奧馳亞 (MO) 2007 Q3 法說會逐字稿

Good day.

Welcome to Altria Group's Third Quarter 2007 Earnings Conference Call.

Today's call is scheduled to last about one hour, including remarks by Altria management and question and answer session.

(OPERATOR INSTRUCTIONS) Media representatives on the call will also be able to ask questions following the conclusion of questions from the investment community.

I'll now turn the call over to Nick Rolli, Vice President of Investor Relations and Financial Communications for Altria.

Please go ahead, sir.

Good morning and thank you for joining us on the call today.

For those of you listening via the audio webcast, we are providing summary slides of third quarter results.

Today's call is limited to a discussion of our business results.

Our remarks today contain forward-looking statements and projections of future results and I direct your attention to the Safe Harbor statement at the end of our news release for review of the various factors that could cause actual results to differ materially from projections.

For a detailed review of our third quarter results, I direct your attention to the news release we issued earlier this morning which is available on the Investor Relations Section at altria.com.

Now it's my pleasure to introduce Dinny Devitre, Altria's Senior Vice President and Chief Financial Officer.

Thanks, Nick.

Good morning.

As you know, in August we announced our intention to pursue the spin-off of Philip Morris International.

The Board anticipates that it will be in a position to finalize its decision and announce the precise timing of the spin-off at its regularly scheduled meeting on January 30, 2008.

In September, PMI filed with the SEC a preliminary registration statement on Form 10 in preparation for its potential spin-off from Altria, and you can access the document at SEC.gov.

In addition, Altria submitted a private letter ruling request to the IRS.

Now turning to earnings.

Altria generated strong third quarter results with robust income growth driven by U.S.

and international tobacco.

Diluted earnings per share from continuing operations were up $0.19 or 18.1% to $1.24 including favorable tax items of $0.05 per share and charges of $0.02 per share for asset impairment and exit costs as well as other items detailed on Schedule 7 versus $1.05 per share in the year ago quarter.

Adjusted diluted earnings per share from continuing operations were up 13.1% to $1.21 versus $1.07 in 2006.

For the full year, 2007 earnings per share guidance was raised $0.15 to a range of $4.20 to $4.25 versus a previous projection of $4.05 to $4.10.

This reflects $0.08 per share due to a lower tax rate, favorable currency of $0.04 per share and higher income at PMI of $0.03 per share.

Turning to our domestic and international tobacco company results, I'll start with Philip Morris USA.

In the third quarter, PMUSA's operating company's income increased 2% to 1.3 billion driven by lower wholesale promotional allowance rates and lower selling general and administrative costs.

Those items were partially offset by increased resolution expenses, lower volume, investments in support of PMUSA's adjacency strategy and 22 million pretax charge resulted to the previously announced closure of the Cabarrus facility.

Absent that pretax charge, PMUSA's operating company's income would have increased by 3.7%.

PMUSA's shipment volume of 47.1 billion units was down 1% or 500 million units versus the prior year.

However, PMUSA estimates that shipments were down approximately 3% when adjusted for changes in trade inventories and calendar differences.

During the quarter, Philip Morris USA estimates that total [civic] industry volume declined between 3% and 4% and for the full year 2007, PMUSA's maintaining its prior estimate of 3% to 4% decline in total industry volume.

PMUSA achieved a record retail market share of 50.6% up 0.2 points, driven primarily by Marlboro, which increased its retail share by 0.5 points to a record 41.1%.

Both Philip Morris USA and Marlboro achieved sequential share growth for three consecutive quarters.

Retail share for Parliament was up 0.1 point to 1.9%.

As part of its adjacency growth strategy to develop new revenue and income sources for the future, Philip Morris USA initiated a test of Marlboro Snus in the Dallas/Fort Worth Texas area beginning in August 2007.

They also announced a test market for Marlboro moist smokeless tobacco in Atlanta, Georgia and began shipping product to wholesalers this week.

In the third quarter, Philip Morris USA began shipping a number of new products, including Marlboro Smooth 100sbox and Marlboro Virginia Blend king box and 100s box.

For 2007, Philip Morris USA forecasts moderate growth and retail share and operating company income growth of approximately 2%, excluding the manufacturing consolidation charge related to closing the Cabarrus facility.

