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Altria Group (NYSE: MO) Third Quarter 2021 Earnings Conference Call, October 28, 2021, 9:00 AM Eastern Time

Good day, welcome to the Altria Group’s 2021 third quarter earnings conference call. Today’s conference call is scheduled to last approximately one hour, and will include a speech and question-and-answer session from Altria’s management. After the prepared speeches are over, the investment community and media representatives participating in the conference call will be able to ask questions. I now want to forward the call to Mac Livingston, Vice President of Investor Relations, Altria’s Customer Service Department.

Mac Livingston - Vice President of Investor Relations

Thanks, Catherine. Good morning, thank you for joining us. This morning, Altria CEO Billy Gifford; our CFO Sal Mancuso will discuss Altria's third quarter and first nine months' performance. Earlier today, we issued a press release providing our results.

Releases, demos, quarterly indicators and our latest corporate responsibility report are all available on altria.com. In our conference call today, unless otherwise stated, we will compare the results with the same period in 2020. Our remarks include forward-looking and cautionary statements and predictions of future results. Please review the forward-looking and cautionary statements section at the end of today’s earnings announcement to understand the various factors that may cause actual results to differ materially from forecasts.

Future dividend payments and share repurchases are still at the discretion of Altria's board of directors. Altria reports its financial performance in accordance with generally accepted accounting principles in the United States. Today’s conference call will include reports and adjusted operating results.

The adjusted results do not include special items that affect the comparison with the reported results. Descriptions of these non-GAAP financial measures and reconciliations are included in today's earnings announcement and on our website altria.com. Finally, the tobacco consumers or consumers in a particular tobacco category or market segment mentioned in today’s comments refer to existing adult tobacco consumers 21 years of age or older. With this, I will forward the call to Billy.

Billy Gifford-Chief Executive Officer

Thanks, Mike. Good morning, thank you for joining us. In the third quarter, Altria continued to balance the profit maximization and investment of our core tobacco business in order to achieve the vision of leading adult smokers to transition to a smoke-free future responsibly. Our tobacco business performed well in the difficult year-on-year comparison, and we are encouraged by the significant growth in retail share! In the third quarter.

We also continue to reward shareholders with strong and growing dividends, and today announced the expansion of our share repurchase program to US$3.5 billion. Altria and the tobacco industry are both constantly evolving, and transformation brings opportunities. It also brings uncertainty and adversity, including the recent decision of the International Trade Commission on IQOS. We know that the journey to a smoke-free future is not easy, but our determined and talented employees have proven that they can meet the challenges.

Our pursuit of vision is not based on a single brand or product platform. Our vision is based on our understanding of tobacco consumers, their ability as a leading tobacco company, and a range of smoke-free brands and product formats. We are making progress through the performance of the current smoke-free product portfolio and advances in regulatory science, data analysis, and strong consumer engagement systems. Our tobacco business remains strong, and our vision keeps us focused and guides us forward.

Let us now turn to our business results. Despite challenging comparisons and an unfavorable background of year-on-year trade inventory changes, Altria’s adjusted diluted earnings per share in the third quarter increased by 2.5%. In the first nine months of this year, adjusted earnings per share increased by 4.5%, mainly driven by the tobacco business’s strong financial performance and higher ABI-adjusted earnings. Our Smoking Products Division continues to generate large amounts of cash and returns—repaying shareholders with fuel or vision.

The adjusted operating company's revenue fell by 2.2% in the third quarter, reflecting the impact of trade inventory fluctuations, but it increased by 2.6% to $7.9 billion in the first nine months, while Marlboro remained strong. The oral tobacco products division continues to provide strong profit margins, while Copenhagen maintains its leading position. Among all the nicotine bags, we have accelerated our investment in Helix and believe it is right! The investment portfolio is in a good position in this fast-growing category. We are increasing the complexity of our company's analysis.

