奧馳亞 (MO) 2014 Q1 法說會逐字稿

Good day and welcome to the Altria Group 2014 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)

I would now like to turn the call over to Ms. Sarah Knakmuhs, Vice President, Investor Relations for Altria Client Services.

Please go ahead, ma'am.

Thank you.

Good morning and thank you for joining us.

We're here this morning with Marty Barrington, Altria's Chairman and CEO; and Howard Willard, Altria's CFO, to talk about Altria's results for the first quarter of 2014.

During our call today, unless otherwise stated, results are being compared to the same period in 2013.

Earlier today we issued a press release regarding our first-quarter results.

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

Our remarks contain forward-looking and cautionary statements and projection of future results, and we direct your attention to the forward-looking and cautionary statements section at the end of today's earnings release to review various factors that could cause actual results to differ materially from projections.

Altria reports its financial results in accordance with the US Generally Accepted Accounting Principles.

Today's call will contain various operating results on both a reported and adjusted basis, which excludes items that affects 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.

Now I will turn the call over to Marty.

Thank you, Sarah.

Good morning, everyone, and thanks for joining our call.

Altria continued to make excellent progress against its key strategies in the first quarter of 2014.

We're maximizing our core premium tobacco businesses over the long term and making disciplined investments to grow new income streams with innovative products.

Altria grew 2014 first-quarter adjusted diluted EPS by 5.6% behind a strong performance from our smokeable products segment and growth in our smokeless products segment.

Lower financing costs also contributed to adjusted diluted EPS growth in the quarter.

So we are off to a good start against our full-year objectives.

Here are the highlights from the quarter.

Our smokeable products segment continued to deliver against its strategy of maximizing income while maintaining modest share momentum on Marlboro over time.

The segment produced strong adjusted operating companies income growth of 6.4% and expanded its adjusted operating companies income margin, primarily through higher pricing.

PM USA's 2014 first-quarter reported shipment volume decreased 2.5%, primarily due to the industry's decline, partially offset by changes in trade inventories and retail share gains.

PM USA's income and volume performance benefited from modestly higher wholesale inventories compared to the same period last year, though we expect inventory levels to moderate as we move through the year.

Marlboro continues to be strong at 43.8 share points, larger than the next 10 brands combined.

PM USA successfully grew Marlboro's retail share behind investments in the Marlboro architecture and grew its total share of the cigarette category, driven by Marlboro and L&M in the discount segment.

Turning to smokeless products, the segment grew first-quarter operating companies income by 7.7%, primarily through higher volume.

This segment also grew Copenhagen and Skoal's combined volume and retail share behind another strong quarter for Copenhagen Long Cut Wintergreen, which now has posted 14 consecutive quarters of retail share gains.

During the first quarter USSTC began implementing strategies to enhance Skoal's equity and carefully manage Skoal Classic price gaps in select geographies.

These strategies, including changes to Skoal's promotional plan, resulted in some retail inventory movements that negatively impact USSTC's first-quarter shipment volume.

While these short-term dynamics also may impact the segment's second-quarter results, USSTC's strategy should strengthen the brand over the long term.

And we are encouraged by the early results.

This strong performance by our core tobacco businesses was partially offset by comparatively lower gains on asset sales at Philip Morris Capital Corporation and lower earnings from our equity investment in SABMiller, primarily due to gains from common stock issuances in the first quarter of 2013.

Moving to innovative products, Nu Mark continues to make excellent progress against its long-term goal of achieving e-vapor leadership.

The Company is on track to begin its rolling national launch of MarkTen in June.

And earlier this month, Nu Mark completed its acquisition of Green Smoke, adding significant e-vapor experience, broadening Nu Mark's product offerings, and strengthening its supply-chain capabilities.

We are happy to welcome Green Smoke's talented employees to our team.

And of course, Altria continues to focus on returning large amounts of cash to shareholders.

During the first quarter, Altria paid $957 million in dividends and purchased shares valued at approximately $272 million.

