Bonnie Herzog: Yes. That’s actually super helpful. And that was going to be a question. I’m pleased you kind of walked through the gap. That’s useful context. Just switching gears, if I may, a question on your oral tobacco business. You highlighted how strong on! volume growth has been and — but in the context of that, your total oral tobacco revenue and profit growth has been under pressure with a fair amount of margin contraction. So, you did sort of touch on this. But hoping maybe you could talk a little bit further about maybe your strategy for turning around the entire oral tobacco business. Any key initiatives that you could highlight for us, and maybe you’ll talk about this more in March?
Billy Gifford: Yes. We will — we’re certainly excited to be able to talk about it in March. You’re exactly right. Within the old tobacco space, if you think about that total space, you have traditional moist smokeless tobacco and you have novel oral pouches. Some of the margin contraction you’re seeing is just true mix, right, as consumers are moving from traditional moist smokeless tobacco and novel oral growing, you’re going to have some mix impacts in that overall margin. We highlighted for you the reductions we made in promotional spend per can, but still had the minimum share. I think the biggest thing that we’re excited is to be able to unveil the product that we have designed and have locked down and be able to show at Investor Day what that product is and some of the research related to that. So, more to come at Investor Day.
Bonnie Herzog: Okay. Final one for me, just speaking of that. Any more color you could provide on your smoke-free vision today and maybe just how confident you are that you’re going to be able to deliver on your long-term strategy? I’m sure you’re going to talk through this in an investor meeting and I’m excited to hear about it, but any sneak preview as to what you’re most excited about?
Billy Gifford: I won’t necessarily give you a sneak preview because I don’t want to get ahead of myself for Investor Day, we’d like to unveil it in total context and paint the solid picture for investors. So, I appreciate the question. I look forward to being to unveil that for you at Investor Day.
Operator: Our next question comes from Callum Elliott with Bernstein.
Callum Elliott: Billy, you spoke in the release and in your prepared remarks about making sort of “meaningful progress” on the smoke-free portfolio. And you also mentioned strategic investments in division. But at the same time, your CapEx guide is flat versus last year’s guidance. You’re continuing to deliver all algorithm EPS growth. And I think as you said, to Pam, that any slight reduction is more driven by the macro environment, which presumably also implies little or no incremental P&L investment in NGPs as well. So my question is, what are the strategic investments that you’re talking about? How meaningful are they? And where can we see them in the financial statements?
Billy Gifford: Yes. I think it’s a great question. I appreciate it. I think when you think about where those investments show up, it’s important to remember, they’re not all incremental spend. They’re always puts and takes. They’re going to shift some of those — the infrastructure that the combustible or traditional MST has bore the cost through history, and you’re going to shift that to the NGP space. We do have incremental investments around NGP product development, the regulatory preparations associated with that and the research associated with that. Here’s an example for you, Callum. If you think about like even the digital consumer engagement, that we’re implementing in traditional smokeable or combustible and MST, and we mentioned in the remarks being able to transition that over.
So, you’ll see those costs will actually appear in the combustible and the smokeless before it appears in the NGP categories. So, there’s a lot going underneath the surface, if you will, from an investment standpoint. But there are always puts and takes. We’re trying to be wise with the investment but not restrict growing categories.
Callum Elliott: I guess, the natural follow-up is, if I benchmark relative to your big competitors, both in the U.S. and internationally, the two biggest amongst them are spending literally billions of dollars a year. And my guess is instinctively, if you’re just talking about switching a portion of your cigarette spend, over into NGP, you’re not going to get anywhere close to that billions of dollars a year. And so, the question is, do you genuinely believe you can be successful if you’re spending so much less than those competitors? And then how?
Billy Gifford: Yes, we do believe that we’re trying to really be driven by the consumer, learning from the global marketplace of products in the marketplace and use those as, if you will, a launch point for products and really trying to meet what the desires and needs of the consumers are in the marketplace that aren’t met by those existing products in the marketplace. And so, we feel like we can achieve the vision. We’ve highlighted for you guys that we really believe we can navigate strong returns to shareholders at the same time, making the appropriate investments in these growing categories. And we believe we can do that. I think you’ll continue to hear us talk about investments, and we’ll provide a lot more detail of some of the progress we’ve made at Investor Day.
Operator: Our next question comes from Gaurav Jain with Barclays.
Gaurav Jain: Hi. So, I have three questions. So, first one to you, Billy. We will have a new competitor next year in the U.S. market with IQOS. And when you were distributing IQOS, then the volumes were much lesser than any of us had expected. So, what did you find were the challenges when U.S. consumers came to IQOS?
Billy Gifford: Yes. It’s a great question. I appreciate you asking it, Gaurav. I think when you think about IQOS, it was really about the disciplined approach that we were taking to introduce in a brand-new category. The consumer in the U.S. was used to the e-vapor space. They had understood that. When you’re introducing a new category that requires some education on how to use the product and how to maintain the product that there is investment there that takes place. And we talked about the learnings we had as we went along the way. But I would say the biggest challenge is educating the consumer on the product and then meeting their desires. And I think there’s still unmet needs in the marketplace.
Gaurav Jain: Sure. The next question and perhaps to you, Sal, is around MSA payments next year and how we should factor in inflation? And if you could just help us understand because I think there is confusion that how does that 3% number work versus inflation, or is it the change of inflation that we should be looking at?
Sal Mancuso: Gaurav, you are correct to point out that inflation is a factor when you think about MSA expense. A couple of points I’ll make. One is the high rate of inflation in 2022 has been accounted for and is already in the base. You are correct to point out that when you think about inflation related to MSA, there’s 3% floor. So, even if inflation were measured below 3%, there’d be a 3% increase in the MSA expense. And I’ll also remind you that inflation is measured at a point in time, December 31st current year to December 31st prior year. So, we have considered that when you think about 2023, there will be an elevated level of inflation. We have seen some receding of the rate of inflation, but still expect it to be elevated. So, we have considered that when we put together our guidance. And then finally, I’ll say, there are other factors besides inflation to consider when you think about MSA expense, including volume, shipment share and other such factors.
Gaurav Jain: Sure. And my last question is on share repurchases for next year, which at $1 billion or below what we thought and I think where most people were. And even though your EBITDA is growing — you’re generating free cash flow after dividends, your leverage will anyway be down when you have the ABI stake. So, what mix you buy $2 billion of stock and not $1 billion?
Sal Mancuso: Well, first, let me say, we’re very happy that the Board authorized a $1 billion share repurchase. And if you think about capital allocation, I think we have a history of taking a balanced approach. So, as you know — as I noted in our opening remarks, we plan on paying back about $1.3 billion in notes coming due with available cash. We continue to pay a strong dividend as well as the $1 billion share repurchase. Gaurav, I really have nothing to report on the ABI asset. We continue to do the analysis that we do with all capital allocations. And currently, we believe the best thing for the shareholder over the long term is to hold the asset.
Operator: Our next question will come from Chris Growe with Stifel.
Chris Growe: I just had a quick question for you on Marlboro. You have to be very happy with the resilient performance of Marlboro. And obviously, a round at though discount and deep discount share is accelerating, which has seemed to provide some risk to the brand. I’m sure we’re not going to get your promotional program on this call. But I wonder if you could talk about how you see the brand performing in €˜23? And maybe more pointedly, have you increased promotions at a faster rate behind Marlboro to preserve that share where it’s doing so well there?
