奧馳亞 (MO) 2010 Q3 法說會逐字稿

Good day, and welcome to the Altria Group 2010 third quarter earnings conference call.

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

At this time all lines have been placed on mute to prevent any background noise.

Representatives of the investment community and media on the call will be able to ask questions following the conclusion of the prepared remarks.

(Operator Instructions) I would now like to turn the call over to Mr.

Cliff Fleet, Vice President, Investor Relations for Altria Client Services.

Please go ahead, sir.

Good morning, and thank you for joining our call.

This morning we will only be discussing Altria's 2010 business results for third quarter and year to date through the end of September and will not be discussing the status of tobacco litigation.

Our remarks contain forward-looking statements and projections of future results, and I direct you to the forward-looking and cautionary statements at the end of our earnings release for the review of the various factors that could cause actual results to differ materially from projections.

Since Altria required UST and its smokeless tobacco and wine subsidiaries on January 6, 2009, US smokeless tobacco companies and St.

Michelle wine estates financial results From January 6 through September 30, 2009 are included in Altria's 2009 consolidated and segment results.

For a detailed review of Altria's business results, please review the earnings release that is available on our website, www.altria.com.

Altria reports its financial results in accordance with US generally accepted accounting principles.

Today's call may contain various operating results on both a reported and on an adjusted basis which excludes items that affect the comparability of reported results.

Descriptions of these measures and reconciliations are included in the earnings press release.

Now it gives me great pleasure to introduce Mike Szymanczyk, Chairman and Chief Executive Officer of Altria Group Inc.

Thanks, Cliff and good morning to everyone.

The Altria family of companies delivered excellent financial results in the third quarter of 2010.

It's adjusted diluted earnings per share in the quarter grew by 12.5% versus the year ago period.

This strong third quarter earnings per share growth builds on our solid business results from the first half of the year.

On a year-to-date basis, adjusted diluted earnings per share are up 6.6%, giving us confidence that we can achieve our earnings per share growth objectives for the year.

This strong business performance occurred in what remains a very challenging and competitive business environment.

Despite these challenges, though, we delivered solid business results across our operating companies, particularly for our cigarettes and smokeless product businesses, and the four premium brands of our tobacco operating companies continued performing well in the marketplace.

We believe that the strengths of our adult consumer product businesses well position us to continue delivering superior returns to our shareholders for the foreseeable future.

These returns include a commitment to return cash to shareholders in the form of dividends.

In August, Altria increased its dividend by 8.6% which, when combined with the 2.9% dividend increase earlier this year results in a total dividend increase of 11.8% since the beginning of 2010.

As of October 15, Altria's annualized dividend yield was 6.1% versus the S&P 500's annualized dividend yield of 2.1%.

We are particularly pleased with the performance of the cigarette segment.

In the third quarter, the cigarette segment's adjusted operating company's income grew by 9% versus the prior year period and increased by 5.6% for the first nine months of the year.

PM USA delivered this strong income growth with margin expansion while continuing to build Marlboro's position in the marketplace.

Third quarter adjusted cigarette segments operating company's income margins grew by 1.9 percentage points versus the year-ago period to 40.2% and by 1.8 percentage points on a nine month basis.

Marlboro continued to perform very well as it grew its retail share for the three and nine month periods by a strong 0.7 and 0.8 of a share point respectively versus the comparable year-ago periods.

The smokeless product segment also reported strong results.

Adjusted operating company's income grew by 36.5% in the third quarter of 2010 versus the same year-ago period and by 21.8% through the end of the quarter on a year-to-date basis.

These income results, when combined with the cost savings achieved across the Altria family of companies resulting from the UST acquisition lead to our continued belief that the UST acquisition will be accretive to Altria's 2010 adjusted diluted earnings per share.

Smokeless products retail share also continued to show growth on a year-over-year basis.

US STC and PM USA's combined retail share of the smokeless products category for the three and nine month periods increased by 1.9 and 0.9 share points respectively.

Copenhagen and Skoal's combined third quarter retail share growth of 1.4 share points versus the year-ago period and retail share gains resulting from the national launch of Marlboro snus drove these strong retail share results.

Copenhagen grew its third quarter retail share by 2.3 share points versus the year-ago period to 25.5% behind continuing momentum from its new products of long-cut wintergreen, straight and extra long cut natural and other brand building programs.

Skoal's third quarter retail share was essentially the same as the second quarter of 2010 behind brand building initiatives launched earlier this year.

