Altria Group (NYSE: MO) Q1 2020 Earnings Call Transcript

Altria Group Inc. (MO) Q1 2020 earnings call dated April 30, 2020

Corporate Participants:

Mac Livingston — Vice President of Investor Relations, Altria Client Services LLC

Billy Gifford — Chief Executive Officer

Sal Mancuso — Executive Vice President, Chief Financial Officer

Murray Garnick — Executive Vice President, General Counsel

Analysts:

Michael Lavery — Piper Sandler — Analyst

Vivien Azer — Cowen — Analyst

Bonnie Herzog — Goldman Sachs — Analyst

Chris Growe — Stifel Nicolaus — Analyst

Nik Modi — RBC Capital Markets — Analyst

Adam Spielman — Citigroup — Analyst

Pamela Kaufman — Morgan Stanley — Analyst

Gaurav Jain — Barclays — Analyst

Robert Rampton — UBS — Analyst

Priya Ohri-Gupta — Barclays — Analyst

Jennifer Maloney — Wall Street Journal — Analyst

Presentation:

Operator

Good day and welcome to the Altria Group 2020 First Quarter Earnings Conference Call. Today’s call is scheduled to last about one hour, including remarks by Altria’s management and the question-and-answer session. I would now like to turn the call over to Mr. Mac Livingston, Vice President of Investor Relations for Altria Client Services. Please go ahead, sir.

Mac Livingston — Vice President of Investor Relations, Altria Client Services LLC

Thanks Nicole. Good morning and thank you for joining us. This morning, Billy Gifford, Altria’s CEO will discuss Altria’s first quarter business results. Sal Mancuso, our CFO; and Murray Garnick, Executive Vice President and General Counsel, will join Billy in our Q&A session. Earlier today, we issued a press release providing our results. The release, presentation and quarterly metrics are all available on our website at altria.com and through the Altria investor app.

During our call today, unless otherwise stated, we’re comparing results to the same period in 2019. Our remarks contain forward-looking and cautionary statements and projections of future results. Please review the Forward-Looking and Cautionary Statements section at the end of today’s 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. Share repurchases also depend on marketplace conditions and other factors.

Altria reports its financial results in accordance with US 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.

We’re also conducting today’s call from our respective remote locations. As such, there may be brief delays or small technical issues during the call. We thank you in advance for your understanding.

With that, I’ll turn the call over to Billy.

Billy Gifford — Chief Executive Officer

Thanks Mac, and good morning, everyone. To begin, I’d like to thank you for joining us this morning, and I hope that you and your families are safe and healthy. The past few months have been challenging and it changed the way we live and work. Yet our exceptional organization has risen to the challenge and demonstrated compassion, grit and resilience.

Over the past two months, I connected with our teams and their families, children and sometimes four-legged friends who have popped up on the video frame. I am more than impressed by the dedication and resourcefulness of our employees who are balancing significant work responsibilities with many personal commitments. We’ll get through this challenging time together and grow stronger as a team because of it.

I’d also like to thank Howard for his leadership and dedication to Altria for nearly 30 years, and we wish him well in his retirement. It is truly an honor to lead this great company, and I believe we have a very bright future ahead of us. The first quarter brought out the best in Altria’s employees, as we navigated the dynamic tobacco environment and the unprecedented effects of the COVID-19 pandemic. I’ve been fortunate to work here for over 25 years. And in that time, I’ve learned that we rise together as a company to face our challenges.

We’ve approached the challenges of COVID-19 by focusing on the health and welfare of our employees, maintaining business continuity and supporting our communities. In addition to implementing remote working and social distancing protocols, our teams are working tirelessly with critical businesses and trade partners to limit disruptions to our supply chains and distribution system.

As you know, last month, we temporarily suspended operations at our Richmond manufacturing center after two of our employees tested positive for COVID-19. We’ve since reopened the manufacturing center under enhanced safety protocols. And currently, all of our manufacturing facilities are producing products for our adult consumers.

We’re also focused on supporting the communities where we live and work. We committed an initial $1 million to support COVID-19 relief efforts for our employee and grower communities. Many of our valued non-profit partners have been hard hit by COVID-19 with disruptions to critical programs and funding streams. To help them through this time, we’re providing additional flexibility with the use of grant and sponsorship dollars to support general operating needs. We’re also accelerating some payments and relaxing reporting requirements, considering their stretched capacity. Additionally, we’ve also donated supplies, and we’re running an employee giving campaign to support five non-profit organizations on the front lines of the pandemic. To date, our employees have donated more than $100,000 to this campaign.

Like many other companies, we’re tackling the challenge of COVID-19 with our key stakeholders in mind. And of course, that includes our investor base. Given the unprecedented circumstances, some investors may be less interested in our recent results and more focused on our outlook. But we believe it’s important to discuss some of the first quarter dynamics to set the context for the balance of the year. To start, first quarter adjusted diluted EPS grew by 18.5%, driven by excellent performance from our core tobacco businesses with double-digit adjusted OCI growth in both the smokeable and oral products segments.

In February, we announced our new 10-year vision to responsibly lead the transition of adult smokers to a non-combustible future and we discussed the strategies that will drive our vision forward related to corporate responsibility, our product portfolio and science-based policy. Today, we’ll focus our remarks on our product portfolio strategies. Let’s begin with our combustible product strategy, which is to maximize profitability, while appropriately balancing investments in Marlboro with funding the growth of non-combustible products.

The smokeable products segment delivered outstanding first quarter results, growing its adjusted OCI by more than 20% and expanding its adjusted OCI margins to 55.3 percentage points. Higher pricing and higher volume more than offset higher resolution expenses to drive profit growth in the quarter. This segment also delivered strong quarterly net pricing of 9.2%, due in part to its continued use of revenue growth management.

Our reported domestic cigarette shipment volume increased by 6.1% in the first quarter due to several factors, including increases in trade inventories, one extra shipping day and consumer pantry loading due to COVID-19. When adjusted for the traditional factors of trade inventories, calendar differences and other factors, our domestic cigarette volume decreased by 3.5%. However, we believe that our preliminary estimates of consumer pantry loading should be an adjusting factor to reported volumes due to its high likelihood of near-term volume payback.

When adjusted for these traditional factors and the estimated consumer pantry loading, our domestic cigarette volume decreased by 5%. We estimate that US cigarette volumes declined by 2% in the first quarter, when adjusted for trade inventory movements, calendar differences and other factors. With the additional adjustment for consumer pantry loading due to COVID-19, we estimate that industry volumes declined by 3.5% in the quarter.

