Altria (MO) 31 Oct 192019 Q3 Earnings call transcript

Good day, and welcome to the Altria Group 2019 Third Quarter Earnings Conference Call. Today's call is scheduled to last about one hour including remarks by Altria's management and a question-and-answer session. [Operator Instructions]

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

first thank Howard joining Billy Willard, discuss quarter CFO and this Gifford, We're morning to and third XXXX with Altria's Altria's business you morning, results. us. for here our half Good CEO; and

press we And Altria results. remarks. We're providing today, at the this of App. information slides Earlier on release accompany altria.com our through including website to these Investor a issued our all also is available and

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

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

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

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

and good Mac Thanks morning everyone.

may predictable evolution non-combustible opportunity of industry. and We combustibles this significant with this become are the and intend in products harm We our the tobacco to transformation consumers. believe lead surpass short-term the investments. and preferred tobacco unmatched reduction remarkable consumers. in the as believe adult industry tobacco that for next adult while Once portfolio products has a and transformation decade, midst We the tobacco of a non-combustible industry choice challenges dynamic historic is among can complex within the we increasingly pose

combustible platforms. third with Altria's and you non our our quarter like I'd to strategy moving the perspective on strong key Before performance to provide

last with environment a the no a deliver for evolve. regulatory would adult that two non-combustible business platform scenarios. results Over we for of likely product single across We continue all that believe satisfy variety industry to built and ability alternatives long-term the looking smokers the products future years to would we strong understood

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key point. harmful less who million faces the the platforms XX underage for critical tobacco the options than adult products. category non-combustible e-vapor a address more inflection are interested use smokers to also Turning We while must preserving in

XX state tobacco the rise youth to continue We purchase legal minimum at raising that levels believe to all most age in the action vaping. the effective products Federal is and to the to reverse

Tobacco XX Today, from population governed more change, states government to than is Laws the this XX is And nationally. momentum federal and Tobacco enact activity more behind XX% there of while U.S. Laws. is required strong remaining by the

long-term e-vapor these authorities swift the of identify potential public want vaping also the and products reduction. the to We other recent for We harm and the injuries. action e-vapor category to sources preserve appropriate the and for FDA believe flavored the regarding could health actions from that reset course take actions its

that excited to the presents also adult opportunity tobacco about heated We are smokers.

closer real heated a e-vapor tobacco appealing research, of products, have experience U.S. and be sensorial XX% third-party We these ultimately smokers to these for smokers. Unlike an but traditional systems could offer believe on tobacco products. adult tried, of approximately e-vapor Based that cigarettes. alternative adult rejected contain

has alternative authorization preferences satisfying to is are who found Tobacco Heated from meet IQOS pending looking cigarettes. a that's the application. pre-market positioned tobacco MRTP and adult heated well are tobacco that systems it received specifically and not also heated but only System product a had of believe to smokers We and first the IQOS the The FDA for,

Finally, In moist smokers. modified the filed on we provide alternative oral tobacco science. a a available can for for application that Copenhagen compelling believe FDA we of smokeless decades adult snuff tobacco, based risk with

categories Additionally, and segment satisfaction. at pace. tobacco what we grow adult broad nicotine We believe the rapidly dictate convenient growing our pouch regulatory scenarios. adult to portfolio, future multiple offers consumers investments nicotine win in have framework invested consumer us position leading the oral in the Ultimately, which will tobacco which and capabilities and

continued quarter margins quarter to businesses. third and with XX% We earnings core momentum premium leading Expanding companies our driven tobacco per segments adjusted of maintaining diluted grew brands. adjusted their excellent operating to by adjusted over company's results deliver the both in Turning tobacco income performance, Altria double-digit operating delivering growth. their income third our core on share

growing increasing cost efforts companies quarter growth first and adjusted the both nine third third XX.X% our income pricing segment in growth operating year-to-date reduction its income The companies X.X%. products adjusted its than smokeable in cigarette offset the lower drive to quarter income to another of impact remarkable quarter operating months. more Higher and the delivered and volumes

eight are In and believe the primarily was with PM in increased offerings. line and category remains discount discount a share profitability XXXX. we levels. its in with discount between line category retail over with discount We is end at L&M pleased XX.X% USA in historical quarters pleased deep reflect sequentially performing Overall to dynamics and the with discount, flat Marlboro's quarter continue time. branded churn share of consecutive of since is expectations with performance stability,

X.X% U.S. by calendar months movements, nine and adjusted industry trade volumes for factors. We inventory the first declined when estimate and in third differences other that cigarette quarter

of the the that rate movement e-vapor of usage exclusive believe drivers to continue the levels We decline e-vapor increased year. smoker category to were past and primary accelerated high over adult

of vapers XX.X XX-plus million of XXXX. XXXX, as on Based XX.X from up adult end we our at estimate moving now there the XX-month data, September are million

the million and XXXX, vape the trend usage tracking in study do toward estimate of our trend which consumer not exclusive is more smoke with According XX-plus Importantly since that coincides highest of the our in began adults September as to category. users that XXXX. number exclusive adult data, we growth X

remains we Adult tobacco tobacco to these spaces will continue dynamic consumer trends. movement and monitor highly across

Over estimates and the cigarette X%. full-year past volume trade U.S. XX reaffirm months, U.S. for our when cigarette declined factors. industry estimated X% volumes X.X% differences, an We adjusted to XXXX movements, industry decline of adjusted calendar by inventory other

