Altria Group, Inc. (MO) Q2 2012 Earnings Report, Transcript and Summary

Good day, and welcome to the Altria Group 2012 Second Quarter Earnings Conference Call. Today’s call is scheduled to last about one hour including remarks by Altria’s management and a question-and-answer session. (Operator Instructions) Representatives of the investment community and the media on the call will be able to ask questions following the conclusion of the prepared remarks. I’d now like to turn the call over to Mr. Brendan McCormick, Vice President, Investor Relations for Altria Client Services. Please go ahead, sir.

Good morning and thank you for joining our call. I’m joined this morning by Marty Barrington, Altria’s Chairman and Chief Executive Officer and Howard Willard, Altria’s Chief Financial Officer. This morning we will only be discussing Altria’s 2012 business results for the first quarter and first six months and will not be discussing the status of tobacco litigation. Our remarks contain forward-looking and cautionary statements and projections of future results, and I direct your attention to the forward-looking and cautionary statement section at the end of our earnings release for the review of the various factors that could cause actual results to differ materially from projections. For a detailed review of Altria’s business results, please review the earnings release that is available on our website, altria.com. 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 on an adjusted basis, which excludes items that affect the comparability of reported results. Descriptions of these measures and reconciliations are included in today’s earnings press release and are available on our website. In addition, comparisons discussed in this conference call are to the same prior-year period unless otherwise stated. Now it gives me great pleasure to introduce Marty Barrington.

Thank you, Brendan, good morning. Altria delivered excellent financial results for the second quarter and first six month reflecting the strength of our diverse business model. Altria grew with adjusted, diluted EPS by 9.3% for the second quarter and 10.2% for the first six months of 2012, while its tobacco companies pursued initiatives to grow their premium brands for the long-term. These brand building activities contributed to adjusted operating companies income and margin growth in both smokeable and smokeless product segments. Exceptionally strong gains from our investment in SABMiller and our financial services business complimented these results. Innovation continues to contribute to the strong business results of our tobacco companies. Products introduced in recent years have enhanced their product portfolios supported adjusted operating companies income growth and contributed to retail share gains in cigarettes, cigars and smokeless tobacco for the second quarter and first half of 2012. Our company continued to make progress on product development in the second quarter with activities related to Marlboro EIGHTY-THREES, Copenhagen Southern Blend and Black & Mild Summer Blend. In June Altria’s subsidiary Nu Mark introduced Verve discs into a lead market to begin to understand adult tobacco consumer acceptance of this product. In the smokeable product segment strong retail share performances benefitted cigarette and cigar shipment volumes. Philip Morris USA continue to invest behind Marlboro’s new brand architecture. The second quarter activities across its four brand families; red, gold, green and black. In April, our sales force began updating retail pictures to reflect the new Marlboro architecture and highlight the four brand families. In June, PM USA introduced Marlboro EIGHTY-THREES Box in modern updated packaging. And PM USA continue to support Marlboro green and Marlboro black with promotional offers intended to generate trial by adult competitive smokers. These activities contributed to Marlboro strong…

Thank you, Marty. Good morning everyone. In the smokeable product segment, second quarter and first half reported operating companies income grew by 3.6% and 4.3%, respectively, primarily due to higher list prices effective cost management and lower tobacco and health judgments. These factors were partially offset by higher promotional investments to support Marlboro’s new brand architecture, unfavorable mix due to L&Ms volume growth and higher net restructuring charges related to our current cost production program. 2012 first half results were also negatively impacted by lower volume. Excluding special items identified in our earnings press release, 2012 second quarter and first half adjusted operating companies income for the smokeable product segment increased by 2.8% to $1.7 billion and 3.3% to $3.1 billion, respectively. The smokeable product segment delivered strong adjusted operating companies income margin growth for both periods. Adjusted operating companies income margin grew six-tenth of a percentage point to 41.4% for the second quarter and increased one percentage point to 41.2% for the first half. PM USA’s reported cigarette shipments were essentially unchanged for the second quarter. The trade build more inventory during the second quarter of 2012 versus the prior year period benefiting comparisons of our reported shipment’s. Following PM USA’s list price increase on June 18, 2012, PM USA believes the trade depleted inventories to the end of last month and into July. Reported shipments declined 1.2% for the first six months of 2012 as trade inventory dynamics impacted results. In the first half of 2012, the trade build less inventory versus the prior year period which negatively impacted the comparisons of our reported shipments. When adjusted for trade inventory dynamics and other factors, PM USA estimates that its adjusted cigarette shipment volume was down approximately 1.5% for the second quarter and 0.5% for the first half. These…

(Operator Instructions) Our first question comes from the line of Bonnie Herzog with Wells Fargo.