Turning to our international tobacco business, PMI achieved income growth in all its reportable segments in the third quarter.

Operating companies income increased 18.8% to $2.5 billion, due primarily to higher pricing, favorable currency of $138 million and productivity and cost savings.

Excluding the impact of asset impairment and exit costs, acquisitions and currency, operating companies income grew a strong 10.2%.

PMI's figured shipment volume increased 0.6% to 217 billion units due to acquisition volume from Latin Tobacco and Pakistan.

Excluding the impact of the Pakistan acquisition, cigarette shipment volume declined 1.9% or 4 billion units.

The shipment decline was primarily due to Germany, the Czech republic and Poland partially offset by gains in Algeria, Argentina, Bulgaria, Egypt, Korea, Lebanon, the Slovak Republic, Spain and Ukraine.

Since the earnings release presents a detailed overview of PMI's business in its various segments, I shall contain my remarks to a few specific suggests and markets.

Industry volume in the European Union based on in-market sales as opposed to shipment data at 167 billion units was down 3.8% compared to the same period last year.

The decline was due largely to the impact of tax-driven price increases particularly in Germany, Poland and the Czech Republic.

PMI's in-market sales in the EU at 65 billion units were down 5.3% and market share declined 0.6 points to 39.1% in the third quarter.

However, in the nine months ending September, PMI share was 39.4%, demonstrating that its premium portfolio remains resilient in the face of significant consumer downtrading to low-priced brands in certain markets.

PMI expects to hold share at this level in EU for 2007.

In addition, PMI's profitability in the EU improved significantly in the third quarter over last year with operating companies income up 21% in the third quarter and excluding currency, up a very solid 5%.

In Germany, the cigarette industry declined 5.7% in the third quarter reflecting the impact of higher pricing.

PMI's market share was down 1.3 points to 35.2% driven by consumer downtrading to the low price segment and an increase in a key competitor's trade inventory.

Adjusting for the trade inventory increase, PMI estimates that its market share was down 0.8 points in the third quarter.

In Poland, significant tax-driven price increases resulted in a total industry decline of 10.5% and a market share decline for our business of 2.6 points to 38%.

The decline was due primarily to volume losses for PMI's low-priced brands and local 17 millimeter brands.

However, PMI is increasing its focus on higher margin brands and its profitability in Poland nearly tripled.

In the Czech Republic, the industry was down 9% in the third quarter due to the timing of trade purchases, however, in the nine months ending September, it was up 1.6%.

PMI's share of market declined 8.5 points to 49.3% due to a temporary price disadvantage of PMI's brands as a result of shorter inventory durations and earlier tax-driven price increases versus its competitors.

PMI expects to recover a large part of this loss in the fourth quarter, and is forecasting its full-year share in the Czech Republic to be about 50%.

During the third quarter, PMI's business performed well in Italy, Spain and France and profits were up in all three markets.

Market share in Italy rose driven by Chesterfield, Philip Morris and Merit and in Spain by the growth of Chesterfield and L&M.

In France, market share was down 0.5 points due to higher pricing but profit growth was solid.

The most recent volume trends for Marlboro in France are encouraging despite the price increase.

In EMEA, shipment volume was up slightly in the third quarter as higher volume in Algeria, Bulgaria, Egypt, Lebanon and Ukraine more than offset declines in Serbia, duty free, and the unfavorable timing in shipments in Kuwait.

OCI in EMEA was up 22% to $710 million.

In Egypt, the continued growth of L&M fueled a 21% shipment increase and a market share gain of 2.6 points.

In Ukraine, consumer upgrading to Marlboro, Parliament, and Chesterfield resulted in a shipment increase of 3.5% and a market share gain of 0.6 points to 34%.

In Russia, market share rose 0.2 points to 26.6% as our premium brands Marlboro, Parliament, Virginia Slims, and Chesterfield continue to grow strongly, more than offsetting the decline of L&M.

Last month, PMI replaced the entire L&M brand family with a completely new offering to improve its vibrancy in adult consumer appeal.

The new L&M is receiving good trial response and volume performance to date is encouraging.

