Matt Smith: Thank you, Sal. I’ll pass it on.
Operator: And our next question will come from Gaurav Jain with Barclays. Please go ahead.
Gaurav Jain: Hi, good morning.
Billy Gifford: Good morning.
Gaurav Jain: Two questions from me. So one is on retail pricing. I think you are saying in Q1 it is 347 and in Q4 it was 377. So have you stepped up promotions on to stem the share loss that you have seen in oral nicotine pouches?
Billy Gifford: I wouldn’t say it stepped up for any purposes from a share standpoint. Really what you see happening, Gaurav, you see that the data that we have, I mentioned the investments in advanced analytics, being able to bring that from both moist smokeless tobacco and the smokeable segment over to the nicotine pouch segment. And so you’re going to have pulse [ph] promotions through time. The real goal there is to keep the converted consumer engaged with the brand, but still induce trial both from competitive and those that are making different choices in the nicotine space. And so you’re going to see variability on a short term basis, but over the long term, I think it’s important to step back and see the volume growth that we experienced, significant retail price year-over-year.
Gaurav Jain: Sure. And my second question is on ABI stake, so you’re highlighting that the remaining stake has a 1.2 billion tax basis. So you know you have sold one tranche. Your JUUL losses expired in March 2028. So would we be fair in expecting a progressive exit from the rest of the stake over the next 4 years?
Sal Mancuso: I want to make sure I’m answering a question, Gaurav, if I don’t, please follow up. You are right that we provided you with the new tax basis, and tax is just one of many variables that we consider related to the ABI investment and our capital allocation analysis. The transaction that we executed earlier this year, the shares we sold were a mix of both the restricted and unrestricted shares. And what we shared with you is that the tax liability was less than $100 million. Our expectation is that we can offset that in the future related to ABI losses. I’m sorry, JUUL losses. The other thing I’ll just remind you is that if you think about the JUUL losses, we took about half, let’s call it just over half, as ordinary losses for cash tax purposes. But we fully reserve that on the P&L. We continue to wait to get feedback from the IRS. We hope to hear more as the year progresses.
Gaurav Jain: Sure. Thank you so much.
Sal Mancuso: You’re welcome.
Operator: Our next question comes from Callum Elliott with Bernstein. Please go ahead.
Callum Elliott: Hi, good morning, guys. A couple of slightly different questions from me. On NJOY, you call it the 60 basis points of share gain, which we can see in the scanner [ph] data and sounds impressive and a nice improvement. But the scanner data do also show us that the retail sales for the brand are down double digits for the past few months. So I guess my question is this deterioration, is that just ongoing pressure from illicit products that’s impacting the legal products in the market to cause this sort of heavy decline despite the share gain? Or is there something else going on in the category?
Billy Gifford: Yeah, I think what you see is exactly what you pointed out Callum, is that the overall disposable, specifically the illicit baits in the marketplace, continue to grow while pod, that segment, that’s pod or replaceable capsules, continue to shrink in the marketplace.
Callum Elliott: Okay, thank you. And then my second question is on oral tobacco. You touched on this a little bit earlier with, I think, Faham’s question, but just building upon it, I think based on the numbers in your release, your share of total oral is now 33% and volumes declining slightly. I’ve got zin [ph] share based on some numbers from PMI at 28% on an apples for apples basis and growing 80% year-on-year. So it seems pretty clear that you guys are on the cusp of losing your leadership position now in oral tobacco as a whole. So I guess my question is, does losing the leadership position change your mindset in how you’re going to come about this category? Can you maybe be freed in a sense, to come at this from a slightly more challenging mindset relative to the sort of maybe slightly defensive mindset that you’ve necessarily had over the past several years through this pressure from zin?