Marlboro snus also strengthened its position in the marketplace after its national expansion earlier this year.

PM USA continues to build awareness and trial for these new products, and we are seeing increased interest among adult tobacco consumers.

We are optimistic about the long-term prospects for these kinds of tobacco products.

We are pleased with our smokeless products business results as well as the underlying dynamics of the smokeless tobacco category, both of which are showing growth in a challenging environment.

We have taken a number of successful actions since we acquired UST, which have significantly strengthened PM USA's and US STC's positions in the smokeless tobacco category.

Altria sales and distribution is now implementing a new retail platform to support planned future smokeless product initiatives.

We believe that the smokeless tobacco category historically has not received the necessary space and merchandising attention in retail stores, particularly in light of the strong category growth of the recent past.

By offering fixtures to thousands of smokeless tobacco stores, retailers can improve category merchandising, reduce out of stocks, improve product freshness and help achieve the non self-service retail merchandising objective of our tobacco companies.

In many cases, this new retail platform is also expected to benefit the machine made large cigar category and help support continued growth in Middleton's cigar businesses.

We remain confident about Middleton's long-term growth prospects, although the Company's third quarter adjusted operating Company's income declined 12.2% versus the year-ago period.

Middleton defended its position in a very competitive environment with brand building initiatives on Black & Mild.

These initiatives successfully strengthened the brand's position in the marketplace as it grew sequential retail share of the machine made large cigar category from the second to the third quarter of 2010.

We remain pleased with the underlying volume dynamics across three major tobacco categories.

PM USA estimates that the cigarette category continued to decline in line with historical price elasticity at a rate of 4% in the third quarter of 2010.

US STC and PM USA estimate that the smokeless products category continue to grow at a 7% rate in the third quarter, and the machine made large cigar category's estimated growth rate for the third quarter of 2010 appears to have accelerated from the levels seen in the immediate post-FET increase environment.

Middleton estimates that the category's volume grew approximately 2% in the third quarter which is closer to historical 3% category growth rate observed prior to the FET increase in April 2009.

In the wine segment, third quarter adjusted operating companies income declined 10.5% versus the year-ago period, but was up 7% on a nine month basis.

In the third quarter, there were some indications that wholesale inventories declined as wholesalers depleted inventories built earlier this year.

Despite this trade inventory decline, St.

Michelle grew its reported wine shipment volume by 4.5%.

Altria's continuing progress against the 1.5 billion cost savings program contributed to the strong earnings per share growth in the quarter and on a year-to-date basis.

In the third quarter, $80 million in savings were achieved across the Altria family of companies and $252 million were achieved on a year-to-date basis.

We have realized a total of $1.3 billion in cost savings since the program's inception off the 2006 cost base and remain confident that we will realize the $200 million in additional cost savings by the end of 2011.

Overall, we are very pleased by the performance of Altria and its operating companies through the first three quarters of the year.

Adjusted earnings per share are up 6.6% versus the year-ago period, driven by solid performances across all our adult consumer product businesses.

We thus are confident that Altria can grow its 2010 full-year adjusted diluted earnings per share to range of $1.87 to $1.91, which represents a 7% to 9% growth rate from an adjusted base of $1.75 per share in 2009.

I will now turn the call over he to Dave Beran, Altria's Executive Vice President and CFO who will discuss Altria's business segment results in more detail.

Thank you, Mike.

In the third quarter of 2010, reported operating companies income for the cigarette segment increased by $200 million to $1.5 billion, due primarily to higher list prices, cost savings and lower promotional spending, partially offset by lower volume and higher FDA user fees.

When adjusted for charges primarily related to the closure of PM USA's Cabarrus manufacturing facility, adjusted operating company's income increased by $128 million in the third quarter versus the prior year period.

On a year-to-date basis, reported and adjusted cigarette segment operating company's income results are up by a strong 8% and 5.6% respectively.

PM USA's reported third quarter cigarette shipment volumes declined 2.4% from the prior year period.

When adjusted primarily for changes in trade inventories, PM USA estimates that its third quarter cigarette shipment volumes declined in line with the estimated cigarette category's decline rate of 4%.

PM USA estimates that the cigarette category declined in line with historical price elasticity by 6% through the first three quarters of 2010.

PM USA's reported cigarette shipments declined by 4.7% through the first three quarters of this year versus the comparable prior year period.

And when adjusted primarily for changes in trade inventories, are estimated to be down 6%.

Marlboro reached a retail share of 42.6% in the third quarter of this year, an increase 0.7 of a share point from the prior year period.