Looking ahead, PMI's in-market sales is Russia are expected to return to growth in the fourth quarter as L&M's decline moderates and gains accelerate across much of the rest of our portfolio, especially for our higher-priced brands.

This growth will be driven in part by recent new launches including Virginia Slims Uno, an innovative perfume pack promoted in upscale venues and Marlboro Filter Plus, which was launched in May at a significant price premium to regular Marlboro.

Improved brand mix and better pricing are generating strong income gains in Russia.

In Asia, PMI shipment volume was affected by declines in Indonesia, Japan, Malaysia and Thailand.

However, operating companies income in the third quarter grew 14.5% in Asia to $514 million.

In Japan, the industry was up due to favorable comparison with the third quarter of 2006 as last year's total market was depressed by trade inventory depletions following the July 2006 tax-driven price increase.

PMI shipments in Japan were flat while market share 24.3% was down 0.6 points.

Marlboro share was stable at 10.1%.

For the fourth quarter, PMI estimates that its in-market sales in Japan will be down about 4% and market share will be slightly lower than the fourth quarter of 2006.

In Indonesia, although PMI shipments and market share were impacted by a stick price disadvantage versus its low price competition, profits rose significantly.

Marlboro share grew 0.5 points to 4.3% driven by improved marketing and distribution and the July 2007 launch of Marlboro [critic].

In Latin America, PMI shipments were down 1.5%, as declines in Brazil and Columbia were partially offset by continued growth in Argentina.

However, income was up 7.5% driven by higher pricing.

Market share grew an impressive 2.2 points in Argentina to a record 69.7% due to Marlboro and the continued growth of the Philip Morris brand.

In Mexico, PMI's market share also reached a record 65.5%, up 1.6 points on the strength of Marlboro, Benson and Hedges and Delicaros.

For 2007, PMI's volume is forecast to grow between 2 and 3%, including all lacks in volume in Pakistan.

Absent Pakistan, volume is expected to be down approximately 1%.

Operating company's income is forecast to increase between 5% to 7% in 2007, excluding currency, restructuring charges, and the 2006 Dominican Republic gain.

This concludes my introductory remarks, and now I will be happy to take your questions.

(OPERATOR INSTRUCTIONS) Your first question is coming from David Adelman with Morgan Stanley.

Please go ahead.

Good morning, Dinny.

Good morning, David.

Dinny, let me start at PMI Why isn't the business in Japan performing better and in particular, Marlboro.

I thought part of the premise of the takeback was to drive that brand's performance.

And the share has been stagnant.

So what's happening there and what's the strategy to improve business in Japan?

Yeah.

Look, David, I'm going to start off by saying that we are disappointed with our performance in Japan.

There's no doubt about that.

At the same time, we are determined to renew the market share growth that we enjoyed for many years until recently, and we're really very focused on our actions in that market.

Now, looking specifically at our market share loss in the third quarter, we were down 0.6 points.

All that loss came from [lock], which is not doing as well as we'd like it to do.

On the other hand, Marlboro, in fact, you're right it was increasing its market share in the past, and the fact was that at the time it was increasing its market share it had a fairly convenient price.

It was 300 yen and below.

At the 320 yen price level, that's a pretty high price point, and Marlboro is by far the largest brand in that price category, and it has hit some headwinds.

On the other hand, we've recently introduced some pretty innovative line extensions for Marlboro.

There's been Marlboro Menthol Ice Mint, which has been introduced in some areas in Japan.

It's off to a very strong start.

We have other plans for Marlboro, which should keep the brand growing.

But I'll just come back to the starting point, and that is that we're not happy with the way things are there, and we're determined to make a change and renew our market share growth.

And then fine, Dinny.

In China, the agreement with the CNTC was signed almost two years ago.

What's the status there?

Is there any visibility on starting shipments and production of Marlboro in that market?

Definitely we're slower than we expected.

We would have expected by this time the Marlboro license agreement would have [fructified] into actual production.

That has not happened.

I can tell you we're in close touch and working very cooperatively with CNTC, but I can't give you a date at this time as to when we're going to start the Marlboro license production.

Okay.

Then if I shift, Dinny to the United States.

Was the September price increase part of PMUSA's business plan coming into this year?