So to sum up, we are pleased with our first-quarter performance, and we're continuing to focus on our key strategies to deliver strong, consistent results for the long term.

Altria reaffirms its guidance for 2014 full-year adjusted diluted EPS to be in a range of $2.52 to $2.59, representing a growth rate of 6% to 9% from an adjusted diluted EPS base of $2.38 in 2013.

We expect stronger adjusted diluted EPS growth in the second half of the year compared to the first half, driven by various factors, including lower fourth-quarter costs in the smokeable products segment due to the end of the quota buyout payments and a significantly lower fourth-quarter effective tax rate compared to the year-ago period, resulting from our 2013 debt tender offer.

I will turn things over to Howard, who will discuss Altria's business results in more detail.

Thank you, Marty.

Good morning, everyone.

As Marty mentioned, our smokeable products segment delivered strong first-quarter results.

The segment grew adjusted operating companies income by 6.4% to over $1.5 billion and expanded its adjusted operating companies income margin by 2.2 percentage points to 44.1%.

Adjusted operating companies income growth was primarily driven by higher pricing, partially offset by lower volume.

The smokeable products segment's reported operating companies income declined 20.3%, primarily due to the NPM adjustment settlement in the first quarter of 2013 and lower volume, partially offset by higher pricing.

After adjusting for changes in trade inventories, PM USA estimates that its first-quarter domestic cigarette shipment volume declined approximately 3.5%, less than the category decline rate, which PM USA estimates was about 4%.

PM USA grew Marlboro's retail share by 0.2 of a percentage point to 43.8% and increased its total category retail share by 0.2 of a percentage point, behind gains from Marlboro and L&M in the discount segment.

These gains were partially offset by share losses on other portfolio brands.

In cigars, Middleton grew Black & Mild's first-quarter retail share by 0.3 of a percentage point, while shipment volume was essentially flat.

Our smokeless products segment grew operating companies income by 7.7% to almost $240 million, driven by the higher volume and higher pricing, partially offset by increased promotional spending.

The segment also expanded its operating companies income margin by 1.1 percentage points to 62.1%.

USSTC and PM USA grew combined reported domestic smokeless products shipment volume by 5.9% in the first quarter, primarily due to volume growth for Copenhagen, partially offset by declines for Skoal.

The segment's first-quarter reported volume benefited from an extra shipping day that was partially offset by changes in trade inventories.

After adjusting for calendar differences and changes in trade inventories, USSTC and PM USA estimate that their combined domestic smokeless product shipment volume increased approximately 4% for the quarter, while smokeless products category volume grew at approximately 5.5% over the last 12 months.

USSTC grew Copenhagen and Skoal's combined first-quarter volume by 6.3%.

USSTC also grew Copenhagen and Skoal's combined retail share by 0.2 of a percentage point to 50.8%, driven by Copenhagen.

Turning to innovative products, Nu Mark continues to use its two MarkTen e-cigarettes test markets to refine the brand's value equation.

For example, Nu Mark has experimented with different tools for creating awareness in trial in Arizona.

While brand shares continue to move over time as manufacturers change promotion levels, MarkTen remained the leading e-vapor brand in Arizona during the first quarter.

Nu Mark's test markets are providing valuable insights that we will use to compete for category leadership over the long term.

In the Wine segment, Ste.

Michelle grew first-quarter operating companies income by 10%, primarily driven by improved premium mix.

Ste.

Michelle's wine shipment volume increased 1.1%, primarily driven by increased distribution of 14 Hands, partially offset by changes in trade inventories.

That wraps up our operating results.

Marty and I will now take your questions.

While the calls are being compiled, let me cover a few first-quarter housekeeping items.

Marlboro's price gap versus the lowest effective price cigarette was 33%.

Marlboro's net pack price was $5.91, up from $5.80 in the first quarter of 2013.

The lowest effective price cigarette was $4.43, up $0.10 from the first quarter of 2013.

The cigarette discount segment's retail share was 25.1%, down from 25.5% in the first quarter of 2013.

