Altria Group, Inc. Q1 FY2022 Earnings Call

Good day, and welcome to the Altria Group 2022 First Quarter Earnings Conference Call. Today's call is scheduled to last about an hour, including remarks by Altria's management and a question-and-answer session. Representatives of the investment community and media on the call will be able to ask questions following the conclusion of the prepared remarks. I would now like to turn the call over to Mac Livingston, Vice President of Investor Relations for Altria Client Services. Please go ahead, sir.

Thanks, Mac. Good morning, and thank you for joining us. We're off to a strong start to the year and believe our businesses are on track to deliver against their full year plans. Our tobacco businesses performed well in a challenging macroeconomic environment, and we continue to make progress toward our vision to responsibly lead the transition of adult smokers to a smoke-free future. Let's start with a review of the macroeconomic backdrop and its impact on U.S. tobacco consumers. In January, the surge of Omicron cases disrupted consumers' routines and purchasing patterns, resulting in short-term decreases in retail trips and overall tobacco volumes. Increased inflation throughout the quarter pressured discretionary income levels as the consumer price index reached a four-year high in March, and higher gas prices were exacerbated by the Russian invasion of Ukraine. However, the rise in inflation was partially offset by improved employee metrics and increased wage growth for some consumers. The unemployment rate was 3.6% at the end of March, down from 6% in March of 2021. Total wages grew by nearly 5% in the first quarter compared to 8% average inflation. For some occupations, wage growth outpaced inflation, including occupations that over-indexed toward tobacco consumers. For example, wages grew 11% for production-related jobs and nearly 10% for jobs pertaining to transportation and materials moving. Additionally, the pressures of inflation were also offset for some consumers by higher federal income tax refunds. In the first quarter, the average federal income tax refund payment issued by the IRS increased by approximately 12%. We do expect inflation to persist for the balance of the year, however, and we will continue to monitor its effect on tobacco consumers. Moving to our consolidated results. Altria delivered strong first quarter performance in this dynamic environment, growing adjusted diluted earnings per share by 4.7%. Adjusted EPS growth was primarily driven by higher operating companies income and fewer shares outstanding, partially offset by lower adjusted earnings from our ABI investment. In the smokeable products segment, we continued to execute our strategy of maximizing profitability in combustibles, while appropriately balancing investments in Marlboro with funding the growth of smoke-free products. First quarter smokeable segment adjusted OCI increased 5.7% and Marlboro retail share was stable sequentially. We believe Marlboro's share performance through this period reflects its continued strong brand equity among smokers. We believe the investments we have made behind data analytics and revenue growth management provide us with the right tools to support the smokeable strategy. These tools include PM USA's manufacturer-supported off-invoice program, which enables more efficient resource deployment for Marlboro as well as retail trade programs with multiple options designed to provide retailers with store-level solutions for our brands. We believe these capabilities position our smokeable businesses to navigate the current environment and to continue to deliver strong profitability in support of our vision and shareholder returns. Turning to our smoke-free product portfolio. We are excited by the performance of on! and oral nicotine pouches. on! reported shipment volume nearly doubled to 18 million cans in the first quarter. At retail, on! share of oral tobacco increased by 2.5 percentage points, reaching 4.1%. As we shared at CAGNY, on! share growth has been primarily driven by repeat purchases from existing on! consumers and increased tobacco consumer trial. We are encouraged that these dynamics continued into the first quarter. At the category level, oral nicotine pouches reached a total oral tobacco retail share of 19.3 percentage points in the first quarter. The category grew 6.1 share points year-over-year, with on! representing more than 40% of this growth. We believe the brand continues to be a highly competitive product in the space, and it continues to perform well in all regions of the U.S. As a reminder, our premarket tobacco applications for the entire on! portfolio remain pending with the FDA. And we believe the FDA should determine that the marketing of these products is appropriate for the protection of public health. We are also actively working on modified risk tobacco product applications for on! We believe MRTP claims would provide impactful points of differentiation for the brand and important tools in educating and ultimately transitioning smokers to less harmful products. In e-vapor, we estimate that total category volume increased 10% versus the year-ago period and increased 4% sequentially as a result of increased volume in the vape store channel. Our minority investment in JUUL remains subject to challenge by the U.S. Federal Trade Commission. In February, an administrative law judge found in favor of Altria and JUUL and dismissed the entirety of the FTC's claims. The FTC is appealing that decision to the FTC. Any decision by the FTC is subject to appeal in federal appellate court. In heated tobacco, our teams are continuing to work with PMI on IQOS reentry plans, and we will keep you informed on developments as circumstances warrant. There is no change to our expectations regarding IQOS product availability. Moving to the regulatory environment. President Biden signed a bill last month to bring synthetic nicotine products under FDA regulation by updating the definition of a tobacco product within the Food, Drug and Cosmetic Act to include only products that contain nicotine, including synthetic nicotine products. The bill allows manufacturers of synthetic nicotine products currently on the market to keep those products on the market for 120 days after the bill's enactment, provided that they have submitted a PMTA for those products by May 14. Unless the FDA grants a PMTA within that time period, the products become unlawful and subject to the FDA's enforcement discretion. The bill creates a certain exception for this review period for those circumstances where the FDA issued a denial of a marketing order and the manufacturer thereafter marketed the product with synthetic nicotine. We believe this legislation is an important step toward the creation of a responsible smoke-free marketplace, consisting solely of FDA-authorized products. In combustibles, the FDA has indicated that it is on track to issue proposed product standards this month regarding menthol in cigarettes and characterizing flavors in cigars. As a reminder, the FDA rule-making process has multiple steps and provides several opportunities for stakeholders to provide input. Underage smoking is at the lowest level in a generation, and efforts to prohibit the legal sale of products to adults as we have seen with alcohol prohibition and cannabis criminalization have consistently failed. Prohibition pushes products into illegal markets that lack regulatory oversight and lack underage prevention. We believe equitable harm reduction is a better public policy approach to reducing smoking and improving public health. This means manufacturers must develop and the FDA authorize an array of potentially reduced harm alternatives that can appeal to and transition smokers across all backgrounds and demographic routes. We expect to be actively engaged in providing our perspective to the FDA throughout the process. We remain optimistic about the future of harm reduction in the U.S. We believe we have an unprecedented opportunity to lead the way in shifting millions of smokers away from cigarettes. We're encouraged that the FDA has started authorizing smoke-free products, but more needs to be done to build a marketplace of authorized reduced-harm products that smokers can consider as they move away from cigarettes. Our tobacco businesses delivered extraordinary results in a challenging and dynamic environment. And this could not be done without the passion, resiliency, and fierce determination of our employees. Their talent and dedication continue to give me confidence in our ability to move beyond smoking. I'll now turn it over to Sal to provide more detail on the business environment and our results.