Marlboro non-menthol had another strong quarter, growing 0.7 of a share point in the third quarter from the year-ago period behind continuing momentum of the special blend product launches earlier this year.

PM USA launched Marlboro Skyline menthol earlier this month to continue building its position in the menthol segment.

PM USA's overall retail share was 49.6% in the third quarter, down 0.1 of a share point from the comparable year-ago period as Marlboro share gains were offset by share losses among PM USA's non-support brands.

The smokeless product segments reported operating increased $83 million to $210 million in the third quarter versus the prior year period.

Excluding restructuring and acquisition related costs, adjusted smokeless product segment operating company's income increased by $57 million to $213 million.

Through the first nine months of the year, reported operating company's income was up 94% from the prior year period to $586 million and grew 21.8% on an adjusted basis to $603 million.

Strong smokeless product shipments contributed to these third quarter and year-to-date income results.

Smokeless product shipments volume increased 16.4% in the third quarter and 15.6% on a year-to-date basis versus the comparable prior year periods.

When adjusted for trade inventory changes, volume for both the third quarter and year-to-date periods increased by an estimated 10% and grew faster than the smokeless category's estimated growth rate of 7%.

The cigar segment's reported third quarter operating company's income decreased $6 million versus the prior year period to $43 million, due primarily to investments Middleton made in response to competitive dynamics in the marketplace.

On a year-to-date basis, reported cigar segment operating company's income of $146 million was up 5% versus the prior year period and increased 0.7 of a percent versus the comparable year-ago period when adjusted for integration costs.

Black & Mild's third quarter retail share of the machine made large cigar category declined by 1.4 share points versus the prior year period to 29.1%, but increased sequentially from the second to the third quarter of 2010 by 1.4 share points behind the successful introduction of Black & Mild Royale and other brand building initiatives.

Middleton's third quarter reported cigar shipments were down 0.8 of a percent from the comparable year-ago period and declined 1.4% on a year-to-date basis.

Third quarter reported operating company's income for the wine segment was unchanged versus prior year period at $12 million.

When adjusted for exit integration and acquisition related charges, adjusted operating company's income for the wine segment decreased by $2 million versus the prior year period.

For the first nine months of the year, reported operating company's income for the wine segment grew by 40.9% versus a comparable prior year period and by 7% when adjusted for integration and acquisition related charges.

Wine shipment volumes grew by 4.5% in the third quarter and 11.5% on a year-to-date basis versus the comparable prior year periods.

St.

Michelle estimates that its shipment volumes in the third quarter were negatively impacted by moderate trade inventory reductions in the quarter.

The financial services segments reported third quarter operating company's income decreased $30 million versus the prior year period to $27 million due to lower gains on asset sales.

Through the first three quarters of this year, the financial services segment's operating company's income was down $173 million on a year-to-date basis versus the comparable year-ago period.

Mike and I will now be happy to take your questions.

While the calls are compiled, let me cover a few housekeeping items.

Marlboro's price gap versus the lowest effective priced cigarette was 34% in the quarter.

Marlboro's net pack price was $5.63 and the lowest effective price cigarette pack price was $4 .19.

The cigarette discount categories third quarter retail share was unchanged versus the prior year period at 27.4%.

The estimated weighted average cigarette state excise tax at the end of the third quarter was $1.36 per pack.

Copenhagen's net retail price was $4.24, and its price gap versus the leading discount brand was approximately 40% in the third quarter.

As of October 1, 2010, the District of Columbia and 19 states used a weight-based smokeless tobacco excise tax system representing approximately 29% of the smokeless category's volume.

CapEx was $47 million in the quarter, and ongoing depreciation and amortization was $71 million.

Operator, do we have any questions?

Thank you.

(Operator Instructions) Investors, analysts, and media representatives are now invited to participate in the question-and-answer session.

We will take questions from the investment community first.

Our first question is coming from the line of Chris Growe with Stifel Nicolaus.

Good morning.

Morning.

Hi, just had two questions for you.

The first one, I know you've been working with some of the retailers, I think particularly convenience stores on -- you mentioned about some smokeless tobacco, getting more space for it, getting better display units.

Is that an investment that is meaningful to call out?

Are you putting a lot of money behind that?

I'd just be curious how that is going.

Are you seeing incremental space contributed to the category?

Well, the answer to the last part of your question is yes, that's the idea.

This is a category that has grown pretty substantially here over the last few years, but in retail stores, there hasn't been any significant movement in the space.

