Altria Group, Inc. (MO) Q1 2011 Earnings Report, Transcript and Summary

Good day, and welcome to the Altria Group 2011 First Quarter Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Mr. Cliff Fleet, Vice President of 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 contained 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 the U.S. 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.

Thank you, Cliff, and good morning to everyone. Altria delivered strong 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 U.S.A 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 segments adjusted operating companies income growth was also quite strong. 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 of last year had a significant impact on both PM U.S.A.'s and Marlboro's retail share comparisons. PM U.S.A. shipped 2 Marlboro Special Blend SKUs in 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. 2 additional Marlboro Special Blend SKUs were shipped toward 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 U.S.A. believes the trade build inventory from the beginning to the end of both comparable time periods but the trade built less inventory this year than in 2010. Trade inventory build in the first quarter could negatively impact volume and income results for the Cigarette segment if depleted in the future. PM U.S.A.'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 U.S.A.'s adjustment cigarette shipments declined more than the category due to a decline in the retail share. This retail share decline occurred primarily due to the timing of the Marlboro new product launches I mentioned and retail share losses on some of PM U.S.A.'s other brands, primarily discount as PM U.S.A. optimizes the long-term income of its portfolio brands. PM U.S.A. 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 U.S.A. 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 U.S.A. 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 continue to expand and Marlboro is well positioned for the balance of the year. In the Smokeless Products segment, USSTC and PM U.S.A. reported solid business results in a competitive environment. We are particularly pleased with the Smokeless Products segments 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 Products 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, first quarter of 2010 represented the first full quarter of shipments for this very successful new product. Second, 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 2010. USSTC and PM U.S.A. 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 8 new Skoal xtra products towards the end of the quarter. As a result of the year-over-year changes in new product and promotional activities, reported Smokeless Products shipments declined versus prior year period. However, after adjusting for these factor, USSTC and PM U.S.A. estimate that their combined Smokeless Products shipment volumes grew slightly below the Smokeless categories growth rate for the quarter. The Smokeless Products segments retails 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 U.S.A. grew their combined retail share of the Smokeless category due to a 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 strengthened 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 of this year. Skoal grew retail share on a sequential basis as comprehensive brand building initiatives positively impacted its performance. USSTC expects the new Skoal xtra products shipped toward the end of the quarter will contribute to the brand's future growth. Overall, USSTC and PM U.S.A. 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 U.S.A. believe they are well positioned to continue delivering solid results in the Smokeless category as the year progresses. In the Cigars segment, post FET increase, marketplace dynamics continue 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 had 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 completed widely. This is the largest machine-made Large Cigar segment, representing over 50% of the category 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 line segment, Ste. Michelle reported solid business results with strong growth and adjusted operating companies income due in part to Ste. Michelle's focus on improving its mix with higher margin products. First quarter reported line 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 continue 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, faced some difficult comparisons. The underlying strengths of these businesses, in conjunction with solid first quarter results, gives us confidence that we can deliver adjusted diluted EPS growth of 6% to 9% for the full year at 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 and 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 increase cigarette inventories from the beginning to the end of the first quarter, benefiting reported Cigarette segment volume and income results. PM U.S.A. estimates that the overall cigarette categories adjusted volume declined by approximately 4% in the first quarter, which is in line with historical price elasticity. PM U.S.A.'s first quarter Cigarette segment retail share declined by 1.2 share points to 49% due to retail share declines of 0.7 of a share point on its portfolio brands and 0.5 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 0.1 of a share point to 6.1%. based in part on the introduction of Marlboro's Skyline Menthol in the fourth quarter of 2010. The Smokeless Products 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 Products shipments decreased by 1.3% but when adjusted primarily for the timing of new product launches, increased by an estimated 6%. USSTC and PM U.S.A. estimate that the Smokeless Products category grew 7% in the first quarter. USSTC and PM U.S.A.'s combined retail share of the Smokeless Products category decreased by 0.6 of a share point versus the comparable year ago period to 54.7%., but increased by 0.2 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 0.3 of a share point versus the fourth quarter of 2010 to 26% and also grew by 0.4 of a share point on a comparable year-over-year basis. Skoal also grew 0.3 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 0.6 of a share point to 29.1%, driven by Black & Mild's retail share performance. Black & Mild grew its retail share by 0.8 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 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 billed 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, our closing stock price of $27.01 on April 15, our yield of 5.6% makes Altria stock an attractive investment. Altria intends to complete its previously announced 2011 $1 billion share repurchase program by the end of this year, but the timing of any share repurchases depends present 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 price cigarette was 35% in the first quarter. Marlboro's net pack price in the quarter was $5.70 while the lowest effective price cigarette was $4.21. The cigarette discount categories 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 use a weight-based Smokeless Tobacco excise tax system, representing approximately 32% of the Smokeless Tobacco categories volume. CapEx was $13 million in the first quarter and depreciation and amortization was $60 million. And on April 15, PM U.S.A. made its annual 2010 MSA payment of approximately $3.5 billion. The amount includes approximately $267 million that PM U.S.A. disputes it owes, as a result of the 2008 non-participating manufacturer adjustment. Operator, do we have any questions?