To estimate the impact of consumer pantry loading, we analyzed shipments to retail and retail sales data and compared them against recent and historical trends. During the first few weeks of March, we observed stable retail foot traffic and elevated tobacco expenditures per transaction. However, in late March, retail foot traffic decreased significantly as stay in home orders were enacted, but tobacco expenditures remained high. As we said before, it’s difficult to identify trends based on short time periods. This is especially true in such a fluid environment. We’ll continue to monitor marketplace dynamics, and we’ll update our estimates next quarter as more data becomes available. We maintain our full-year 2020 adjusted industry decline rate estimate of 4% to 6%, and we’ll continue to monitor additional factors, including e-vapor regulatory developments and the impact of the federal Tobacco 21 law.

Marlboro’s first quarter retail share of the total cigarette category was 42.8%, down 0.5 share points versus the prior year. But its share of premium cigarettes remained flat versus the prior year at 56.9%.

Over the last several months, we’ve observed an increase in the number of age 50 and older smokers in the cigarette category. We believe these smokers had previously switched to e-vapor products, but recently returned to cigarettes due to negative publicity and regulatory and legislative developments in the e-vapor category. Based on our adult smoker demographics, smokers over the age of 50 have a greater propensity to purchase discount cigarettes than younger adult smokers.

In the first quarter, gross shipment volumes to retail moderated for the premium and branded discount segments, declining by 1.5% and 3.8% respectively. However, we observed a significant increase in deep discount volumes as its growth rate nearly doubled from the prior quarter to 14.4%. We believe this rapid rise in deep discount volumes is partially due to the influx of older adult smokers returning to the cigarette category and contributed to Marlboro’s first quarter retail share performance.

We’re continuing to strategically prioritize investments in Marlboro and have focused our resources on maintaining its leadership position within the premium segment of the category. We believe investments behind our leading loyalty programs such as Marlboro Rewards and product expansions like Marlboro Bold Ice with its innovative resale pack best position the brand within the premium segment and maximize its long-term profit potential.

Looking at the discount segment, we saw a retail share increase of 0.8 share points versus the prior year, primarily driven by the deep discount segment. We’re continuing to monitor the dynamics within the discount segment, including interaction with premium brands and the impacts of adult smoker movement across tobacco categories.

PM USA continues to profitably compete in the branded discount segment. In addition to its L&M brand, PM USA recently refreshed Chesterfield to serve as a complementary discount offering, focused on adult smokers age 40 and older.

In cigars, Middleton’s reported volume increased 13.1% in the first quarter, outpacing the machine-made large cigar category. We believe Middleton is the best positioned cigar manufacturer to navigate the FDA framework. The company has already received pre-market authorization for nearly 90% of current volume and expects to submit the remainder of its substantial equivalence applications by the new deadline of September 9.

Let’s now turn to the second product portfolio strategy in our new vision. Over the next 10 years, we will develop and expand our portfolio of FDA authorized non-combustible products and actively convert adult smokers to them. Currently, we’re focused on the three most popular non-combustible platforms: oral tobacco, e-vapor and heated tobacco. We believe oral tobacco will play a significant role in adult tobacco consumer transition from cigarettes and that our unmatched portfolio will play a leading role in that transition. Our product offerings within the Copenhagen, Skoal and on! brands provide adult tobacco consumers with a wide range of satisfying flavors and strengths within both the MST and oral nicotine pouch categories.

Our oral tobacco product segment performed exceptionally well in the first quarter, growing its adjusted OCI by over 13% and expanding its adjusted OCI margins to 73 percentage points. As a reminder, the oral tobacco segment includes our MST, snus and oral nicotine pouch products. Higher pricing and higher volume more than offset investments in on! to drive OCI growth for the quarter.

We estimate that US oral tobacco industry volumes increased 6% over the last six months, as the rapid growth in oral nicotine pouches more than offset volume declines in MST and snus. When adjusted for estimated retail and consumer pantry loading due to COVID-19, we estimate that US oral tobacco industry volumes increased by 5% over the past six months.

First quarter retail share for the oral tobacco segment was 50.4%, and Copenhagen continues to be the market leader with a 32.4% retail share. Segment share declined by 2.8 share points due to the continuing mix shift between oral nicotine pouches and traditional MST. We remain pleased with Copenhagen’s increased profitability and the performance within the MST category.

On! was sold in over 28,000 stores at the end of the first quarter, including the top 5 convenience store chains by volume. The newly redesigned on! cans are now available for purchase, and we’re enhancing its retail visibility through premium fixture space in most [Phonetic] stores. We believe on! is a compelling proposition for both adult dippers and smokers.

Although it’s early days, we are encouraged by the momentum that on! is building at retail, and we’re continuing to test several go-to market approaches. For example, here are the results of promotional programs that we recently ran in two large convenience store chains in different states. In both chains, on! sales volume accelerated during the promotional period, and more importantly, maintained much of that momentum throughout the first quarter.

Today, we believe the pace at which adult tobacco consumers are adopting on! is related to the duration of Zen’s time in market. For example, in Colorado, we expected a competitive environment as Zen has been available since 2016, but we’re quite pleased that on! has doubled its velocity within the chain in just a few short months. In North Carolina, where Zen has only been sold for 12 months, we observed faster adoption of on! and continued momentum after the promotional period.

We’re preparing a strong PMTA submission to the FDA for the on! portfolio, and we expect to file our application in May. We are encouraged by the results of our research studies and believe that our package of scientific evidence demonstrates that the marketing of on! is appropriate for the protection of public health. After finalizing the PMTA submission, our regulatory and science teams will pursue plans for a modified risk application for on!.

Turning to e-vapor, the category continues to remain dynamic in light of ongoing regulatory and legislative developments. In the first quarter, total e-vapor estimated volumes declined by 12% sequentially and 10% versus the prior year. We believe the e-vapor volume decline is partially due to the ENDS guidance issued by the FDA in January, which banned all non-tobacco or menthol flavored pod products.

With our minority investment in JUUL, the US Federal Trade Commission recently announced its decision to file an administrative complaint challenging the transaction. The FTC alleges that our minority investment is anti-competitive due to our decision to close the Newmark [Phonetic] operating company in the fourth quarter of 2018. We intend to vigorously defend the investment. In the meantime, we’re continuing to provide regulatory affair services to JUUL, including support for their PMTA filing.

In heated tobacco, we remain excited about the opportunity to introduce IQOS to US adult smokers. Unfortunately, the COVID-19 outbreak has caused us to adjust our IQOS commercialization plans. We’ve had to temporarily close our Atlanta and Richmond stores and pause our interactive marketing efforts to limit person-to-person contact. We’ll be guided by public health authorities as to when we’ll reopen the stores and resume our interactive marketing approach. In the meantime, we’re continuing our digital marketing efforts to generate awareness and drive product education through the IQOS website. Also, heat sticks remain available for sale in more than 500 retail stores across Atlanta and Richmond, and we believe we currently have sufficient on-hand inventories.