The Helix team uses this feature to evaluate the impact of promotional tools on tobacco consumers and understand which behaviors can effectively promote trial, repeat purchase and adoption. exist! The retail share of oral tobacco increased by one full share from the previous quarter, reaching 3 shares in the third quarter, and has nearly tripled since the end of last year. These strong results are driven by increased smoker trials and repeated purchases from existing ones! consumer. We are excited about the performance of on! In the first nine months of this year, I believe that consumer insights, disruptive retail execution and consumer engagement will continue to drive its growth.

Last year, we submitted a pre-market tobacco application to the FDA! folder. Although the FDA has made substantial progress in reviewing the millions of PMTAs they received, our application continues! Still waiting. A week ago, the FDA approved the marketing of the spearmint and blue mint flavors of our four oral nicotine products, Verve discs and Verve chewable tablets, and determined that the marketing of these products is suitable for protecting public health. This is the first flavoring product authorization issued by the FDA for a newly recognized tobacco product.

Although our Verve products are not currently on the market, we believe that the experience we have gained from developing Verve submissions is essential to submit compelling and timely submissions for on! We completed it within only nine months after closing! trade. We are also actively working on modifying the risk product application for on!. We believe that MRTP will become an influential point of brand differentiation and an important tool for educating and ultimately transforming smokers into less harmful products. In terms of electronic steam, we estimate that the total number of categories has increased by 17% compared with the same period last year, and has increased by 2% from the previous month due to the continuous increase in the level of competitive activities.

Although we hope to be able to clarify the prospects of this category when the manufacturer receives the PMTA decision, the future of e-vapor is still uncertain. For most of the leading e-vapor products, applications including JUUL are still pending. Looking ahead, we expect that the trend of e-vapor volume will be affected by regulatory activities, which may affect the degree of cross-category movement. Recently, the Centers for Disease Control and Prevention announced the latest status of its National Youth Tobacco Survey.

Due to the impact of the pandemic on survey methods, caution is needed when comparing results year by year, but the use of e-cigarettes by minors, including the use of JUUL, shows signs of continued decline. We are encouraged by the progress made, but there is still more work to be done, and we remain committed to continuing our efforts to reduce the use of minors. Turn to heating tobacco. The IQOS team continues to refine its approach to launching new and innovative products.

In the four states where IQOS is available, the total sales of Marlboro heating rods continue to grow, with repeat purchases accounting for approximately 85% of sales. According to IQOS consumers, our IQOS expert program played an important role in their repeat purchases. The plan provides smokers with personalized support and encouragement through consistent tailored participation. The penetration rate of devices in the major markets of Northern Virginia as a percentage of the smoker population continues to exceed the performance of previous launches.

In the last four weeks of the third quarter, Marlboro HeatSticks achieved a 1.8% retail share of the cigarette category in its distribution stores in Northern Virginia. As we mentioned earlier, the International Trade Commission recently imposed import bans on IQOS, Marlboro heating rods and infringing components and issued a seasonal stop order. We are disappointed with this decision because IQOS is the only inhalable tobacco product authorized by the FDA as a modified risk tobacco product. ITC's import ban will make it impossible for all consumers who have switched to IQOS to use the product, reduce the choice of more than 20 million smokers looking for alternatives to cigarettes, and ultimately harm public health.

We still believe that the plaintiff's patents are invalid, and IQOS has not infringed these patents. ITC's decision is currently being reviewed by the government's US Trade Representative for 60 days. If the government does not reject the decision, we will be prepared to comply with the order.

We have been focusing on contingency plans around sales and distribution, and have been communicating with PMI on its domestic manufacturing plans. We view ITC's decision as a frustrating obstacle, but we have not prevented the work required to achieve our vision. We remain committed to heating the tobacco category and believe it can play an important role in transitioning smokers to a smoke-free future. Looking to the future, we hope to apply the knowledge and capabilities we have gained from introducing and responsibly marketing new product categories.

