Altria Group [MO] Conference call transcript for 2022 q2
2022-07-28 13:32:15
Fiscal: 2022 q2
Operator: Good day, and welcome to the Altria Group 2022 Second Quarter and First Half Earnings Conference Call. Today's call is scheduled to last about 1 hour, including remarks by Altria's management and a question-and-answer session. 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.
Mac Livingston: Thanks, Ashley. Good morning, and thank you for joining us. This morning, Billy Gifford, Altria's CEO; and Sal Mancuso, our CFO, will discuss Altria's second quarter and first half business results. Earlier today, we issued a press release providing our results. The release, presentation, quarterly metrics and our latest corporate responsibility reports are all available at altria.com. During our call today, unless otherwise stated, we're comparing results to the same period in 2021. Our remarks contain forward-looking and cautionary statements and projections of future results. Please review -- earnings release for various factors that could cause actual results to differ materially from projections. Future dividend payments and share repurchases remain subject to the discretion of Altria's Board. Altria reports its financial results in accordance with U.S. generally accepted accounting principles. Today's call will contain various operating results on both a reported and adjusted basis. Adjusted results exclude special items that affect comparisons with reported results. Descriptions of these non-GAAP financial measures and reconciliations are included in today's earnings release and on our website at altria.com. Finally, all references in today's remarks to tobacco consumers or consumers within a specific tobacco category or segment refer to existing adult tobacco consumers 21 years of age or older. With that, I'll turn the call over to Billy.
Billy Gifford: Thanks, Mac. Good morning, and thank you for joining us. Altria's tobacco businesses performed well in a challenging macroeconomic environment for the first half of the year. The smokable products segment delivered solid operating company's income growth behind the resilience of Marlboro, and our moist smokeless tobacco brands continued to drive profitability. We also continue to make progress toward our vision through the investments we laid out in January, which included supporting the expansion of ON. We are encouraged by retail momentum and significant share growth since achieving unconstrained capacity last summer. We believe this is a pivotal point in the U.S. tobacco industry. The FDA has the opportunity to create a mature regulated marketplace of smoke-free products that can successfully realize tobacco harm reduction and improve the lives of millions of smokers. We share the FDA's goal, to transition smokers away from cigarettes, but we continue to believe that harm reduction, not prohibition is the best path forward. My remarks this morning will focus on 3 topics: our core tobacco businesses, including the macroeconomic backdrop and potential combustible tobacco product regulation, the smoke-free opportunity in the U.S. and our continued confidence in our vision. I'll then turn it over to Sal, who will provide further detail on our business and financial results. Let's begin with a review and its impact on U.S. tobacco consumers prices and inflation on disposable income, resulting in volume declines across. However, we believe that tobacco consumers adopted the goods and services in prices. Some of the tactics used by consumers to manage their spending includes -- and shifting their tobacco purchases from multipath towards single-pack purchases among discount smokers. We also saw signs of continued brand loyalty in the tobacco space. In May, we -- how tobacco consumers were managing their spending in several -- alcohol, groceries and household items. Our research indicate more likely to stick to their preferred Tobacco category compared to -- additionally, tobacco consumers saw price relief in other categories before doing so. We believe that this prioritization is reflected in the sequential stability of Marlboro retail share despite on consumers. We believe inflation and the rising gas prices was partially offset for some consumers by a strong job market and wage growth. Overall, average wages increased 5.2% in the second quarter compared to an average of 8.6% increase in CPI. And for some out -- wage growth outpaced inflation. We continue to monitor tobacco consumer behaviors and changes in marketplace conditions, such as the declining gas price that we have observed in recent weeks, and we will continue to provide our insights as the year progresses. These macroeconomic factors contributed to accelerated cigarette volume declines in the second quarter and first half in his remarks. In combustible regulatory news, the -- cigarettes and characterizing flavors in cigar. We already received over 200,000 comments on the proposals, and we expect to submit our comments by the August 2 deadline. The FDA will need to address all of these comments in the rule-making process. As our comments will make clear, we believe that there are compelling reasons for the FDA to reconsider its proposed rules relating to menthol and cigars. Additionally, the Biden administration announced plans for future FDA rule-making