Thanks, Billy. I'd like to begin with a discussion on the inflationary environment, which was exacerbated by the Russian invasion of Ukraine. We continue to monitor the potential impacts to our operations and supply chain, and we are actively working to mitigate risk. Thanks to the hard work of our teams, we have not experienced a material adverse impact from these events. While our company will continue to monitor the situation, our hearts go out to the suffering Ukrainian people and to all of those affected by the war. Moving to our businesses. The smokeable products segment delivered excellent financial performance once again. In the first quarter, the segment grew its adjusted OCI by 5.7% and expanded its adjusted OCI margins to 59.5%. The segment also reported strong net price realization of 9.2%. First quarter smokeable segment reported domestic cigarette volumes declined 6.3%. When adjusted for trade inventory movements and other factors, we estimate that segment domestic cigarette volumes for the first quarter declined by 8%, and that industry volumes declined by 6.5% over the same period. We believe it's important to analyze cigarette volume trends over the longer term as decline rates in any one period can be influenced by various factors. In fact, the two-year average decline rates for first quarter adjusted smokeable segment and industry cigarette volume declines were 5.5% and 4.5%, respectively. In the marketplace, Marlboro demonstrated strength and resilience during a dynamic period for consumers. In the first quarter, Marlboro's retail share of the category was 42.6%, stable sequentially and down 0.4 versus the year-ago period. Marlboro also maintained its leadership among premium brands, growing its share of the premium segment to 57.8%, up 0.2 sequentially and versus year ago. And in discount, total share of the cigarette category in the first quarter increased 0.3 sequentially to 26.4%, driven primarily by deep discount products. We believe the share increases in discount were due to the previously mentioned macroeconomic factors that affected tobacco consumers in the first quarter. In cigars, Middleton continued to provide strong contributions to smokeable segment financial results, and we are encouraged by the continued strength of the iconic Black & Mild brand. Reported cigar shipment volume decreased 9.6% in the first quarter, primarily driven by trade inventory movements. To date, Middleton is successfully navigating the regulatory environment with the support of our regulatory affairs team, having received market orders or exemptions from the FDA covering over 99% of its volume. Of course, as Billy mentioned earlier, we will continue to monitor the FDA's proposed product standard on characterizing flavors in cigars and its potential impact to Middleton's portfolio. Moving to the oral tobacco products segment, adjusted OCI and adjusted OCI margins contracted in the first quarter, primarily due to the increased investments behind on! Total segment reported shipment volume decreased 1.9%. When adjusted for trade inventory movements and calendar differences, we estimate that total oral tobacco segment volumes were unchanged. At the industry level, total oral tobacco volume growth moderated to 1.5% over the past six months. We continue to observe steady growth from the oral nicotine pouch category, but this has been offset by declining moist smokeless tobacco volumes as a result of difficult comparison periods and the macroeconomic challenges facing tobacco consumers. Retail share for the oral tobacco products segment declined 1.1 percentage points in the first quarter as declines in MST offset strong share gains for on!. We remain pleased with the overall performance of the segment as Copenhagen continues to generate significant income in the high-margin MST category, and we remain excited about the performance of on!. Turning to our investment in ABI. We recorded $141 million of adjusted equity earnings in the first quarter, down 25.8% versus the prior year. As we have previously shared, we view our ABI stake as a financial investment, and our goal is to maximize the long-term value of the investment for our shareholders. Moving to capital allocation and our financial outlook. We remain committed to creating long-term shareholder value through the pursuit of our vision and our significant capital returns. In the first quarter, we paid approximately $1.6 billion in dividends and repurchased approximately 11.3 million shares totaling $576 million. We have approximately $1.2 billion remaining under the currently authorized $3.5 billion share repurchase program, which we expect to complete by year-end. We reaffirm our guidance to deliver 2022 full year adjusted diluted EPS in a range of $4.79 to $4.93. This range represents an adjusted diluted EPS growth rate of 4% to 7% from the $4.61 base in 2021. We continue to expect that 2022 adjusted diluted EPS growth will be weighted toward the second half of the year. Before opening it up to Q&A, I'd like to comment on our recent ESG progress. While harm reduction and underage use remain the most important social issues for our company to address, we have committed to make advancements in other ESG areas. At Altria, we are committed to reducing our environmental impact and recently announced our first virtual power purchase agreement for energy produced by a new wind farm project in Texas. This agreement marks significant progress toward two of our science-based environmental targets, achieving 100% renewable electricity and reducing operational greenhouse gas emissions by 55% by 2030. When the project is operational, we expect we will hit those targets ahead of schedule. We're proud to support a project that will bring additional renewable energy to the electricity grid, contributing to positive climate action. 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.

