奧馳亞 (MO) 2011 Q1 法說會逐字稿

Good day and welcome to the Altria Group 2011 first-quarter earnings conference call.

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

(Operator Instructions).

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

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 2011 first-quarter business results and will not be discussing the status of tobacco litigation.

Our remarks contain forward-looking and cautionary statements and projections of future results and I direct your attention to the Forward-Looking and Cautionary Statements section at the end of our earnings release for the review of the various factors that could cause actual results to differ materially from projections.

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

Altria reports its financial results in accordance with 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 today's earnings press release and are available on our website.

In addition, comparisons discussed in this conference call are to the same prior-year period, unless otherwise stated.

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

Thank you, Cliff.

Good morning.

Altria delivered solid financial results in the first quarter, with adjusted diluted EPS growth of 4.8%, as our businesses navigated through high unemployment, low consumer confidence and a competitive business environment.

As we anticipated, adjusted EPS growth comparisons for the first quarter were challenging, but our results exceeded our initial expectations and give us confidence in our ability to achieve adjusted diluted EPS growth within our forecasted range for the year.

In the cigarette segment, PM USA reported strong adjusted operating companies income growth with margin expansion.

We are particularly pleased with these financial results since in the comparable year-ago period the cigarette segment's adjusted operating companies income growth was also quite strong.

The timing of new product launches and trade inventory changes impacted year-over-year comparisons for retail share, volume and income in the cigarette segment.

New product launches this year and in the first quarter last year had a significant impact on both PM USA's and Marlboro's retail share comparisons.

PM USA shipped two Marlboro Special Blend SKUs at the beginning of the first quarter last year.

The success of this launch significantly benefited Marlboro's retail share results in all of the first quarter of 2010, creating a challenging retail share comparison.

Two additional Marlboro Special Blend SKUs were shipped towards the end of the first quarter this year with minimal impact on the quarter's retail share results.

Trade inventory changes also impacted quarterly year-over-year cigarette segment shipment and income comparisons.

PM USA believes the trade built inventory from the beginning to the end of both comparable time periods, but the trade built less inventory this year than in 2010.

The trade inventory build in the first quarter could negatively impact volume and income results for the cigarette segment if depleted in the future.

PM USA's reported cigarette shipments declined versus the comparable year-ago period and, after adjusting for trade inventory changes, were estimated to be down slightly more than the cigarette category.

PM USA's adjusted cigarette shipments declined more than the category due to a decline in retail share.

This retail share decline occurred primarily due to

The timing of the Marlboro new product launches; and

Retail share losses on some of PM USA's other brands, primarily discount, as PM USA optimizes the long-term income of its portfolio brands.

PM USA is pleased with Marlboro's first-quarter performance.

The brand gained retail share as the quarter progressed, showing increased momentum, and turned in an excellent profit performance.

Although PM USA faces a particularly challenging second-quarter retail share comparison, as Marlboro had a record retail share result in the second quarter of 2010, we expect quarterly retail share comparisons to improve significantly in the second half of the year, both overall and for Marlboro.

Overall, PM USA delivered solid cigarette segment business results in the quarter.

Although competition remained intense and comparisons were tough, operating companies income continued to grow, operating companies margins continued to expand, and Marlboro is well-positioned for the balance of the year.

In the smokeless products segment, USSTC and PM USA reported solid business results in a competitive environment.

We are particularly pleased with the smokeless products segment's operating companies income result, as it had a challenging comparison to the first quarter of 2010.

As in the cigarette segment, there were a number of factors in the smokeless product segment impacting year-over-year comparisons for income, volume and retail share.

Last year's results benefited from

The 2009 fourth-quarter launch of Copenhagen Wintergreen.

Given the timing of this launch, the first quarter of 2010 represented the first full quarter of shipments for this successful new product.

The 2010 first-quarter shipments of two new Copenhagen products, Long Cut Straight and Extra Long Cut Natural, and the national launch of four Marlboro Snus products; and

The Skoal Slim Line can pouch promotion in the first quarter of 2010.