For example, we have learned how to combine behavioral science, data insights and consumer participation to support smokers’ smoke-free journey, use MRTP to educate consumers on the benefits of risk reduction products, and establish a strong post-marketing surveillance system as a need to monitor FDA authorized product. I am optimistic about the future of reducing the harm of tobacco in the United States. If we follow science and promote innovation with the support of reasonable supervision, we will have an unprecedented opportunity to lead millions of smokers away from cigarettes. Let us turn to our financial outlook.

We are raising the lower limit of our full-year guidance for 2021 and now expect adjusted diluted earnings per share to be between US$4.58 and US$4.62. This range represents an increase of 5% to 6% from the base figure of $4.36 in 2020. I also want to welcome Marj Connelly and Matt Davis to the board of directors we announced this morning. They bring important comprehensive expertise in operations, business strategy, consumer insights, and public policy, and they will become a huge asset in our pursuit of our vision.

I will now forward it to Sal to provide more detailed information about the business environment and our results.

Sal Mancuso - Chief Financial Officer

Thanks, Billy. I want to first discuss the macroeconomic factors that we believe affect tobacco consumers. We believe that rising oil prices, inflation and the end of the COVID-19 rescue program have resulted in a decline in disposable income compared to the previous quarter. In addition, the increase in consumer mobility provides more choices for consumers' discretionary spending.

In retail, the trend has continued to remain unchanged. We estimate that compared with pre-pandemic levels, the number of visits by tobacco consumers to stores continues to decrease, but the tobacco expenditure per trip remains high. We will continue to monitor the behavior of tobacco consumers and will provide insights on the factors that influence these behaviors as we move forward. Transfer to our business.

The Smoking Products Division expanded its adjusted OCI profit margin to 58%, an increase of 0.5 percentage point in the third quarter and an increase of more than 1 percentage point in the first nine months. This performance was supported by a strong net price realization of 11.3% in the third quarter and 9.2% in the first nine months. The Smoking Department reported that domestic cigarette sales fell by 12.9% in the third quarter and 8% in the first nine months. We believe that as wholesalers build inventory in the third quarter of last year, the reported volume reflects the absolute wholesale inventory fluctuation of 1.5 billion, but the inventory is exhausted this quarter.

After adjusting for trade inventory changes, calendar differences and other factors, domestic cigarette sales in the third quarter and the first nine months are estimated to have fallen by 7% and 5%, respectively. At the industry level, we estimate that adjusted domestic cigarette sales fell by 6.5% in the third quarter and 5% in the first nine months. Despite the widening price gap in the dynamic macroeconomic environment, Marlboro remains strong and resilient. In the third quarter, Marlboro's retail share in the entire cigarette category remained unchanged compared with the same period last year, at 43.2%.

In terms of discounts, the total segment retail share continued to fluctuate in the third quarter, rising by 0.3 percentage points from the previous quarter to 25.3%. In terms of cigars, we still believe that Black & Mild is the most profitable brand in the large machinery-manufactured cigar category. Reported cigar shipments increased by 2.7% in the first nine months of 2021. Turn to the field of oral tobacco products.

The adjusted OCI and adjusted OCI margins contracted in the third quarter and the first nine months, mainly due to increased expenditures! And transfer the mix between MST and oral nicotine bags. We are satisfied with the strong overall profit margins of this segment and continue to be excited about the on! opportunity! In the category of oral nicotine bags. The total sales volume of the oral tobacco product sector reported in the third quarter fell by 3.8%, after a 0.5% decline in the first nine months. After adjusting for changes in trade inventories based on calendar differences, segment sales are expected to fall by 2.5% in the third quarter and 0.5% in the first nine months.

In the third quarter, the retail share of the oral tobacco products sector remained unchanged from the previous quarter, as on! offset the decline in MST. Due to the continued growth of the oral nicotine bag category, this segment has declined by 2.2 percentage points compared with the third quarter of last year. Looking ahead, as we move towards the end of this year and next year, we are monitoring several factors. Many industries are facing rising input costs and supply chain disruptions.