I had a question on L&M, growing quite rapidly and you had talked about in your commentary your mix has been deteriorating. So, I guess my first question is, are you comfortable with your current mix between premium and discount brands, and then if not what strategies are you putting into place to stem this? And could talk a little bit more about some of the promotional activity behind the brand, I know that that started to step up last year and just kind of walk us through that again please?

The answer we are comfortable with the mix. Remember Bonnie that more than 90% of PM USA shipment on premium and obviously our strategy is to focus on the premium end of the business. That said, there is a discount segment and we want to have an offering there. Our retailers in particular like for PM USA to have an offering there and there’s some business there. So, that’s L&M’s job. L&M really grew its share basically by picking up share that basic had shed as it increased its price and its margin. So, there is no shift in strategy there. I think L&M has done a nice job, certainly helped from a volume point of view. I don’t see any need to change the strategy with L&M at all. With respect to L&M’s promotional activity that varies a bit over time. It is a bit different in ‘12 than it is in ‘11 but again that depends sort of on how it's performing in the marketplace and we adjust most of our promotional allowances when the moment is right to do that.

My next question is just in terms of your innovation pipeline. Could you talk about your plans for innovation, is it going to step up in the second half and possibly next year and then can you talk little bit about your plans to pursue next generation products, especially since my understanding is you do have some of the rights to Philip Morris’ technology?

Sure, we have spoken about this previously, and I think we pointed out that innovation is one of the ways that one grows and particular we know that in the tobacco business now that there is a group of adult tobacco smokers in particular who are looking for and are open to innovative products. Innovation cuts cost several sort of axis, if you will. You saw that we rolled out Marlboro EIGHTY-THREES and we got a new Copenhagen Blend, Black & Mild rolled out another blend. So, on the conventional side, I think we got good pipeline of products. We stay close to the adult tobacco consumer. We watch what their needs are, either articulated or unarticulated; do a lot of consumer research there. We try to make sure that we are offering products that they want and that for us are premium, of course. We also, as you know rolled out. We have the exciting development with respect to different kind of product called Verve and Verve is a noncombustible product. It has nicotine and a flavor system and it’s a chewable disk and it’s really a very different kind of product. We put that product in about 60 stores in Virginia in June. This is part of our journey as we explore how adult tobacco consumers may migrate to products of that sort. That I would say is a learning experience. We want to get it in the hands of consumers. We build robust consumer research around that product. We want to learn whether they like it, they like its shape or its taste, for example, and the way to think about this Bonnie, I think is innovation is really an iterative process. It is not a great big (inaudible) one day that we find the next thing. It’s about putting out experiment, putting out test, developing products, asking consumers, getting their feedback and then continuing to develop the next generation. With respect to your question about next-generation products, you made reference to PMI. I think it's probably worth pointing out that, as I think everyone knows, we do have an agreement with PMI as a result of the spin-off in which certain intellectual property is jointly owned and separated by market, and that we have agreements in place with respect to the commercialization of technologies that may come out of that. I’d also point out though that in addition to PMI, PM USA has robust R&D and we were able to marry that with the really terrific R&D resources of the smokeless company we acquired. So, we are very proud of our research and development team. We believe we have got lots of opportunity to innovate there. So, innovation continues to be a focus area for us.

Your next question comes from the line of Nik Modi with UBS.

Just quick question on the Marlboro architecture, you talked about making further investments. Can you just kind of contextualize those investments, is it more point of sale, is it more support behind some of the SKUs that you have been launching, that's the first question. The second question is, the Marlboro share incentive program ended in the June quarter, so just curious if that has created some kind of inventory bloat at retail, as lots of retailers were probably aiming to make some of their targets, any thoughts on that would be very helpful?