USSTC and PM USA shipped several new smokeless products in the first quarter of 2011, although these launches did not benefit this quarter's results as much as new products and promotions contributed to last year's first quarter results.

This year

Marlboro and Skoal each launched two new Snus products; and,

Skoal shipped eight new Skoal X-tra products toward the end of the quarter.

As a result of the year-over-year changes in new product and promotional activities, reported smokeless product shipments declined versus the prior-year period.

However, after adjusting for these factors, USSTC and PM USA estimate that their combined smokeless products shipment volumes grew slightly below the smokeless category's growth rate for the quarter.

The smokeless products segment's retail share declined versus last year, as the segment had a challenging comparison due to the new product activity in the year-ago time period, as well as Skoal's year-over-year retail share performance.

On a sequential basis, however, USSTC and PM USA grew their combined retail share of the smokeless category, due to sequential retail share growth for both Copenhagen and Skoal.

Copenhagen's retail share increased both sequentially and on a year-over-year basis due to continuing marketplace momentum from its new products and strength in its core Natural business.

Copenhagen plans to build on this momentum and help drive future growth by launching Copenhagen Wintergreen Pouches nationally in the second quarter this year.

Skoal grew retail share on a sequential basis as comprehensive brand-building initiatives positively impacted its performance.

USSTC expects the new Skoal X-tra products shipped toward the end of the quarter will contribute to the brand's future growth.

Overall, USSTC and PM USA delivered solid first-quarter smokeless products segment results.

Copenhagen and Skoal both grew sequential retail share, and adjusted shipment volumes and operating companies income grew on a year-over-year basis.

USSTC and PM USA believe they are well-positioned to continue delivering solid results in the smokeless category as the year progresses.

In the cigar segment, post-FET increase marketplace dynamics continued to impact Middleton's reported income results.

Middleton is working to resolve these issues, but expects that a resolution will take some time and that these marketplace dynamics will continue to have an impact on Middleton's income results for the year.

In response to these dynamics, Middleton invested in promotional initiatives to defend Black & Mild's marketplace position that benefited Middleton's volume and retail share results for the quarter.

Middleton's reported shipments and Black & Mild's retail share both increased versus the comparable year-ago period.

Middleton has several brand-building activities planned for the balance of the year designed to continue enhancing Black & Mild's performance.

These activities include

Introducing nationally two untipped cigarillo varieties in the second quarter of this year to expand Black & Mild's position in the untipped cigarillo segment, where it historically has not competed widely.

This is the largest machine-made large cigar segment, representing over 50% of the category's share in 2010; and,

Introducing Black & Mild Shorts as competitively priced tipped cigarillo alternatives in a number of high-volume geographies.

Middleton believes these and other actions planned for the balance of the year should enhance Black & Mild's marketplace position and improve the company's financial results as the year progresses.

In the wines segment, Ste.

Michelle reported solid business results, with strong growth in adjusted operating companies income, due in part to Ste.

Michelle's focus on improving its mix with higher margin products.

First-quarter reported wine shipments were essentially the same as the prior-year period, and Ste.

Michelle believes that shipments in both time periods were impacted by wholesale inventory movements.

Ste.

Michelle's retail unit volumes continued to grow, helping position the company for solid business results in the balance of the year.

Overall we are pleased with our results through the end of the first quarter, as our businesses successfully navigated through a challenging environment and faced some difficult comparisons.

The underlying strengths of these businesses, in conjunction with solid first-quarter results, give us confidence that we can deliver adjusted diluted EPS growth of 6% to 9% for the full year, in a range of $2.01 to $2.07 off an adjusted base of $1.90 per share in 2010.

Given that first-quarter EPS results outperformed our expectations, in part due to trade inventory dynamics that will play out as the year progresses, we expect some unevenness in adjusted EPS growth on a quarterly basis, with more growth toward the back half of the year.

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

Thank you, Mike.

Good morning.

In the cigarette segment, reported operating companies income increased by 9.5% to $1.3 billion, due primarily to higher list prices and lower restructuring costs, partially offset by lower volume and higher FDA user fees.

