years where you have investment. And you heard the answer to the previous question. We closed in July in the second half of the year.
Speaker Change: Different levels of investment and as we're able to ease those investments.
Speaker Change: That's what we anticipate through time.
Speaker Change: The aspiration is to be the leader and be a leader in each of the categories and you know that we are pretty successful in increase in margins through time.
Speaker Change: Thank you and then in the Smokable segment.
Billy: And so now you have a full year of investment. On the other hand, you have puts and takes on it because you saw the increase in profitability with Orange. So as you're investing, the various categories are going to be at different levels of investment. And as we're able to ease those investments, that's what we anticipate over time. You know, the aspiration is to be a leader, be a leader in each category.
Speaker Change: <unk> consecutive quarter of negative sales in OCI clause.
Speaker Change: Given the several years of elevated cigarette volume declines and a heightened competitive backdrop, how do you get comfort that your financial model is sustainable and more near term do you anticipate that smokable segment operating profit can grow in 2024.
Speaker Change: I would point you back to the decomposition of overall industry volume in the factors affecting the ones I would highlight is really the.
Speaker Change: The macroeconomic and other and there remember there are two components. There one we've been highlighting for you that the consumers under economic pressure and when they are under economic pressure they make different decisions and the moment. The other is the explosion of illicit base.
Billy: And you know that we have been pretty successful in increasing margins over time. Thank you. And then, in the smokeable segment, this was the second consecutive quarter of negative sales and OCI growth. Given several years of elevated cigarette volume declines and a heightened competitive backdrop, how do you get comfort that your financial model is sustainable? And more near term, do you anticipate that the smokeable segment operating profit can grow in 2024? Yeah, I would point you back to the decomposition of overall industry volume and the factors affecting it. The ones I would highlight are really the macroeconomic and others.
Speaker Change: It's having an impact both in the combustible segment as well as the EBIT per segment.
Speaker Change: The legitimate ebay per segment, if you will and so it is having an impact on both so I think as you think about the economy through time as well as what is necessary, which is significant more enforcement, while illegitimate and illegal product in the marketplace. Those consumers will be at play we want.
Speaker Change: To keep them in the E vapor market and Thats why you see the distribution and the movements, we've made with enjoy but keep them in the E vapor market responsibly and so.
Speaker Change: That's the way, we think about it through time.
Speaker Change: Okay and just one last one can you talk about the current competitive backstop and what youre observing from the premium and deep discount cigarette segment as well as some E vapor and your strategy.
Billy: And there, remember, there are two components there. One, we've been highlighting for you that consumers are under economic pressure, and when they're under economic pressure, they make different decisions at the moment. The other is the explosion of illicit vapes. It's having an impact both in the combustible segment as well as in the e-cigarette segment, the legitimate e-cigarette segment, if you will. And so it's having an impact on both.
Speaker Change: Again each of these segments, yes, I think when you think about the combustible segment. It has always been a competitive marketplace, but I think we're seeing these as these other.
Speaker Change: Bigger challenges with the consumer being under pressure and thus the illicit vapes.
Speaker Change: From an Elisa based standpoint, the consumers are moving what's encouraging is it's a proof of harm reduction if we had harm reduced products in the marketplace consumers removed, but they have to be reviewed and authorized by the FDA for the consumer to be able to count on that so I think when you think about.
Billy: So I think as you think about the economy through time, as well as what is necessary, which is significant more enforcement of illegitimate and illegal products in the marketplace, those consumers will be at play. We want to keep them in the e-cigarette market, and that's why you see the distribution and the movements we've made with Enjoy, but keep them in the e-cigarette market responsibly. And so that's the way we think about it through time. Okay. And just one last one.
Speaker Change: Through time, the competitive I would point to mobile continues to grow its share in the premium segment is <unk>.
Speaker Change: Overall share has been really steady if you go pre pandemic to post pandemic.
Speaker Change: It continues to be a competitive marketplace I think when you think about E. Vapor, we've certainly seen competitors step up their promotional spend as we have expanded distribution of enjoy.
Speaker Change: Shared with you if you will.
Speaker Change: Consumer research that we did prior to the acquisition we feel good about the proposition we have with enjoy in the early consumer feedback we have on the product in the marketplace. So we look forward to being able to continue to engage with the consumer as we move through 2024.
Billy: Can you talk about the current competitive backstop and what you're observing from the premium and deep discount cigarette segments as well as from e-cigarette and your strategy to compete against each of these segments? Yeah, I think when you think about the combustible segment, it has always been a competitive marketplace. I think we're seeing these other, bigger challenges with the consumer being under pressure and the illicit vape. From an illicit vape standpoint, consumers are moving. What's encouraging is it's proof of harm reduction. If we had harm-reduced products in the marketplace, consumers would move. But they have to be reviewed and approved by the FDA for the consumer to be able to count on that. So I think when you think about it through time to be competitive.