to develop a product -- nicotine level for cigarettes. If and when the FDA proceeds with rulemaking, we expect to be fully engaged -- we believe harm-reduction is the best approach toward reducing smoking and improving public health. And according to a nationwide survey, others agree. Based on our research, a majority of the survey public policy professionals, smokers and general population adults support the concept to for this policy approach over tobacco prohibition. But to achieve --, we believe -- must authorized under ray of potentially reduced harm products that can appeal to and transition smokers. This brings me to my next topic, the smoke-free opportunity in the U.S. and our smoke-free product portfolio -- smokers seek less harmful alternatives to cigarette threats. Our strategy is to deliver a compelling portfolio of smoke-free products that offers a range of satisfying product choices for smokers and to responsibly -- them to these alternatives. Our approach spans 3 of the most promising smoke-free categories with the potential to reduce harm, oral tobacco, e-vapor and heated tobacco. In oral tobacco, -- products, which comprise more than 1/3 of total industry oral tobacco volume, the category grew -- points year-over-year, with ON representing more than 40% of this growth. In the second quarter, on reported shipment volume increased nearly 60% versus the year ago period. And on retail share of oral tobacco increased 80 sequentially, reaching 4.9 share points in the second quarter. This represents a growth of 50% year-over-year. These strong results were driven by increased adoption of ON, increased brand awareness and higher levels of investment. Helix achieved unconstrained on manufacturing for the current U.S. market in the second quarter of 2021. Over the 4 quarters since the Helix enhanced the retail visibility and awareness of one, leading to an over 70% increase in consumer awareness. Tripled on repurchases and continue to increase trial using transition marketing and grew on retail share to be a top 5 U.S. oral tobacco brand and solidified its position as the second largest oil nicotine pouch brand in each region of the U.S. More recently, Helix launched the new carry on equity campaign, which encourages smokers to make progress in their transition journey. The campaign highlights that Bacon have nicotine satisfaction without having to step away from their daily routines, which addresses the social friction they experience with smoking. Looking ahead, Helix expects to use its understanding of the smoker journey, the smoke-free products to drive repeat purchases and adoption among smokers. We are excited about the performance of and the opportunity for future growth. I'll now move -- to believe we'll be significantly influenced by regulatory actions. In the second quarter, total estimated e-vapor volumes declined 2% versus a year ago and 7% sequentially as a result of decreased volume in the vape store channel, a reversal of the trend we observed in the first quarter. Currently, slightly over half of the category's volume is comprised of pod-based products such as JUUL and Gusto. With an e-vapor, disposables represent the fastest growth segment since January 2020, which corresponds to when the FDA issued earnings guidance Fanny flavor is only in pod-based e-vapor products. Many of these disposable brands, including Puff , contain synthetic nicotine. Recent legislation, which we strongly support -- clarified the FDA's authority to regulate tobacco products containing nicotine from any source. Manufacturers of synthetic nicotine products were required to obtain FDA authorization by July 13 to continue legally marketing their products. So far, no synthetic nicotine product has been granted authorization. And the FDA has committed to pursuing compliance and enforcement action against companies found to be marketing, selling or distributing illegal synthetic nicotine products. Thus far, the FDA has authorized only 23 total e-vapor applications, accounting for only 8 products and approximately 1% of -- further, the FDA has only authorized -- most of which were for products, which we believe generally do not meet smoker expectations experience. today, we believe that the e-vapor category is still in its early -- with the support of reasonable regulations, we believe it could play in important role in harm reduction -- where we hope to see timely science and evidence-based determination and further enforcement or noncompliant manufacturers on products received marketing denial or MDOs, administratively stay unique scientific issues that warrant additional FDA review. The minute the during the additional review but does not resend them. Regarding our investment in JULL, we recorded for the second quarter a noncash pretax unrealized loss of $1.2 billion as a result of the fair value of our investment. The decrease in fair value was driven by several factors created by the FDA's action related to JUUL and uncertainty relating to JUUL's ability to maintain -- As of June 30, our estimated valuation is $450 million, which reflects a range of regulatory liquidity and market outcomes -- agreement with JUUL. We have the option to be released from our -- including the fair value of our investments, is the fair value of our investment is not more the