When adjusted for restructuring costs, first-quarter operating companies income increased by 7.1% to $1.3 billion, and adjusted income margins increased by 2.5 percentage points to 39.6%.

As Mike noted, we are particularly pleased with these results since in the first-quarter last year adjusted cigarette segment operating companies income grew by a strong 6.7%.

Reported cigarette segment shipments declined by 6.4% but, after adjusting for trade inventory changes, declined by an estimated 5%.

The trade increased cigarette inventories from the beginning to the end of the first quarter, benefiting reported cigarette segment volume and income results.

PM USA estimates that the overall cigarette category's adjusted volume declined by approximately 4% in the first quarter, which is in-line with historical price elasticity.

PM USA's first-quarter cigarette segment retail share declined by 1.2 share points to 49% due to retail share declines of seven tenths of a share point on its portfolio brands and half a share point on Marlboro.

Marlboro's retail share was 42.2% in the first quarter.

Marlboro Menthol performed well in the marketplace, as its retail share grew by one tenth of a share point to 6.1%, based in part on the introduction of Marlboro Skyline Menthol in the fourth quarter of 2010.

The smokeless product segment's reported operating companies income increased by 8.4% to $193 million due primarily to higher pricing and lower restructuring costs.

When adjusted for restructuring and UST acquisition-related costs, operating companies income increased by 3.2% to $194 million.

Reported smokeless product shipments decreased by 1.3% but, when adjusted primarily for the timing of new product launches, increased by an estimated 6%.

USSTC and PM USA estimate that the smokeless products category grew 7% in the first quarter.

USSTC and PM USA's combined retail share of the smokeless products category decreased by six tenths of a share point versus the comparable year-ago period to 54.7%, but increased by two tenths of a share point on a sequential basis versus the fourth quarter of 2010 due to share growth for both Copenhagen and Skoal.

Copenhagen grew three tenths of a share point versus the fourth quarter of 2010 to 26%, and also grew by four tenths of a share point on a comparable year-over-year basis.

Skoal also grew three tenths of a share point on a sequential basis to 22%, but declined 1.1 share points on a comparable year-over-year basis.

Middleton's reported operating companies income decreased 53.2% to $22 million primarily due to promotional investments made to protect Black & Mild's marketplace position.

Middleton's overall retail share grew by six tenths of a share point to 29.1%, driven by Black & Mild's retail share performance.

Black & Mild grew its retail share by eight tenths of a share point to 28.9%.

When adjusted for integration costs, operating companies income decreased by 54.2% to $22 million.

Middleton's first-quarter shipments grew by 1.9%.

Increases in imported machine-made large cigars have made trade inventory volumes difficult to determine accurately in the short-term.

Consequently, Middleton is only providing its reported company shipments.

Ste.

Michelle's reported operating companies income increased by 71.4% to $12 million.

When adjusted for UST acquisition-related and restructuring costs, operating companies income increased by 25% to $15 million.

The wine segment's shipment volume was essentially the same as the prior-year period, but shipments were impacted primarily by wholesale inventory changes.

Ste.

Michelle believes that in the first quarter of 2011 wholesalers depleted inventory built during the fourth quarter of 2010, while in the year-ago period, wholesalers increased inventories.

Ste.

Michelle's retail unit volume increased by 2.3%, while the wine industry's volume grew 3.2%.

The financial services segment's reported operating companies income of $21 million was the same as last year.

At the end of the quarter, the allowance for losses was unchanged versus the end of last year at $202 million.

Altria continued to deliver shareholder value by managing its cost structure.

Altria delivered $35 million in cost savings across its family of companies in the first quarter of 2011.

We are confident that we can achieve the remaining $110 million in cost savings from our $1.5 billion program by the end of this year.

Since 2006, we have delivered nearly $1.4 billion in cost savings.

Altria also delivered value to shareholders by returning cash to them.

In the first quarter, the Company paid almost $800 million in dividends, reflecting our intention to return 80% of adjusted diluted EPS to shareholders in the form of dividends.