X% and about legislative will to respond also through including estimates X% rate information XXXX more category adjusted dynamics, developments. adult regulation tobacco maintain We how known consumers our decline is to until e-vapor

product third strong our income momentum USSTC was by category-leading income companies product the successfully in XX.X% results, operating Copenhagen's on performance, for quarter. XXXX. sequentially is two-tenth its retail adjusted the up against XX.X% executing ago time. strategy and continued its quarter months of nine to and segment over third share smokeless year versus maximizing segment growing XXXX up of smokeless Turning Copenhagen The its while one-tenth for X.X% the quarter, first the maintaining

first an interests an nicotine months reflect trade adjusted declines USSTC's these decreased for smokeless when smokeless both pouches. In and consumer the estimated last volumes differences. adult movements increasing X% and decreased industry year six oral months of the by inventory volume tobacco nine We in the calendar X.X%. e-vapor estimated believe in products

the economic our in made investment from category e-vapor, the participate early potential through other investment on XX% e-vapor strength, market. based we to development JUUL's brand that all in JUUL. We products the signs set equity our In convert apart adult belief of smokers and in product it

We also believe that Altria's the enhance growing investment noncombustible of portfolio would offering. product

projecting impairment on JUUL e-vapor aggregate, multiple assumptions. in related current have versus Also in regulatory performed and e-vapor original we determination our shifts volumes now analysis regulatory which revised our changes considered resulted In where JUUL Given financials into charge billion investment. preparing and valuation the $X.X which quarter estimates, marketplace quarter, the the we a to other our original marketplace lower scenarios. transaction dramatic of non-cash investment, In assumptions. our factoring in this to environments, third we're this category a our our U.S.

longer JUUL margin expect that may to we the example, realize take previously we it For performance communicated. for strong

business to We've committed recent also we international charge, Despite of impairment JUUL's this estimates due success. remain revised to development. JUUL's our market

recent pleased optimistic to JUUL practices and we pursuing regulatory and key We of in about areas prioritization with decisions by are JUUL's such change authorization industry-leading products. responsible leadership and their focus the are establishing as

regarding we've quarter clearance, certified the we second the year. Finally, in and request antitrust substantial FTC's resolution expect compliance next of with first a

IQOS executing robust heated a USA for strategy market. the marketing Turning to Atlanta in lead is tobacco, the PM

boutique in September, stores. Corners recently supplemented since US has Mall including retail Georgia. located pop also of up store additional and first select mobile The second touch opened by a opened IQOS IQOS We've points, unit and IQOS in a within the been

is pending we XX or of our Of scale important IQOS IQOS communicate how MRTP with the and adult primary risk for The The remains be to receiving only intended FDA foundation are smokers brand. markets other for IQOS an input how the application will are course markets and with of IQOS modified authorization. the goals consumer for responsible commercialization smokers is lead must our in marketing to boutique IQOS be plan all entrants interactions. future Atlanta of and performance adult lead the about prospects determine to to the for optimistic best PMI's our and this efforts. older.

changes draft PMTA to a market. special authorized rules, products, support encouraged newer which for are FDA's Additionally, bringing previously the we versions pathway technological that could include IQOS device of the

in announce base that be expanding deep month. With enrichment opening store of Virginia are Altria sizable the beginning the connections IQOS an a early with accelerate Finally, employee excited to has could IQOS. IQOS Carytown district. we next will Richmond, that community adoption to and

deploying distributing market. a approximately the also retail Atlanta lead heat outlets within to strategy XXX marketing We area sticks anticipate similar as the and

to an are IQOS and to on! that the transaction sharing during as forward in availability are to third closed details future. adult oral expand we pouches, the alternative the We nicotine to more announce quarter. look pleased pleased smokers In

to new Now in and fast growing we'd that our pursue complete, to this the on like you leadership plans update category. is transaction

traditional are the able can for digital consumers where online. will purchase on! branded experiences. the age to We focused premium soon website be launched through tobacco We engaging tobacco explore on and consumers both restricted product and adult a adult retail brand

capacity of on! center year-end by In begin with of our are to capacity XX first by XX million targeting mid-year we if beginning expect annualized Richmond next cans production available million quarter cans year. additional We necessary. and XXXX, in manufacturing

for strong affairs portfolio preparing addition, team PMTAs deadline. regulatory the for is our on! the May XXXX In

dippers and varieties on! nicotine reminder, the strengths competitive consisting SKUs; the Altria seven options adult of nicotine and unique commercialize On! tremendous Helix a find globally. believe XX five a of venture joint advantage flavor breadth As has will the a that on! both flavors owns smokers satisfying can strengths. Innovations as portfolio. within XX% across product of portfolio We is

our this mentioned We opportunity continue year, at major call, expand tobacco to the beginning a and the industry and evolution for of the journey including launching transaction. of an the it's with IQOS believe We the the current marked time that I milestones Altria. e-vapor in adult options. As disruption transformation of smoker opportune we trends availability to these on! significant believe represents completing

Altria X% diluted We position annual long-term X% considerations, with EPS X% diluted through are of best of aspiration that our behind long-term investment of believe we X% the growth these light for years leadership. XXXX. adjusted incremental objective to compounded XXXX EPS adjusted to replacing industry our In portfolio will a noncombustible for growth

to growth new offerings return in this generate flexibility tobacco in income and growth a shareholders make sustainable We objective cash through our the provides term, for businesses investments strong us the dividend. long core believe noncombustible to

adjusted our diluted to ratio this dividend expect maintain XX% period. EPS also of target of payout We during approximately