The estimated weighted average cigarette state excise tax at the end of the first quarter was $1.48 per pack, up $0.06 from the end of the first quarter of 2013.

Copenhagen's price gap versus the leading discount brand was 32%.

Copenhagen's retail price was $4.09, up from $4.07 in the first quarter of 2013.

The price of the leading discount brand was $3.10, up $0.11 from the first quarter of 2013.

CapEx was $27 million, and ongoing depreciation and amortization was $50 million.

Operator, do we have any questions?

(Operator Instructions) Owen Bennett, Nomura.

A couple of questions, please.

Firstly, I just wondered if you've got any comment on the pending deeming regulation announcement that has been in news articles this morning and how you expect this to impact both your e-cigarette and cigar growth.

And then, secondly, obviously you had a very strong margin performance in the quarter, particularly in smokeables.

I was just wondering what was driving this, and how we can expect margins to play out into the rest of the year -- and ignoring the fourth-quarter relief from the tobacco buyout quota?

Thank you.

Sure.

Thanks for calling in.

I don't have a comment on the deeming, because I haven't read them yet.

I guess they are releasing them even as we are on the call here.

So I have read only the press reports this morning, and I'd like to read them before I comment on them.

With respect to margins, you are right to point out that we did have good margin performance.

We had growth in smokeable; we had growth in smokeless.

And that is all consistent with our strategies in the core tobacco business, which is to grow our income in the smokeable -- maximize our income in the smokeable segment and then to grow our income through volume growth in smokeless.

So I don't know, Howard.

Do want to say more about quarters, or no?

No; I mean, I think, certainly, in the first quarter we had 3.8% revenue growth on a per-pack basis in smokeable.

And that was a strong driver in the first quarter.

And I think you said it: consistent with our strategy to maximizing profitability.

Okay, thank you.

David Adelman, Morgan Stanley.

Marty, two things I wanted to ask you.

First, the comment about faster second-half earnings per share growth and alluding to the absent of the quota buy-out costs in the fourth quarter: that obviously only flatters your profitability if pricing would have more or less -- be as it would have been otherwise.

In other words, if you or the industry collectively promote that away, it wouldn't have that benefit.

So implicit in what you are saying about the outlook for the fourth quarter is that -- your intent and hope to capture at least some of that net cost reduction benefit?

Well, I think it is consistent with what we said before when we talked about quota, which is if you are trying to maximize your income in the smokeable segment, you obviously want to take every opportunity you can to do that.

And that's how we're thinking about that.

Okay.

And then, that is a good segue to my second question, which is to talk about pricing and your attitude and approach to pricing in the smokeless business, Marty.

Because the profits in the quarter -- last year, profits have been growing 7%.

That's not shabby, but there really hasn't been any net pricing in the last couple of years.

Do you aspire to get to a point and a place where you can add to volume growth with net pricing?

What is holding it back?

Is it the performance of Skoal?

Is it the competitive environment in discount brands, et cetera?

Sure, let's go back.

Well, what I would say, first of all, is remember, for us, in our smokeless business we have margins above 62%.

So of course, you can always have better net pricing realization, but in a category that has margins like that, and where the category is growing, we can grow our income very nicely.

And remember, what we are trying to do there is to grow that income off of the volume, in line with the category growth; and then to have modest share momentum on Copenhagen and Skoal.

So that is the approach.

And gee, I think at CAGNY, we did a fairly good job, I think, of laying out how that has played out over the last five years since we got the business.

And whether it is volume growth or income growth, we have really grown those businesses very nicely.

Copenhagen, of course, has taken off well.

And we're now working on Skoal.

Okay, thanks.

Nik Modi, RBC Capital Market.

Marty, two questions.

First, it is kind of interesting how the weather was so disastrous in the US, at least through January and February.

And from this earnings season, broadly speaking, companies really haven't seen the impact.

So I'm just curious on your kind of state of the union on the consumer.

Is the consumer stronger than we all thought as we started out the year?