Look the way to think of Marlboro architecture is obviously it’s the way that we are going to continue to grow Marlboro over time as it has grown in the past. And that allows us now across these four brand families to have a variety of initiatives, product, programmatic, retail executions and you see some of that playing out obviously in the second quarter. The sales force in April as we referenced went out and reset at retail so that when the consumer comes to point-of-sale, the four brand families are reinforced for the consumer there, and it makes it easier actually from an SKU point of view to see them. You saw Marlboro EIGHTY-THREES Box being rolled out to bring news to the Red franchise. We have promotional plans in place to generate trial from adult competitive smokers on Marlboro Black. So, those are but some examples, Nik, the way I think that we think about putting the architecture together in a way that it comes alive for the Marlboro consumer and it allows it to continue to grow as it would like. With respect to the Marlboro share incentives, as you know those are retail trade programs that evolve over time. There is a share growth component there. I don't think that we have noticed anything unusual at inventory as a result of the program.

Your next question comes from the line of Vivien Azer with Citi.

My first question has to do with inventory levels at wholesale. You mentioned destocking in the back-half of June and into July. Is that largely done? Are inventories kind of back to normal levels or should we expect more destocking through the quarter?

Well, I think Howard made reference to this in his remarks. Just to maybe start one level up from that. For PM USA it’s true, of course, that there are changes in inventory levels quarter-to-quarter or intra-quarter even, but for PM USA that actually tends to kind of wash itself out over the course of the year. I think that what Howard pointed out in his remarks is the trade inventory increased in the second quarter of ‘12 compared to the second quarter of ‘11 which did benefit PM USA’s volume performance a bit. Then you had a build in second quarter and then those inventories were reduced after PM USA’s announcement of its price increase on June 18. We saw some of that reduction continue a bit into July. I think that’s a fair description of the situation at wholesale right now.

In terms of the consumer, I know its early days since the pricing been pass through, but I think there’s increasing concern about the health of the U.S. consumer. Have you seen anything in the trade in terms of a response to the price increases, a little bit more trade down because I was actually surprised to see over the last two quarters discount losing about 100 basis points a share.

No, we haven’t seen that. Of course, the price increase just went on June 18 and then we price protected in our MLP stores through June 30, but no we haven’t observed that.

And my last question has to do with Skoal, I recognize that the year-over-year compares are skewed a little bit because of the launch of X-TRA and the SKU discounting, but can you give us a sense of how the underlying business is doing?

Sure, remember the strategy is to grow Copenhagen and Skoal together. So, if you look at the numbers really since the acquisition and over time, USSTC has done a great job with that. Skoal has a tough challenge, doesn’t it, because it has to compete not only with other competitive brands but also with Copenhagen and Copenhagen has really been growing. Copenhagen wants to grow a lot. They have got some of the product offerings that it needed to compete more effectively. And so the combined share growth is spot on target for our strategy, and so we are pleased with that. We have said I think previously, Vivien that those brands will move at different speeds. One will move faster at one time than another. So, as long as the combined retail share growth goes, that’s our strategy because we want to grow income by growing volume in this growing category. But there is work to do on Skoal. We have got it's positioning I think better. And now, we are really seeing if we can get Skoal’s growth accelerated, but together as long as they grow, we are pretty okay with that.

Your next question comes from the line of David Adelman with Morgan Stanley.

It looks to me that the net price mix for PM USA this quarter was maybe 1% plus or minus. Do you agree with the characterization that business is going through a period of time where it's putting a greater relative emphasis on market share growth?

No. I think that the strategy remains constant. The strategy for PM USA is to maximize income while maintaining modest share momentum on Marlboro, and I think that's exactly what you see playing out. Here is what I’d say about understanding kind of the pricing environment. First of all, smokeable adjusted operating company income grew and its margin grew, so it’s not as if it’s gone the wrong direction. One can argue about the relative growth but it continues to grow and its margin grew. I think the other thing to point out is pricing obviously as you well know occurs in a context, in the economic context in which that business currently competes is, we are in the middle of a really anemic recovery from the greatest recession in decades, and consumers are under pressure and pricing for most consumer packaged goods in this category is no exception have been more restrained than in previous periods of economic health. Then the final thing I guess I might say just on PM USA is, it’s time of investment in Marlboro and the reason we do that is Marlboro is the long-term engine of PM USA’s premium growth and the way it grows its margin and the way it contributes to income. So, I think if you put all those factors together and remembering pricing is obviously important in the cigarettes segment, everybody recognizes that, but it’s not the only way for PM USA to contribute to income growth. It can moderate its promotional plans. It can reduce its cost structure. It can become more efficient about the way it delivers products to the marketplace and they have been very attentive to all of that. Then of course at the Altria level, we have other income contributors. We got a growing Smokeless business and we got a great wine business and so forth. So, that’s kind of how we think about it David, which is putting all of those factors together. You point out that pricing has slowed a bit on that one axis, but really overall, I think we are pretty okay with how we are doing on income.