Yeah, more or less, yes.

Okay.

And if there is, Dinny, whether it's, you know, leaving aside the exact timing or the magnitude if there is a substantial increase in the federal excise tax, do you think PMUSA's prepared to temporarily de-emphasize its historical relative focus on market share to go more for profitability?

Well, David, you know we never talk about pricing strategies, so I'm going to stay away from that question.

I will tell you regarding the FET, we don't know what's going to happen to the FET.

We believe the veto will be sustained tomorrow, and but we don't know what's going to happen to the FET.

We are against the FET as an industry.

We think this industry's already over-taxed, and that a federal excise tax increase would create unintended unfavorable consequences.

Okay, fine.

Dinny, lastly, more generally, subsequent to the end of the quarter, have you now recouped the $1.3 billion escrow in Engle?

No, not as yet.

Okay.

And lastly, will the two individual businesses, Dinny, are they likely to articulate or have their respective Boards authorized share repurchases prior to the PMI spin or will that come after the spin is completed?

The Altria Board will specify the share buyback program, and, you know, we will announce it sometime before the spin.

Thank you very much.

Okay.

Thank you.

Your next question is coming from Judy Hong with Goldman Sachs.

Please go ahead.

Hi, Dinny.

Hi, Judy.

Just looking at PMI and sort of taking a broader view of what's going on in terms of how do you think about the volume and pricing trade off because right now it seems like you're getting improved pricing in many markets around the world but volume has suffered to some extent because of that.

I'm just wondering as you sort of think about going forward, will there be increased focus on volume growth or will we continue to see this business volume flattish or maybe down slightly but really getting pretty good growth because of price mix improvement?

I think we've got to look at this question over a longer period of time for just a quarter or even a year.

Clearly, PMI wants to balance volume or profit performance.

This year PMI has increased its focus on achieving revenue growth and income growth, and this is clearly evident in the numbers, Judy.

You can see, for example, that on an apples to apples basis, revenue was up 4.5%, and OCI10%.

These are strong numbers by any measure.

I'd also like to point out that if you examine our brand mix and categorize our portfolio into three buckets from the most profitable to least profitable, we've kept the contribution of our top bucket, and I'm comparing these buckets between the third quarter this year to third quarter next year.

We've kept the contribution from our top bucket fairly flat in percentage terms.

We've grown our middle bucket significantly and we've reduced the contribution of our lowest profit bucket.

In fact, we've shed what I would refer to as some volume fodder.

Going forward it's clearly PMI's objective to seek an optimal balance between volume performance on the one hand and revenue and OCI growth on the other hand.

Having said all that, it's important to note that PMI must be given credit for the volume it gets from acquisitions.

Acquisitions is part of the business.

It's not a one-time thing.

If you look over the last five years, we've had positive growth every year, so acquisitions is very much part of the base business.

Organically, obviously, the volume decline we had in third quarter of 1.9%.

Actually it was 1.7% when you adjust for the fact that the duty-free business, which used to be managed by PMI and recorded in PMI's volume has now been transferred to Philip Morris USA, if you account for that volume was down 1.7%.

Even that is too high a decline, we are very definitely aiming to have flat to slight growth in our volume, and balance that with good operating profit.

Okay.

Just looking at the U.S.

market, are you seeing any sequential improvement in the industry consumption train as we've entered the second half of the year versus first half?

And secondly, just in terms of the clarification on your shipment numbers in the third quarter, was that helped by the inventory loading that took place this quarter or was there something last quarter that affected that number?

No, it was helped by the fact that this quarter ended on a Sunday, and so it was -- Sunday's like a half day and it got included in this quarter.

Normally, Sunday gets thrown into the following week, which is the normal way we handle accounting for volume.

But this year, the last day of the quarter was a Sunday so you could say that the quarter benefited by half a day compared to last year's quarter.

And the first part of your question, regarding the consumption rate, it is improving.

Volume was down, I'd say more than 4%, clearly in the first quarter, about 4% in the second quarter, and is trending down into the 3 to 3.5% range in the third quarter.

So for the year, we're going to end between 3 and 4%.

Okay.

Then finally, if you have any update on the existing debt tender offer at this point?

No, no update at this point.