We quarter specific guidance when will our in XXXX XXXX EPS results. provide announce diluted fourth January full-year adjusted we

employees. $X.XX Turning base attributed full-year a core guidance be rate our to adjusted reaffirm can talented a to XXXX. growth earnings, Altria's EPS date resilient from XXXX in our to of success we representing to $X.XX, businesses be to our of an of $X.XX diluted tobacco X% adjusted XXXX and diluted for to range EPS X% in

Our focus and has industry disruption with embraced dedication. employee base

that our propel people I Our see business what for them every and results day thank that. our show I success

other I'll investments. turn and over performance Billy to it to provide detail now more on our

the extra in one for industry's Thanks, the the and smokeable estimated first differences, by shipping calendar for trade partially inventory third volumes decreased cigarette We'll months. everyone. with Howard, to color due domestic share movements, nine X.X% declined on When primarily good quarter smokeable decline, products segment adjusted movements, retail products factors, offset losses of Reported begin additional third and segment. other by X.X% volume rate morning the day. and cigarette X% inventory trade and an for quarter, our

excellent points higher and resources, adjusted quarter, lower consumer XX.X%, in OCI of greater trade In products smokeable and In efficiency realization thanks by made segment, to controllable X.X the programs, percentage reflects expanded segment driven to costs. margins and by actions pricing data. use smokeable price the the data third pricing products and analytics both promotional investments

price Marlboro's by its X.X% in performance quarter supported the Net product XXXX. leading first brand investments in X.X% the of realization equity be and trade packaging digital innovation, months by nine was and third bolstered continues to expansion, programs. loyalty for

the with and quarter in rewards visits program to program and been launched the million XXX to the adult million continue Marlboro's has the grow drive well smokers Marlboro.com. Specifically, codes pack entered and January. to since third continues resonate X.X have program participants now in Enrollment

the X.X% prior in & In X.X% to versus outpacing strength retail higher the by and tip cigar XX.X%, X.X% the segment, share quarter, products points primarily smokeless was its year. the XX.X% the down quarter, third expanded in continued sequentially margins by X.X volume up grew lower USSTC's and and In Mild in controllable promotional third pricing, the segment. OCI adjusted quarter costs. third Black percentage lower industry premium driven cigars, investments

up our third income to highly to in more And to promotional of investments reflecting quarter, nearly in million year-over-year, ABI and equity Turning ABI's the continues second Ste. companies volume. quarter, share the Altria's shipment adjusted competitive. alcohol primarily operating in down of XX% premium X% delivered higher Michelle our third beer, lower million, the earnings than quarter results. assets, $XXX in were $XX in investment adjusted segment wine, due be from

Cronos We're brand products the against of and hemp-derived manufactures is The strategy Redwood for making platform. Cronos Redwood strategy. cannabis and name. provides for cannabis Cronos' Lord the property. and a space well its progress brands and of remains itself luxury Holdings sells with quarter, excited the on which third executing disruptive of Cronos acquisition about hemp-based very very the Jones few U.S. and under and leading and during Cronos closed long-term its the prospects consumer growth active CBD opportunity acquisition into skincare to other the position We building future leadership. differentiated fits industry intellectual believe products

amount a the In August, Moving of of to our to capital shareholders a increases. share in dividend allocation, dividends cash return we of and continue significant year buybacks. form marked XXth to we

dividend growth shareholders on dividends. our and history focused of proud long-term providing are We remain value through to

share, With the XXXX. recent represents X.X% of dividend increase October Altria's current XX, of annualized dividend rate an is as $X.XX which per yield annual

We paid billion end still complete by of businesses repurchase billion expect quarter, in share cash we generate announced dividends our significant previously the program $X flow. Altria's $X.X to in third and the XXXX.

strategically of of generally In billion cash debt and fact, dividend our business. we've about shares, repurchase which annually excess invest payments, maturities, in produced flexibility provides to in $X finance the

and approximately end the Our XXXX. cost expect cost and realize annualized still track million of $XXX reduction program on we to remains by savings

quarter the more this this the with interest incurred and progresses incremental And to third. investments -- more of is offering is in from year we savings second offsetting JUUL. Cronos our as the continue in Our the connection into build expense

As a of Nu savings workforce operations. includes third-party and reminder, program reductions, spending the from Mark closure reductions, our

Howard With happy that questions. will we'll up. be and to your take And I wrap

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

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

Chris question will We first Instructions] from Growe first. questions community investment line Stifel. [Operator with the from you. of take comes Thank the our

Hi, good morning.

Hi Chris.

to in growth wanted growth call your out your change relation lead your call. I if ask does can a outlook become environment assume would medium-term, to new EPS new and on and better for volume products, of X% that thing with how that it's color the then kind your some I that or of a for lot about to question wanted the I to outlook guess, outlook, I just this basis Hi. is this volume fast-changing growth I gave understand to just just -- the varying I X% and investment within on! -- outlook, about as EPS a it's business? remains IQOS much of How the much is of that in opposed pretty same? in category, obviously And obviously embedded some you

Sure.

I all, our volume the of think to X%. X% same mid-term first decline at current cigarette estimate remains

we our of indicated that you we changes Although environment on that if update before, in view future. certainly, as the would the

we X% with through I X% to growth X% XXXX. to of think X% variety growth our a there EPS EPS why reasons a are replaced

Two, calling that I worthy of think are out.