At the same time, the cigarette category has declined in volume.

And while inventories have come down in the cigarette business, the actual physical space devoted to cigarettes hasn't meaningfully changed as well.

So, there's a good opportunity to play catch-up here, and that's what we're doing in the second half of the year.

We're helping retailers redistribute their space so it's more consistent with their sales, and that will allow for better performance, I think in the smokeless business regarding out of stocks, new products, things like that while at the same time, continuing to present the cigarette category in an appropriate way in stores.

And we also expect to see the cigar business derive some benefits from that because -- as well, because that's being accommodated as a part of this work.

So, that remains ongoing.

I would say we're about halfway through what we want to get accomplished this year.

So, we're pretty much on target with what we expected to get done.

And it's an important thing to get done, because we have initiatives in the smokeless business that we want to bring to the marketplace, but we want to bring them to the marketplace in a way that they can be presented properly in retail stores.

So, it's important work.

And have you talked about the cost of this?

Is the cost a meaningful drag, or?

Well, the cost's accommodated in our plan for the year.

Okay.

And my final question for you was just, the Marlboro brand has been pretty strong, especially year-over-year, and I just am curious if you could talk about kind of the benefit to that brand from some of the new products that you have launched, say in last year or three years or however you could quantify that.

Just to get a sense of how these new products are obviously not totally cannibalizing the brand, how much they may be adding to the overall share position for the brand.

Well, I'm not sure quite how to answer that.

We look at the brand as a whole, and we do segment it between the menthol side of the business and the non-menthol side of the business.

Both of those have performed well, but beyond that, we really don't break out the individual pieces.

That we try to do is take a look at the marketplace, see what the opportunities are to engage competitive smokers in the brand and the SKUs that we put in the market are designed to appeal to a broader segment of the adult smoking universe, so that the brand can continue to grow, and we've had success with that.

That's why you see the total overall share continuing to rise to what's a pretty significant level.

Okay, maybe just to finish that out.

Could you say what the Marlboro Special Blend -- for example, what was the share for that product in the quarter?

We haven't provided that depth.

Okay, thank you.

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

Thanks, good morning.

Just on the smokeless side, Mike, as we think about the success that you've had on some of the new product launches like the Cope long cut wintergreen, and as you've let the pipeline, some of the pipeline spill into the fourth quarter, do you think the growth that we've seen on the Copenhagen broader trademark is actually sustainable?

And can you share your views in terms of some of the plans that you have in accelerating Skoal as you look out over the next 6 to 12 months?

Well, I'm not going to project the Copenhagen business forward, but I think that the initiatives we put in place, along with the other infrastructure activities that I was just speaking about, that we're engaged with in assisting retailers in improving their overall smokeless position in their stores will continue to allow that brand to be successful.

Relative to Skoal, we continue to view that franchise as one that has some significant potential.

We have some plans for Skoal, but first things first.

We're accomplishing one step at a time here relative to this instant right now, we're focused on Copenhagen, we're focused on getting overall category dynamics positioned properly so that whatever we do in the marketplace can realize its full potential.

Okay.

And then just to clarify the inventory movement for both the cigarette business and the smokeless tobacco business, is it the discrepancy that we saw in the quarter where shipments came in ahead of the underlying trend?

Is it really what happened last year, or was there some change in terms of the inventory movement in the third quarter of this year that also impacted the shipment numbers?

It was primarily last year, but we also -- always have some changes in wholesale inventories, but it was primarily last year.

Okay, and then Dave, just on the margin side, on the smokeless side, it seems like sequentially you saw a pretty meaningful pickup in the operating margins for that side of the business.

Is what's driving really the cost savings that are starting to now accrue to this particular division more than what we've seen before, kind of what's been driving the sequential margin pickup in this business?

It was the synergy program that we announced at the beginning of the acquisition.

The synergies we got when we acquired UST that we took, you're starting to see that, okay, work its way through the system.

So, that's what it is.

Okay, all right, thanks.

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

Good morning.

Hi, David.

Mike, I wanted to ask you about price gaps and Marlboro.

The brand used to be able, or had historically grown share at higher price gaps than currently exist versus price value brands in the marketplace.

And I'm curious, with higher cigarette prices overall because of higher taxes and so forth, do you think that those historical benchmarks of where the brand can grow are still relevant?

And if so, what's the limiting factor or the principal limiting factor in getting back to those levels of price gaps?

Is it more the economy or the competitive dynamics in the marketplace or both?