Additionally, we pushed back the Charlotte launch due to COVID-19 concerns. Our Charlotte expansion will include several enhancements from earlier launches, including a more disruptive retail look and a greater emphasis on flexible marketing units such as pop-ups and pods.

We believe our enhanced retail fixtures will aid awareness, as both the IQOS brand and its proposition of real tobacco, no ash and less odor will be prominently displayed at the point of purchase.

We are encouraged that Philip Morris International has recently submitted a supplemental PMTA for IQOS 3. This enhanced device has a more modern look and charges faster than the currently authorized 2.4 version. PMIs MRTP application for IQOS 2.4 remains pending with the FDA, and we continue to be optimistic about its authorization.

Let’s now discuss the performance of our adjacent alcohol and cannabis assets. The first quarter was challenging for our alcohol assets as both Ste. Michelle and our equity investment in AB InBev underperformed versus the prior year.

In wine, Ste. Michelle is experiencing headwinds due to evolving adult consumer preferences and increased uncertainty in the demand for its products. These dynamics have been further negatively impacted by the COVID-19 pandemic. As a result, Ste. Michelle recorded first quarter charges of $392 million, consisting of a write-down of excess wine inventory and an estimated loss on non-cancelable future grape commitments. We treated these charges a special items and they were excluded from underlying results. Ste. Michelle’s first quarter adjusted OCI decreased more than 13% due to lower shipment volume, including lower on-premise sales due to COVID-19.

In beer, first quarter adjusted equity earnings from ABI were $190 million, down nearly 24%, representing Altria’s share of ABI’s fourth quarter 2019 results. As described in our press release, these results now exclude our share of ABI’s mark-to-market activity relating to certain financial instruments associated with its share-based compensation program. These amounts were previously included in our adjusted results. Beginning — but beginning this quarter, we will be treating them as special items and will be excluded from our adjusted earnings. We have recast our prior period results to reflect this change.

Turning to cannabis, Cronos recently disclosed the results of its audit committee review of certain revenue transactions, which resulted in a financial restatement of the first three quarters of 2019. As a major shareholder, we expect Cronos to consistently maintain adequate internal controls and financial reporting processes. All these — although these restatements were immaterial to us, we take these matters seriously and believe that Cronos is implementing the appropriate remedial changes.

In the first quarter, we recorded an adjusted loss of $25 million related to our Cronos investment, which primarily represents our share of Cronos’ fourth quarter 2019 results. We continue to believe that Cronos’ asset-light strategy is prudent, given the evolving nature of the global cannabis market.

Finally, let’s discuss capital allocation and guidance. As the quarter progressed, we developed liquidity strategies to manage through the impacts of COVID-19. We’re fortunate that our businesses are highly cash generative and convert income to cash at over 90%. However, we believed it was prudent to take additional actions to preserve financial flexibility in this environment.

In the first quarter, we halted share repurchases and fully drew down our $3 billion revolving credit facility as a precautionary measure. This week, the Board rescinded our existing share repurchase program, which had a $500 million balance, to further strengthen our liquidity position. After funding today’s dividend, we have approximately $2 billion of cash on hand. And for the coming quarters, we expect to maintain a higher cash balance than normal to manage through potential disruptions.

Due to the uncertainties related to the impact of the COVID-19 pandemic and the economic recovery scenarios, we are withdrawing our 2020 full-year adjusted diluted EPS guidance. Let’s walk through the factors that led us to that decision. As you know, ABI has withdrawn its 2020 financial forecast due to the impacts of COVID-19. ABI is a significant contributor to our earnings, and we believe there would be misalignment to provide our financial forecast without greater clarity on ABI’s expected performance.

From a macroeconomic perspective, we anticipate a recessionary backdrop and increased financial pressure on adult tobacco consumers. We’ve observed a rise in unemployment rates that we expect to persist throughout the year. There is also a wide range of economist predictions for the peak level of unemployment and economic recovery.

For our adult tobacco consumers, we expect an increase in down-trading within both the cigarette and MST categories. The degree of down-trading will depend on several factors, including the depth and duration of higher unemployment and the severity of COVID-19 impacts, with potential offsetting factors of lower gas prices, increased unemployment benefits and government stimulus payments. For our tobacco businesses, we believe we have the right tools to help navigate through a difficult and uncertain time as we manage the business for long-term success.

Due to the combination of these factors, we decided to withdraw our EPS guidance until the COVID-19 situation stabilizes. We’re continuing to monitor the impact of the virus, and we expect to reestablish guidance at the appropriate time. As a result of withdrawing guidance for 2020, we’ve also withdrawn our three-year compounded annual adjusted diluted growth objective. Please reference our earnings release and our Form 10-Q that we filed today for additional disclosures related to the business impacts of COVID-19.

Turning to dividends, we understand that our dividend is important to our investors and it remains a top priority for us. Our objective continues to be a dividend payout ratio target of approximately 80% of adjusted diluted EPS. Since we have withdrawn our full-year EPS guidance due to the impacts of COVID-19, we wanted to provide investors with a greater transparency on how we will approach the dividend this year. For 2020, we expect to recommend a quarterly dividend rate to our Board that reflects, among other things, our strong cash generation and the strength of our balance sheet.

That concludes our remarks, and we will be happy to take your questions. Operator, do we have any questions?

Questions and Answers:

Operator

[Operator Instructions] The first question will come from the line of Michael Lavery with Piper Sandler.

Michael Lavery — Piper Sandler — Analyst

Good morning. Thank you, and congrats Billy and Sal on your new roles.

Billy Gifford — Chief Executive Officer

Yeah. Good morning, Michael, and thank you for that.

Michael Lavery — Piper Sandler — Analyst

Just on the category outlook, you’ve given some adjusted numbers on the slide and in your releases that show a steady improvement since 2Q ’19. I realize you’ve got the 4% to 6% outlook still in place for the year. Can you give a little bit of how you’re thinking about that? Obviously, the first quarter was a bit better, at least on — factoring in the adjustments that would normalize it. Is it fair to say that the macro uncertainty is some of the biggest wildcard? And can you tell us historically, when the consumers faced some pressure, what you tend to see more of? Is it a volume hit or down-trading, and to the extent, it may be a mix of both? How do those compare to each other?