I us that the products, increase could to both be that our to of adult couple flexibility gives I of consumers particularly tobacco think that growth on! First build and IQOS interested at investments contribute expanding the think term. time next over in long EPS all, we those strong a would a would it over years business in and

we income don't its there The category yet us the that guidance. in that relation FDA the see or we category necessary, second the some e-vapor line e-vapor that even JUUL growth certainly thing the on of final could X% if to contract rate guidance while possibility expected growth to EPS to have contributions that the the on year. is FDA the from slowed see significantly is gives out push opportunity, X% down beyond our And next equity

establish get in just this markets. we you're the for And locations, trying to new to think Thank for to idea that or there another to about helpful. I you in should to an obviously adding to of phasing, can't how that. is markets continue about an locations you then, add relation Okay, and you question but methodically expect other the IQOS? incremental to IQOS, that's just have I'm expanding just Richmond, know these phasing we get exactly, learnings some think then idea

way thinking get far with product. a The U.S. want about as the consumer great and the Chris. certainly them IQOS and with Yes, we're their question, really the the it's as to what resonates interaction, learnings product engaging of as we the learning

we We in Atlanta. launch excited that the about are had

to being to expand excited We're able it about Richmond.

want learning I go about expansions. from want of, to we really But can. efficient will we future we when garner matter be pace and those to think we to disciplined a want we're as as we quick standpoint have the so that it

much your time. so thanks for Okay,

you. Thank

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

Good morning, guys.

Good morning.

And couple a yes, questions just please. of

your you've was mentioned First wise you just I industry could I it I seems around this revised terms as changed one, expectations has JUUL. of vapor exactly? that volumes outlook just few slowdown was And was a your industry wondering you've for not guidance what you give for in growth your industry recently, a specifics on secondly, just international international some why wondering, volume on you. the guidance? then Thank JUUL in upgraded we've more hoping year, seen of

first Billy Sure, then second the comment and question one. ask I'll the to take on I'll

this for the midpoint are we're Our X% between at cigarette industry year year. volume nine expectations through months declines the and right X% that of and

So fall the decline confident within that we rate that range. will remain

range. the out going rate cigarette slowed third that comment e-vapor the I Billy down wanted don't year-over-year have you on to outside JUUL. move any think might that category think on is quarter, impact in bit we the the to as you but category second the quarter of from us a pointed growth

Sure. -- the I and make looking we take seeing were that the in think When factored we make on what the U.S. seen international revising you've they we so scenarios, place several sure the at we were into based the as action e-vapor about on take countries that sure assumptions. you we markets, think

much very appreciate Okay, I it. thanks guys.

Thank you.

of Next question with line the is Pam Morgan from Kaufman Stanley.

Hi, good morning.

Pam. Good morning

exceed that on year lock previously, changed? return you assumptions laid how the would elaborate have Earlier five-year JUUL's X% around key your assumptions this five out years. within I we Can outlook. you mean, believe these

and JUUL will think approach when international this target? can it exceed U.S. this long still now and think that to realistic for is hurdle? you So do take a you do JUUL how margins, cigarette And

think, too I Yes, those. to update Pamela, early it's

tried FDA Remember, issue because we on I think final the the we're we assumptions. waiting a to revise to still of ran scenarios range guidance.

action these that recall in but marketplace, available. the of products took You'll are JUUL all unilateral still

what to and restrictions final what what will availability So consumer around there refresh we're then see be, is how -- be waiting and the we going that to see guidance is can and product playing those.

we that we is a assumptions could so scenarios, accounted So range in take sure had range and for make various what across would did we the changes place ran that assumptions those of we a of outcomes. that

investment e-vapor over slowing the in push that reduced that in overall likely impact Pam, about change U.S.. impacted in value year could we of kind And primary JUUL that final volume as that in And we response for the several volume laid to our JUUL, out FDA of the the expect JUUL's release the also the obviously And the we category ability two of achieve that guidance, the was talked next years. it volume. our in drivers the of expectations growth their and margins or out to e-vapor here category a we

guidance to probably to that. and I looking next we're important how final of see set the for react FDA's most think is consumers information the

do estimate after so how completed, being large impact such so and will you feel M&A approach of And versus reduce internal your this about a investment? investment having how future your materially experience to quickly to

pleased of impairment we anticipate extreme predicted, take not expected. we we had JUUL on had was that think we regulatory the to our did scenarios I a this certainly have not have to made while Sure when next change year, we're we might of Certainly in of not investment. pretty and occur the e-vapor think category. may dramatic end in what on JUUL, dramatic change potential course, charge range And was investment injury lung in the the an something I it a

least share third category, was of the that the of U.S., year e-vapor nine in [ph] the dramatically the the [XX%] However, growing quarter through driver to had at this JUUL category a the JUUL that quite as with said, months primary all in growth.

that continue longer first we But term And bold believe set to so to to be JUUL in also up bold appropriate. And is action we all, products FDA. action the to of of is that usage continue address the encouraged winner we by e-vapor. e-vapor in believe,

because our And the line be going to continue business of being we category that equity to JUUL's to forward working them the look in and income a supportive through changes contributor e-vapor of and forward.

Thanks.

Your next question is from the line of Nik Modi with RBC.