And then the second question is now that the Green Smoke acquisition is closed, curious on if you plan on launching it nationally in conjunction with MarkTen, so you have two different brands in the marketplace to try to capture as much growth as you can?

Sure, good questions, both.

Thanks, Nik.

Look, with respect to the weather, we did see some disruptions from time to time.

But actually, it didn't really translate into a drag on either our operating or our financial performance.

With respect to the adult tobacco consumer, I don't think that our view has changed since last we spoke about this.

Given the unemployment, and the underemployment rates, and labor participation rates and the like; and consumer confidence still being better, but nowhere where it needs to be, we are hopeful that things are going to improve.

But our operating plans for 2014 assume that the adult tobacco consumer is going to be cautious, as he or she was in 2013.

Good question about Green Smoke.

You know, we closed on Green Smoke, and we're working now -- we have our integration teams working on supply chain, and marketing, and the like.

Our launch, though, nationally will be focused on MarkTen.

And then, obviously, Green Smoke has retail opportunities in the US, and we will be working on that.

But that's not a part of the national plan.

And Marty, one follow-up to that.

It strikes me that the innovation cycles in the e-cig category are much more rapid, obviously, than the traditional cigarette tobacco businesses.

Yes.

What is Altria doing, just from a capability standpoint, to prepare for a faster innovation timeline?

It seems like most companies are struggling right now.

They have the next generation of products, but they can't watch them, because they still have the existing product in the marketplace.

I'm just curious on your view on that topic.

Yes, that is another good question.

We actually started back on this, Nik, a couple of years ago to really improve our innovation system as a whole.

We thought that we had opportunities to get faster, to develop better consumer insights, and to more rapidly turn them into products to satisfy their needs.

So we have actually been after this -- not just on e-cigarettes, but on all of our businesses, for about two years now.

And we have made significant improvements, I would like to think, in the system itself.

And then, with respect to e-vapor, you're right to point out that the learning cycles are shorter.

And so we're working very hard on our consumer insights system and our market read systems to make sure that those systems are adjusted to give us quicker reads of what is happening with the consumer and in the marketplace.

And we are using lots of techniques, like ethnography and other techniques, to make sure we're staying close to that consumer, because they are moving around a bit.

Thanks a ton, Marty.

Judy Hong, Goldman Sachs.

So my first question is just really trying to better understand your investment spending behind the Nu Mark and MarkTen -- specifically, just looking at the all others segment, with the loss of $1 million.

It's actually a little bit better sequentially from the fourth quarter.

So trying to strip out what was PMCC versus your investment on Nu Mark.

And then as you prepare for the national launch in June, do we see a step up in terms of the spending, particularly in the second quarter there?

So just any help on your thoughts on the investment spending there.

Sure, Judy.

This is Howard.

I think as you look at the year-over-year comparisons in the other segment, I think first quarter reflects what we said is going to occur for the year, which is: we had unfavorable comparisons year over year on PMCC, and we have also increased our investment related to Nu Mark.

And I think as we move into the second quarter, you're going to continue to see trends of us continuing to invest in Nu Mark as we ramp up to that national launch in June.

If I can follow up on that, Howard, because -- just in terms of thinking about guidance, there's a lot of moving parts below the line.

So if you can just help us understand, just in terms of the interest expense?

Because you did see a big drop-off.

And if we just take the run rate for Q1, it's a pretty meaningful decline in terms of the interest expenses.

And then just in terms of the SABMiller, it seems like that is coming in on a year-over-year basis more of a drag in terms of your guidance.

So any help you can provide us in terms of Q1 below the line, and then how we should think about that for the rest of the year?

Certainly.

And I would refer back to our annual guidance.

And I think you are right, that this is going to be a bit of a unique year, in that as the quarters unfold, you might have different trends in the quarters than are reflected in the total year performance.

And certainly that is reflected in the first quarter related to SABMiller.

In SABMiller we actually had a unfavorable year-over-year trend, although that was really driven by the fact that SABMiller issued more stock in the first quarter of last year than they did in the first quarter of this year.