Okay.

Thanks, Dinny.

Thank you.

Thank you.

Your next question is coming from Erik Bloomquist with JPMorgan.

Please go ahead.

Good morning, Dinny.

Good morning.

I wanted to start off on PMUSA.

I was wondering if you could help me understand why Basic was so weak in the quarter?

Are you seeing an increase in discount competition?

If you could just give us in color around that.

You know, Basic was down in the quarter.

There have been quarters when it's been up.

There have been quarters when it's been down.

This quarter unfortunately lost 0.2 points.

There is quite a lot of competition from low-priced brands, not just the deep discount brands but even low-priced brands from the major manufacturers.

And that has affected Basic in the third quarter.

Is that competition increasing or intensifying or is that simply just kind of the way the business unfolds through the course of the year?

It's the latter.

Okay, thank you.

With respect to PMI then, the view in Germany it seems like it's remaining somewhat more negative than I'd anticipated.

Is there a -- are we still seeing lots of down trading or a shift of volumes from the sticks product?

Is that going into fine cut?

And when do you think we may see some stabilization in the German market?

Yeah.

The German market, you know, declined I think about 5% in this quarter.

And that decline was exacerbated by the fact that the third quarter last year, in fact, benefited from the World Cup event with retailers restocking in the third quarter of last year, so that did have some impact, but nevertheless, the decline rate is, you know, somewhere in the 3 to 4% range.

So -- and the sticks switchback has gone more to fine cut as well as obviously unfortunately the cross-border business has benefited from the switchback from portions.

At the same time, the lower priced segment in Germany is growing.

Our own L&M is doing very well but so are the lower-priced brands from our competitors.

Okay.

Thank you.

And then lastly, on Japan, you said that you expected the volume off about 4% and market share a bit lower than in Q4 '06.

Is that due -- are you attributing that to the price increase that you've taken in October of this year?

No, I don't think so, because the price increase we took in October this year was really just covered about 12% of our volume, and the problem remains really with Lark.

Sorry.

I had one more if I may.

In the PMI filing, it showed most of the stockholders' equity in Philip Morris International.

Could you help us think about how that may be allocated in the future with respect to PMI and then the Altria PMUSA allocation?

That goes to the heart of our capital structure.

That is still being deliberated on, Erik and will become evident over the next few months.

Thank you, Dinny.

Thank you.

Your next question is coming from Filippe Goossens with Credit Suisse.

How are you doing?

Hi, Filippe.

First question is kind of going back to David's earlier question with regard to the FET.

The industry is currently also lobbying against a proposal in the state of Oregon for an $0.85 increase, and that tax revenue, if it were to be enacted in November, it looks like to me it would go to the same kind of programs to help fund healthcare for children.

Can you just kind of help me understand better if Oregon were to be enacted and there were to be an FET increase, how the two work together because they seem to be both aiming for the same objective?

Yes.

That's a good question.

First of all, we do have -- we have joined a coalition in the Oregon matter, and we are totally opposed to it.

We're doing our best to persuade people that this is the wrong thing to do.

We'll have to wait and see on November 7 whether our persuasion has been successful or not.

But I really can't answer that question exactly.

My assumption, though,that one is a federal excise tax increase.

The other is a state excise tax increase.

Unfortunately, they will be cumulative.

Okay.

Then my second question, if you look at the 50 basis points in market share increase for Marlboro, how much of that, Dinny,is driven by initial inventory shipments for some of your product line extensions, both the Marlboro Snus extension as well as the Virginia Blend for Marlboro?

Very little.

Most of it is just a core business of Marlboro.

Okay.

Then moving quickly to Germany, in your prepared comments as well as in the press release, you refer to inventory loading by competition.

Was that pretty broad based or was it just one particular flair out there?

It was just one particular flair out there.

That load was 600 million in the third quarter of this year, but the same player made of third quarter last year.

Okay.

Then moving to the smokeless marketing initiatives there or test marketing.

Given that you have at the bulk for little over a year, how long do you think you need now with this new stuff to balance before you will have enough data points to make a decision whether to roll this out nationwide or not?

You know, the test marketing in you refer to the one-year test market, but that was for a totally different brand.

Here we're starting off with Marlboro.