Billy Gifford: Yeah, I think when you think about the overall oral tobacco category, really the strategy there is to maximize profitability while balancing investments behind Copenhagen, which is the aspirational brand and MST, and making appropriate investments in on. Copenhagen continues to be the leader in the MST space, and we’re pleased with the results we saw on in the first quarter. Certainly the growth in volume, the growth in overall share of the oral tobacco space, and the significant increase in retail price. And then behind that, being able to file the application with the FDA for the on! PLUS, which we feel like will perform very well in the marketplace once authorized.
Callum Elliott: Good. Thanks.
Billy Gifford: Thank you.
Operator: [Operator Instructions] Our next question comes from Jennifer Maloney with Wall Street Journal. Please go ahead.
Jennifer Maloney: Good morning.
Billy Gifford: Good morning, Jennifer.
Jennifer Maloney: First, I wanted to ask about consumers under pressure. You said on this call that you were going to make appropriate investments and be there for them. Could you tell me what do you mean by that? What kind of investments are you referring to?
Billy Gifford: Yeah, Jennifer, really, it’s around promotions in the marketplace. When you think about the data analytics that we received, and I highlighted earlier that the price gap in a store can be different than a store across a city or town. And it’s really mining that data and seeing the consumer economic pressure and being able to dial those resources appropriately for the situation that they’re facing. And so it’s really about retail promotions in the marketplace that we continue to adjust through time. It allows us to be there for the consumer. Another example would be Marlboro Black having a place for the consumer that wants to engage with Marlboro, having a place that they can continue to gauge even when they’re under academic pressure.
Jennifer Maloney: And when you say, promotional activity, would that apply to both the Marlboro brand and also some of your lower priced brands?
Billy Gifford: We look across the portfolio. We think of the portfolio as one big RGM pool. And just like I mentioned, Marlboro Black and the Marlboro family, it allows us to take a small segment of Marlboro and be there for the consumer. It gives them a place to continue to engage with the brand. But we look across the entire portfolio.
Jennifer Maloney: Looking out at the rest of 2024, do you expect pressures on lower income consumers to continue or to moderate?
Billy Gifford: I think when you think about the consumer being at the lower end of the socioeconomic status, they’ve been impacted. While inflation has slowed down a bit, it’s still increasing. It’s the cumulative impact of that inflation on their total market purchase, as well as the increase in debt levels. And that, coupled with increased interest rates through time, has impacted discretionary spend for our consumers.
Jennifer Maloney: Thanks. One more question on modern oral tobacco. So looking at the share losses in Skoal [ph] and Copenhagen, and also the share performance in on!, it seems like zin [ph] is taking significant share from traditional oral tobacco and on! isn’t catching up to zin. So what’s your strategy for that overall oral tobacco category, and then specifically for the modern oral subcategory ?
Billy Gifford: You may have heard me mention earlier, the overall strategy in oral tobacco is to maximize profitability over the long term while making appropriate investments in Copenhagen and the investments in our on! product in the marketplace. I think when you think about it, it’s intuitive that the moist, smokeless consumer is the first to move over. They’re used to putting nicotine products in their mouth and moving from MST to nicotine. A pouch allows them to avoid some of the social friction, spitting things of that nature in relation to enjoying nicotine in their product. When you think about the Zen versus on!, we feel very good. I think you saw that and we highlighted in our remarks. We feel like we’re going to have better positioning at retail. We feel good about the existing product, and we feel great about the pipeline to follow, which we’ll be following with the FDA PMTAs on! PLUS as we progress to the end of this quarter.
Jennifer Maloney: So would it be fair to say that your goal would be to capture those folks who are moving from Copenhagen to modern oral, to capture as many of those folks as possible with on!, rather than losing them to zen?
Billy Gifford: That would be correct.
Jennifer Maloney: Okay. Thanks very much.
Billy Gifford: Thank you.
Operator: There appears to be no further questions at this time. I would like to turn the call back to Mac Livingston for any closing remarks.
Mac Livingston: Thanks for joining the call today. Hope you all have a great day. Thanks so much.
Operator: And this concludes today’s call. Thank you for your participation. And you may disconnect at any time.