Well, I think if you look at history, you're right that the Marlboro brand has sustained gaps in the low to mid-40s, and in fact, even higher than that during some periods of time.

But if you also look at that history in a little more detail, what you'll see is that there's a very real relationship between unemployment and consumer confidence and the ability to sustain higher gaps.

And so right now you continue to have high unemployment and you continue to have low consumer confidence.

So, the brand is performing quite nicely with gaps in the mid-30s and I think as the economy improves, which it inevitably I think will, the possibility exists for the brand to withstand wider gaps.

But I think you have to be sensitive to the fact that our history tells us that unemployment numbers and the confidence numbers have a bearing on what the consumer is willing to pay at any given point in time.

And so we try to be sensitive to that.

And I would also say, there's a -- the US market is not one big market.

It's a market that's broken down into pieces, and so there's variability between states, between tax jurisdictions, between areas of higher unemployment versus lower unemployment, and there's variation in gaps, because our pricing is managed not just on a national list price basis, but also on a state and region basis, and it considers other factors.

That's one of the reasons why we're able to show margin expansion, because we can be more surgical in the way we manage gaps across the country.

Okay, thanks.

Your next question comes from the line of Christine Farkas with Bank of America Merrill Lynch.

Thank you very much, good morning, Mike and Dave.

Good morning.

Just on your comments about the high unemployment, I wanted to understand if in those states where high unemployment really remains stubborn and hasn't moved, if those price gaps are stable or if you found it necessary perhaps to adjust them down a little bit further.

Well, I would say things are reasonably stable.

There are other factors, Christine, like competitive activity that can drive price gaps in markets, not just unemployment and consumer confidence.

So sometimes that can have a bearing on what activity goes into a marketplace, but I think relative to those two factors, yes, there's reasonable stability.

I don't think that we're seeing that move around a whole lot, and I think that's somewhat reflected in the performance of the business.

The market is reasonably stable.

Okay.

Moving to wine, if I could, just curious there, given the deload that you have talked about and yet at retail we're seeing good consumer takeaway of higher end brands.

I'm wondering if it's competitive activity or something else that you're seeing and what leads you to get some comfort that that actually reverses or improves in the fourth quarter.

I think it's really a quarter phenomenon more than anything for the year.

That business is doing fine, and the income for the business is up just a bit ahead of the total income for the Company, so I wouldn't get overly exercised about it.

It appears to be some inventory movement that I don't think is in the long term going to be meaningful.

Okay, great.

And then just my last question, again, talking about the segments that are a bit slower.

Certainly cigarettes and smokeless were solid, but in cigars, can you just discuss a little bit about this competitive activity and why your brands are still losing share here and how you think that changes going forward?

Yes, well, I mentioned in this our last earnings call, that we were seeing a lot of competitive activity in the cigar business in the first half, and at that time we said that we would be responding to that.

So we have, and I think Black & Mild has responded well.

The share has turned the corner and started back up, so I think we're getting the kind of effect that we wanted, although there's some costs associated with that.

So we'll see how that plays out here over time, but our interest is in having the brand grow with equity building activities.

And so some of what we've done in the second half is launched Royale, another SKU of Black & Mild, and we're seeing some early on positive momentum from that as well.

So, we have other initiatives beyond that that we think will help support this business and also allow us to grow the margin back up a bit following this spat of extraordinary competitive activity.

Okay, but the category is growing low single digits, so it's not structural to the category.

This is really brand specific and competitive pricing?

I think that's right.

Okay, thanks for that, Mike.

You bet.

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

Thanks, good morning, everyone.

Hi, Nik.

Quick question for you, Mike.

Over the past few months we've seen several deep discount players either go bankrupt or exit business and expect more, I guess, would follow given some of the pressures from the FDA.

Have you seen any of this play out in the marketplace in terms of where those consumers are migrating or what retailers are doing?

Because by my estimation, some of the few that have gone belly up are at least 1 share point of the market, which is a pretty big number.

So, any perspective on that would be helpful.

And then my second question is, I estimate that Copenhagen wintergreen has been about half of the growth of the overall smokeless business.

Is that insane of a number, or do you think that's kind of in the ballpark?

Well, as to your second question, I haven't quite looked at it that way, so I'd hesitate to tell that you that I think you're right.

I just haven't examined from the that perspective.

I think it's more complicated than that when you start looking at growth in a category.

But nonetheless, Copenhagen wintergreen has performed pretty well.

Relative to your first question, we haven't seen a lot of change.