It's been in the test market only two months.

I think it went into test market retail on August the 8th.

And I really can't give you a time, Filippe.

I think we will just have to study this very carefully.

It's a very, very important initiative.

I'm not in a position to give you either time or whether this is going to be a step by step extension of the test market.

I'm sorry, we'll just have to wait and see.

Okay.

A few months ago you filed a lawsuit related to contraband with regard to Internet retailers.

You have not commented for sometime now on the historic agreement you signed a number of years ago with the European Union where you joined forces to fight contraband.

You did mention that Germany cross-border traffic is still an issue.

Can you just give us quickly an update in terms of how your initiatives are currently progressing with regard to contraband, et cetera, in Europe?

Actually they're doing -- going very well.

Our cooperation with the Europeans is terrific.

We're working closely together.

There's very little I can add.

The references you make to the suits against contraband and counterfeit that was in the United States.

Correct.

So I really don't know what the status on that is, but I can tell you that in Europe things are progressing very well and there's very solid cooperation.

Thank you.

Your next question is coming from Bonnie Herzog with Citigroup.

Please go ahead.

Good morning, Dinny.

Hi, Bonnie.

Obviously a lot of questions have already been asked, so I honestly just have one, and I don't know if you can tell us too much about the progress that has been made regarding the Form 10 that you have filed, any feedback you've heard or anything else you've heard regarding the other items that need to be achieved before you can officially spin off PMI?

Yes.

Well, I think the first thing to note, Bonnie,that the Form 10 is a work in process.

We filed at the end of September and we expect to receive comments from the SEC at the end of October.

So within the next week or so, I think we should receive some comments.

We will then make necessary amendments and there will be a kind of iterative process between now and the end of the year or fluid process where they ask us questions, we give them replies, et cetera, et cetera, and this will continue till the end of the year.

Then in February next year, we'll drop in the final 2007 data with regard to financials and everything else, including the CD&A data, et cetera.

Then we have a final Form 10, which we'll present to the SEC, I think, like in the first week of February.

No, that helps.

Thank you very much.

Thank you.

Thank you.

Your next question is coming from Ann Gurkin with Davenport.

Please go ahead.

Good morning, Dinny.

Good morning, Ann.

I want to follow up on a comment you made about the Ukraine benefits from consumer uptrading.

Just if you expand on that comment.

What is your confidence that uptrading will continue not only in the Ukraine but throughout developing markets over the next two years?

What's the biggest risk to that trend?

Yes.

I think we're seeing uptrading in a number of markets.

The Ukraine is one example.

Russia is another example.

I think in most Eastern European markets, we're seeing this uptrading.

We're also noticing it in markets such as Turkey.

So there's a sense that consumers are clearly uptrading in the developing markets.

That's obviously good for the business.

I think the only thing that can upset that movement is if there's some, you know, major worldwide financial crisis, and I certainly am not going to predict one way or the other on that.

So I can't see anything coming in the way of the current trend, anything specific, rather, coming in the way of the current trend of uptrading that we're seeing in a number of developing markets around the world.

Great.

Then switching back to the US.

The plan, as I note, is you're supposed to shift sourcing of volume from Cabarrus by the third quarter of 2008.

What's the risks that timing might shift out to 2009?

No, I think we're pretty much on schedule.

You're on schedule to shift most of the volume by Q3 '08?

Yes.

Great, thanks.

Thank you.

Thank you.

Your next question coming from Christine Farkas with Merrill Lynch.

Please go ahead.

Thank you very much.

Just a quick question, Dinny, if I could, I guess on the global markets.

You touched on the trading up.

If we were to pull out currency from your top line at PMI, and if I've done the math correctly it looks like the top line actually declined.

I understand the volume decline but can you talk about the price increases offset by the country mix in that top line?

Thank you.

I don't think that's correct what you just said.

When you talk of top line, if you talk of revenues net of excise, net of currency, we were up.

It was up?

Okay.

Must be my miscalculation then.

That was the only clarification I needed.

Thanks, Dinny.

Thank you.

Thank you.

Your next question is coming from Chris Growe of A.G.

Edwards.

Please go ahead.

I had a question relative to Christine's question there.