Good morning, everyone. thanks. Yes,

Good morning Nik.

good questions from Two questions. -- morning, Howard. Two

you be XXXX kind puts really earnings First, expansion. and number the upfront will expect the to of behind invest about period of the understand like? in how in some XXXX the us terms you Should help when investment takes as heavy we consistent CAGR, can national that talk you on! kind IQOS and of

it So how I'm asking about of XXXX sense guidance. around to philosophically. kind for any clarity think that. you not of trying a I'm better just get

is program. the helping the the second doing really to well, portion question is by very of that Marlboro is rewards actually understanding that and understand then non-promoted And franchise my helped Marlboro

just some can the performing. you us around give So trademark I Marlboro was how is hoping context

Sure.

with was objective, for When with you'll volatility across year we of three various think our growth near X% growth predictable. bit and at first investment it our tobacco me have we categories design. question the much EPS annual When volumes when XXXX. in objective our we were at Investment. categories our consistency objective that quite by didn't range expected we a also to the ABI the the the would there XXXX the a have between I when notice established was we time growth And was EPS time it Let that and SABMiller X% widened wasn't this as around between U.S. answer movement and have the replaced long-term a EPS

a about to I that better invested growth have that range felt X% X% growth I say you objective. know we a I think year. of time X% for having we aspiration, mid-term for so we had each to And think but that a EPS And really tended would many long also X% deliver that

think, or three think I make the in I to over years the flexibility market of based purposely, conditions U.S. each the we higher that investments want lower market. on

So within were a over to might question. we turn little level for flexibility. of that I'll and the see bit that more looking Billy range movement really to you create Marlboro it

recognizing the strength you appreciate We of Marlboro brand. the Nick. Yes.

both team. put Marlboro team based the our on would on data and the consumer rewards Marlboro interaction Marlboro in I together First, drive team great consumer data we applaud analytics a have The analyzing of to higher really we're Marlboro program our has targeted data the the the promotions of brand at itself. use allowed more what much that is And analytics around the the with with efficient in use that capturing and data marketplace. of be the to with --

Thank you.

Your next question is from Gaurav Jain with Barclays.

discussions is had one why around the they was that business and Morris would in questions, a suggest value was your of eight on on decline. with Philip Hi, good PE, off. were which couple recent business the tobacco I And Thank you. Yes, called of particular, morning. times core the

still and your now you tobacco growth which offering, you. are help business triangulate you us on a the that is growth you outlook that the quite Thank outlook? can multiple So, own put healthy

Thank for I'll comment our you. with on a breaking first negotiations off merger PMI.

I thought terms. had and cost unsuccessful. and the and we negotiate at synergies ultimately the think under to we we come try as communicated PMI were revenue between that merger significant to did generate time We terms to potential and the Altria right

our the focused we're U.S. stand-alone IQOS prospects communicated that continue and we to on commercialize business partnership to with as now so very And have we're PMI a recently in very about excited

that aware by dramatically regulatory partially we driven pressures to to the the call on are ascribe last that come multiple core the think overall in tobacco concern certainly to our our regard the here about over the business U.S. I ascribe people stock quite years, With the the down prices three has business, that multiple

continue continue stock X% mid-term upside. stock that to our to at a long the to core term think when generate to look growth -- business. to price the products smokeless We strong tobacco EPS noncombustible believe of that that our guidance, look And has over tobacco significant we combustible you. ability we We and and when X% is strong undervalued. at the platform the build income Thank

Sure. And a follow-up on that.

So stock valuable the not probably and in ABI, accurately which are you price. have in reflected current stakes, particularly

this taking you to any Would think So persist. unlock value? were discrepancy of the to actions

question. for you thank Yes, the

to we analysis I that's us lock SAB, expire which up recall, in up think allocated it as at that expect part to year toward XXXX. at a we make it's And was did decisions same then the and to after locked the that is five the transaction, decisions, that sure that you choice you in go that time. appropriate lock-up. That then investment the a can investment, look of right the keep make with would through capital had

a investment. to the position together. It's analysis platform can breweries the really we the about Our ABI and is the in you world when investment was through that powerhouse investment, expect lock-up first global feel the but for on put expires. it beer us great It go good two the

we time the a one debating have U.S., ever tax much One on the we when to sale think given still to here in while facing a as thing its in quite a rate, tax I resulted that any SABMiller we're add might recall the may future. had what thing of low that to -- you And that federal I continue lower do that might were the the did with relatively think I sell tax that have low with add decide to I bill. we we tax asset, reform back if the stake, concerns basis at one here basis that in significant was would is

very That's Thanks a lot. helpful.

Your Azer Cowen. line question the with is of from next Vivien

morning. good Hi,

Vivien. Hi,

volume just Howard, could we was revisit hoping So I U.S. that the for please. the cigarette outlook

While your I in you're in would at worse, not that the XX you. the appreciate theory, guidance. in are your to helpful your of Any guidance, only year-to-date it? look Xx Thank it less thinking category look presentation. gets cross suggests very skewing XX, months. outlook unfavorable slide Is end there fact the I impact And better. are not little at the you movement that the a toward guys does helpful? more when that increased bit of has get trends than color X% be at very year-to-date how of X% about that longer-term Holding XXXX that midpoint And

question, Yes, Vivien. thank for the you

I when think and at when recall the at flat. hit the proposed second that's third, then moving going And marketplace. category it's certainly virtually look to that, that you'll going from XX-month a you have regulation to that's the we look you e-vapor

very the X% X% So still at volume. that with on mid-term this we comfortable point, feel to

monitor track it e-vapor keep showing on certainly forward. we're But that this will and saw the the move And in so period you growth we you of XX the we huge category. as it period that is slide

final smokers is Howard. some Vivien, the And that that the to but don't of possibility FDA differently. slowdown in we that and that's evaluate e-vapor guidance think that adult a will I its have of that to have cigarette might cause gone cause going otherwise this to What probably might category a reasonable e-vapor impact And certainly decision course the I is e-vapor, that add there on is growth.