Thank you I'll pass it on.
Speaker Change: We'll hear next from Bonnie Herzog with Goldman Sachs.
Bonnie Herzog: Alright. Thank you good morning, everyone and Marine getting me I'll get back in your retirement.
Bonnie Herzog: Im sure Youll appreciate that Bonnie thanks.
Bonnie Herzog: I guess I had a quick follow up question on your <unk> segment.
Bonnie Herzog: I guess Gary.
Bonnie Herzog: And so I mean could you guys give us a sense of what's factored in here EPS growth guidance this year.
Bonnie Herzog: Thinking about it on the low end of your guidance range and.
Bonnie Herzog: Since the low end, it's down essentially no dollar profit growth for smokable, just trying to understand maybe how much flexibility you know.
Bonnie Herzog: You have to kind of hit some of these ranges.
Speaker Change: I appreciate your question by year recall, we don't really offer guidance down to the level because we're balancing that that's why we put forward. The enterprise goals remember one is the overall margin for the portfolio of products because as I mentioned earlier each of those categories is bumpy and different points of investment what we strive for in the combustible segment as to.
Billy: I would point out that Marble continues to grow its share in the premium segment, and its overall share has been really steady if you go pre-pandemic to post-pandemic, but it continues to be a competitive marketplace. I think when you think about e-cigarettes, we've certainly seen competitors step up their promotional spend as we have expanded distribution of Enjoy. We've shared with you, if you will, the consumer research that we did prior to the acquisition. We feel good about the proposition we have with Enjoy and the early consumer feedback we have received on the product and marketplace. We look forward to being able to continue to engage with the consumer as we move through 2024. Thank you. I'll pass it on.
Speaker Change: <unk> profitability over the long term and we're going to make appropriate investments in Marlboro and investments in the growth categories and so we tried to lay for you. If you will the groundwork of how we're going to manage the business through time.
Speaker Change: Okay.
Speaker Change: And then I did want to ask about milk train station, just hoping for maybe a little more details on the vision and where you expect.
Speaker Change: By the end of the year in terms of progress you've touched on here enjoying a maybe a little bit more color and update on your JV with hei backdrop, and then I'm also trying to understand.
Speaker Change: And how to think about required investment this year.
Speaker Change: Gary can you get there.
Speaker Change: And.
Speaker Change: Spending behind innovation will accelerate in 'twenty four and if so are your core.
Bonnie Herzog: We'll hear next from Bonnie Herzog with Goldman Sachs. All right. Thank you. Good morning, everyone. And Murray, definitely, all the best in your retirement. I'm sure he'll appreciate that, Bonnie.
Gary: Smokable and I guess, all tobacco business is strong enough to support the stepped up spending and your ability ultimately to generate EPS growth I think that's one of the key question here. Yes. There was a lot in that question Bonnie So I'll try to unpack it but follow up if I Miss a piece I'll start in the reverse order yes.
Billy: Thanks. Yep. I guess I had a quick follow-up question on your smokable segment. Billy and Sal, could you guys give us a sense of what's factored into your EPS growth guidance this year? You know, I guess I'm thinking about it on the low end of your guidance range. You know, does the low end assume essentially no dollar profit growth for smokable? Just trying to understand, you know, maybe how much flexibility you have to kind of hit some of these ranges.
Gary: Our businesses are very strong when you look at the strength of Marlboro in the marketplace.
Gary: You look at the aspiration of Copenhagen, and MSP and you look at the performance of those businesses through time.
Gary: They are very strong and continue to be strong as far as investments I'll speak you asked about bloom, we shared in our remarks, we're continuing to work on the application there.
Billy: Yeah, I appreciate your question, Bonnie. You'll recall we don't really offer guidance down to the level because we're balancing that. That's why we put forward the enterprise goals. Remember, one is the overall margin for the portfolio of products because, as I mentioned earlier, each of those categories is going to be at different points of investment.
Gary: We expect to file that in the first half of 2025 is just the application process and compiling it.
Gary: He is better involved with that but we feel good about what we've seen with interactions with the consumer to this point as far as enjoy certainly you can expect more investment in 2024, then these business 2023, some of Thats just the nature of we didn't close it until June one. So now we're in 75 stores and so we're really look.
Billy: What we strive for in the combustible segment is to maximize profitability over the long term, and we're going to make appropriate investments in Marlboro and investments in the growth categories. And so we try to lay for you, if you will, the groundwork of how we're going to manage the business over time. Okay.
Gary: Look forward to having that in the stores where consumers are shopping.
Gary: Having displayed much more prominently than it ever has been we secured as I mentioned, the great spot on the fixture, but having that in the consideration set and we feel like once we get that in consumers' hands.