carrying value of $12.8 billion. However, if we elect to be released from our noncompete obligations, we would lose many of our investment, our preemptive rights designation rights. At this time, we continue to believe that these investment rights are beneficial to us, not opted to be released from our on -- smokable on its strategy of maximum -- while appropriately balancing investments in Marlboro with funding the growth of smoke-free products. The segment grew its adjusted operating company's income by 0.6% in the second quarter, and first half. Adjusted OCI margins percentage points to 59.1% for the second quarter and by $1.33% for the first half was supported by robust net price realization of 11.5% in the second quarter and 10.4% for the first half. I'll remind you that manufacturer price realization does not reflect retail price change for smokers. For example, Marlboro net retail pack price increased 5.6% in the second quarter compared to last year. Smokeable Products segment reported domestic cigarette volumes declined by 11.1% in the second quarter and 18.9% in the first half, primarily due to changes in consumer purchasing behavior as a result of increased gas prices and inflation for trade inventory movements in the second quarter and first half, domestic cigarette volumes declined by 9%, respectively. At the industry level, we estimate that adjusted domestic cigarette volumes declined by 8.5% in the second quarter and in the first half. As Billy mentioned, resiliency during a period of . In the second quarter, Marlboro's retail grew sequentially to 42.7% while declining versus the year ago period. Marlboro grew its share within the 8.1% and the increase of . Moving to the total discount segment. Total share was flat sequentially even as gas prices rose significantly from the first to second quarter. Discount increased 1.3 percentage points year-over-year to 26.4% as we lapped the period when the discount segment contracted from smokers having higher disposable income. Additionally, we have branded -- and deep discount segments as a result of a deep from the marketplace earlier this year. In cigars, reported cigar shipment volume decreased by 5% in the second quarter due to macroeconomic pressures on consumer disposable income, trade inventory movements and other factors, however -- provide a strong contribution to smokable segment in -- in the oral coproducts segment, just OCI margins contracted in the second quarter and first half due to several factors, including declines in MST volumes, increased investments behind on and unfavorable mix. We remove -- margin for the segment. At the industry tobacco volume declined 0.5% over the past 6 months. We continue to observe steady growth from the oral nicotine pouch category, defining MST volumes due to the challenging macroeconomic environment and its effect on consumer behavior, consumer movement to oral nicotine pouches and other factors. Total segment reported shipment volume decreased by 4.4% for the second quarter and by 3.2% for the first half. The segment's volume was -- volume decline was driven by declines in MST volumes, partially offset by the growth of . When adjusted for trade inventory movements, segment volume declined by an estimated 2.5% for the second quarter and 1% for the first half. The total oral tobacco packing quarter contracted 1 share point versus the prior year to 46.7%. Copenhagen is celebrating its 200th anniversary this year. We're extremely proud of Copenhagen's long history and the fantastic employees who have supported the brand over the years. -- after 200 the number one DIP brand because of your hard work, dedication and passion. To honor this impressive milestone, the team introduced Cop rewards, the first and only national rewards program for an MST brand. Under the program, dippers can earn points by entering codes from their Copenhagen cans and can redeem them for coupons or rewards. We're excited about Cop Rewards and its potential contributions to Copenhagen's sustained leadership in MST. Turning to our investment in ABI. We recorded -- equity earnings in the second quarter. This was an increase of approximately -- and represent Altria share of ABI's first quarter 2022 results we committed to creating long-term share our vision and our focus on significant capital returns. We demonstrated this commitment in the first half by acquiring intellectual property and other assets for a multi sub from Pota paying approximately $3.3 billion in dividends and repurchasing 21.4 million shares, totaling $1.1 billion. We have approximately $750 million remaining under the currently authorized repurchase program, which we expect to complete by the end of this year. Our balance sheet remains strong. And as of the end of the second quarter, our debt-to-EBITDA ratio was 2.3x. In August, we expect to retire -- with available cash. And lastly, our financial plans for -- and we reaffirm our guidance to deliver 2022 full year adjusted diluted -- of $4.79, --. This range represents an adjusted diluted EPS growth rate of 4% to 7% from a $4.61 base in 2021. -- 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 all on altria.com -- usual quarterly metrics, which include pricing, inventory and other items. Let's open the question-and-answer session. Operator, do we have any questions?