Thanks to the foresight and hard work of our purchasing team, we have successfully solved these problems without a major impact so far. For Altria, we expect moderate inflation in the coming year. This may have some impact on the input costs and inflation adjustments of our master settlement agreement payments. However, our tobacco business remains strong, and we are confident in our ability to respond to short-term economic challenges.

As a reminder, we have considered a series of scenarios in our financial forecasts and intend to incorporate these factors into the 2022 EPS guidance we expect to provide in January. Turn to our investment in ABI. Our five-year lock-up period for restricted stocks expired at the beginning of this month. We have been an investor in the beer category since 1970. In the past half century, our initial investment of US$230 million has provided us with a very good service.

In fact, since 2003, our beer investment has become a diversified source of income, contributing more than US$12 billion in adjusted equity income, contributing more than US$10 billion in cash from dividends and 2016 consolidated earnings, and Strengthened our balance sheet. We conducted a rigorous analysis of ABI investment. First, as part of our preparation of the third quarter financial statements; second, the expected expiry of the lock-in period. In preparing the third quarter financial report, we evaluated the latest prospects of ABI's business in accordance with applicable accounting guidance and recorded asset impairment.

Although we still believe that ABI's share price will rebound, we now expect it will not fully recover to its book value as quickly as previously expected. Therefore, we will write down our investment in ABI to its market value of 11.2 billion USD on September 30. Regarding our decision on lock-in, we treat our ABI shares as a financial investment, and our goal is to maximize the long-term value of the investment for our shareholders. We considered several factors in our investment analysis, including the strategic reasons for continuing to be a long-term investor in the beer category.

ABI's stock price has fallen by more than 30% since October 2019, largely due to the impact of the COVID pandemic. Our expectations for ABI's business, alternative uses of capital, and tax considerations. We have determined that selling our ABI investment at this time will not maximize long-term shareholder value. Therefore, we continue to plan to maintain our ABI investment.

We continue to have full confidence in ABI's long-term strategy, high-quality global brand, experienced management team, and ability to successfully meet recent challenges. We will continue to regularly monitor and evaluate market conditions and the aforementioned analytical factors, which are consistent with our goal of maximizing the long-term value of this investment for shareholders. We remain committed to creating long-term shareholder value by pursuing our vision and a significant return on capital. We paid approximately $1.6 billion in dividends in the third quarter and raised the dividend for the 56th time in 52 years, selling Ste. Michelle Wine Estates, and expanded our stock repurchase program from US$2 billion to US$3.5 billion, repurchasing 6.7 million shares for a total of US$322 million.

According to the newly expanded US$3.5 billion share repurchase program, we still have approximately US$2.5 billion in remaining funds, and we expect the program to be completed on December 31, 2022. At this point, we will end. Billy and I will be happy to answer your questions. When preparing the conference call, I will remind you that today’s earnings release and our non-GAAP reconciliation are available on altria.com.

We also publish our usual quarterly indicators, which include pricing, inventory, and other items. Open the question and answer session. Operator, do we have any questions?

[Operator Instructions] Let’s answer questions from the investment community first. Our first question comes from Pamela Kaufman and Morgan Stanley. please continue.

Pamela Kaufman-Morgan Stanley-Analyst

Hi. Good morning. So I have a question about pricing. Therefore, PM USA's net pricing growth was very strong this quarter.

Can you discuss the leverage you are trying to drive the net price realization? Compared with the way you manage Marlboro, your strategy around L&M drives the growth of net pricing, and how does your approach differ from the perspective of RGM?

Billy Gifford-Chief Executive Officer

Yes. Thanks for the question, Pamela. I think when you consider pricing, it is important to remember that our price realization is actually two main components. The first component that everyone knows and talks about regularly is the list price increase, which involves our portfolio.

When you consider the other components, it is-we previously called it an investment around advanced analytics and the amount of data we get from retail. With this kind of advanced analysis, some companies call it revenue growth management, but it does take the retail promotions we provide to consumers in the market and really make it more efficient and effective, or sometimes better than no revenue growth Time more effective management. So this allows us to increase the price realization. I think this is what you experienced this quarter and the first nine months.