Billy Gifford — Chief Executive Officer

Yeah, great question, Michael, and thank you for the question. I think when you look at historically, and you can look back whether it’s the 2001 recession or the 2008-2009 recession, what you really saw was pressure on down-trading. And I think when you look at 2008-2009, you see we have the right tools to navigate that type of environment. It really is about having the financial flexibility and some more data on where — how much pressure the consumer is going to be under and how long. And we wanted that flexibility to be able to respond when appropriate to what we’re seeing in the marketplace.

Michael Lavery — Piper Sandler — Analyst

Okay, that’s helpful. And then, just one more on on!. Can you give a sense of — you touched on the capacity expansion maybe having potential delays from any COVID-19 disruptions. Is that something that you’re seeing already or just recognizing as a risk? And how do you think about that playing out over the course of the year?

Billy Gifford — Chief Executive Officer

Yeah. So related to on!, we are currently at a capacity, call it, around 25 million packs. You remember, we previously stated, we would be at 50 million packs by mid-year and 75 million by the end of the year. We have seen a little bit of slowdown as we go through machine installation in the current COVID environment. But we are — we’ve got our best engineer teams on it, and we’re moving as fast as we can. I mentioned earlier, we’re in 28,000 stores. We’re seeing good interaction with the consumer base, both with smokers and dippers. So we’re extremely excited to be able to get that out and expand distribution.

Michael Lavery — Piper Sandler — Analyst

That’s great. And just a quick follow-up on on!. You’ve mentioned that you’ve got the PMTA submissions just ready to go. Is that the existing portfolio? And if so, would you consider additional flavors or nicotine strengths as part of your PMTA submissions as well?

Billy Gifford — Chief Executive Officer

Murray, you want to take that one?

Murray Garnick — Executive Vice President, General Counsel

Sure. Our PMTA submission that we’re planning on filing in May covers our existing portfolio of products, both strengths and flavors. At this time, it’s going to be limited to that. But as time moves on, we’ll consider other SKUs.

Michael Lavery — Piper Sandler — Analyst

Okay. Great. Thanks a lot guys.

Billy Gifford — Chief Executive Officer

Thank you.

Operator

The next question will come from the line of Vivien Azer with Cowen.

Vivien Azer — Cowen — Analyst

Hi, good morning. I’ll echo the congratulations that Michael offered. Congrats on your new roles.

Billy Gifford — Chief Executive Officer

Thanks very much.

Vivien Azer — Cowen — Analyst

You bet. So Billy, can we just talk about the outlook from a macro perspective? So, I think it seems prudent that you’re anticipating down-trading, given the drop of numbers that we’re seeing, including this morning. If we look back to the financial crisis, are you thinking about that as a potential analog? And if so, can you just remind us how price elasticities evolved? Obviously, there was a very disruptive SET, so maybe it’s not perfectly comparable. But any color on how you’re thinking about that? Thanks.

Billy Gifford — Chief Executive Officer

Sure. Thanks for the question. And you’re right, it is a bit different this time. But we do take our learning’s from the 2008-2009. I think if you look back at the last, what we — everybody refers to as a great recession, you did see the SET increase that you mentioned, as well as you saw gas prices at a different base in that economic downturn. The other thing is, you see unemployment benefits have been enhanced, as well as government stimulus pretty quick into the market this time. And even the segments of the employee base that have been impacted is slightly different from the last downturn. So, when we look at it, we feel like we have the right tools in place, and we will enhance those tools. Vivien, as you remember, we’ve been talking about our advanced analytics. So we have the tools in place, and now they are further supported by our advanced analytics. So it’s really a matter of having some more data of how our consumer is going to be impacted and then applying those tools at the appropriate time.

Vivien Azer — Cowen — Analyst

That’s helpful. Just a follow-up on that. So, underpinning some of the scenarios that you guys are contemplating, are you considering that price elasticities might degrade in this backdrop?

Billy Gifford — Chief Executive Officer

Yeah. Thank you for following up. On price elasticity, as we told you before, that is held for decades. Sometimes you see slight disruptions if it’s related to an SET in a given state, but we have — and then it recovers. And so we haven’t seen anything — and we peel back underneath that price elasticity and haven’t seen anything from a trend break that would lead us to have anything different.

Vivien Azer — Cowen — Analyst

Okay, that’s helpful. And just one more from me. Can we talk about Marlboro’s special blend? I know you guys haven’t historically disclosed how big of a mix piece of the business it is. But like, any color on how you’re thinking about using special blend to defend the overall Marlboro market share against a down-trading environment? Thanks.

Billy Gifford — Chief Executive Officer

Yeah. Thank you. I won’t speak to specifics, but that is one of the tools in our tool bag to be able to pull out. You remember, we used that to a large extent in the previous downturn. And what we saw was, if the consumer was under pressure, they really wanted to smoke Marlboro. We wanted to give them a safe landing place. And we think it worked extremely well because through time, we’ve been able to propose [Phonetic], if you will, the gap between special blend and Marlboro main line. And so, that’s certainly a tool in our tool bag that we have at our disposal.

Vivien Azer — Cowen — Analyst

Perfect. Thank you.

Billy Gifford — Chief Executive Officer

Thank you.

Operator

Our next question will come from the line of Bonnie Herzog with Goldman Sachs.

Bonnie Herzog — Goldman Sachs — Analyst

Thank you. Good morning, Billy.

Billy Gifford — Chief Executive Officer

Good morning, Bonnie.

Bonnie Herzog — Goldman Sachs — Analyst

Congratulations from me too.

Billy Gifford — Chief Executive Officer

Thank you.

Bonnie Herzog — Goldman Sachs — Analyst

You’re welcome. I wanted to see if we could get a sense from you how things are trending in April so far. You’ve walked through the different weeks in March for us. But we’re curious to hear if you’re certainly starting to see a lot of the, I guess, de-loading or pantry depleting from the consumer. It’s sort of what I’m hearing and seeing. We’re seeing it in the Nielsen results. So, any more color on that in April so far would be helpful.

Billy Gifford — Chief Executive Officer

Sure, you’re exactly right. The early data in April would indicate payback of some of that pantry loading. And I think while it’s still early yet, the data would support our estimate of the consumer pantry loading that we put forward in the first quarter, but we’ll continue to monitor it. Two things that we’re watching is really how that will impact our shipments as both retailers and wholesalers make decisions of their inventory levels they want to carry through the remainder of the year. And I think also, it’s important to remember that we’ve seen some shopping behavior change with our consumer. Our consumer used to go and shop either every day or every other day, and we’ve seen and heard from our large retailers that they’ve seen the consumer shopping more on a weekly basis. And I think we’ll have to see if that continues for a period of time or whether that, as restrictions are lifted, goes back to more of a normal situation.