Operator: Our first question comes from Chris Growe with Stifel.
Chris Growe: Billy, I have a question for you, and you made a good point about it's clear we're at a very pivotal moment for this category. And I was hoping to get -- your investing today to be able to internally develop RRP, reduced risk products. You've got some uncertainty around your positions in JUUL and IQOS, and there's are no longer in your portfolio, certainly just a risk at this point. But I guess I just want to get a sense of what you're doing internally, and you talked about having a product already at the end of this year? And then to what degree maybe M&A could play a bigger role in giving you a better position in RRPs going forward?
Billy Gifford: Yes. Thanks for the question, Chris. I think when you think about where we're investing, certainly, we invested in our innovation process. We have the internal development going on. And I've spoken previously about changing that innovation process so that it's laser-focused on the consumer. It monitors the marketplace. But I think before we were -- I characterize it as almost chasing the market versus sitting side-by-side with the consumer. And so there's a lot of consumer interaction almost to the point of codeveloping with the consumer in those categories that we can develop in. To your point, we can't develop per agreement with JUUL in the e-vapor category. But it's something that we continue to monitor that marketplace and understand consumer satisfaction with the various products in the marketplace. We monitor the entire globe as far as alternative products to both influence -- how we think about internal development, but looking for products that could be emerging in the other markets as well.
Chris Growe: And so would M&A be an important contributor, do you think, going forward for Altria's position in this category?
Billy Gifford: It certainly won't be off the table, Chris. But I think for the investments we're making in our internal development; we feel good about the pipeline of products that we have.
Chris Growe: Okay. And just one other question in relation to pricing in the cigarette category. It's been larger than expected, and it's occurred sooner than I expected, at least this year. And I guess in this environment where there's obviously a more burdensome kind of macroeconomic factor that's weighing on your volume. Are you seeing a greater shift to some of the lower-priced. And do you see a need to have to increase promotional investments in light of the heavy pricing coming through in this environment?
Billy Gifford: Yes. Chris, I think when you look at the sequential performance of Marlboro, and even the discount category, you saw sequential stability. Marlboro actually grew and the discount category stayed flat. So that were experienced first quarter to the second quarter. From a standpoint of the tools that we put in place with a -- position. Salvatore raised an important point. When you think about the impact to the consumer and you think a price increase, that's well below the inflation they're experiencing in other categories. And you saw the results in their remarks of the -- to the consumer and talked about how they think about the tobacco categories and other -- the tobacco category at the top of their list. And I think -- We get a lot of questions about the -- I think you have to step back and think longer term on this. If you think about Marlboro share, we're right where we were pre-pandemic, certainly during the pandemic as they received additional funds, whether that be from government or unemployment or things of that nature. It reinforced that Marlboro's aspirational brands. So Marlboro -- we've given a little bit of that share back and feel satisfied with where Marlboro is. We've really -- the teams in advanced analytics as well as the Marlboro team putting those into the marketplace, the stability of Marlboro's incredible.
Operator: We'll take our next question from Pamela Kaufman with Morgan Stanley.
Pamela Kaufman: So industry cigarette volumes have same quarter, you highlighted how they're adjusting their purchasing behavior. I guess how are you thinking about the outlook for cigarette -- remainder of the year? And then related to that, how much customers can tolerate just given so far, we really haven't seen a meaningful acceleration in trade down to the discount segment, and over the last couple of quarters -- an accelerated risk of trade down.