Billy: And then I did want to ask about, you know, your smoke-free vision, just hoping for maybe a little more details on the vision and, you know, where you expect to be by the end of the year in terms of, you know, progress you touched on, you know, enjoying yourself, and then maybe a little bit more color and an update on your JV with, you know, JTI, etc. And then I'm also trying to understand how to think about required investments this year versus last year. Can you give us a sense if, you know, spending behind your vision will accelerate in 24, and if so, are your core cigarette and, I guess, all tobacco businesses strong enough to support this stepped-up spending and your ability ultimately to generate EPS growth? I think that's one of the key questions here. Thank you. Yeah, there was a lot in that question, Bonnie, so I'll try to unpack it, but follow up if I missed a piece. So I'll start in the reverse order.
Gary: Our research with cells that they will.
Gary: Work through time for the product because they enjoy it.
Speaker Change: Okay. Thank you I'll pass it on.
Speaker Change: As a reminder, for our investors analysts and media Representatives. If you would like to ask a question. Please press star one on your Touchtone telephone.
Speaker Change: We will go now to Callum Elliot with Bernstein.
Callum Elliot: Thanks very much for the question another one on prospects that maybe from a slightly longer term perspective.
Speaker Change: We've obviously seen a divergence so I think I would describe it this year between your pricing strategy.
Callum Elliot: Some of your big peers and it seems like the peers are signaling that that's set to continue.
Callum Elliot: On that path.
I guess my question is do you see a strategic imperative to react to some of that more competitive pricing and maybe is that what we're seeing in the big step down in sequential price mix. This quarter or are you content over the longer term to continue this divergence.
Speaker Change: Yes I. Appreciate your question I think if you recall as we progress through 2023, but we highlighted where you pockets of the U S, where we felt like we needed to make some investments some in the menthol segment, we saw some competitors getting a bit aggressive in the menthol space and we made those investments and some was related directly to the discount.
Billy: Yeah, we feel like our core businesses are very strong. When you look at the strength of Marble in the marketplace, you look at the ambitions of Copenhagen and MST, and you look at the performance of those businesses over time, you see that they're very strong and will continue to be strong. As far as investments are concerned, I'll speak briefly about Plume. You asked about Plume, and we shared in our remarks that we're continuing to work on the application there. We expect to follow that in the first half of 2025. It's just the application process and compiling it and the studies that are involved with that, but we feel good about what we've seen with interactions with the consumer to this point. As far as the benefits go, certainly you can expect more investment in 2024 than you did in 2023.
Speaker Change: Category and some of the aggressiveness there.
Speaker Change: Overall, when you look at <unk> and at Steadiness in share and its growth in the premium segment, you can see with the <unk> capabilities in the data analytics that we have we're able to be very efficient and effective with spending in the marketplace trying to get if you will to the individual consumer so that we can deal with the individual consumer that is facing those.
Speaker Change: Either competitive decisions with the aggressiveness that they take or with just their economic situation and I think you'll see that we've actually been able to implement that very well again with the steadiness of marble and the investments that we've made.
Cell: Hi, Kevin this is cell.
Kevin: I touched on this in our opening remarks.
Cell: The utilization of the breath of marbles brand family and utilizing skus to interact with consumers who are under economic pressure as has occurred in the past it's happened with special blend as an example during.
Billy: Some of that's just the nature of us not closing it until June 1st, but now we're in 75,000 stores, and so we're really looking forward to having that in the stores where consumers are shopping, having it displayed much more prominently than it ever has been. We secured, as I mentioned, a great spot on the fixture, but having that in considerations that we feel like once we get that in consumers' hands, consumer research would tell us that they will convert to the product over time because they enjoy it. Okay, thank you. I'll pass it on. As a reminder, for our investors, analysts, and media representatives, if you would like to ask a question, please press star 1 on your touchtone telephone. We'll go now to Callum Elliott with Bernstein.
Cell: Difficult economic times.
Cell: You mentioned you called it a divergence, but I would say this is something that we've done in the past and we've been able as the economy improves to margin.
Cell: Those skus, but also see consumers return to mainline Marburg.
Speaker Change: I guess I'm, just slightly surprised because I think you'll see a table in the quarterly metrics.
Disclosures suggests that the macroeconomic pressures actually less in this quarter is obviously the prospects suggests that that.
Speaker Change: Trade down has accelerated in a meaningful way.
Speaker Change: Yes, I think you have to think about it as headwinds tailwind certainly gas prices have declined. So you can take the gas prices being a bit of a tailwind you also have to think about the debt load and the cumulative impact of inflation on the total basket that are consumer purchases is that cumulative impact thats affecting the discretionary income and then <unk>.