We will take questions from the investment community first. Our first question comes from Chris Growe from Stifel.

I have a question for you. There seems to be a macro headwind affecting things. Some areas, like wages, appear to be performing better. Considering factors like unemployment and gas prices, when do you anticipate this will have less of a negative impact on volume this year? Additionally, regarding the Marlboro franchise, Marlboro's market share was quite strong this quarter. Are consumers shifting their preferences within the Marlboro brand, for example, towards different blends?

Yes. Thanks for the question, Chris. I'll take them in order. So from a standpoint, we were excited to see the resilience of our consumer. And that's why we wanted to highlight the wage inflation that I think a number of industries don't see and it's benefited our tobacco consumer. It's something that we'll continue to watch. Certainly, gas prices have an impact on our consumers because usually they're filling up their car truck and then going in and purchasing the product. So it's something that we'll continue to watch, but we feel pleased through the first quarter with the resiliency we've seen in the tobacco consumer. As far as Marlboro, we're extremely excited with the stability of Marlboro. And if you go back, you can see pre-COVID, we had the benefit of the strength of Marlboro. And we benefited from the consumer having extra discretionary income as we proceeded through the COVID pandemic. And I think that pointed to that Marlboro's still the aspirational brand in the marketplace. And then as we've seen discretionary income come under pressure, we gave a little bit of that share back that we had benefited during the COVID virus. But through that entire period, the Marlboro brand has held up. You always see a little bit of movement. If you think about Marlboro as the brand, it has over 90% loyalty. That's a consumer that's buying it every time they make a purchase of a cigarette in the marketplace. But you see a little bit of movement, but nothing that I would highlight for you at this point.