Billy Gifford: See if I can unpack that a little bit, Pam, if I miss anything, please follow up. -- cigarette volume declines that we saw through the -- historically, and when you see the environment, the macroeconomic environment changed for our consumer. You see that they make short-term adjustments and then they adopt certainly through the first half, and we saw a little bit of a downshift in gas prices as we entered the third quarter in gas prices just because our consumer is usually filling up their vehicle and then go -- But again, I think the research that we did is telling that the consumer is adjusting those behaviors to be able to prioritize their tobacco choices in the -- mostly in the C-store gas pricing. And Pamela, we've shared with you -- look at minutes worked in the U.S. and benchmark that around have mature tobacco categories. When you look at that, you still see -- So certainly, we feel like the that we monitor. You remember that the factors that we think about when pricing is the strength of the brand. Certainly, corporate objectives play a part in that. But then we think about the economic health of the consumer. And I think it's important to mention here again, the tools that we put in place. We put out the price gap, we put out -- But with the advanced analytics, we're able to use those tools and be very specific. So it to be different in Cleveland, Ohio. These tools allow us to adapt the retail promotions we put in the market to consumers are feeling in that local area.
Pamela Kaufman: That's helpful. And to talk about how you're thinking about the implications to your organization, the heat-not-burn category, given their planned position of Swedish match. And how are you preparing for changes in the competitive landscape in the U.S.?
Billy Gifford: Well, Pam, you know this as well as I do that it's always been a competitive marketplace. We always but we feel like we have the tools in place, -- we're going to at everything, make sure that we understand or at least gain my world approach, the marketplace using the products of Swedish Match and adapt than that for competitive reasons. I think from a standpoint of heat-not-burn continuing discussions with them.
Operator: We'll take our next question from Azer, Vivien with Cowen.
Vivien Azer: I wanted to touch on -- Billy, so your commentary around the intended Helix manufacturing capacity was interested. I was curious if you could just expand and touch on repeat and how you're moving in the category.
Billy Gifford: Yes. Vivien, it's a great question. I think when you think about repeat purchases versus a trial offers. And we want to have increases in both -- we're pleased with where we're at in you have those purchases that take place and you want to see the concreteness of that enjoy the repeat purchases that we have. But We felt like there was still opportunity to drive awareness and you've seen the -- And specific to the product is very satisfying to the cigarette consumer, and we feel like there's --
Vivien Azer: Understood. And then my other question is just on the industry outlook. Okay. I know you guys have shied away from offering industry volume now, and I actually appreciate the supplemental disclosures estimated industry volume declines have nearly doubled against very challenging -- that does account for it in the table that you disclosed. I'm just curious to, has your thinking around -- macro drivers changed at all?
Billy Gifford: It has not -- and you can take those quarters that we provide and stretch them back, and you thought -- and you saw macroeconomic was a benefit not that many quarters ago. So you certainly see the swing. It's no different than the swings we see through -- economic can be a benefit at times. We saw gas prices in 2015 for a huge benefit. And so seeing a higher correlation with gas prices and purchasing behavior. That would be the only -- because historically, we tried to correlate gas prices to it. And they were moving nickels and dimes at a time. I think you're seeing faster swinging -- the consumer behavior as they adapt to the short-term nature of those changes.
Operator: Our next question is from Bonnie Herzog of Goldman Sachs.
Bonnie Herzog: I just have a question on your guidance. You maintained your full year midterm. That does imply the second half EPS growth will need to accelerate versus the first half to hit the midpoint of your full year guide. So I just want to hear from you -- going to happen, especially during an economic slowdown. I mean are your expectations that this will be driven from greater net volumes remain pretty pressured or decelerate further? Are there any expected cost savings you could share with us? And just finally, how do we think about stepped up investments that you might be making towards your smoke-free vision. Is something that's factored into your guidance?