Bonnie Herzog — Goldman Sachs — Analyst

Okay. That makes sense. And then, I wanted to ask about Marlboro, just maybe hoping for just a little bit more color as to why we’re seeing some retail share loss and really trying to get a sense from you of how worried you might be about this. I know you certainly touched on the older vapor returning to the category, not necessarily going to Marlboro. So, first on that, I’m curious, do you think we’re going to continue to see more of those older vapors returning to smoking? Or just wondering if most of that has already happened. And then, is there anything else that you’re seeing within the Marlboro franchise and maybe what you’re doing to kind of shore that up and improve the brand equity? For instance, I think the loyalty program that you have, I think, you’ve maybe increased that and moved that forward, given everything going on. So anything you can share with us would be helpful.

Billy Gifford — Chief Executive Officer

Sure. I think when you think about Marlboro, it really — we really believe it’s related to that consumer movement across categories. And so, as we saw those older, especially that 50 and older consumer, move back from e-vapor into cigarettes, we know from demographics that, that consumer has a higher propensity for discount brands. And so, that’s why we wanted to show you, see, Marlboro is rock steady as its share of premium. It is something that we’ll continue to monitor and make sure there’s nothing else there, but we believe that’s what occurred, the majority of that in the first quarter.

From a standpoint of the tools, I’m not going to get into specific tools. I did mention, look, we do have Marlboro Bold Ice out in the marketplace. We believe that, with the innovative resale pack, is important to keep the brand relevant and fresh for consumers in the marketplace. And then, you mentioned the loyalty program. And so, we’re going to continue to invest in the brand behind the things that we see work.

Bonnie Herzog — Goldman Sachs — Analyst

And one final question from me, if I may. A lot of companies right now in this environment are talking about their ability to kind of lower spending or pull back on some of the spend. And I’m just trying to think about your business. You mentioned what’s going on with IQOS, and understood that a lot of that is being delayed, given this environment. So, maybe any of the planned spending that you had for IQOS this year, are you redeploying it potentially into your smokeable business? Or is that something that you’re leaving as a cushion, possibly letting it flow to the bottom line? Just trying to get a sense of your spending levels this year in light of everything. Thanks.

Billy Gifford — Chief Executive Officer

Yeah, it’s a great question, Bonnie. We’ve certainly seen some with everybody — all of our salaried workforce, absent those that need to be in the labs or need to be supporting manufacturing, are working from home. And so, when you’re working from home, naturally there is some favorability that would fall out. And so, we’re seeing some of that. We feel like, as we entered the year, we’re very excited about both the opportunity with IQOS and on!. And we felt like we had the right investment plan behind those. So, certainly as we progress through the year, we may see some favorability until we can get the restrictions, if you will, lifted and the economy start getting back to consumers being able to move around. But we feel good about the level of investment and are excited about the prospects related to those.

Sal Mancuso — Executive Vice President, Chief Financial Officer

Good morning, Bonnie. This is Sal. I would just remind us that we went through a major restructuring last year where we eliminated some headcount, reduced costs. So we feel like we have a pretty efficient operation now and that last year’s restructure was very helpful in that.

Bonnie Herzog — Goldman Sachs — Analyst

It’s a good point. Thank you.

Operator

The next question will come from the line of Chris Growe with Stifel.

Chris Growe — Stifel Nicolaus — Analyst

Hi, good morning. And I’ll add my congratulations, both Bill and Sal. Look forward to working with you.

Billy Gifford — Chief Executive Officer

Thanks Chris.

Chris Growe — Stifel Nicolaus — Analyst

Yeah. Let me ask first of all, if I could, as you look at the first quarter, I think what’s more difficult for us to model is what happens in the second quarter. So sort of like in terms of how much upside do you think you saw, say, to EPS in the first quarter? And I guess, is it a reasonable operating assumption at this point that you give that back in the second quarter? Is that purely determined on how much inventory is actually in the system, be it consumer or retailer, and then, how much is given back in Q2? Is that the main determining factor for the second quarter?

Billy Gifford — Chief Executive Officer

Yeah, that will be it. Chris, you nailed it. And it really will be how both retail and wholesale — wholesalers decide to manage that inventory in the current environment and How long this environment last. And I mentioned earlier, we did see some of the consumer payback in the early data in April. We’ll just have to see if they go back to a more normal shopping behavior or if they stay on this, I call it, staggered or less frequent shopping occasions and reload some of their — some of the payback that we’ve seen. So you’re right, it’s a matter of having some more data because it’s so early yet in this process, but having some more data of both the inventory levels as well as what the consumers’ shopping behavior is going to be.

Chris Growe — Stifel Nicolaus — Analyst

In a scenario where the consumer goes once a week instead once every day or every other day, do they consume less than that period in a normal — as best you can tell?

Billy Gifford — Chief Executive Officer

Yeah, the data we have, we haven’t seen where we’ve seen any breaking trend. But again it’s so early yet, but we haven’t seen anything that would indicate any change in behavior.

Chris Growe — Stifel Nicolaus — Analyst

And then, just to understand if I think about the growth you’ve had in volume, if there is — roughly, it looks like a sort of a 4 point contribution from inventory being up year-over-year. You’ve got a couple of points from an extra shipping day. It suggests somewhere around 5 points or so of sort of consumer and retailer inventory holding. Would that be a reasonable proxy for the amount of sort of volume that is to come out in the second quarter theoretically or over the rest of the year?

Billy Gifford — Chief Executive Officer

I think that’s a fair estimate. It might be just a bit more than that, but again, it’s going to depend on how quickly it comes out of — how quickly the environment shifts back from the environment we’re in to more of a, whether you call it, a new normal or normal environment for the both the retailers, wholesalers and the consumer.

Chris Growe — Stifel Nicolaus — Analyst

Okay. I appreciate your time this morning. Thank you.

Billy Gifford — Chief Executive Officer

Thank you.

Operator

The next question comes from the line of Nik Modi with RBC Capital Markets.

Nik Modi — RBC Capital Markets — Analyst

Yes, thanks. Good morning, everyone. And Billy, Sal, congrats from me as well.

Billy Gifford — Chief Executive Officer

Thanks Nik.

Nik Modi — RBC Capital Markets — Analyst

You bet. A couple of questions. First, I can appreciate the visibility is low, right, just for everyone. But is there anything that you see on the horizon that would compromise your ability to deliver within your existing targets? I’m just trying to think of, are there costs that you see that we may not [Phonetic] see right now? Is there — I understand the demand dynamics between March and April. But if we just went into a regular recession — let’s assume COVID-19 never happened and we were in a recession, would you have hold your targets?