Secondly Marty, how much of an impact do you think this growth of roll your own volumes, what was going on with retail with the small manufacturing company? How much of an impact do you think looking backwards that may have had on total cigarette category volumes, and how much of a benefit do you think from this legislation you may see going forward from that?

I think that it's hard to measure is the honest answer. You have a secular decline rate that's made up of a number of factors including people smoking fewer cigarettes per day or switching to smokeless products. Actually I think in that group are people who have gravitated to these kinds of products whether it's roll your own or pipe your own, and so it's a bit hard to measure. Obviously for PM USA’s business which focuses on premium, I don’t think there is I believe that it's going be a significant contributing factor. Some folks who are using those machines now will gravitate to other low cost forms of using tobacco, some of it maybe cigarettes, but some of it maybe something else. So, we will see it's a good development of course that everybody who is manufacturing cigarette is playing by the same rules. I just don’t think at this moment, we see it having a significant impact on volume.

Your next question comes from the line of Thilo Wrede with Jefferies.

This is Margot Schacter in for Thilo. I just had a kind of quick question of those David’s price slowing question, can we expect price to accelerate anytime soon?

Well, I guess I would just refer you back to PM USA strategy which is to maximize income while maintaining modest share momentum on Marlboro. And we will just have to see how that plays out over time.

Your next question comes from the line of Judy Hong with Goldman Sachs.

I guess sort of following on kind of the Marlboro share and pricing dynamics. Marty, just maybe you can give us some perspective on how you get comfort around the fact that some of these price-driven investments or the investments that you are making behind Marlboro’s building brand equity, particularly among kind of the legal age to under 30 smoking group and that is not coming solely because of really the price investments that you are making.

There’s a number of metrics we follow around Marlboro, of course, but when you put them all together I think we feel quite confident that Marlboro’s health is good and that the investments we are making are wise. It has a great brand equity. It has high share. It commands premium pricing. Its price gaps have been stable throughout this terrible economic period. In fact if you look back from the period 2007 to 2011, it both grew share and improved its margin. And we know, listen this is how Marlboro has grown, right. If you go back to Marlboro in 1954 with Red or when Menthol was launched in 60s, or Gold in 70s, we know that Marlboro has that kind of equity. It’s that kind of a big brand. And when you invest in it and it's got all these benefits, we know that consumers will choose Marlboro. So we have a lot of experience about both investing in and measuring the power of those investments in Marlboro. We have every reason to think that’s the case today.

Okay. And then Marty or Howard. Just in terms of your guidance, so just the commentary that the second half sort of moderates from the first half, just wondering is it just really more a comparison issue, are there any other factors that we should consider just in terms of a bit of a slowdown you’re expecting for the back half? And then in terms of taking the low-end of the guidance up today, I know you've had strong performance in the first half from the equity income from SABMiller and then the PMCC. So, I'm just wondering how much of that is those factors as opposed to the tobacco business?

Well, I think that you pointed out that the comparison is probably the principal reason for that. Listen, the businesses are performing extremely well. We're very pleased. The execution of our plans is going fine, but as we pointed out in the release, capital of course, adjusted OCI was up 56% for the quarter and 96% for the half. As you know, Judy, those are transactional kinds of contributions from the leasing business. But that's likely to moderate. SAB, which is doing a wonderful job, was up nearly 25%. And it does great, but it hasn't performed historically at that level. So we just think that when you do that and compare it to the first half, it's likely to moderate a bit in the second. I think that's the way to think about that.

Okay. And then for the cigarette category, the industry declined 3% in the first half. Is that sort of reflective of the underlying consumption decline number and do you think that that's kind of a reasonable rate of decline to think about for the full year?

Well, as you know, over time the decline rate has been a function of both secular decline rate and then some decline when prices go up with historical elasticity of about minus 0.3. Actually that's been constant for some time. We don't see much change in that in the current environment.

Your next question comes from the line of Michael Lavery with CLSA.

Just back on smokeless, I'm wondering if you could give us a little more color there and I guess part of what I'm getting at is, I know there is some trade issues and comparisons that skew some of it, but it certainly looks like Skoal is accelerating and that some of the things that I think you are trying to do on that business look like they may be working. Is there a corner you might be turning there?