Sal Mancuso: Yes. Bonnie, thank you for the question, I'll take you through how we think about guidance. So throughout the year, we have communicated that we expected the second half to really drive the growth of our . And just to remind you of a couple of factors that we -- One is, we begin to lap quarters where we had unconstrained manufacturing in the nicotine pouch category. Also in the fourth quarter where -- for the first time, going income. -- right? That will happen in the fourth quarter. And then in the back half of the year, we adjusted our -- start to lap that in the back half of the year as well. So there's some comparative factors that are part of the first half versus second half EPS investments. Spending isn't linear necessarily throughout the year, especially when you were making investments in infrastructure and things like that. So I definitely wouldn't look at 1 quarter spending when it comes to that. It is something that ebbs and flows throughout the year.
Bonnie Herzog: All right. And then I did just want to ask about the -- I guess the uncertainty around your smoke-free from JUUL to more entering in the U.S. via Swedish Match, I guess, the dispute you have with Philip Morris as it relates to IQOS. This continues to be one of the key concern from investors. I know you've touched on this, but any more share with us as to your goal to kind of hit the smoke-free future or transform your business would be helpful. I mean I know with your agreement -- the agreement, I think you have the ability to compete in the e-vapor market. So is that an option you're exploring? And then just maybe color -- a little more color on the time your heat does not burn. You mentioned it's in final design by the end of the year, and then you're going to begin regulatory preparations. But how long before to the market, do you think? Is that 2 years out -- so some parameters as to how you're going to achieve your goal?
Billy Gifford: Yes. I think it's really important to step back. And I said it in my remarks, but let me add some color to it. The entire harm reduction opportunity is in front of us in the U.S., and let me explain why I say that. You remember in my remarks, I talked about the authorizations that have taken place in e-vapor thus far. And they represent 1% of the e-vapor category volume. So there's still 99% of authorizations that could go either way. And so that category will be in a bit of transition while we're waiting for the FDA -- authorizations. If you think about novel ; yes, we're making progress, but we're still waiting for FDA authorizations in that category. And so while we're making progress is, there will be decisions from the -- And then heat-not-burn. While it's been gaining momentum internationally, it's non-existent in the U.S. And so that's non-existent. So those are the 3 major growth categories. That's why I keep saying, I just wanted to add some color to that -- be in front of us. You're right to mention that we have development underway in 2 of those categories. We feel good about the pipeline. I know you would love to see those products, and I would love to show them to you, and we will at the appropriate time. But we feel good about that. As I mentioned earlier, the co-development with the consumer in that space. I think with e-vapor, the color I would add there is -- and I mentioned it earlier, we've always monitored the marketplace to understand consumer satisfaction with the various products in the marketplace, both in the U.S. and outside of the U.S. Additionally, with this quarter with us going below, you're right, we have the option to get out -- if we so elect to do so. And we really feel like in the processes with the stay still looming as well as the rights that I mentioned in my remarks, we believe are beneficial to us at this point in the process, but we'll continue to really gauge what our options are there and make decisions.
Operator: And we welcome our next question from Priya Ohri-Gupta with Barclays.
Unidentified Analyst: This is Puja on behalf of Priya. And my question is, so based on your comments indicating that you plan to repay your upcoming maturity with available cash. How are you thinking about any subsequent need to access the market for refinancing? And I also have a follow-up after that.
Sal Mancuso: Sure. And thank you for the question. I'm really not going to signal future capital allocation decisions. I'm happy to share how we think about capital allocation, which, of course, considers a number of factors in those decisions and dynamics. We manage our balance sheet very carefully. We want to have a strong balance sheet. We want to continue to have investment-grade credit rating. So we think about capital allocation, we take a balanced approach, and we've made the decision in August to use available cash to retire that debt, but future -- we'll analyze the marketplace at the time and make the appropriate decision.
Unidentified Analyst: Okay. That makes sense. And as a quick follow-up, where should we sort of expect you to manage your cash balance over the near term as this will likely bring it more in line with your pre-pandemic type ranges?