Based on our annualized dividend rate of $1.52 per share and our closing stock price of $27.01 on April 15th, our yield of 5.6% makes Altria's stock an attractive investment.

Altria intends to complete its previous announced 2011 $1 billion share repurchase program by the end of this year, but the timing of any share repurchases depends upon marketplace conditions and other factors, and remains subject to the discretion of our board.

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 35% in the first quarter.

Marlboro's net pack price in the quarter was $5.70, while the lowest effective priced cigarette was $4.21.

The cigarette discount category's first quarter retail share was 27.6%.

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

There were no cigarette excise tax increases in the first quarter.

Copenhagen's first quarter net retail price was $4.17, and its price gap versus the leading discount brand was approximately 40% in the quarter;

As of March 31, 2011, 20 states and the District of Columbia used a weight-based smokeless tobacco excise tax system, representing approximately 32% of the smokeless tobacco category's volume.

CapEx was $13 million in the first quarter, and depreciation and amortization was $60 million; and

On April 15, PM USA made its annual 2010 MSA payment of approximately $3.5 billion.

The amount includes approximately $267 million that PM USA disputes it owes as a result of the 2008 Non-Participating Manufacturer Adjustment.

Operator, do we have any questions?

(Operator Instructions).

Judy Hong, Goldman Sachs.

Mike, just starting with a little bit more question around just the Marlboro share performance, clearly I understand that there is obviously the timing of the new product launches and the promotional timing that affects the market share performance on a quarter to quarter basis, but maybe you can give us a little bit more perspective on your strategy to use these line extensions to go after the fringe Marlboro users.

If you think about just the core Marlboro franchise, so when you ex out some of these new products, can you tell us how much retail share of the core Marlboro franchise is up or down?

And then as some of these new product launches got into the retail this year, can you tell us how the share is performing for Marlboro?

Well, yes, let me talk about the Marlboro share just a little bit because I often remind investors that quarter-to-quarter comparisons due to the amount of activity that we have in the marketplace or competitors have in the marketplace cannot be indicative of underlying trends in the business.

And I think the first quarter of 2011 is a case in point.

If you go back to 2010, the Marlboro share grew for the year up about 8/10, well ahead of what had been its average growth rate over the past few years.

That was substantially more than was necessary to offset the growth of our other premium brand share loss, which is something we like to cover with Marlboro.

That means that the rest of that share was largely garnered from promotion sensitive to consumers and discount consumers who, as I talked before, shop in every brand.

Even though Marlboro has a very high loyalty factor relative to other consumer products, every brand has some percentage of its business that is price-sensitive.

So we have some share points that are like that.

If you look at the first quarter of the year, actually the first half, what you will see is that we have a major product launch, very successful behind Marlboro Special Blend.

So, while most of that share is sustainable share, some of it due to the promotion activity when you launch a new product comes from these more promotion-sensitive or discount shoppers.

That activity was not replicated in the first quarter of this year.

When you look at the total year last year during the period that we had that launch activity, we saw very strong share, actually record share, in the second quarter for Marlboro.

And then we saw as the launch activity abated, we also saw some of that what I will call temporary share slip away.

So, as we lap that quarter the first quarter this year, we did not have the same kind of activity.

We expected to see some loss of the share.

And during the same time this year in the first quarter, you had some other products that had a high level of activity that was price related.

Newport Menthol, Camel, continued low price activity on Pall Mall that can cause some of this more promotion sensitive or discount business to shift around.

So I think more indicative of the Marlboro business right now is its comparison March to December.

We showed some nice share growth during that period of time, even without the extraordinary support that we had in the year ago timeframe.

So we think Marlboro is actually in pretty good shape, and we are going to face a tough comparison in the second quarter.

But, as we move into the back half of the year, the comparisons will be more favorable.

We tend to look at the brand's performance on a longer-term basis rather than on a quarter-to-quarter basis or even a half to a half.

So I think it is doing fine.

We don't break out the various pieces, but the franchise continues to show good strength.

Okay.