decline into year slowing FDA place. third quarter year-over-year to have first the authorizations that down. growth point for until the a But certainly natural was over through robust We next the here on that's certainly of in the slowing quite think category I there the e-vapor of fourth had into and the in are starting And or e-vapor that rate, basis, I two. have the coming that and last factor been had that would down rapid and growth three in at for be then But year. that year e-vapor this quarters an on also so in IQOS when historical offerings think available what least happened would We'd IQOS introduced expect to a cigarettes. on given rate quite take And you on! like out there calculation. marketplace, of and also would products have growth new impact we've Japan, that I And not could them. the

Okay, as scanner well. IQOS. in Certainly is apparent question that's -- the is slowdown helpful. second May the on data I

like platform to target promotional the And might spending seems you the that. the profitability aggressive, have achieve perhaps U.S. it near second that guys on when in term a the established is on you question In appropriately. So

itself that at the that Thanks. $XX, you given is funding device would bundle promotional Are for imply it is So, $XX. going the about independently? guys priced investment

Sure.

timeline IQOS a bit communicated not it's when we really have feel positive. we for a So And would be profit at premature. point, like this

scale And a way that think across of are be cost going better a to lot to the would on based the most learn country. structure we in learning much understanding markets IQOS I about we'll have think going I what forward. efficient the

on in say And really on create level is to of purchase of the I spectrum a to awareness expanding that spending a months right are efficiency the the probably us few going that we will us ability of plan worth than broad to well it an think it. is may a think based for our winning costly design you And but and basis it more start learnings, try market efficient then I less and will market expand higher around be Atlanta designed forward, to Atlanta is And country. benefit we more IQOS. trial that will means tools it, would to that platform get it that scale but that that take

Thanks Terrific. very much.

the is next Jaffray. from question of Michael with Your Piper Lavery line

Good morning.

Hi Michael.

might and second Richmond thinking magnitude announced And the to push update determine the already did on you all you timing Can Atlanta you look or how the rollout? a like? of adjust But think as now now your you much it might how ahead, the and your just you've about about learnings talk that from approach your obviously, and you the go-to-market approach, how subscribe IQOS or does tactics city.

primary Yes, be and strategy effectively and to plan had purchase. and Richmond. of cost our revisit results times. national time enough driver and primary driver think the drive to promotional revised is now rollout awareness I we going The that Atlanta of ultimate the We to trial in several consumer the tactics use improve Atlanta the

feel about it. we good So quite

nationally. doubt also likelihood also disruption the have there the say in we more no learn going the But that as to up I speed would expand be much which things that we in to is out step would that allow to given that roll we to Atlanta efficient be going with wanted e-vapor But we some market us we're IQOS.

So once the X% quickly a up while we EPS are do aside national on guidance also to much going with we have to expand resources more from Atlanta. that nationally, how now learn to X% to we it basis best learn ramp set our

next given so And helpful. at outlook on strokes, of the just is on could level potentially IQOS unfolds growth in such have very around guidance for that earlier how and might year year there uncertainty That's than mind be high for possibly speed launch objective? even year next just the in scenarios traction, several you for next that it's your some a the broad the wider

we'll which we get for won't of said, going for on expanding I as will have learnings market Atlanta IQOS test I the think Certainly, guidance and Yes, plan inform next ahead that it. are to in learnings have ourselves year. the I our inform also on similar

of growth a that a that for of guidance ultimately EPS leave to have January. tell us I'll But flexibility that the that we I gives range for scenarios. lot Although new mid-term variety think you

do I want to follow-up.

creates. heat and small income significant that IQOS But you that the for course of that I earlier, the and you we we're look competitive a is think bundle purchase cost question to smokers device, the includes on sticks. the right price incurring over to bundle year, purchases your part in encourage a a when to Atlanta adult it's at And of cigarette a for. are which to answer somebody one the converts promotion I is quite device then are order who that investment Michael, offering that failed relatively in stream that the

That's Thank segment already margins it are if and one you your And smokeless compare this different How on do helpful. extremely just it's does time, see last high. operating one you. obviously evolving today. how over

in of pouch the our It margins we've the the the of a we the margins one a business be real of shares period think developed to is of tobacco, think forward. have smokeless we that to the build many business. very manufacturing tobacco nicotine on going on! similar Yes, category characteristics after profit with we high are likely on! to initial that benefits investment kind could that so that business the of in be same smokeless participation

very much. you Okay. Thank

Thank you.

next Robert is question from UBS. the with of Your line Rampton

Good morning. Probably just me. three questions from

the over just but be clear, point, in floor? a you CAGR a X% given X% three do say when labor any X% you to years, mean is just to year Sorry to

be that X%. between XXXX. and with would So And the our would and between be CAGR that XXXX intention year X% base the is XXXX

Okay, to over that's terms my press then, very sorry, more we Could the color on the that are you that that clear. more in And But X.X% second evolved. tail-end. me the hear course question. interested Thank you. give how of around was evolved quarter. FDA the underlying how Obviously toward

had get e-vapor details as obviously when quarter. largely you the flat in down was trend, of look I of a that at certainly I looked at quarter, the from growth second in quarter. X% but the sequentially Sure. the decline picking second into the instead we quarter, the within won't think, from it X.X% rate, third you cigarette And sequential category up

So I think likely quarter, think, the in quarter regulatory I but cigarettes impact be is based fourth impact some we'll happens happens see fourth to what environment. what e-vapor on the on on which in the have might

final I'm so FDA. and cigarette on what early you. states thank question and have forth? earlier clear Very sorry, on action about [indiscernible] to is so indications certain by Any taken doing volumes flavors so than my that's the

think and it's fairly had with early some court them those think actions up of been I of challenges. days I some held state on

have So I a on fourth much in read the think quarter. better that we'll

right. All much. Thank you very

you. Thank

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

Thank Hello. you.