Okay. I just had one other question. I think you talked about the dynamic of consumers moving into vape shops, for example, for vapor. And is that a movement away from traditional outlets? And I guess just what could be driving that? And I guess, to that effect, what that could mean to JUUL in the future based on that movement by consumers?

Yes. What we tried to highlight was where we saw some of the growth. It was in the vape shop channel. Again, no trend there to highlight. Just wanted to highlight where we saw the growth sequentially. I think if you step back and look at the entire e-vapor category, what we've tried to highlight is as all of these products are coming under FDA regulation, and we should see and have started seeing some of the decisions by the FDA, I think that entire category will be in a bit of a transition over the next year to 18 months as some products make it through the process and some are denied. And so those consumers will be moving around a bit. What we look forward to and continue to believe is that e-vapor can play an important role in harm reduction in the U.S. once we get to a total FDA-authorized marketplace.

Our next question comes from Vivien Azer from Cowen.

So the menthol news has been long anticipated, certainly over the last 12 months given the April 2022 target. Billy, maybe it will be helpful. You guys have been pretty consistent in disclosing your share of menthol, but just dimensionalizing how big the menthol category is in the broader category context.

Yes. So to your point on our metrics page, you can see our share of menthol is 9.4% across PM USA, and it's pretty consistent from an industry standpoint that it represents about one-third of industry from a menthol cigarettes in the marketplace versus non-menthol.

Understood. That's really helpful. My next question is on the IRS call out. That's a bit of a unique call out relative to what we've been hearing from other companies under my coverage. So is the message that this is kind of a one-quarter benefit? Like how are you guys kind of thinking about that? Like does it annualized? Or are you kind of thought that, that was kind of a one-time offset to inflationary pressures for the consumer?

Yes, you can view it as a form of government stimulus to some degree, Vivien. The actual refund checks are on the rise. We'll see how that develops through the second quarter since not everyone receives their refund checks in the first quarter. However, we certainly want to emphasize it for our consumers. The more significant point, which you noticed, was the wage inflation. That aspect is benefiting our consumers, and we expect it to remain consistent throughout the year.

Our next question comes from Pamela Kaufman from Morgan Stanley.

Can you give an update on your strategy in the oral tobacco segment? Performance reflects continued elevated investment behind on! How should we think about profitability in this segment and how it evolves? And is there a level of market share or particular goalpost that you can point to that would drive a shift towards more of a profit focus for on!?

I appreciate the question, Pamela. Our strategy in oral tobacco focuses on maximizing long-term profitability in the moist smokeless category, leveraging the strength of Copenhagen, while responsibly investing in on! to sustain its growth. We believe that over time, we can achieve margins similar to traditional tobacco products in the oral nicotine pouch category. However, we are currently in an investment phase. You noted the significant year-over-year growth, almost doubling our volume from the first quarter last year. We have aimed to emphasize that after overcoming manufacturing capacity constraints, we wanted to invest to ensure our product is considered by consumers choosing alternative options. We're now utilizing our advanced analytics to target our promotions more effectively. Yet, we remain in this investment period for some time.

Great. And then can you discuss what you're observing from the competitive landscape within the cigarette category in light of the current consumer environment? The deep discount segment continues to gain share at a higher pace, and price gaps remain wide relative to historical levels. Can you talk about how you're thinking about trade down within the cigarette category given some of the consumer headwinds?

Yes, sure. Some of what you've seen is exactly what you highlighted, Pamela, which is as the discretionary income comes under pressure, whether that's through inflation or gas prices or even mobility, you'll see some trade down. I think if you think about the total cigarette consumer group, think about it as a bit of a barbell. There's a group of consumers that are at the bottom end of that, that are always buying the cheapest in the store. And so you see that occur. You saw the benefit in Marlboro that we experienced when discretionary income wasn't under so much pressure. But the way we think about it is we're a premium-focused company, and you see this, the rock-solid stability of Marlboro through time.

The next question comes from Gaurav Jain from Barclays.

So a couple of questions here. Billy, so the Slide #6 in which you are talking about how wages are trending across different professions is very interesting. Now if I apply a similar sort of lens to the entire U.S. and different states and maybe different wage inflation in different states, are you seeing better volume trends in the states where wage inflation is higher versus where wage inflation is lower?