From the perspective of L&M, we have improved the profitability of L&M. We planted some share there, but we are a company focused on high-end. We like the results we experienced in L&M. And I think you can see through advanced analysis that Marlboro is as solid as a rock, and now it has five to six quarters.

Pamela Kaufman-Morgan Stanley-Analyst

thanks. As a follow-up action, given that you highlighted some macro headwinds that may put pressure on tobacco consumers, how do you consider achieving a balance between prices? It looks like--

Billy Gifford-Chief Executive Officer

Pamela Kaufman-Morgan Stanley-Analyst

Therefore, related to this is that, driven by the deep discount segment, the discount segment seems to have experienced stronger share growth this quarter. So, do you see an increasing tendency to short trade in the current environment?

Billy Gifford-Chief Executive Officer

Yes. I think if you look at the slides we provide, I will answer the discount question first. You can see the discount rebound from time to time. It is still in the range it has been around for some time.

I think you see that consumers still tend to place premium brands above discount brands. From the perspective of how we view pricing, I would be careful not to talk about future pricing. As I mentioned before, we considered several factors. We consider the health of our brand, the demographic data related to our brand, and whether we are relevant to all adult groups.

We consider the economic health of consumers, which is a factor we consider. Then we consider the overall corporate goals. Therefore, we want to balance the way we make decisions there. I think that when you consider our overall strategy applied to the combustibles segment, it is actually about maximizing profitability in the long-term, while making appropriate investments and balancing investments in Marlboro with investments in non-combustible portfolios.

Pamela Kaufman-Morgan Stanley-Analyst

We will work with Cowen to answer the next question from Vivien Azer. Your line has been opened.

Vivien Azer - Cowen and Company - Analyst

Therefore, as far as consumers are concerned, I think you are right to point out that gasoline prices are a key consideration for the health of core tobacco consumers. I admit that we may be in the early cycle of natural gas inflation. But I’m curious. When you look at the various regions of the United States, it’s clear that natural gas price dynamics are very different. Is there anything to say in terms of consumers’ potential initial reactions to natural gas price increases?

Billy Gifford-Chief Executive Officer

Nothing to call it. Vivienne, you are right. In fact, we look down to the state level and below. And I will not say anything that is particularly different from what you see on the national base.

Vivien Azer - Cowen and Company - Analyst

OK. OK. This is very helpful. Turn to the oral tobacco part.

I want to know if you can unravel the 430 basis points drop in EBIT margin combination and a higher level of promotional activities! ? Follow up, given the current level of profitability in this segment, but what you are concerned about! , Do we think this level of 6% to 8% is correct? Or should we expect a return to more normalized interest rates as we have seen in the past few years? Thank you.

Billy Gifford-Chief Executive Officer

Thank you, Vivienne. I think that when you consider our strategy in oral tobacco, you will find that what we are doing is our profit margin in traditional MST. We continue to be the leader in this category and have made great strides in the novel dental field! We are very satisfied with the result.

Once we overcome the manufacturing capacity limitations, we will be able to make progress through their sales team and the Helix team. The important thing to remember here is to disrupt consumers and introduce them to a broadly growing new category. Therefore, we not only invest in price promotions, we also invest in making it a premium brand and truly interact with consumers digitally and asset images so that they understand the essence of the brand. So you are destroying the retail industry and then strengthening it through equity over time.

This is how we approach the oral tobacco category. we believe! Over time, we can realize tobacco-like profits. But what is certain is that we are now in the investment stage.

Vivien Azer - Cowen and Company - Analyst

OK. thank you very much.

Our next question comes from Owen Bennett and Jefferies. Your line has been opened.

Irving Bennett-Jefferies-Analyst

The first problem is just back to pricing. The dynamics of the ever-growing deep discount market segment and the price gap with the bottom of the market. Therefore, it now appears that the industry share of heavy discounts comes from discounts. But at the same time, due to aggressive pricing, we have seen that the price gap between the top and bottom of the market is now 38%, and this has historically been around 30%.