On just mix in general, it is hard to calculate.

I had a different calculation than she did.

I had, kind of pricing, if you will, up 2, 2.5%.

Is there a negative mix just because of the way you had some big shifts in certain markets that worked against the quarter this quarter?

Well, certainly, you know, we look at our volume was down for the quarter and therefore clearly income was down because of that.

As far as mix is concerned, it was slightly positive compared to the same quarter last year.

And if you recall, my first explanation to, I think, David's question when I spoke about comparing this quarter to the third quarter last year and looking at those three buckets, you know, from most profitable to least profitable, and if you look at those buckets, the most profitable has stayed fairly steady in terms of percentage contributions.

The middle bucket, which is fairly profitable, has grown, and the lowest least profitable bucket has declined in terms of contribution.

That would suggest that our mix is improving.

That's very helpful.

I have just some quick followups for you.

Relative to your foreign exchange, the $0.04, if you will, boost to guidance, does that put you pretty much at current rates?

Is that a good, reasonable estimate?

Yes.

Then the Engle escrow, should that come back, is that correct?

We have to wait and see regarding the Engle escrow.

It is tied up with certain legal issues and we're not sure that we're going to get it back this year or next year.

Okay.

And then the last question I had for you is you outlined a number of countries where you had some temporary gaps, if you will, in pricing.

That led to some weak volumes, whether it was Indonesia, the Czech Republic, Russia, Poland, a few others.

It looks like Q4 could be a much better volume growth quarter.

Would that fit with your internal view?

Not much better.

A little better, not much better.

Okay.

Thanks a lot.

Thank you.

Thank you.

(OPERATOR INSTRUCTIONS) As a reminder, media representatives on the call will also be able to ask questions following the conclusion from questions from the investment community.

Your next question is coming from Erik Bloomquist with JPMorgan.

Please go ahead.

Hi, Dinny.

I just wanted to follow up on the answer you gave to David on the buyback.

What I heard was that you said the Altria Board will announce the buyback prior to the PMI spin.

Could you clarify and expand on that, please?

The only thing clarification I can give is I'm talking about the current Altria board.

Okay.

So that would be a buyback pertaining to Altria post spin?

Altria and PMI post spin.

Okay.

So the announcement will discuss the aggregate buyback for the entire Altria group and then how that's allocated between PMI and PMUSA will be clarified post spin?

No.

It will talk about the buyback plans for PMI separately and Altria separately.

Okay.

And that will be announced prior to the spin being completed?

Yes.

Okay.

But post the announcement of details on the spin on January 30?

Yes.

Great.

Thank you very much.

Okay.

Thank you.

Media representatives, (OPERATOR INSTRUCTIONS) Your next question is coming from Chris Barrett with Bloomburg News.

Please go ahead.

Hey, Dinny, this is Chris with Bloomberg.

Hi, Chris.

The PMUSA folks in Richmond are giving a press tour of your new R&D center tomorrow.

From the corporate view, can you give some insight into your expectation of how that facility is going to develop products that are going to contribute to PMUSA down the road?

Chris, as we've said in the past, the R&T center, which I think is already being -- we've already got some employees in there, I think the R&T center will be completely operational by, I think, the second quarter of next year.

As we said before, the purpose of that center is to give Philip Morris USA a much brighter future in terms of its products both through the improvement of current products, the development of new innovative products, the development of harm-reduced products and certainly also a leg up in the smokeless category.

So the investment is large.

It's going to be a state-of-the-art first class research and technology center and we're pretty sure to bear fruit for Philip Morris USA both in terms of volume and profitability in the years ahead.

Thank you.

Quickly, on Marlboro pricing, what was the average price in the third quarter and how much was that out from the year earlier?

The price for Marlboro was $4.21.

Actually $4.18 for the third quarter of this year and the same time last year was $3.94.

Thanks very much.

Okay.

Thank you.

There appear to be no further questions.

I would like to turn the floor back over to management for any closing remarks.

Thank you all for joining us on the call today.

We're available here at Altria Investor Relations for any follow-up questions.

Thank you very much.

Have a great day.

Thank you.

This does conclude today's Altria Group's third quarter 2007 earnings conference call.

You may now disconnect.