And then just some color around the new Marlboro leadership program that you implemented with the retailers where you are suggesting max price for Marlboro in given markets, I guess I'm just wondering so far what the adoption rate has been in terms of the retailers agreeing to that program?

And then in general, if we think about Marlboro average pricing, how much pricing would come down if the majority of the retailers agree to adopt this program?

And then finally, any risk that as the pricing on Marlboro comes down as a result of this program, again, it is sort of maybe risks of the brand equity question here?

Well, first of all, just some context.

Marlboro has for a while had a program available to retailers that wanted to use Marlboro as a means to draw traffic into their stores.

So this is really a redesign of that program because all programs kind of become less relevant over time in their structure as marketplace conditions change, and that is the case with this one.

We will look at these programs periodically and update them.

So, we updated this program effective April 1.

It is designed to be cost neutral with the old program, and beyond that, the response rate -- not a program that is designed for every retailer necessarily based on their strategy nor were the ones in the past, but the response rate to this program has been, I think, very positive by many retailers.

And some retailers will not choose to do it; that is what we expect.

We will see what the impact is in the marketplace, but we expect to see some positive impact on the brand's performance as we have in the past with programs like this when some of our customers get behind it.

Okay.

And then just finally, on your decision to put the MSA-disputed payments into the escrow account this year, which is different than what you have done in the past, can you just give us a little bit of color in terms of the rationale?

You know, this dispute is now in full arbitration, so we felt like that was the appropriate decision this year.

Okay.

Thank you.

Nik Modi, UBS.

Good morning everyone.

Just following up on Judy's question on the MLT program, Mike, is this -- I'm just trying to think of the P&L impact here, and it strikes me as this is just basically a re-allocation of monies within your existing trade agreements within the various customers that you deal with.

Is that kind of a fair characterization?

I mean is it just a -- will you be outlaying incremental dollars and cents to help fund the backend incentives for folks that sign up on the option?

We would expect it to be neutral.

Okay.

So it's just effectively a reallocation of those?

Yes, that is right.

And then the other question is on the state excise tax and on the wording in the press release, and your commentary continues to suggest a really cautious tone obviously.

We had limited activities thus far.

Several states have looked to reduce excise taxes.

How should we think about this?

It seems like the environment is actually a little bit better than what most folks in the industry thought at the beginning of the year.

Any thoughts on that?

It is still early in the year.

(multiple speakers) But we never get overly optimistic.

We will continue to be paying close attention.

Okay.

Great.

And then just the last question quickly on the ad valorem to weight-based and smokeless, are there any other states that are considering a conversion in terms of tax methodology?

I think there may be some activity there.

Off the top of my head, I cannot detail it for you.

But yes, I think we expect -- as the subject of excise taxes comes up in states, I think you can expect in those where ad valorem exists that this subject will come up, and sometimes it comes up where ad valorem does not exist as somebody tries to propose to go to ad valorem.

So I think you're going to continue to see activity there.

Okay.

Thanks very much.

David Adelman, Morgan Stanley.

Good morning Mike.

Two things I wanted to ask you.

First, what are your thoughts about the TPSAC's menthol recommendation, and what type of impact do you think it might ultimately have on the FDA's thinking with respect to menthol?

Well, I don't have really much to add to what we said in January to that subject.

I don't think what occurred was much different than what generally I think people thought would occur, and I think obviously the FDA will take that under advisement.

But then, as we have continued to say, we think they will operate based on the science and the evidence and make their regulatory decisions accordingly.

So, we have not felt like we would see some dramatic impact, so we will watch and see how it unfolds.

Okay.

And then secondly, Mike, I wanted to ask you about your characterization of the elasticity, the price elasticity, of the US cigarette category.

This quarter and in the past you have commented that you see no changes versus historical elasticity.

But my question is pricing to the consumer was probably up about 5% or 6% Q1 on Q1 last year, and it looks like consumption was down about 4%.

So is what is happening in your view that the structural decline in industry volume, in other words the decline that would occur in the absence of pricing being higher is higher than it might have been in the past?