Callum Elliott: Thanks very much for the question. Another one on price next, but maybe from a slightly longer-term perspective. We've obviously seen a divergence, I think I would describe it this year, between your pricing strategy and some of your big peers, and it seems like the peers are signalling that they're set to continue on their path. So I guess this is for Billy.
Speaker Change: And that low just because from a debt load standpoint, the increase in interest rate also affects their discretionary income. So I think overall, if you think about their discretionary income it's down.
Billy: My question is, do you see a strategic imperative to react to some of that more competitive pricing? And maybe that's what we're seeing in the big step down in sequential price mix this quarter? Or are you content over the longer term to continue this divergence? Yeah, I appreciate your question.
Speaker Change: Okay. Thank you and I have a very very different follow up.
Speaker Change: The question is can you talk about some of the recent regulatory changes in Louisiana, I think they've been taken it upon themselves to clamp down on illegal sales that you spoke about earlier.
Speaker Change: Those were vaping products given the inaction that we've seen from the FDA I think some of those changes took place in November.
Billy: I think, if you recall, as we progressed through 2023, we highlighted for you pockets of the US where we felt like we needed to make some investments, some in the mint ball segment. We saw some competitors getting a bit aggressive in the mint ball space, and we made those investments. And some of that was related directly to the discount category and some of the aggressiveness there. But I think overall, when you look at Marlboro and its steadiness and share and its growth in the premium segment, you can see, with the RGM capabilities and the data analytics that we have, we're able to be very efficient and effective with spending in the marketplace, trying to get, if you will, to the individual consumer so that we can deal with the individual And I think you see that we've actually been able to implement that very well again with the steadiness of Marlboro and the investments that we've made. Hi Calum. This is Sal.
Speaker Change: You should have a couple of months' worth of data now what impact have you seen in Louisiana and do you expect that other states might follow that path, Louisiana have taken yes.
Speaker Change: Yes that is a lot based on efforts by ourselves and working with the legislature in the state and what Youre, referring to is Louisiana requires manufacturers to certify.
Speaker Change: The individuals within the company to certify that they either have followed FDA guidance and they have a legitimate application on file and its pending or that they have actually received authorization. It is early right now column in Louisiana I would say the early signs are encouraging that we are seeing a listed.
Speaker Change: Being removed from the marketplace.
Speaker Change: Hopefully as that trend continues and we are there had been a number of states that have passed similar legislation as well as a number of states that are considering it but it's a bit early but yes. The early signs are encouraging.
Speaker Change: Okay. Thank you I'll pass it on.
Speaker Change: Thank you.
Palace: Well go next to palace in Macau with it.
Speaker Change: Barclays.
Palace: Sure Duncan.
Palace: Can you please comment on the sell through trends for the Undrawn.
Duncan: The 11 million number shipments similar to retail trend goes well.
Duncan: Yes, what we tried to share with you is that was this shipment volume we tried to share with you that also the share and if you will that estimate of consumer tastes. So it was $3 seven for the period that we owned them and then we tried to highlight for you that we had put in place testing. Some bundle offers where we can test trial promotions. So.
Sal: You know, I touched on this in our opening remarks, that the utilization of the breadth of Marlboro's brand family and utilizing SKUs to interact with consumers who are under economic pressure has occurred in the past. It happened with Special Blend, as an example, during difficult economic times. You mentioned that you called it a divergence, but I would say this is something that we've done in the past.
Duncan: We're prepared for the full distribution and be able to bring that across.
Duncan: Across the U S. This year, we did it on a small scale, but just that small scale impacted national share.
Duncan: An additional three incremental <unk> in November.
Duncan: <unk> and another incremental <unk> <unk> in December so.
Sal: And we've been able, as the economy improves, to margin up those SKUs, but also see consumers return to mainline Marlboro. I guess I'm just slightly surprised because I think your table in the quarterly metrics disclosures suggests that the macroeconomic pressure has actually lessened this quarter, whereas obviously, the price mix suggests that that trade down has accelerated in a very meaningful way. I think you have to think about it as headwinds
Duncan: It's early we'll be bringing that marketing activation and promotional for the nation. This year, but certainly the early results are very encouraging.
Duncan: Sure.
Speaker Change: One more.
Speaker Change: Minus 8% decline in does see volumes harmless do thing is it cannibalization from E cigarettes on how much of the impact from the growth in Martin orders.
Speaker Change: Yes, I would say from modern oral there is minimal impact youll recall that in secular decline we represent historically about 1% of cross category movement, then we try to call out any additional or special items, and what we call out and Youll see that in <unk>.
Sal: Certainly gas prices have declined. So you can think of gas prices being a bit of a tailwind. But you also have to think about the debt load and the cumulative impact of inflation on the total basket that our consumer purchases. It's that cumulative impact that's affected discretionary income. And then I mentioned debt load, just because from a debt load standpoint, the increase in interest rates also affects their discretionary income.