Sal Mancuso: Yes. Look, we are very fortunate in that we have operating companies that generate a significant amount of growth in cash. In a typical year, after paying our dividend and making the necessary -- them additionally have had, let's call it, $1 billion in excess cash. And at the time, we make various decisions. There are times where we've gone to the Board and ask for a share buyback program. There are times where we've done some liability management to manage our maturity towers going forward, and strengthen the balance sheet. And there are times where we've made some investments such as the investment we made for the Pota technology recently. So that's how we think about cash going forward. But again, our operating companies do a tremendous job of generating cash flow for the shareholders and other stakeholders.
Operator: And our next question will come from Gaurav Jain with Barclays.
Gaurav Jain: A couple of questions from my side. So look, we have had some discussion around the harm reduction opportunity in front of us, and how it is very early. But if we're developing, it is all international because it's very hard to introduce because of the PMTA process. To explore the harm reduction opportunity, you need to go international much like Philip Morris is entering U.S.
Billy Gifford: Yes. To your point, and I appreciate you recognizing that the PMTA process and the entire opportunities in front of us in the U.S. It's something that we consider on a regular basis of how to get early consumer feedback outside of research in a live marketplace. And thus far, we've opted to go the route we are, which is with consumer research, but it's something that we consider on a regular basis.
Gaurav Jain: Sure. And just on the questions around JUUL and potential end of exclusivity, and you take nicotine market. And some of these companies have applied for PMTA, and can potentially get PMTAs. So how do you think of synthetic nicotine as an ingredient? Like, is that a market you would like to explore? And if some of the companies get PMTAs, that's an area you would like to enter?
Billy Gifford: Yes. Certainly, we were pleased that with the support that took place, that synthetic continue is now under FDA authority. We believe in the process as far as the FDA being able to assess the science and evidence. Again, we watch all products that are in the marketplace, both in the U.S. and internationally, to understand how the consumer is interacting with them, what benefits they receive from them as far as satisfaction, enjoyment, the brand itself.
Operator: We'll open it for the media. We'll go next to Jennifer Maloney with Wall Street Journal.
Jennifer Maloney: I wanted to follow up on your statement, Billy, that M&A is not off the table for reduced risk products. And I wanted to ask specifically about the even to the possibility of acquiring an e-cigarette brand, for example, that already has FDA authorization.
Billy Gifford: Yes. While I don't speak to M&A any regards. As I mentioned, look, we've always been monitoring the marketplace in the e-vapor space. We want to make sure we understand consumers interactions with the various brands in the marketplace, whether they like those brands, whether the satisfaction that those products give them. Now that we've written down this quarter below 10%, it affords us the opportunity to really explore those opportunities and make different decisions if we so choose not to make any different decisions. We believe that where it's at in the process, as I mentioned earlier, relooking through the review process at the applications as well as for some of our rights that we have as part of the agreement, we think those are beneficial. And we think, as we stated, the right decision currently is to stay under the .
Jennifer Maloney: For future goals, do you expect or plan to focus on 1 particular category, like is modern oral, going to be the focus of your efforts there? Or do you hope to playâ¦
Billy Gifford: Yes. We highlight that we see 3 categories right now as the growth potential in the U.S. That's the heat-not-burn category, the e-vapor category and the novel world. Certainly, they will be shaped by regulatory decisions, decisions on excise taxes, and future innovation in those categories from the various manufacturers. So that will shape how large they are, but we see those as the 3 potential growth areas. I would remind you that we work with the portfolio approach, because we see consumers going from cigarettes to those various categories, and we want to be there for the consumer depending on what category they choose.
Operator: And there appears to be no further questions at this time. I would like to turn the call back over to Mac Livingston, for any closing comments.
Mac Livingston: Thanks, Ashley, and thanks, everybody, for joining us. Please contact the Investor Relations team if you have any further questions. Thanks a lot.
Operator: Thank you. And this does conclude today's call. Thank you for your participation. You may disconnect at any time.