Yes, it's an interesting question. We don't disclose to that level, but we do see where wage inflation has benefited consumer spending, and that's why we wanted to highlight that for you.

Sure. I believe that wage inflation is likely to increase as we move through this year, considering the weekly jobless data and the fact that the Federal Reserve is still behind the curve. Should we then anticipate that cigarette volumes, which dropped 6.5% in Q1 due to challenging comparisons and the spike in gas prices, will begin to stabilize and improve as the year continues?

Yes. I think the macroeconomic environment, to your point, is very dynamic. Certainly, we would expect wage inflation to at least be consistent throughout the year. In your hypothesis of it increasing, I guess, we'll see on how unemployment goes and how job openings respond to that. I think the other side, though, is the tailwind. You highlighted gas prices. We'll see where gas prices go through the remainder part of the year and where inflation trends. So I think it's very dynamic, and that's why we wanted to highlight some of the tailwinds and headwinds that we were seeing.

Sure. And coming to the synthetic nicotine market and what the FDA has done. So in the synthetic nicotine market, like how do you see this entire category playing out in the next few months and will that be a benefit to your volumes as well?

Yes. So when you think about the total nicotine, you've seen us highlight that a couple of times and really looking at how the consumer is moving around. And that's exactly why, Gaurav, we put the portfolio approach in place because FDA decisions in one category put consumers at play and force them to other categories. And so we believe in having the portfolio approach is important. And so you can take the e-vapor category, depending on the decisions made by the FDA, that's why we highlight that, that category could be in a bit of a transition for the next year to 18 months as decisions come out and some products make it through and some products do not. Those consumers for products that do not make it will be at play either for other e-vapor products or other categories that they have in their consideration set.

Sure. And if I could just sneak in a last one for Sal. So Sal, there's this net periodic benefit income line item in your P&L, which has been a constant benefit. And I used to think that when interest rates go up, it will become a headwind, but it hasn't. So how does this line item work?

Can you repeat that? I apologize.

The net periodic benefit income, that line item, which I think is linked to your pension, interest and income and expense. So it has always been a tailwind to your P&L. And I thought that it would become a headwind as interest rates rise, but still there is a benefit that's happening. So how do...

That's a reflection of the strength of our pension plan funding and also some favorability in our overall pension plan performance, which gets amortized over time. So you are correct that it has provided a slight benefit to our P&L.

Our next question comes from Bonnie Herzog from Goldman Sachs.

I wanted to follow up on your cigarette volumes, considering some investor concerns about your volume in this environment, particularly your premium Marlboro volume due to the wider price gap. First, Billy, could you let us know if your Q1 results met your expectations? Additionally, can you provide more details about your strategy to protect your volume and market share? I believe you are increasing promotional spending for some price-sensitive consumers. Could you also explain how you utilize your special select brands during these times to keep more consumers within your Marlboro franchise? Lastly, I would like to understand why there isn't a better balance between your pricing and volumes.

Yes, Bonnie. I’ll do my best to address your points. There are several aspects to cover, but I’ll focus on the strategy we’ve put in place. As you’ve seen with Marlboro, its performance has been consistently strong over time. Regarding pricing and promotions in the market, we’ve emphasized our use of advanced analytics and revenue growth management to better connect with consumers. This means if we are running promotions, we can tailor them more closely to individual consumers. We have various retail trade programs designed to offer multiple solutions, whether at the store level or across larger geographic areas, taking into account that consumer economic conditions differ by state. Additionally, I want to highlight that our price realization involves two components: the list price and the efficiencies gained through our revenue growth management and analytics. When you consider these factors together, you can see the stability of Marlboro and the efficiency of our promotional strategies, which enables us to allocate our promotional spending more effectively.

Bonnie, I would just add one other point, which we highlighted in our opening remarks. I think the strength of Marlboro's performance within the premium category, where share of premium has grown as a reflection of the effectiveness of the programs and tools Billy just mentioned.

All right. Yes. I mean, so I guess the right way to think about your smokeable business, I mean it's an industry that's in secular decline in terms of volumes. They've been declining for a very, very long time. So the way you're managing this is offsetting that with pricing and trying to drive, whether it's low or mid-single-digit operating income growth and expanding your margins. And you feel good, even in this environment, that you're going to be able to continue to do that.