Adam. Hi

Hi.

IQOS. Atlanta for already some that revised said you in you've your marketing So strategies of

some what and changes think, very a clearly learned got you been could, so you've wondering I strategy? learnings those And if share at level, far you Thank what already there. high have I you. marketing have in your just was

launch ready ago. been strategy, Sure. and that we that more When was marketing marketing of significant really market. the improve changes we product had was were authorization the fact longer because would our I fact adjustments year to plan that with than referring haven't from than we we team a the made original the marketing improved the the placed And meeting changed say the took had experiences their referenced product to had launch and I since and our overseas learning really expected, our PMI in making I versus plan. IQOS to

to to results, misunderstood, but sorry we done, give following guess some thank that going what when geography. the always about IQOS PM of relevant is what indication learning. you any get for about have like will in market will I'm XQ Thank whether quite Okay, be you. I be from I I'd you. you to has Atlanta? in I'm you update to how that frankly guess which intrigued able it's you're on discussion able us the And share to say us

decide go it's Certainly it's We'll fill those appropriate we're improving where from you to insight going appropriate as to you some give and we're into how how performing. going to what provide going think move we is to certainly along, think metrics on we in we what there. but we're are

conversion. our the drive in months awareness next three measure to our Atlanta to focus drive trial I think ultimately for and and of ability is product to to purchase biggest so the or probably deliver then

of to this stage focused the in share less and generating market. earlier more at think on those share some market we're market I on we're focused precursors

would year’s time achieve by Atlanta? would December in to sort for share success you XXXX, you about that? a of say what what market a Talking In hope will represents IQOS

comment Yes, I'm going on to hesitate that. to

has out PMI we the billboard that going a Europe, Atlanta. platform believe of we have we're that to database adult product. advantage Japan, Western expect although try levels, market. modern that also reach it what is fairly is success the and I good in we Atlanta we don't that's compare would say stores and in that biggest from I interested in really to experiences some in those really quite had what retail I to that And do think provides to What you think convenience I to have the do learning learn with But an in have achieve I resources we're consumers. IQOS that's when certainly will and large the tobacco

hesitate optimistic can I'll speculation. So, progress a of in I make to would we we make markets U.S. PMI's the are but some the about say versus

said final question The worse about performance whether in down -- hoped. also markets than And -- we're been JUUL. say, available, the JUUL sales where about you your was you if the overseas sort But Korea. from to Europe, your as e-vapor. international one actually changing your me as of one the reasons launched any had not say you'd in subject And assumptions there outside back than let's better markets, affected you originally the was scenarios India it's just some being U.S., assumptions overseas, have took is and comments markets let's Western said wondering of or going the where or hoped had coming I good or for that performance completely, because you rollout JUUL been hoped, is to because evidence had allow that of

to early by it's more The e-vapor have now say JUUL's assess It to early many, the success driven was to I countries, Sure. in in that category JUUL countries in. made the it's the it's was performance situation would launch in related driver on country say countries. adjustment international have quite primary I of business valuation many various results. overall And but we individual based real not a going still to which

environment it to JUUL's more e-vapor the specific driven category performance. than was it overall was So by

very my questions. for you answering much. my you all Thank Thank

Thank you.

question Your Bank. with Powers Deutsche comes from next Steve

morning. dynamic has Howard, surrounding maybe good used I to be your Thanks. comments that the a and industry more now Hey, revisit predictable and just opening moment notion to take but the complex. wanted become

last you that'll couple is could think helpful. has longer no Altria's is bit the the changing is to And we there significant a just of the Maybe strategic market especially on have volatility, that years forward? likely that for degree case going but how predictability been? and might similar time, and rate that volatility then long ones it to be continue that, to all term company's elaborate realize considerations of base been some I the your approach in

Sure.

If the cigarettes EPS in growth. companies period investments XX having very much first satisfying in you years, quite primary generated and about predictable an our go predictable and categories, of combustible weren't back last a decline decline that rates and EPS was the business operating we and from high a the impact and were quite of MST five-year some think of our income volume had and quite the And that really quite rate was of other from while strong consistent growth years on cigarettes And they level we driver the growth. cigarette business. making with of XX

cigarette become believe I start some and could we three the think least a take have years variability for over that some categories take to time the it base in the build it three And in of next the more the some categories invested volume you could predictable. between could over decline of to non-combustible business. are that category launched, larger or next switching four at years, as rate these tobacco-product are

almost But decline wholly And more rapid would certainly, decline category was I e-vapor in that year. it growth. out point this driven up an the category step was we cigarette that the by saw accelerated in

U.S. the a in are for still for -- different industry just is the nicotine good U.S. their they satisfying cigarette in nicotine finding variety are of ways news the interested to the in of products. success products, satisfying So the desire satisfy long-term consumers

maybe product probably next to where marketed will on get part well tobacco. tobacco the of include the think more non-combustible that heated platforms in enter do eventually and would we larger to the got I because later I point going do predictable a pretty believe we're you've that phase years here, XX

pouches get e-vapor end then of path. disruption tobacco to with likely course, and nicotine I oral predictable drive think will through base oral larger including a up are this more return to And short-term tobacco a also business.