I think it’s probably as I described it just a couple of moments ago. We focus on growing Copenhagen and Skoal together. The brand is at different places in the marketplace. They have different propositions. Copenhagen has really had very, very strong growth. Skoal has to compete with that growth as well as compete against its competitors in the marketplace. We’re making progress on Skoal, I think. And as long as the retail shares are growing together and we’re participating in the industry volume growth, we’re able to grow our income in accordance with our plans. And we have brand managers for Copenhagen and we have brand managers for Skoal and they are both trying to outcompete the other as well as the competition and we think that's the right way to attack that category.

That’s great. And then on the cost side, obviously you have the benefit of relatively benign input cost, but has the drought this year put any pressure on leaf costs for this year or for next year?

Yeah, I think, there is nothing really out of the ordinary on our cost this year. We are tracking the drought’s impact on tobacco growers and there is -- I would say there is some modest impact today although they’ve recently gotten some rains in some key areas. So while that’s on our watch list, we don’t see any unusual impact at least today.

Your next question comes from the line of Thomas Russo with Gardner, Russo & Gardner. Thomas Russo - Gardner, Russo & Gardner: I’m curious as to whether you found any steps to take in the context of these unusually low interest rates. Either regarding your pension fund and its funding status, or what other thing you might be able to do on your capital structure?

Sure. I think we've been in low interest rate environment for some time now, although as you accurately point out they've continued to head further south. And I think we're pursuing the strategy we have over the last couple of years, both in our pension plan and with our focus on seeking to reduce our effective interest rate. And as you know, we've done that by allowing some of our high interest debt to mature and then we've been going into the market periodically and getting quite advantageous rates. And I think that the latest low rates just indicate that that opportunity is likely to be with us for some time.

Your next question comes from the line of Ann Gurkin with Davenport.

I wanted to return to the smokeless tobacco segment, and I was just curious if that business, your business is more in a position to grow in line with the overall industry now. Have you gotten Copenhagen and Skoal kind of to a position where that growth rate could be more in line with the industry?

Well, I think on an adjusted basis we think that it did grow in line with the industry. Our strategy is to grow in line with the industry rate or a little bit better than that. And you're correct to point out that if you take a bigger piece of the share that does help grow your volume there, but we're, I think, well on the way to doing that and I think the numbers in the quarter reflect that.

That's great to see. And just returning to Marlboro in the discussion, if you back out the architecture and back out the innovation and the stepped up brand investment, like the organic growth, is that meeting your target? The underlying performance of that brand?

Well, as you know, we don't back out that way, but I guess I’ll just return to what I said before which is Marlboro's health is really very good. It’s up three-tenths versus a year ago, up two-tenths for the half. We have our new Marlboro architecture that’s being put in place. We have some new products that are in the marketplace. I think we’re really pleased with how Marlboro is performing, Ann.

Your next question comes from the line of Chris Ferrara with Bank of America. Chris Ferrara - Bank of America/Merrill Lynch: I guess a couple of quick cash questions. First, I understand you paid down debt this quarter, right? But is that why the share repurchase slowed down to, I guess, its slowest rate since you guys started buying back again maybe five quarters ago. And then on CapEx can you just give a little color on why that outlook is changing down to $100 million?

Sure. Yeah, I think you are pointing out that we had $600 million in debt that matured not in the second quarter but early in July and we did pay that off. I will go into the details of how we calculate how much stock to repurchase. But I would point out that three quarters into that five-quarter share purchase program, we’ve purchased $700 million about worth of stock. So we think we’re on a decent run rate and expect to finish that by the end of the year. Did you have a second question? Chris Ferrara - Bank of America/Merrill Lynch: Yes, on the CapEx.

Yeah, on CapEx, I would say that there is nothing unusual going on there. We forecast our capital expenditures at the beginning of each year. But then as we put together more detailed plans we scrutinize those capital expenditures more carefully and if there is an alternative way to achieve the result or if we can drive some incremental efficiencies, we seek to do that. And so as we pointed out, we’ve now taken our capital expenditure forecast for the year from $150 million down to somewhere between $100 million and $125 million and we think that that's plenty in order to maintain the infrastructure we need in each of our businesses. Chris Ferrara - Bank of America/Merrill Lynch: Great. And then just one question on the guidance. I know you guys said that EPS growth I guess would be easier in Q4 than Q3, and consensus is kind of there but not quite. Can you just remind us of the puts and takes and why Q4 growth will be better than Q3?