Speaker Change: Quarterly metrics that about one five to two 5% is related to the unlisted E vapor category and so if you think about historically, 1% being up in secular decline. This one five to two and a half being related to elicit baked but yes. We're encouraged that we're seeing some interaction with on with adult smokers, but at this point.
Billy: So I think overall, if you think about discretionary income, it's down. Okay, thank you. And I have a very, very different follow-up.
Speaker Change: From an impact to the overall industry is minimal it is really a listed base that is driving the majority of that.
Speaker Change: Thank you.
Speaker Change: We'll go now to Jennifer Maloney with Wall Street Journal.
Speaker Change: Morning.
Jennifer Maloney: Good morning, Jennifer.
Jennifer Maloney: Hi.
Jennifer Maloney: I have a question about the California market dynamic data that you shared this morning.
Billy: The question is, can you talk about some of the recent regulatory changes in Louisiana, where I think they've been taking it upon themselves to clamp down on the illegal sales that you spoke about, Billy, of disposable vaping products? Given the inaction that we've seen from the FDA, I think some of those changes took place in November. So we should have a couple of months' worth of data now. What impact have you seen in Louisiana?
Jennifer Maloney: It looks like overall cigarette industry sales fell in California more steeply.
Jennifer Maloney: Dan.
Jennifer Maloney: And then the country overall in 2023 and.
Jennifer Maloney: But it also looks like Marlboro and Philip Morris USA retail share increase.
Jennifer Maloney: In California more than elsewhere.
Billy: And do you expect that other states might follow that path that Louisiana has taken? Yeah, that is a lot based on efforts by ourselves and working with the legislatures in the state. And what you're referring to is Louisiana requires manufacturers to certify the individuals within the company to certify that they either have followed FDA guidance, and they have a legitimate application on file, and it's pending, or that they have actually received authorization. It is early right now in Louisiana.
Jennifer Maloney: Is it fair to say that as a result of the.
Jennifer Maloney: The menthol ban.
Jennifer Maloney:
Jennifer Maloney: Some consumers.
Jennifer Maloney: We moved away from cigarettes, either stopped smoking or moved to other products.
Jennifer Maloney: But also there was a dynamic here where.
Jennifer Maloney: And.
Jennifer Maloney: People, who might've smoke menthol cigarettes, which to Marlboro cigarettes.
It's a complex issue. So let me try to unpack. It for you when you look at that 15%, we would consider that legitimate shipments that went to California.
Jennifer Maloney: Youre seeing is a lot of black market activity that takes place in California. So you see great market consumers going across the border and we've seen that.
Billy: I would say the early signs are encouraging that we are seeing illicit bait being removed from the marketplace. I hope that that trend continues and we are there have been a number of states that have passed similar legislation as well as a number of states that are considering it. But it's a bit early.
Jennifer Maloney: Whether it be Nevada, or other bordering states some consumers go across to get them menthol cigarettes.
Jennifer Maloney: Seeing a lot of black market interrupt from Mexico into the state of California that would not be included in the 15%. So that is black market or a legal product that has made its way into California for the consumer to buy again that wouldn't be in the 15%. We do believe some consumers have moved slightly there.
Billy: But yeah, the early signs are encouraging. Okay, thank you. I'll pass it on. Thank you. We'll go next to Pallav Mittal with Barclays.
Gaurav Jain: Sure, thank you. Can you please comment on the sell-through trend for Android, or is the 11 million number the shipment similar to the retail trend as well? Yeah, what we tried to share with you is that was the shipment volume. We tried to share with you also the share.
Jennifer Maloney: Huge market of illicit Vapes in California that continues even though the flavor ban is in place.
Speaker Change: To answer your question on.
Speaker Change: The adult cigarette consumer what you see with the benefit marble is I think if you look at various studies when Theres a menthol ban the consumer really doesn't leave the nicotine space and a lot of them don't even lease cigarettes. They look to non menthol cigarettes, as an alternative and with our over indexing in non menthol.
Billy: And if you will, that's an estimate of consumer take. So it was 3.7 for the period that we owned them. And then we tried to highlight for you that we had put in place testing some bundle offers where we could test trial promotions so that we're prepared for the full distribution and be able to bring that across the US this year. We did it on a small scale, but just that small scale impacted national share, an additional three incremental 310 in November and another incremental 310 in December. So it's early; we'll be bringing that marketing activation and promotion to the nation this year, but certainly, the early results are very encouraging. Sure. And one more.
Speaker Change: It makes sense that they would move tomorrow one of the other things on highlight and moving phenomenon we've seen in <unk>.
Speaker Change: <unk> of what we call men bulk cards into the state of California.
Speaker Change: So again, they're illegal but it allows the consumer to buy a non menthol pack of cigarettes insert the card and then if you will self meant delayed their cigarettes.