Pretty stable this year relationship between the discount -- overall discount segment, premium segment with movement between brands within each segment.

So brands come in and they -- some, particularly in the deep discount end of the business, you see some brands come in and they grow, and then something happens and somebody else starts to grow.

So, the business moves around somewhat between brands.

That's gone on for a while and frankly, the fact that some people exit probably doesn't have much impact on the overall dynamic in the category.

It just continues to facilitate that movement between different brands within the discount segment.

Great, thanks.

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

Hello?

Hello, guys.

Hello, this is Chris, thank you for your time.

Mike, I wanted to ask, as you have seen greater interest in smokeless, I wonder whether you can say that you have lost smokers of Marlboro cigarettes or your other brands to smokeless products?

Or do your -- are you finding that users continue to use both products?

Thanks.

Well, I think the dynamics at work would indicate that there's movement between the cigarette category and the smokeless category.

There's movement of consumption.

Some of that movement is people smoking fewer cigarettes and using smokeless tobacco as an alternative.

Some is people switching from cigarette smoking to smokeless tobacco.

Kind of hard to quantify exactly what's what, but clearly there's movement there, and I think that that movement would include Marlboro.

Well, thanks for that.

If I may ask one more, these changes -- display changes that you're suggesting or helping with at retail, year in, year out, racks seem to be about the same behind the counter.

Is this the biggest change in retail display in the tobacco industry for many years, or is it not that big of a deal?

Well, I think it depends on the store, but in many cases, it's really a reallocation of the space.

So, that the fixtures that are in the stores can accommodate the necessary inventory levels of smokeless tobacco to meet the sales requirements in those stores.

And in some of those cases, that space is coming from cigarette rack space, because the inventory necessary to meet the sales demand of the cigarette business can be accommodated with less footage of space.

So, I don't know that that is what I would describe as a huge change in the presentation of overall tobacco in the retail store as much as it is a better management of inventory for the retailer so that they can meet their consumer demand and maintain appropriate inventory positions in their stores.

I think that's the way to look at it.

There are situations where the categories are not presented together or they're not efficiently displayed in the store, and so there's some opportunity for retailers to improve that situation as well.

But I think in most cases, it really is a reallocation of space to meet changing dynamics that have occurred over the last couple of years in the categories.

Thanks very much.

Your next question comes from the line of Philip Gorham of Morningstar.

Hi, thanks for taking my call this morning.

Just one question, actually.

If you had just portrayed inventory movements in the cigarette side, it looks as if you had a sequential uptick in shipment declines.

So my question is, is there anything to read into that in terms of consumer behavior, or is that just something perhaps related to the market share decline at the discount end?

That's -- I'm not quite sure which category you're referring to.

Are you talking about the cigarette business?

Yes.

I don't think that we've seen an uptick.

I think it's pretty much on the historical price elasticity model.

So, I think that it's pretty stable within that model.

All right.

And just one more quick question, and an add-on to Nik's question.

In light of the disappearance of some deep discounters in the last few months, is it not quite surprising that you've lost share at the discount end?

I would have expected you would have been able to gain some there, so what else is playing into that?

Yes, I think when you talk about people exiting the marketplace, what you're really talking about are deep discount players.

We really don't play in the deep discount business.

We tend to have some interaction between Marlboro and the more premium and higher priced end of the discount segment.

So you see Marlboro being successful in picking up some of that market share, but it would be unlikely that we would pick up deep discount share, because we really don't have an entry there.

All right, thanks.

Your next question comes are the line of Karen Lamark with Federated Investors.

My question has been answered, thanks.

Thank you.

Your final question comes from the line of Adam Spielman with Citi.

Hi, I had a couple of questions and one of them has been answered, but can I just come back just to quick question that actually Christine asked, just to clarify.

When you say there has been more intense activity in cigars, do I take it that you are talking really about pricing, more aggressive discounting as opposed to more aggressive new product innovations?

It's both.

Is it -- is it one particular player doing that, or is it general across the--?

No, more than one player.

Thank you.

Can you also, just, I assume -- well, I think I can guess the answer to this, but can you tell me, as the FDA brings in regulations on packaging and other things, has it actually made any detectable difference to your volumes or pricing, would you say?

No, not really.

Thank you very much.

That was our final question.

I'll turn the floor back over to management for any closing remarks.

I want to thank everyone for joining us today.

If you have any follow-up questions, feel free he to give us a call at Investor Relations.

Thank you.

This does conclude today's conference call.

You may now disconnect.