No, I would not draw that conclusion.

I think your timeframe probably is too short to really determine any trend David.

We generally would have to look at that on a longer timeline to understand whether or not there was any trend line change, and boy, the history is pretty long on this, and it seems to support a pretty stable elasticity.

Okay.

Thank you.

Christine Farkas, Bank of America/Merrill Lynch.

Thanks very much.

Good morning.

Mike, I had a question related to MLP but maybe not.

We have seen or heard about some reduced discounts on some of your other Marlboro brands, the Special Blends or the 72s.

Given your comment about MLP program being cost-neutral, I'm trying to understand if that is a statement based on the MLP program itself or if you are also including some of the changes to discount plans on the other or other parts of the Marlboro franchise?

Well, you know, we regularly change promotion activity in various states and relative to various SKUs.

So you should expect to see that separate and apart from the MLP program.

MLP programs cost -- will vary a little bit based on take rate versus estimates, but in general, we think it will be about cost control and our expectation is that will not have an impact on our overall performance or spending performance for the year.

Okay.

Great.

And then moving to cigars, this is clarified in the prior quarter as well we have a strong competitive environment here.

And there was some discussion about the imports and the impact that's having on the environment.

Has there been any update on that?

Is there some way to close that loophole, or will this remain as tough for the rest of the year?

I think it is an issue we will have for the remainder of the year, but during that period of time, we will have taken the appropriate steps to get that playing field level.

Okay.

And then just finally for me, just to understand given your statements in the press release about the IRS developments or just clarification or disclosure, I just want to understand if, in fact, that program impacts your buyback program for the year?

Does that change your potential timing or even occurrence of the buyback for the year?

No, we don't see it impacting either our dividends or our announced buybacks.

Okay.

Great.

Thanks so much Mike.

We will now take questions from the media.

Viven Azer, Citigroup.

Good morning.

I was just wondering if we could turn back to the Marlboro franchise, just quickly one more time.

And just to clarify, is there a floor to the Marlboro price gap that you're not willing to cross to the extent that the MLP program does, indeed, reduce Marlboro's price gap at retail?

I'm not sure I understand what you are asking me.

Is there a minimum price gap that you are just not willing to go below?

Is it 30%, and at 30% you have to hold Marlboro's pricing or --?

Well, you know, generally it would be difficult to articulate something like that.

That number that you are referring to is kind of a national number, but the reality is that it's made up of a lot of different pieces, different price gaps in different states based on both activity in those states and excise taxes in those states, and then competitive pricing moves with some regularity.

So it is always changing that number.

So we are in terms of our activities and the actions that we take, we take those on a more precision basis.

We would not be looking to some total national number to drive our decision-making.

So it is much more surgical than that.

So I guess the general answer to your question is no.

What we do is we deal with the business issues in the marketplaces as we see trends develop or opportunities develop.

Okay.

Understood.

I guess what I was just trying to get at, though, is with Marlboro status as a premium brand, do you think that at some point you lower Marlboro's price gap so much that it erodes that premium brand equity?

Well, we really have not seen that occur.

Actually the dollar gap has expanded on Marlboro over time, but the percent gap has narrowed somewhat because of the excise tax increase.

So I don't think that that is an issue.

Okay.

Fair enough.

And just in terms of the delay in terms of some of the SCT activity, has that at all improved your outlook for cigarette industry volumes for the year in the absence of any -- (multiple speakers)?

You know, we don't get predictive of it.

But, as I commented on David's question, I don't think we have seen any evidence that the normal elasticities have changed any.

Chris Growe, Stifel Nicolaus.

I just had two questions for you.

The first one in relation to the cigarette division.

You had mentioned how inventories are built throughout the quarter.

Is there a certain number of sticks or days or how we could look at that that you think would be maybe a little extra within that division that could be worked out in the future?

I'm just trying to get a sense of what that could do to volumes in the future.

Well, I'm not going to try to segment that out.

All I'm going to say is that we saw some inventory building in the quarter, but less than we had in the quarter a year ago.

So I'm just going to leave it at that.