That has a negative impact on our earnings.

If you actually looked at the performance excluding that, SABMiller had a growth in the quarter.

So I think that that certainly was a unique impact in the first quarter with regard to SABMiller.

We have already communicated that on an annual basis, because of the strong asset sales in the past from PMCC, as those slow down there's going to be an unfavorable impact.

But then, of course, kind of below the operating companies income line, there were a number of favorabilities for the year.

And you started to see the interest decline in the first quarter, which certainly benefited earnings.

And that will continue to unfold through the year.

You also see that our tax rate on an adjusted income basis has come down in the quarter.

And that is going to be reflected through the total year.

And then, of course, there's an impact on the EPS growth from our share repurchase program.

So there were certainly a number of positives in the quarter, including a strong performance on the smokeables, segment.

But that is being offset by SABMiller, by PMCC, and some investments in Nu Mark -- although ultimately resulting in what we thought was a nice 5.6% EPS growth for the quarter.

Is the run rate for the interest expense for the year -- the Q1 run rate should be what we should be using?

Yes, I don't know that you can just take and annualize the first quarter, because there were a number of different things that happened last year.

But certainly you should expect to see a nice favorable interest impact to the total year, just like we had a nice favorable interest impact in the first quarter.

Okay.

And then, Marty, I just wanted to go back to the cigarette industry consumption question.

And the question just really is more just thinking about the longer-term run rate.

Because clearly, you have smokeless and some of these other tobacco products that have grown pretty nicely.

And also, just thinking about your MarkTen launch in a couple of test markets: what are you seeing in terms of substitute-ability and kind of the trade-off you are staying on cigarette consumption versus e-cigarettes?

So is really the decline for cigarette consumption -- even if we come out of the economy and the more challenging economic conditions, does the decline really get accelerated just because all these other tobacco products really grow at a faster pace?

That question comes up a lot, but there is no reason to think that right now.

We don't predict a consumption declined rate going forward, but we do look at a number of factors, as you know.

And what have we seen is that over the last several years, it has really been 3% to 4%.

And that has been through periods when there have been other products that come into the marketplace -- e-cigarettes, I would argue, Judy, being just among the last.

So is it possible that it could speed up or head the other way?

I suppose anything is possible, but when we look at the data -- and we look at it pretty carefully to see if there are any new drivers that would change what the historical rate has been, at least right now, Judy, we don't see that.

Our model, as you know, is to use an estimate of secular decline of, call it, 2% to 3%, in that neighborhood.

And embedded in that in our model are people who are trying other products, or even, indeed, migrating to other products.

And that seems like that plus the historical price elasticity still seems to do a pretty good job of explaining the decline rate.

And the test markets that you have launched, MarkTen, any difference that you are noticing in terms of the cigarette consumption behavior?

No, but that's pretty early there with respect to the test markets, to be reading that.

Okay, thank you.

Bonnie Herzog, Wells Fargo.

I have a two-part question on Marlboro.

First, could you drill down further on what drove the share gains?

And then how much of the gains were driven by your relatively new line extensions?

Or has your core Marlboro improved and contributed to the gains?

And then, second, I would be curious to hear from you how you are going into balance keeping your eye on your core Marlboro brand and then innovation behind the brand, while also focusing on driving innovation in e-cigs.

I knew you touched on this a little bit, but just wanted to hear from you how you think about the priorities for the businesses.

Sure.

Let me start with Marlboro.

I think the answer to Marlboro lies in the main in the implementation of the Marlboro architecture, which is itself a terrific example of innovation in the business.

So you know the story behind the Marlboro architecture.

I won't repeat it.

But what we see there is that by employing it, we have been able to reach out in different ways to adult smokers.

You take Marlboro Black, which is doing extremely well.

And then really the Marlboro architecture, along with innovation, say on Marlboro.com -- the age-restricted website and the like -- has really helped Marlboro grow in the way that it wants to grow.

And I would also say, you know, if you look at Marlboro's historical share growth, it is completely consistent with that.