Billy Gifford — Chief Executive Officer

Yeah. I’m not going to speak to the hypothetical, Nik. I think we pointed to the two main reasons that we saw. One was related to ABI because they represent such a large portion of our earnings. And then, the — it’s just the uncertainty. And you’ve seen probably the range of scenarios I’ve seen from economists about whether it’s — some are calling it a Z, some a W, some a U, some an L. And so, we would like a little bit more data on that. We feel like we — again, we have the right tools. It’s just a matter of how much of — and the appropriate timing of that, depending on how our consumer feels in this economy.

Nik Modi — RBC Capital Markets — Analyst

Great. And then, just talking about those tools, relative to the last downturn we had in ’08 and ’09, you have the Marlboro Rewards program and then you have your data intelligence tool on helping more local SKU assortment. Can you just talk about that and how you plan to use those if we have a downturn or a more severe downturn?

Billy Gifford — Chief Executive Officer

Sure. I think it’s important to remember that the tools that we have — so, every pack of Marlboro leaves their doors at the same price. And so, we have price promotions where we can buy down the price of Marlboro, let’s say, Michigan and not affected in Texas. We have especially more packs with the data analysis that we have now that we can do down to the zip code level. And then, with our extensive database, both of our consumers and competitive consumers, we can send couponing out. With Marlboro Rewards, the highest redeemed item is coupon, and we actually appreciate that because that means there is a big sign of loyalty because they’re going to come back and buy Marlboro again. So, we have the tools, and now we have the data to be able to precisely put that in place in the marketplace.

Nik Modi — RBC Capital Markets — Analyst

And the last question I had was, obviously, there’s a lot of stuff going on with JUUL with the FTC’s rolling. How do you guys think about your strategy there? What if they make you unwind it and you don’t win it in court? How do you think about reentering the traditional e-cigarette category, given that you had to get rid of Mark 10 [Phonetic] prior to the JUUL deal?

Billy Gifford — Chief Executive Officer

Yeah. Murray, do you want to start that from a legal standpoint? And I’ll follow up with the business side.

Murray Garnick — Executive Vice President, General Counsel

Sure. Well, as we indicated, our focus right now is in defending the transaction. The process — the administrative process will take a number of years. So, we have a hearing date set in March. Right now, it’s been stayed. So, by the time we get through the hearing and get through the Commission and any appeal, easily that’s a process that could take two to three years. So, what you’re asking is pretty hypothetical.

Billy Gifford — Chief Executive Officer

Yeah. I think from a business standpoint, Nik, when you back up and not make it specific to JUUL, we believe the non-combustible space is going to play an important role going forward, and that’s why you’ve seen us apply the portfolio strategy. So we have our traditional MST. We have on! now with the nicotine pouches. We have the exclusive right for IQOS in the US in heat-not-burn. We do believe e-vapor will play an important role going forward, as it goes through, I’ll call it, a two to three year speed bump as the e-vapor manufacturers are navigating the FDA submissions and approvals and all of that process. So, we’ll certainly be focused on it. But as Murray said, we feel good about our case and we’ll vigorously defend it.

Nik Modi — RBC Capital Markets — Analyst

Great. I’ll pass it on. Thank you.

Billy Gifford — Chief Executive Officer

Thank you.

Operator

Our next question is from the line of Adam Spielman with Citi.

Adam Spielman — Citigroup — Analyst

Hi, thank you very much. And once again, congratulations from me too.

Billy Gifford — Chief Executive Officer

Thanks Adam.

Adam Spielman — Citigroup — Analyst

So, can I come back to the question about the removal of the guidance? Now, I think we all get why you’ve removed guidance with relation to ABI? That’s very clear. But in the past, even in 2008-2009, you managed to keep your guidance despite the FET increase, which is a big uncertainty. And in the past, you always used to argue that fundamentally you could lift prices enough to offset volume declines, even if mix went against you. And now, we are in a situation where you have actually even better tools as you’ve said to very specifically target things efficiently with your data analytics, your Marlboro Rewards and so forth. And so, I’m wondering what’s different now. And I’m just talking about the tobacco side of the business, about why the uncertainty in the economy now is not allowing you to sort of retain visibility in operating income, whereas in every previous recession, you have been able to do that.

Billy Gifford — Chief Executive Officer

Yeah, it’s a good question, Adam. And you’re exactly right to point out tobacco is resilient, especially the cigarette category, and that’s why we maintained that 4% to 6% volume decline. I think what’s different this time is just the nature of it. It came on so fast and it was — really led to businesses not being able to operate versus the normal of you have some unemployment and then you start having some people hired back. The difference here is just how long and then how deep — I mentioned earlier, and I’m sure you’ve seen it, Adam, the range of scenarios of how deep the unemployment is going to be and then how long and what the recovery period would look like. It’s a bit more unpredictable this time from the external factor of the recession and how it’s going to impact the consumer, and that’s why I believe it’s a bit different.

Adam Spielman — Citigroup — Analyst

And if I can ask a follow-up question to that, you talked about some of the tools you’ve got to address the problem, so Marlboro special blend, maybe promote that or make that a bigger focus, very targeted data analytics, targeted pricing. Do you think it will — is one of the tools to simply increase prices less in 2020 than perhaps you were planning at the start of the year before this whole thing appeared?

Billy Gifford — Chief Executive Officer

Yeah, I’ll be careful not to talk about future pricing too much. I think everything is on the table. With any pricing decision, there are a number of factors that go into that. It’s the health of the consumer. It’s what does competitive pressures look like? What is the health of the brand? So, we don’t go into the year with a pricing plan and just stick to it. We evaluate that as we progress through the year. But we certainly feel very confident about the tools we have available and now supported by the advanced analytics.

Adam Spielman — Citigroup — Analyst

Okay, thank you very much. It’s very helpful.

Billy Gifford — Chief Executive Officer

Thank you.

Operator

Our next question is from the line of Pamela Kaufman with Morgan Stanley.

Pamela Kaufman — Morgan Stanley — Analyst

Good morning. Congratulations Billy and Sal on the new roles.

Billy Gifford — Chief Executive Officer

Thanks, Pamela.

Pamela Kaufman — Morgan Stanley — Analyst

I was hoping that you could clarify your comments on the dividend. Should we take it as the dividend payout may exceed the 80% target this year, if your reported EPS maybe impacted by ABI but that’s not necessarily a significant of a contributor to your cash flow generation?