So we see considerable growth there. If this situation continues to pick up, instead of the high-end market segment also starting to lose share, is there any risk, that is, I think what I want to get is, is there a tipping point where you think the price gap becomes too big?

Billy Gifford-Chief Executive Officer

Yes. Irving, this is something we will definitely monitor. Thank you for your question. This is what we provide you with the overall price gap across the country, but we review Vivien's problems at a much lower level.

I think when you think about that price gap, I will point out the performance of Marlboro over time. To be able to achieve this kind of price realization, I mentioned the advanced analysis and the work that the team has done to make our retail sales promotion on the market more effective and efficient. So you will see the stability of Marlboro. You will see the price achieved, which is what we were able to achieve in the first nine months.

But of course this is something we monitor, but we are satisfied with where our tobacco business is located.

Irving Bennett-Jefferies-Analyst

OK. Then there is the second question. I just want to return to the ABI equity and some complete processes around it, especially the possibility of creating more value by holding the equity instead of directly owning JUUL. So I mean, JUUL has the potential to achieve rapid growth, especially if it gets international attention. This is also a market segment that cannibalize cigarettes, so there is an incentive to own all the economy.

Then it can be said that it can also improve your ESG credentials. Then on the other hand, you can say that ABI is in a growth stage and will not eat away your cigarettes, which is meaningless for ESG credentials. Then you may increase the corporate tax rate soon. Therefore, sales taxes may increase.

So I'm just thinking, given these dynamics, what I mean is, why do you think ABI can provide shareholders with more long-term value than having JUUL's perfectly good potential value?

Sal Mancuso - Chief Financial Officer

Irving, this is Thrall. So there are many things to be solved in this problem. Let me start by saying that we-as you know, we do not comment on assumptions or speculations about mergers and acquisitions. So let me continue to discuss ABI issues, you have touched many of the analytical factors I talked about in the opening remarks.

However, the core of the analysis is to really consider what is best for shareholders in the long run. At present, we believe that long-term holding of assets is the best for shareholders. As I said before, we will continue to monitor assets and conduct detailed analysis, just as we have done for all capital allocation decisions, we will continue to move forward.

Billy Gifford-Chief Executive Officer

Yes, I think the only thing I have to add is that Irving is what you can think of. You have been following us for a while. This is no different from the analysis we conducted through SAB. We look at assets.

Let's see-through analysis, whether it makes sense to hold assets or redistribute funds elsewhere. Therefore, now that the restriction has been lifted, we will perform this operation regularly, and we will update it for you at an appropriate time.

【Instructions】. We will now go to Kolav Jain with Barclays Bank. Your line has been opened.

Gaurav Jain-Barclays Investment Bank-Analyst

I have three questions. So the first one is about Marlboro’s price premium and the lowest effective price that have been raised before. So my understanding is that BAT repositioned Lucky Strike under Pall Mall. L&M used to compete with Pall Mall at the same price. Now you actually don't have a brand that can compete with Lucky Strike, which is why we have seen sales of L&M drop by more than 20%.

So do you think you still need to reposition our brand to more effectively compete with Lucky Strike?

Billy Gifford-Chief Executive Officer

Yes. Gaurav, I want to remind you how we view the combustible category. This is actually to maximize long-term profitability and then balance the investment in Marlboro, because we focus on investing in the non-combustible portfolio that we have. This is our overall strategy for the combustible part.

I would like to point out again Marlboro’s stable performance in the five to six quarters and the price realization that we can achieve, whether it is from the list price or advanced analysis and applying it to the market. Therefore, we are satisfied with where we are, because other companies can make decisions independently of us.

Gaurav Jain-Barclays Investment Bank-Analyst

certainly. Thank you. My second question is about the shortage of components. So we heard that it has affected many industries.