So I think that is the answer on Marlboro.

And so far we have been able to execute our strategy well, I think, of maximizing income while keeping Marlboro on a good momentum path.

The way we describe the answer to your question about how can you focus on your core business while also paying attention to innovation is almost exactly like that.

We call it maximizing the core business while innovating to the future.

And our organization is filled with enough talented people and we have enough resources to do both.

I just don't accept the notion that the world is so binary as you have to do one or the other.

And I think that you have been able to see that recently.

We continue to maximize the income that comes out of our core tobacco businesses.

At the same time, we have entered the e-vapor space.

We have created our own product.

We have been in two test markets.

We have done a transaction with PMI to hopefully sell those products internationally.

And now we have done a very nice tack-on acquisition to improve our capability in such things as the supply chain and entrepreneurial culture.

And you know what?

I'm very proud of the organization.

We have really, I think, done quite a good job of describing this to our people, in where we're going, and how we're going to get there.

And I'm very proud of the work that has been done in that regard.

Okay, that is helpful.

Just looking at other companies, historically a lot of times they fail as they start to chase growth and maybe lose focus on the core.

So I think it is just something to make sure you guys are paying attention to, so that was very helpful.

And then my next question is a little bit of a follow on in terms of your approach to building your e-cig business.

You did mention you're going to make disciplined investments, so I'm curious to hear how willing you are to let this business be a drag on your earnings.

How should we think about this in the next couple of years, in terms of the potential impact on earnings?

Well, the way we think about it is through our mission, and our mission is to satisfy adult tobacco consumers.

And if adult tobacco consumers want to move to innovative products like e-vapor -- it probably won't be the last, by the way; there will be other products that they want to try, particularly those that may hold out the promise for less harm if the FDA were to prove them.

I think it is the wrong approach to try to run the business in a way to hold that back.

We're in the job of satisfying our adult tobacco consumers.

And we're going to have products for them that are premium, and that have margin, and that are done responsibly.

And that is how we think about it.

So it is about understanding your consumer and trying to give them what they want.

All the while, of course, paying attention, and keeping -- you know, the word discipline is important.

And we use that word deliberately so that we keep our eye on our core businesses.

Bonnie, this is Howard.

I do think, though, that we remain committed to our long-term EPS growth of 7% to 9% and continuing to return a large amount of cash to shareholders through our 80% dividend payout ratio.

And as we see it now, we think the different levers we have to pull and the strength of our business platform ought to allow us to make the appropriate investments and stay consistent with our long-term strategy.

All right, very helpful.

Thank you.

Chris Growe, Stifel.

I just had two questions for you, if I could.

First would be that -- I have asked you before about -- you know, you've had a pretty healthy stream of new products, while the industry has been a little -- especially in cigarettes, a little slower, just due to the SE approvals.

And we have more of those theoretically coming out from the FDA.

So it's maybe not so much your portfolio, or innovation of new products, but do you expect to see an increase in activity with these new SE approvals coming out over the next few months?

I suppose so.

You may have seen that the FDA issued new performance metrics about how it is going to try to turn SEs faster, beginning with fiscal year 2015.

And they have had some inquiries from various people about the time it has taken for SEs.

I can only talk about ours, of course.

But we remain, I think, with a very healthy portfolio.

But ultimately, of course, that is the way the industry is going to work.

The FDA is going to have to look at new products and approve them.

Okay.

And then just had a question in relation to taxes.

There is obviously an FET proposal for this year.

And I just wanted to get a sense of what you are expecting at this early stage of the year for state excise tax increases for the year.

Do you see there would be a larger-than-average burden this year?

Well, I hope not.

And we have been working very hard to make that not happen, with many others.

So far the activity, Chris, has been very active in terms of proposals, but actually fairly modest in terms of passage.

So we don't have any FETs to memory that have passed so far this year, although there have been lots of proposals.

And there remain proposals in the state houses.

So our government affairs team is hard at that.

You know, the FET is still hanging around out there, although it does not seem at this moment in time, anyway, to have gained a lot of traction.