Billy Gifford — Chief Executive Officer

Yeah, you’re right. ABI, after they reset their dividend in the last period, represents a smaller portion of our free cash flow. I really think what we were trying to do is allow our investors see– now that we pulled full year guidance for the current year, to share with them how we would approach or recommend to the Board — it’s ultimately a Board decision, but recommend to the Board our dividend policy. And it really is, look, our two tobacco businesses convert income to cash at over 90%, and that’s extremely high. And then we have — we feel like very well positioned and strong balance sheet. And so those factors will weigh into those recommendations absent any full-year guidance so that the investor base would know where we were headed with our dividends.

Pamela Kaufman — Morgan Stanley — Analyst

And then, given the uncertainty in ABI’s outlook and the reduction in their dividend, I guess, how are you thinking about your commitment to holding onto this asset beyond the lockup expiration next year? Have there been any changes in your — how you’re thinking about maintaining the stake both in ABI and Ste. Michelle?

Billy Gifford — Chief Executive Officer

Yes, Sal, why don’t you take that?

Sal Mancuso — Executive Vice President, Chief Financial Officer

Sure. Good morning, Pamela. You are right. Our lockup in the ABI shares expires in 2021. And look, at that time, we’ll evaluate whether it’s the best use of capital and make our determination.

Pamela Kaufman — Morgan Stanley — Analyst

Okay, thanks. And then, just last, are you seeing any shift in your channel mix due to people driving less, maybe a shift away from convenience stores? Does this have any implications for your sales strategy and retailer relationships? And are there any differences in profitability by channel?

Billy Gifford — Chief Executive Officer

Yeah. So, from a standpoint of shifting, it’s a bit too early to tell, but we haven’t seen anything that would indicate any significant shift between channels. It’s very important to us that both C stores and supermarkets have remained opened under the various Governor Executive Orders by state. And so, we have a good plan in place and we’ll continue with that plan. We’ll certainly keep an eye on if we see anything shifting. But we haven’t seen anything to note.

Pamela Kaufman — Morgan Stanley — Analyst

Okay, thank you.

Billy Gifford — Chief Executive Officer

Thank you, Pamela.

Operator

Our next question will come from the line of Gaurav Jain with Barclays.

Gaurav Jain — Barclays — Analyst

Hi, good morning. Congratulations, Billy and Sal.

Billy Gifford — Chief Executive Officer

Thanks very much.

Gaurav Jain — Barclays — Analyst

I have a few questions. So number one is on Tobacco 21. We have now had four months of that law being implemented. So, we should have some initial read and some of that impact should have already been in the numbers. So, what can you share on that?

Billy Gifford — Chief Executive Officer

Yeah, you’re right that we saw — remember, about 50% of the population in the US was in jurisdictions at the middle of last year that were already at 21 or older. Certainly, in the current environment with the COVID impact, it’s a bit hard to tease out exactly what’s taken place in the first quarter. As we mentioned, consumers were pantry loading. So, it’s something that we’ll watch. But you’re right to say that some of it was in our numbers last year, and we expect to see the remainder of that come out this year.

Gaurav Jain — Barclays — Analyst

Sure. My next question is on the US oral tobacco market, of which the growth has accelerated per your slides, and it’s now plus 5%. So what has accounted for it? Is it new consumers? Or is it mainly existing consumers in cigarettes and e-cigarettes switching into oral tobacco?

Billy Gifford — Chief Executive Officer

Yeah. I think it’s a mixture of consumers shifting. You can see, we were excited about on! interacting with both cigarettes and the — the consumer group you left out were MST, traditional MST consumers. And there is the potential that e-vapor consumers, as they want to stay in that alternative space, if they’ve left cigarettes and they’re in the alternative space, and previously, it was e-vapor, that they could take it up. And so, that’s why we are so excited about getting that into the distribution and expanding that, so that’s in the consideration set of our consumers, as they’re making these different choices.

Gaurav Jain — Barclays — Analyst

Appreciate. Thank you. My next question is on the supply chain issues. So you have one factory which was shut for two weeks and COVID is still with us and there could be — anything can happen here. So how do you approach that? Do you build excess inventory? Do you partner with some manufacturers so that there is some buffer capacity? Can you just share your thoughts on that?

Billy Gifford — Chief Executive Officer

Sure. I had the honor of being able to run that organization for a period of time in my career. And I will tell you that, that manufacturing team is extremely strong. They had business continuity plans in place for years. And so, I always got to see them run those business continuity plans kind of in a test environment. Now, I’m getting to see them execute it for real. We were able to build inventory and take the voluntary position to shut down for two weeks once we had a couple of cases pop up. And that was really to prevent community spread amongst the employee base. And we think that was the right decision. We put in very enhanced protocols, so really extremely communicating to the employee base about social distancing. For instance, we actually have the employees go through a temperature check before they report in. We have some shifts separation that takes place. So previously, if I were running the machine, I would — the next operator would show up a little bit before so the machine could run full speed. Now, we actually have separation. So I would actually bring that machine down in a disciplined fashion to idle. I would leave the building and the next operator would come in and be able to bring that back up. We think what that does for us is, as you — I think you’ve been in the MC or manufacturing center. If you really think about it, it’s smaller factories within a very large complex. And so, now that we’ve restricted some of the movement around the manufacturing center. if we should have the unfortunate instance of another case popping up, we would be quarantining one shift of employees related to that one bay, we would do extensive cleaning and then we would be able to run the next two shifts in that bay. So, with the enhanced protocols we put in place, we believe we’ve greatly mitigated the need to have to shut down the entire facility as we move forward into the future. I would say, as we start to bring it back up, again with the strength of our manufacturing team, we’ve already started rebuilding inventories.

Gaurav Jain — Barclays — Analyst

Thank you for that detailed answer. And if I can sneak in one last question, we had this news yesterday that JUUL is restructuring its operations and you have a number of lawsuits against it. So if JUUL were to need more capital to settle some of these lawsuit, would you be contributing more to maintain your equity stake?

Billy Gifford — Chief Executive Officer

Yeah, I think that’s something that we’ll have to decide if we’re faced with that. Look, we’ll go through our normal M&A analysis and make the decision at the appropriate time. And that’s the way we’ll approach anything like in that realm of possibility.

Gaurav Jain — Barclays — Analyst

Sure. Thanks a lot for your time.

Billy Gifford — Chief Executive Officer

Thank you.

Operator

Our next question will come from the line of Robert Rampton with UBS.

Robert Rampton — UBS — Analyst

Hello. Congratulations to you both from me as well.

Billy Gifford — Chief Executive Officer

Thank you.

Robert Rampton — UBS — Analyst

I’ve got three questions on my end. The first is that you flagged that macro factors were a 20 bps tailwind to volumes in 2019. Could you help us understand what the range of outcomes scenarios you’re thinking about for that one in 2020 is? Thanks.