So do you see any shortages affecting the e-cigarette market, which may help cigarette sales in the next few quarters? And you heard one of your competitors talk about the shortage of certain cigar components yesterday. So do you also see a shortage of cigars?

Billy Gifford-Chief Executive Officer

Yes. Nothing to point out, Golav, that's important. We have-from the point of view of our purchasing team, they have been in a leading position. They can resolve storms, shortages, or supply chain issues.

But no matter from the perspective of labor or product input, we have not encountered any shortages. Therefore, we are very satisfied with the achievements of our procurement and hourly workers through this process.

Gaurav Jain-Barclays Investment Bank-Analyst

certainly. Regarding the last question about MSA calculations, you mentioned that due to next year’s inflation, there may be a higher adjustment. So can you remind us how this calculation works and how inflation plays a role in it?

Sal Mancuso - Chief Financial Officer

Of course, Goraf, good morning. This is Thrall. MSA does have an inflation factor related to payment calculations. Its reserve price is 3%.

Any value higher than 3% will affect the cost. Now it is time to calculate. Therefore, it is the CPIU for the current year and the previous year as of December 31. We have had more than 3% of the time.

This is something we are accustomed to managing, and we have managed it in the past. I point this out only because it is a different aspect of inflation in the tobacco industry and other CPG industries.

Gaurav Jain-Barclays Investment Bank-Analyst

OK. certainly. Thank you very much, Thrall.

We will work with the Wall Street Journal to answer the next question from Jennifer Maloney. Your line has been opened.

Jennifer Maloney-Wall Street Journal-Analyst

I just want to talk about consumer behavior. Can you talk about why you saw a 6.5% drop in cigarette sales in the industry? Is it because people spend more on travel and gasoline? Is it because they go out more activities instead of spending too much time at home?

Billy Gifford-Chief Executive Officer

Yes. This is a very good question. I want to point out the mobility of our consumers. We also talked about the additional nicotine incidents that we believe have increased due to household habits last year.

They — so as their liquidity increases and you point out these two factors, they are out — more, they use their disposable income for other things. Another thing I want to emphasize is the price of gasoline that you did not emphasize. We know that the price of gasoline affects our consumers. But these are characteristics of consumers. We know how to navigate, and I think you have seen our success in the past.

But these will be the main factors I want to emphasize.

Jennifer Maloney-Wall Street Journal-Analyst

And is our e-cigarette sales a factor? Do you see that the continued downturn in e-cigarette sales is affecting, has this alleviated and harmed cigarette sales?

Billy Gifford-Chief Executive Officer

Yes. I think if you refer to it, we try to provide a breakdown of the number of industries. So we did this during the 12-month move. Therefore, for the 12-month movement as of the end of the third quarter, remember that in the long-term decline, that is, the last smoker or quit or switch to other categories, it always contains about 1% of people who left cigarettes and switched to other categories.

Then, if we see other cross-category changes beyond that, we emphasize that you can see that this is 0.2%. Therefore, you can consider that 1.2% of consumers leave cigarettes to any other category of their choice.

Jennifer Maloney-Wall Street Journal-Analyst

Our next question comes from Patrick Folan of Redburn. Your line has been opened. Patrick, please check the mute function on your phone. Patrick, please check the mute function of your phone, we cannot hear you at this time.

Billy Gifford-Chief Executive Officer

Catherine, maybe we move on and go back to Patrick.

We have no other problems in the queue. At this point, I want to turn the call back to Mac Livingston to end the comment.

Mac Livingston - Vice President of Investor Relations

Thank you everyone for joining us. If you have other questions, please contact the investor relations team. Thank you and have a nice day.

Mac Livingston - Vice President of Investor Relations

Billy Gifford-Chief Executive Officer

Sal Mancuso - Chief Financial Officer

Pamela Kaufman-Morgan Stanley-Analyst

Vivien Azer - Cowen and Company - Analyst

Irving Bennett-Jefferies-Analyst

Gaurav Jain-Barclays Investment Bank-Analyst

Jennifer Maloney-Wall Street Journal-Analyst

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