can growth in built a we combustible provide the products be think future, that largely we've the a in profit of term, that the from EPS in key generate each nicotine over provided that and predictability growth of very set the but provided longer term. believe satisfaction cigarettes, brands to by was likely portfolio nice compelling should that it's long and be So we the those categories

we thank Okay, noticeable under and of for past months, increasing scrutiny think some e-vapor in think but on about smokeable well related trend categories, you adjacent as about Maybe is of potential transpire the build bit great, in next what for the come and you've a maybe on few spoken questions a couple smokeless change over I you has these quarters? sort may may of public that to regarding do or not earlier anticipate looking as demand, that. impact any as everyone

Sure.

other changes have the if in e-vapor on an going are growth think rate categories. to impact I

growth quarter think that to And more we're think to point I right see quarter likely probably in second are the next that or it of is year. I next through you would goes tobacco. out there category the if moist to I in decline cigarettes, smokeless also rates see growth a expect in potentially or changes combustible reflected rate change year, it in first

e-vapor year else. are choice this And anymore, product to they're vapor more then alternatives, driven for may If consumers IQOS pouches, volume look to available, or there of move moving trend driver tobacco and adult dual that smokers, and that they some they're you cigarettes then product category. might stay moving the also growth likely is find drive by two favorable to using things. see cigarette was -- nicotine cigarette of a e-vapor in If a no not and is their somewhere big other of longer

I lot. a it. Thanks appreciate

All right, thank you.

the Sachs. line Voulgaris Goldman next Your is question of Petros with from

Good morning, everyone.

Good morning.

the to in of removal from menthol follow guess how respect of light as exhibiting with a risk you how with of you volumes? a might rate you and cigarette into color up, of shed you removal could think what to terms of demographics probability And be of cohorts versus menthol questions of some respect about slower Two give the in a shipment continuum decline weigh e-cigs little cigarettes? in I into Can probability differences me. the the

Sure.

me question, second Let first your address have and comment Billy try I'll one. and your on

And e-vapor is in our that expectation is in the FDA going provide category. final to the think information our the that their on think products I I e-vapor is that to impact going guidance category. that is further expectation flavored

indication to any from We to the and that here that further completely the near on different removing is any require process. in FDA communicate that It's going have that don't this in flavors really point under would think e-vapor. order next market going perspective hear is term of menthol cigarettes to expectation we're a way support in that. really the in at really not about our months couple I

I part sure, clarify second you of understood to the the question? it. Could completely not ask just I'm I

I you to Yes, XX the light there like volumes? like decline you with and I cut age within a the how I at and a changing cohorts, mean some was I rate know shed -- there market exhibiting look how that's if demographics is wondering different the the XX if into could little dynamics don't or how it. impacting older just cigarette know shipment XX you is of group and respect from to of over. is at the

cohorts think I Yes, is there skew significant any volume. in age don't shipment for cigarette

as about certainly we XX. category, the been to recall, has e-vapor cohort, it XX to that younger talk attractive more call age it You'll

higher overall age age we categories, absent cohort. older are above skew than see other to that and extent they alternative bit significant interested categories to the the little far product XX But any group. decline, So a adult moving as smoker more don't in as by

[Operator LaVito we Ladies line now to questions. the participate Angelica media will Instructions] of in first from Your the and invite with CNBC. is gentleman, question

the to thanks I just you question. morning, the wanted JUUL's Good possibility the PMTA? does that authorize ask have for taking FDA not considered

Sure.

filing XXXX approvable applications situation the the filing of that creates year, PMTAs more for companies. from to for e-vapor date both I think with I the on that a think -- and moved filing all challenging next May

they against authorized believe likely and task. resources have that end successful is their I because applied up ultimately to significant a JUUL application highly However, products a that of having filing amount

convert ultimately one of things is to whether consider to to that cigarette other have And debating distinguished category I use FDA within one significant they having I compared adult the or I products product, the as is application. And e-vapor. benefits convincing a think, e-vapor that smokers in of think think quite itself to e-vapor that to going at JUUL of success is the that's approve for the the an them exclusive going not

Maloney question is Street the Wall line final with from of And Journal. your Jennifer

Good how of to consumers' if JUUL morning. their wonder they a on from flavors. your of when get observe to you switched year, stores I share reacted pulled Mango retail could last people out mint. to of flavors consumers of switch understanding company willingness The lot did many

only. So, best is may projection if of happen what your based what their flavors observations those to others, are on and limited tobacco

JUUL other the I referenced have you the for kind their directed you have of really person restricted I'm question. probably don't to JUUL business, question. don't tell in I'm were when probably mint that to some that thanks operate marketplace. flavors, that management. that I that trends we wrong Jennifer, of That's toward the answer to aware than best the and menthol But given the of tobacco, access research. same

would turn back the Thank I you. to like At for to comments. this call time, management closing

Thank current company environment. the you. To the tobacco best to navigate close, we are positioned believe through we successfully

We please Thanks and and diversified joining products satisfy tobacco marketplace provide noncombustible further adult Relations business questions. can team, our cash contact future we have excellent built us you tobacco core have of many and scenarios. have profitability future under platform profit and again a growth businesses generation if Investor from that our different for consumers

in participating for today's you call. Thank conference

now lines. your may disconnect You