Speaker Change: So there I think it points again too when you pass a law without an eye towards how youre going to enforce the law you see a significant amount of illicit activity that takes place related to that.
Speaker Change: But I don't see here is.
Speaker Change: PM USA.
Speaker Change: Shipments in California.
Speaker Change: It is a retail share increased by <unk>.
Speaker Change: Sales in California decrease in 2023.
Speaker Change: More than the national average.
Billy: So of the minus 8% decline in industry volumes, how much do you think is the cannibalization from e-cigarette and how much is the impact from the growth in modern oral? Yeah, I would say from modern oral, there is minimal impact. You'll recall that in secular decline, we represent historically about 1% of the cross category movement. Then we try to call out any additional or special items.
Speaker Change: Hey, good theyre commensurate with overall industry.
Speaker Change: Okay.
Speaker Change: So based on your observations of the market dynamics in California.
Speaker Change: What would you expect to see.
Speaker Change: Our national ban menthol cigarette ban implemented in terms of market dynamics.
Speaker Change: The impact on sales.
Speaker Change: It's hard to answer on the hypothetical Jennifer and I apologize for without seeing the actual proposed rule and what's going to take place.
Billy: And what we call out, and you'll see that in our quarterly metrics, that about one and a half to two and a half percent are related to the illicit e-cigarette category. And so if you think about historically 1% being up in secular decline, this one and a half to two and a half percent is related to illicit e-cigarette. But yeah, we're encouraged that we're seeing some interaction with adult smokers. But at this point, from an impact on the overall industry, it is minimal. It is really illicit vape that is driving the majority of that. Thank you. We'll go now to Jennifer Maloney with the Wall Street Journal. Halling, good morning, Jennifer.
Speaker Change: It's tough to say what their enforcement activities will be I think if you look at our comments related to the menthol ban youll see that we felt like the FDA needed to take into consideration all of the unintended consequences and that you are seeing them take place in California, black market activity illicit product getting into the marketplace.
Speaker Change: <unk> methylated cards.
Speaker Change: So there are a lot of them.
Speaker Change: Unintended consequences. So it would be tough to tell if you will what the overall, how the consumer will be at play and that depending on what's available to them.
Speaker Change: But in California.
Speaker Change: I went down although you did see some share gain as menthol smokers switched over to Manuel.
Jennifer Maloney: Um, I have a question about the California market dynamics data that you shared this morning. It looks like overall cigarette industry sales fell more steeply in California than the country overall in 2023. But it also looks like Marlboro and Phelps-Morris USA retail share increased in California more than elsewhere. So is it fair to say that as a result of the menthol ban, some consumers have moved away from cigarettes, either stopped smoking or moved to other products? But also, there was a dynamic here where people who might have smoked menthol cigarettes switched to Marlboro cigarettes. Yeah, it's a complex issue. So, let me try to unpack it for you.
That is correct.
And if the draft rule.
Speaker Change: Sure.
Speaker Change: <unk> adopted a final rule.
Speaker Change: What do you intend to file a legal challenge if that is is that final rule is published.
Speaker Change: I think it's too early to tell we would certainly anticipate that there will be legal challenges, but it's too early to tell whether we would be involved we would like to be able to understand the role.
Speaker Change: Published finally, and then make that decision and we'll share it with you when we have anything to share.
Speaker Change: One last question on modern oral nicotine products.
Speaker Change: Alright.
Speaker Change: Rescue people and do you and what flavors and marketing approaches do you think are appropriate for that category.
Speaker Change: Yes, I think they could be a restaurant under age if not marketed and sold responsibly. So we actually sent a letter to the FDA.
Billy: When you look at that 15%, we would consider that legitimate shipments that went to California. What you're seeing is a lot of black market activity that takes place in California. So you see gray market consumers going across the border. And we've seen that, whether it be Nevada or other bordering states, some consumers go across to get their menthol cigarettes. We're seeing a lot of black markets enter from Mexico into the state of California. That would not be included in the 15%. So that is the black market or a legal product that has made its way into California for the consumer to buy. Again, that wouldn't be in the 15%.
Speaker Change: Many months ago that they should encourage them to issue marketing guidelines for the category.
Regardless of authorizations or not.
Speaker Change: Be able to have marketing guidelines for that category. So that all industry members could follow so that we can protect the harm reduction for adults without exposing under age users to the category.
Speaker Change: We haven't seen any action by the FDA, but certainly.
Speaker Change: As our approach to the marketplace have very minimal under age interaction with our partners.
Speaker Change: Well what would those marketing guidelines looked like ideally in your view.
Billy: We do believe some consumers have moved. Certainly, there's a huge market for illicit vapes in California that continues, even though the flavor ban is in place. To answer your question about the adult cigarette consumer, what you see with the benefits of Marlboro is, I think if you look at various studies, when there's a menthol ban, the consumer really doesn't leave the nicotine space, and a lot of them don't even leave cigarettes.