I think I would just rely on the remarks we made before Chris, that it's going to moderate a bit in the back half compared to the first half for the reasons I articulated.

Your next question comes from the line of Andrew Kieley with Deutsche Bank.

Marty, I just wanted to go back to, in terms of your satisfaction with the promotional investments on Marlboro, particularly on special blends at Marlboro Black. Could you talk a little bit about the decision to ease back on the promotions in May or June and how that speaks to the traction you're getting on those SKUs?

Well, look the promotional levels on these SKUs obviously are very carefully monitored over time, and special blends, of course, have a different role to play than Black. So it's worth just taking a second to make sure that's clear. And special blends, obviously, their role is to offer SKUs at price points for some of the more promotion sensitive smokers that are in the franchise. I think we've spoken before about 90% of Marlboro smokers choose the brand 100% of the time. But that leaves you 10% or so liking other competitive franchises that are more promotion sensitive. Special blend is a way to keep them in the franchise. All the while we manage our margin at the Marlboro level and they’ve been very effective in that regard. But, of course, you don't want to offer more promotion than is needed and so we’re able to moderate those or change those as circumstances warrant. Marlboro Black on the other hand, it's a new product offering and so what we're trying to do is to generate trial among adult competitive smokers. And given the marketing restrictions in the industry, you have to do that principally at point of sale and you do that with some promotional offers and that’s been the role of promotions for Marlboro Black. And as soon as we get some trial there that meets our goals, obviously it’s the same issue which is if you don’t have to spend more promotional money there than needed then you are able to back it off. And I think that’s been what we’ve observed both with respect to special blend and Marlboro Black.

And then just second question. If you could just talk broadly about the promotional and pricing environment in cigarettes in terms of what you are seeing from the premium competitors and the price gaps and the discount here. You’ve got a little bit of reaction announced to the pricing you took in July, just how that’s sticking. And maybe if lower gas prices are helping at all in terms of trade down in the category?

Well, I think it’s fair to say that the industry’s been competitive. It is competitive. It is likely to be competitive. And we don’t see a big significant change, one way or the other, in that and PM USA’s plans take that into account.

Our next question comes from the line of Chris Burritt with Bloomberg News.

I want to ask you first, did you disclose how much pricing helped revenue. Is that something that you give?

Yeah, I think you can certainly calculate that from what is included in our press release.

Okay. And secondly, as you introduce new products, can you describe whether you are hitting the wall so to speak with the FDA. I gather that they think -- that the agency simply is not considering, or at least not considering promptly, request by the cigarette manufacturers for new and modified products. Could you talk about that a bit and what impact that’s having on the company?

Yeah. There is a couple of things in your question maybe we should separate out just to be clear. There was a major filing of so called substantial equivalents application some time ago, which was the principal filing. And what we've observed is that FDA is pretty methodically working through those. There were a lot of them that were filed at the agency and it's worth remembering that the agency obviously is in its first kind of couple of three years of staffing up and putting processes and procedure in. It's a pretty deliberate agency anyway and so they have some work to do in that regards. So, that's actually been, I think pretty much what we expected which was they would work their way through that. After that date of course, they introduced regulated products into the marketplace. You do have to file applications for substantial equivalents and the products can't be launched, cannot be launched, until approval. I think most majors have applications that are pending there. I think that's just more of the same. They are trying to work through their structure and process about our approval. I would distinguish that from the last part of your question which was modified risk products. For example more conventional products. There the agency is really just building out its science and policy base about how they are going to think about that. And as you know they have conducted several hearings, and if you're interested in what we have to say about that we have them on our website. But I would distinguish that situation, which is likely to take place over some period of time. They have to get the science right before they are going to permit claims and that's what they are working through right now on that.

So, on the first half of the question, you're not kind of tapping your fingers and urging the FDA to get moving on that. You seem to have some patience?

While we planned for what was coming, I think, and so everyone would like their regulator to move promptly on matters. But we have found actually FDA to be pretty okay about how it's going about its work. And I'm sure that the speed will improve as they staff up over time.

Your next question from the Thilo Wrede with Jefferies.

Operator, we don’t seem to have a question.

That question has been withdrawn. I will now like to turn the floor back over to management for any closing remarks.

Thanks everyone for joining our call today. If you have any follow-up questions, we’ll be happy to help you at Investor Relations. That concludes today's call.

Thank you. This does conclude today’s conference call. You may now disconnect.