Yes, as indicated by our results for the first quarter, it was a challenging macroeconomic environment. Many industries were affected, but we managed to navigate through it effectively. I want to emphasize that with our advanced analytics and available tools, we are able to be much more precise. When reviewing the 12-month decomposition of volume, it shows that total price elasticity remains stable. It’s clear that the changes we see are primarily due to macroeconomic factors.

And just one quick final clarification just on your guidance. Can you touch on what it assumes in terms of total industry cigarette volumes? I mean are you assuming that volumes decelerate further this year? Any color on that would be helpful to kind of frame all of this.

I appreciate your question, Bonnie. I understand you're seeking volume guidance, but we don't provide that. In this dynamic marketplace, we offer a range of guidance because we anticipate changes in our consumer base. Our aim is to meet consumer needs, which is why we present a range. Volume is just one aspect of our guidance, which includes multiple factors. Therefore, focusing on a single factor may not be appropriate. We are confident in reaffirming our guidance for the quarter, and it's important to monitor how consumers are navigating the current macroeconomic conditions.

Our next question comes from Priya Ohri-Gupta from Barclays.

Sal, I was wondering if you could just provide us with some thoughts on your outlook for the refinancing market. You do have a little over $1 billion maturing later this year and how you're thinking about other opportunities for perhaps greater interest expense management across your debt portfolio? And then secondly, you do have one of your euro bonds maturing early in 2023. If I recall, that serves as a net investment hedge against the dividend you received from ABI. So strategically, how should we think about sort of the need to refinance that in euro versus sort of refinancing in dollar?

Sure. I'll address those questions one at a time. First, it's essential for us to continue maintaining a strong balance sheet moving forward. Last year, as part of our capital allocation strategy, we refinanced some of our debt, which helped extend the maturities of lower interest debt. We are satisfied with the results of that transaction. We also manage our debt structure carefully to minimize the impact of market fluctuations and to maintain flexibility regarding maturing debt. While I can't predict exactly how we will address the upcoming maturing debt, we will conduct a thorough analysis to determine the optimal course of action, whether that involves using existing cash to pay it off or considering refinancing options. The same approach applies to the euro debt that is coming due. We recognize that it serves as a natural hedge against the dividends from ABI. We have the flexibility to explore opportunities in various markets, whether it involves managing our balance sheet, refinancing, or handling debt as it matures.

And we have a question from Gaurav Jain from Barclays again.

Just a quick question on the ABI stake. Believe, Sal, like any updated thoughts on how you are thinking about it.

There's really nothing new to say. We continue to perform the analysis related to our ABI stake. As we spoke about in our opening remarks, it's a financial investment. Our focus is on maximizing that investment for the long-term shareholder value. We continue to do the analysis, and there's nothing new to report on the asset itself.

We will now take questions from the media representatives. And our next question comes from Jennifer Maloney from Wall Street Journal.

I wanted to ask about consumer switching patterns that you would expect to see if a menthol ban were implemented either in the state of California or nationwide. First of all, would you expect to see Newport smokers switching to Marlboro? And if so, what net impact would you expect to see on your overall cigarette business?

Yes. I think it's tough to say. I think with some of the alternative products that are in the marketplace, certainly, if there were an outright ban using your hypothetical of menthol, the consumer for the menthol cigarettes will either go to the illegal market, as we highlighted under unintended consequences of an outright ban, or look to either non-menthol cigarettes or alternative products. So it's tough to say where that will go. I think if you look at some of the research, there's limited research on it, but some would say that they would convert to non-menthol cigarettes. I think the better point here, though, is if you step back, prohibition, at least through history, hasn't worked. The better approach is to have these alternative products and allow we know consumers want to move to alternative products that have the potential to reduce harm. That seems like that should be the focus and a better approach than an outright ban.

One quick follow-up. What products would you expect Marlboro menthol smokers to switch to? And would you market any products specifically to them in the event of a menthol cigarette brand like Marlboro Gold or JUUL or on!

Yes. We'll have to wait to see what the proposal that comes out and how it approaches menthol. We would really look to, as we said, to support our vision and really look to move the consumer down the continuum of risk. And so that's the way we would approach it with the alternative products that are in the marketplace. But certainly, it's ultimately the consumer's choice.

Thank you all for joining us this morning. Please feel free to contact the Investor Relations team if you have further questions. Thanks again.

This does conclude today's program. Thank you for your participation. You may disconnect at this time. Have a great day.