Okay.

And then I want to ask about the promotional levels in the smokeless division, your smokeless business.

You had pulled back a little bit on those in the fourth quarter.

You had a lot of work going on at retail.

Would you characterize promotional levels in smokeless back to more normal levels in the quarter?

I think we had pretty normal levels.

I mean we had a lot of activity in the first quarter last year because we launched a number of new products, and we had less of that, and the Skoal X-tra launch was really at the tail of the quarter.

I don't think there was anything unusual about the activity in the quarter this year.

Maybe a bit less than there was last year.

And then I guess somewhat related to that, you have done a lot of the shelf resets in your smokeless business.

Is that -- I assume it is always work, right?

Is that pretty well complete now in that we have seen, like, an expanded space for smokeless?

Is that all in place now where you wanted to initially get that done?

I think the work regarding the physical work regarding resetting these sections is pretty well complete.

There is still some tweaking and adjusting going on.

I think it is now really the ordering procedures and getting at retail the same kinds of practices relative to ordering that maintains a really high in-stock condition with fresh product to occur in the smokeless business as is the case in the cigarette business.

So there is still more work to do to take advantage of now having the space allocated in a better way in terms of the impact on the consumer.

In that change or that increase in space, would a product launch like the new Skoal products be incremental to your shelf space, or are those replacing other products in your shelf side on average?

Well, that depends on the geography.

Skoal has a lot of SKUs, but the distribution on those SKUs is not consistent across the country.

So, in each geographic situation, we have accommodated how to position Skoal X-tra in the store based on the circumstance.

So that would really vary by store and by development of particular SKUs on Skoal.

Ann Gurkin, Davenport.

I just wanted to know why there is more disclosure or discussion in this quarter's release in the Financial Services section?

That seems to be a change.

Should I read there is a change in timing coming of a decision or anything I need to know?

No, we added that disclosure.

I think that kind of completes it.

There was a ruling in a case on some of these similar types of leases -- LILO, SILO, all the Wells Fargo case -- not too long ago the other day.

So we just decided to add this additional disclosure.

And then, Mike, I'm always interested in your opinion of the consumer, and since January to now, is there any change in consumer behavior or expectations for consumer behavior?

Challenges of the environment?

I would love your update on your view of the consumer.

Well, I think as we look at it, our consumers still face high unemployment and still are expressing low confidence.

So that does not seem to have changed a lot, and I think you can add to that you have got increased fuel cost pressures now.

So I don't think the situation has changed a lot for the general consumer out there.

As much as you would like to say that and you may see some strength in the stock market, I don't think that the general consumer is getting that same outcome out there right now.

So we are still cautious about that.

Thomas Russo, Gardner Russo & Gardner.

A question about any victories, any progress underway with the elicit trade or the counterfeit channels that you might share with us.

Well, you know that is an ongoing activity for us, and so much of what goes on there is work that we do with law enforcement.

So we don't talk about that.

Generally you read about that after it is over.

But that kinds of activity continue to occur, and I think that -- I don't think there is anything new to report relative on that subject in terms of impact on the business.

But it is also something that I think you have to keep constant pressure on.

Because certainly the dynamics in the marketplace are such that if you don't you can see it expand.

Thank you.

And then just an observation from you.

What reads do you have from duty-free or from parts of the US where there is heavy international traveling about the separation of the Marlboro brand equity for those who are non-US consumers in light of what they are seeing abroad in their home markets versus the US?

Has any kind of brand equity effects started to surface as the two product offerings diverge over time?

No, I don't think so.

I mean US duty-free has been US duty-free now for a while, and the rest of it has been in PMI's hands for a while.

That was the case before the spin, and so I don't think that anything meaningfully different is there.

We have had products in those different environments that are manufactured in different places for some time now.

So there is nothing new there.

(Operator Instructions).

At this time I would like to turn the floor back to Mr.

Cliff Fleet for any closing remarks.

I want to thank everyone for joining us today.

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

Have a good day.

Thank you.

This does conclude today's teleconference.

You may now disconnect.