Okay.

And if I could ask one quick one, maybe of Howard, in relation to share repurchase activity.

You have some availability, and you're going to finish that by the third quarter.

By my calculation, you have got a lot of free cash flow as well still coming through this year.

So are there any other unusual -- or a need for that cash that would maybe keep you from being a little bit more aggressive with share repurchase activity this year?

Well, I think you are right to point out that on the current program, we're coming towards the end of it.

We've got about $187 million left.

And our normal practice has been to have most of the cash returned to shareholders come through our 80% dividend payout ratio, but opportunistically, we will do some share repurchase.

So additional share repurchase is sure to be a discussion topic here over the next several months.

And I think with regard to incremental cash needs going forward, I don't think we see that there are dramatically different incremental needs going forward than we have had over the last year.

So, certainly, use of cash is something we will be looking at over the next few months.

Okay, thank you.

(Operator Instructions) Michael Lavery, CLSA.

Almost conspicuously absent is any mention of competitive impact from new product launches in your largest non-menthol, non-full flavor segment.

Can you just give a little color there?

You have gained share, and since 3Q your price/mix gains have accelerated.

How does that look?

Obviously, you are getting on just fine.

Can you give a sense of what you are seeing in the market there?

Well, I think PM USA -- the short answer is PM USA has done a heck of a good job of managing its plans.

You know, we say this at the beginning of the year, and it's a good reminder to us, actually.

When we do our planning, we take everything into account, including the fact that competitors will launch products from time to time.

And so we don't disclose how we think about that, or the actions that PM USA takes to protect its franchise, but you're right to point out, I think, that the metrics of its performance in the face of that and other challenges really speaks to the strength of the PM USA franchise.

Okay, that is fair.

And then, just looking at PMCC versus about three years ago, your asset balance there is less than half what it was.

And certainly, if you had the asset sale run rate that you did over the last few years, that business would entirely go away in 2.5 or so years.

But I realize there are some assets that don't make sense to sell for any of a combination of reasons, and there's probably a little bit of a long tail.

Just looking ahead, can you give us a sense of what you expect in terms of the split in that segment's income between sales and ongoing operations?

Are there still sales that make sense to do?

Are they going to be sporadic or few and far between?

Can you give some color on how the outlook is there?

Sure.

I think you assessed PMCC about right, which is -- our goal really has been to rapidly unwind that business, but to do it in a way that is maximizing the profit and cash flow that Altria gets from it.

And so we're pleased to see that we are down to a net finance receivable of only about $2 billion, down quite significantly.

Frankly, our goal, with an eye towards still having an appropriate earnings impact and cash flow impact, is to unwind that business as quickly as possible.

Because we think that our focus really is elsewhere at this time.

I would say that we have had quite strong asset sales over the last couple of years.

I would expect to see those asset sales continue, but at a lower rate.

And that is really what our belief is.

And I think what results from that is that while we will continue to get an income contribution from that business, the year-over-year comparisons, certainly for this year, are likely to be unfavorable.

And it is going to be lumpy.

In any given quarter you're going to see part of the variance in that quarter driven by what goes on at PMCC.

I think the good news is -- as you pointed out -- the business is a much smaller part of Altria now.

And I think its impact is going to diminish greatly here over the next year or two.

That is helpful.

And then just lastly, this is nitpicking your wording a little, but you mentioned in your release closing the Green Smoke deal and its affiliates.

Does it have any notable affiliates, like maybe a vaporizer business, or anything that you might be looking at that's interesting?

Or is that terminology that doesn't really mean much to it?

It is just meant to describe that there is more than one company in that family.

But the business is exactly as we have described it before.

Okay, great.

Thank you very much.

Thank you.

At this time, I would now like to turn the call over to Ms. Sarah Knakmuhs for closing comments.

Thank you, everyone, for joining our call this morning.

If you have any follow-up questions, please contact us at Investor Relations.

Thank you.

This does conclude today's conference call.

You may now disconnect.