Speaker Change: Tail greater restrictions would it entail restrictions on social media marketing and Influencers.
Speaker Change: While I won't get into the details because we shared that with the FDA and we haven't seen any action at this point, but certainly it would be what would be considered a responsible approach to the marketplace.
Speaker Change: Okay. Thanks very much.
Speaker Change: Thank you.
Speaker Change: As a reminder, it is star one if you would like to ask a question.
Speaker Change: We'll go next to Erinn Murphy with Thomson Reuters.
Erinn Murphy: Hi, guys. Thanks, a lot for taking my question. My first one is around the successful challenges to the Fda's marketing denial or does for some banks that chance.
Billy: They look to non-menthol cigarettes as an alternative. And with their over indexing and non-menthol, it makes sense that they would move to Marlboro. One of the other things I want to highlight in moving to non-menthol cigarettes is that we've seen an influx of what we call menthol cards into the state of California. So, again, they're illegal, but it allows the consumer to buy a non-mint alpaca cigarette, insert the card, and then, if you will, self-mint their cigarette.
Erinn Murphy: Got it put some pressure on the agency and wholesale increase the likelihood of a case to the Supreme Court I wondered what that train length wanted to participate in any Supreme Court case, and if so how is preparing for that possibility yes.
Speaker Change: Yes, I think you're certainly highlight that the circuit courts have taken different positions on the approach by the FDA in the E vapor market.
We certainly are closely monitoring these cases, but I think when you step back from it we're in a unique position.
Billy: So there, I think it points again to when you pass a law without an eye towards how you're going to enforce the law; you see a significant amount of illicit activity that takes place related to that. What I don't see here is, PMUSA, total shipments in California. I see that there's a retail share increase, but did your sales in California decrease in 2023? more than the national average.
Speaker Change: We are the only pod based product that has received authorization from the FDA. So if you think about Egypt. Other major competitors in the pod segment. They have not received authorization hours, whereas our authorization was in the tobacco flavored pods and our application for the menthol version of the same product is pending with the FDA.
Speaker Change: And we really feel like looking at those court cases, both in both instances, where the circuit courts have taken different positions.
Speaker Change: We believe that we should get out marketing order for this meant bulb product whether you look at the holdings on either of those incidences of the second quarter. So we will monitor those but we're in a unique position.
Billy: Again, they're commensurate with the overall industry. Okay. So based on your observations of the market dynamics in California, what would you expect to see if a national ban on menthol cigarettes were implemented in terms of market dynamics and the impact on your sales? It's hard to answer on the hypothetical, Jennifer, and I apologize for it.
Speaker Change: Okay. Thank you and just a follow up to an earlier question around the sustainability of the financial model for the cycle segment in particular.
Speaker Change: The industry has for some time now effectively use pricing increases to offset volume declines the last couple of quarters. It seems about this that's been a bit more I think more difficult given the downgrading information environment. In fact, so I'm wondering whether the ability to offset declines with pricing and this medical segment is kind of disappearing.
Billy: Without seeing the actual proposed rule and what's going to take place, it's tough to say what their enforcement activities will be. I think if you look at our comments related to the menthol ban, you'll see that we felt like the FDA needed to take into consideration all of the unintended consequences, and that you're seeing them take place in California. Black market activity, illicit products getting into the marketplace, and methylated cards. So, there are a lot of unintended consequences.
Speaker Change: Or do you feel that that will be the time, when the economic environment and creates an formations sort of ease a little bit.
Yes, I'll be careful not to talk about future pricing, but I'll describe how we think about pricing is certainly an important part of the algorithm I think you've seen us take pricing I know people are focused on fourth quarter price realization I tried to express that if youre going to look at it on a short term basis at least look at comps versus prior year, we look at price realizations over the.
Billy: So, it'll be tough to tell, if you will, what the overall, how the consumer will be affected in that, depending on what's available. But in California, your sales went down, although you did see some share gain as menthol smokers switched over to Marlboro. That is correct. And if the draft rule were adopted as a final rule, would you intend to file a legal challenge if that is when that final rule is published? I think it's too early to tell.
Speaker Change: Long term and when we think about the strategy in combustibles. It really is to maximize profitability over the long term, while balancing appropriate investments in Marlboro with the areas that are growing and when you look at that and look through history and see the price realization you see the data analytics and the revenue growth management capabilities kick in marble.
Speaker Change: Has been steady is growing its share of premium and we continue to compete what we feel like very effectively and efficiently fulfilling what our strategy is for the category through time.