Billy Gifford — Chief Executive Officer

Yeah. I’m not going to share that at this point in time just because the ranges are so wide. As I saw and I’m sure you’re seeing, there is a number of predictions around how this is going to impact the economy and how long it’s going to last. We’re certainly trying to provide transparency as we move into the future, but it’s a bit early. It’s only a couple of weeks so far that we’ve really seen the unemployment numbers jump. And so, it’s something that we’re watching. We sure are running a number of scenarios so that we’re planned about how we’re going to approach those range of scenarios. But I think it’s too early to really put a range around them.

Robert Rampton — UBS — Analyst

Fair enough. I guess, my second question is then on — in terms of — you commented on volume trends over April and how is down-trading looking over April. I’m trying to understand in the context of the 3% to 4% retail price increases, how big the risk is to kind of your net revenue per stick.

Billy Gifford — Chief Executive Officer

Yeah. I think, again, it’s so early in the data. I did want to share that we saw some of the payback happening. I think it’s too early really to call a trend or any pressure from a down-trading standpoint. But we wanted to highlight for you that we believe that’s going to happen. And we think we have the right tools in place. It’s just a matter of when we deploy them or if we need to deploy them depending on — as we see the pressure on the consumer and where it’s necessary.

Robert Rampton — UBS — Analyst

Okay. That makes sense. And then, sort of my final question is just on IQOS. Any updated thoughts on how receptive do you think the US consumer is to the proposition?

Billy Gifford — Chief Executive Officer

Yeah, it’s a great question. Look, we were extremely excited with what we were seeing in Atlanta and Richmond. Unfortunately, it was a bit affected by this COVID pandemic. But we’re excited to get right back on it. We did delay Charlotte, as I said earlier. But we’re excited what we were seeing, and we’re excited to be able to get back to it. We’ll really be guided by health authorities as they release the restrictions or remove some of the restrictions to be able to get back to that person-to-person interaction. We think we’ve learned some things. I mentioned earlier, we really wanted to bring forward the social benefits of no ash and less odor. That was one of the things we’ve learned in Atlanta is people were very aware of the brand but were less aware of the social benefits. And so, our team moved so quickly in analyzing that. And so, we’re going to bring that to light as we expand it once we get the permission to do that from government authorities.

Robert Rampton — UBS — Analyst

Superb. Thank you very much.

Billy Gifford — Chief Executive Officer

Thank you.

Operator

The next question is from the line of Priya Ohri-Gupta with Barclays.

Priya Ohri-Gupta — Barclays — Analyst

Good morning. Congratulations, Billy and Sal. Look forward to working with you in your new roles.

Billy Gifford — Chief Executive Officer

Thank you very much.

Priya Ohri-Gupta — Barclays — Analyst

Thank you for taking this question. Just a quick one. So your revolver dry has helped you guys get through sort of your peak cash needs period. How should we think about the need to potentially replace those borrowings and then possibly shore up liquidity going forward, just given some of the uncertainty that you talked about in the current environment? Thank you.

Billy Gifford — Chief Executive Officer

Yeah, Sal, take that one.

Sal Mancuso — Executive Vice President, Chief Financial Officer

Sure, Billy. Thanks for the question. You are correct. April is a large month for cash outlays, and we drew down the full $3 billion revolver in March. Typically, we’d be in the capital markets for commercial paper. Obviously, this year was a different year. And I think the way we think about the revolver is, we will continue to monitor the market and evaluate our business needs, and we’ll be happy to update you at the appropriate time in terms of when we pay the revolver off. As far as capital markets, I really won’t get into specifics of when we access the capital markets. But again, we monitor the market, we monitor what our business needs are, and we will make the appropriate capital allocation decisions at that time.

Priya Ohri-Gupta — Barclays — Analyst

Just as a follow-up, it sounds like the CP market for tier 2 has opened up substantially more recently. Could you comment on sort of how that looks in terms of meeting some of your short-term needs and whether we should think about CP as a possible source to help replace some of those revolver borrowings? Or would long-term debt be more attractive just as we think about the relative costs? Thank you.

Sal Mancuso — Executive Vice President, Chief Financial Officer

Yeah, thanks for the follow-up. Look, I really don’t want to get into specific capital markets decisions. But we will monitor the economy, the markets and our business needs very closely, and we will make the appropriate decision on how we allocate our capital decisions.

Billy Gifford — Chief Executive Officer

Yeah, the only thing I would add, I think you’re right, the CP market for tier 2 is starting to loosen up a little bit. It’s been a very recent phenomenon. It was very choppy early on, and that’s why we went ahead with the utmost cautionary measures to go ahead and draw the revolver. Look, we’re very comfortable with the CP market when it’s there. But that’s what the revolver was for. It’s to back up when CP markets dry up. And that’s what we were seeing at least in tier 2 for quite a while through the pandemic. If it stays deep, we could certainly lay out some in the CP market if we see that it’s going to remain that way for a period of time. But as Sal said, we’ll make those decisions. We monitor the markets on a daily basis, and we’ll make those decisions based on what we’re seeing in the marketplace.

Priya Ohri-Gupta — Barclays — Analyst

That’s very helpful. Thank you so much.

Billy Gifford — Chief Executive Officer

Thank you.

Operator

We would now like to open the conference to media questions. [Operator Instructions] We have a question from the line of Jennifer Maloney with Wall Street Journal.

Jennifer Maloney — Wall Street Journal — Analyst

Hi, Billy. I wanted to follow up on JUUL. Given the fact that they’ve recorded a $1 billion loss for 2019 and are planning significant staff cuts, I wonder what your thoughts are on the outlook for the company?

Billy Gifford — Chief Executive Officer

Yeah, I think from a standpoint of — just a reminder is because we — once we convert or make the decision to convert, we would go under the equity method. But we chose the fair value option. So really what gets recorded to the P&L is any impairments going forward and dividends received. So it’s a bit different than what we do for ABI and Cronos where we record their share of — our share of their income. So I think that’s just important to remember. I think from the outlook of JUUL, look, we think they’re making the right decisions. I think details around that are best ask of JUUL. But outside looking in, we feel like the overhead had gotten a bit ahead of itself. And we — it’s unfortunate it’s in the middle of this COVID crisis. But we certainly believe that the reduction in overhead and that type of spending is a smart move to make.

Operator

And with that, we show no further audio questions at this time.

Billy Gifford — Chief Executive Officer

All right. Thanks again for joining us, and please contact our Investor Relations team if you have any further questions. And on behalf of all of us at Altria, we hope that everyone remains safe and healthy. Thanks very much.

Operator

[Operator Closing Remarks]