Billy: We would certainly anticipate that there will be legal challenges, but it's too early to tell whether we would be involved. We would like to be able to understand the rule as it's published finally and then make that decision, and we'll share it with you when we have something to share. One last question on modern oral nicotine products. Are they a risk to young people?
Speaker Change: Okay. So you're kind of confident that this Michael foods segment can return to revenue growth and the future.
Speaker Change: I think when you look at it it will continue to.
Execute against our strategy, which is to maximize profitability over the long term.
Speaker Change: Alright, thanks very much.
Billy: And do you and what flavors and marketing approaches do you think are appropriate for that category? Yeah, I think they could be a risk for underage drinking if not marketed and sold responsibly. So we actually sent a letter to the FDA many months ago asking them to encourage them to issue marketing guidelines for the category so that, regardless of whether authorizations or not, they would be able to have marketing guidelines for that category so that all industry members could follow so that we can protect harm reduction for adults without exposing underage users to the category. We haven't seen any action by the FDA, but certainly, as our approach to the marketplace, have very minimal underage interaction with our... Well, what would those marketing guidelines look like ideally, in your view? Would they entail labor restrictions?
Speaker Change: <unk>.
Speaker Change: And there appears to be no further questions at this time I would like to turn the call back over to Mac Livingston for any closing remarks.
Mac Livingston: Thanks to everyone for joining us today, please feel free to contact the Investor Relations team. If you have any further questions have a great day.
Speaker Change: This concludes today's call. Thank you for your participation you may disconnect at any time.
Speaker Change: [music].
Speaker Change: No.
Speaker Change: Uh huh.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change:
Billy: Would it entail restrictions on social media, marketing, and influencers? Well, I won't get into the details because we shared that with the FDA, and we haven't seen any action at this point. But certainly, it would be what you would consider a responsible approach to the market. Okay, thanks very much. Thank you. As a reminder, it is Star One if you would like to ask a question.
Speaker Change: Uh huh.
Speaker Change: Yes.
Speaker Change: Yeah.
Emma Rumney: We'll go next to Emma Rumney with Thomson Reuters. Hi guys, thanks a lot for taking my question. My first one concerns the successful challenges to the FDA's marketing denial orders for some vapes, which have started to put some pressure on the agency and also increase the likelihood of a case going to the Supreme Court. I wondered whether Altria would want to participate in any Supreme Court case, and if so, how it's preparing for that possibility.
Speaker Change: Yeah.
Speaker Change: Okay.
Billy: Yeah, I think you certainly highlight that the circuit courts have taken different positions on the approach by the FDA in the e-cigarette market. We certainly are closely monitoring these cases. But I think when you step back from it, we're in a unique position. We're the only pod-based product that has received FDA authorization. So if you think about other major competitors in the pod segment, they have not received authorization. Ours, our authorization was for tobacco flavored pods.
Billy: And our application for the menthol version of the same product is pending with the FDA. And we really feel like looking at those court cases in both instances, where the circuit courts have taken different positions. We believe that we should get a marketing order for this menthol product, whether you look at the holdings in either of those instances of the circuit court. So we'll monitor those, but we're in a unique position. Okay, thank you. And just to follow up on an earlier question around the sustainability of the financial model for the smokeable segment in particular, obviously, the industry has for some time now effectively used pricing increases to offset volume declines. But in the last couple of quarters, you know, it seems that that's been a bit more difficult, given the down trading and the promotional environment that you flagged.
Billy: So I'm wondering whether the ability to offset declines with pricing in the smokeable segment is kind of disappearing, or do you feel that that will return when the economic environment improves and promotions sort of ease a little bit? Yeah, I'll be careful not to talk about future pricing, but I will describe how we think about pricing. It's certainly an important part of the algorithm. I think you've seen us do pricing. I know people are focused on fourth-quarter price realization. I tried to express that if you're going to look at it on a short-term basis, at least look at comps versus the prior year. We look at price realization over the long term. And when we think about the strategy in combustibles, it really is to maximize profitability over the long term while balancing appropriate investments in Marlboro with the areas that are growing.
Billy: And when you look at that and look through history and see the price realization, you see the data analytics and the revenue growth management capabilities kicking in. Marlboro has been steady, has grown its share of premium, and we continue to compete as we feel like very effectively and efficiently, fulfilling what our strategy is for the category over time. Okay, so you're kind of confident that the smokeable segment can return to revenue growth in the future? I think when you look at it, it will continue to execute against our strategy, which is to maximize profitability over the long term.
Billy: All right, thanks very much. Thank you. There appear to be no further questions at this time. I'd like to turn the call back over to Mac Livingston for any closing remarks. Thanks, everyone, for joining us today. Please feel free to contact the investor relations team if you have any further questions. Have a great day. Thank you. This concludes today's call. Thank you for your participation. You may disconnect at any time.
Mac Livingston: President George H. W. Bush Thank you for watching!