[Operator Instructions] Our first question is coming from Judy Hong with 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 expansions to go after the French Marlboro users. If you think about just the core Marlboro franchise so when you exiled 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, 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 either 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 2010, the Marlboro share grew for the year about 0.8, well ahead of what had been its average growth rate over the past few years and 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 guarded from promotion-sensitive 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's 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'll see is that we have major product launch, a very successful behind Marlboro Special Blend. So while most of that share is sustainable share, some of it, due to promotion activity when you launch new product, comes from these more promotion sensitive or discount shoppers, and that activity wasn't replicated in the first quarter of this year. If you look at the total year last year during the period that we had that launch activity, we saw very strong share, actually, a 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'll call, temporary share slip away. And so as we lap that quarter, the first quarter this year, we didn't have the same kind of activity. We expected to see some loss in 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 Non-Menthol, Camel continued low price activity, and 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 extraordinary support that we had in the year ago time frame. So we think Marlboro is actually in pretty good shape and we're 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, and we tend to look at the brands' performance on a longer-term basis rather than a quarter-to-quarter basis or even a half-to-half. So I think it's doing fine. We don't break out the various pieces but the franchise continues to show good strength.

And then just some color around the new Marlboro leadership program that you've implemented with the retailers where you're suggesting max price for Marlboro in given markets. I guess 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's average pricing, how much pricing would come down if 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 program again as sort of maybe risk of the brand equity question here?

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 in to their stores, so this is really a redesign of that program because all programs kind of become less relevant over time and their structure as marketplace conditions change and that's the case with this one and we will look at these programs periodically and update them. So we update this program effective April 1, it's designed to be cost neutral with the old program, and beyond that the older response rate about a program is designed for every retailer necessarily based on their strategy more with ones in the past but the response rate to this program has been, I think, very positive by many retailers. And some retailers won't choose to do it. That's what we expect. We'll see what the impact is in the marketplace but we expect to see some positive impact from the brands' performance as we have in the past with programs like this one when some of our customers get behind it.

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've done in the past, can you just give us a little bit color in terms of the rationale?

This dispute is now in full arbitration and so we felt like that was the appropriate decision this year.

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

Just following up on Judy's question on the MLP program, Mike, I'm just trying to think of the P&L impact here and it strikes me as this is just basically a reallocation 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 -- will you be outlaying incremental dollars and cents to help fund the back end 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 dollars?

Yes, that's right.

And then the other question is on the state excise tax in [indiscernible], 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. I mean how should we think about this? I mean 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's still early in the year. We never get overly optimistic about this. We will continue to be paying close attention.

Okay, great. And then just the last question quickly on the ad valorem to weight based in 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 can't detail it for you but yes, I think we expect that 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 doesn't exist as somebody tries to propose to go to ad valorem. So I think you're going to continue to see activity there.

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

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 continue to say, we think, they'll operate based on the science and the evidence and make the regulatory decisions accordingly. So we haven't felt like we'd see some dramatic impact. And so we 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 U.S. Cigarette category. This quarter and in the past you've 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's happening in your view that the structural decline in industry volume, in other words, the decline that would occur in the absence of a price -- of pricing being higher is higher than it might have been in the past?

No, I wouldn't draw that conclusion. I think your time frame probably is too short to really determine any trend, David. We generally would have to look at them on a longer time line to understand whether or not there was any trend line changes -- boy, the history is pretty wrong on this and it seems to support a pretty stable elasticity.

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

Mike, I had a question related to MLP but maybe not, we've seen or heard about some reduced discounts on some of your other Marlboro brands, the Special Blends or the 72's and given your comment about MLP program being cost neutral, I'm trying to understand if that's a statement based on the MLP program itself or if you're 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. The MLP program's cost will vary a little bit based on take rate versus estimates but in general, we think it'll be about cost control and our expectation is that won't 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, 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's an issue we'll have for the remainder of the year but during that period of time we will -- 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 development 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.

[Operator Instructions] Your next question comes from the line of Vivien Azer with Citigroup.

I was just wondering if we could -- as you turn back to the Marlboro franchise just to say one more time, and just 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're asking.

Is there a minimum price gap that you're just not willing to go below? Is it 30% and you at 30%, you just have to hold Marlboro's pricing or...

Well, generally, it would be difficult to articulate something like that. That number that you're referring to is kind of a national number but reality is that it's made up of a lot of different pieces or 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's always changing that number. So we're -- in terms of our activities and the actions that we take, we take those on a more precision basis. We wouldn't be looking to some total national number to drive our decision making. So it's 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's kind of 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 haven't 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 increases. So I don't think that, that's an issue.

Okay, fair enough. And just in terms of kind of the delay in terms of some of the FET activity, has that at all improved your outlook for cigarette industry volumes for the year? For the absence of anything at [indiscernible]?

We don't get predictive of it, but as I commented on David's question, I don't think we've seen any evidence that the normal elasticity has changed any.

Fair enough. Thank you very much.

Our next question comes the line of Chris Growe with Stifel, Nicolaus. Christopher Growe - Stifel, Nicolaus & Co., Inc.: 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 certain number of sticks or days or how we could look at that, that you think maybe be 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. Christopher Growe - Stifel, Nicolaus & Co., Inc.: 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 xtra launch is really a detail of the -- or 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. Christopher Growe - Stifel, Nicolaus & Co., Inc.: And then I guess somewhat related to that, you've done a lot of the shelf resets in your Smokeless business. I see it's always worked. Is that pretty well complete now and that we've seen like an expanded space for Smokeless, is that all sort of in place now where you wanted to initially get that done?

I think the work regarding the physical work, regarding resetting these sessions is pretty well complete. There's still some tweaking and adjustment going on. I think it's now really the ordering procedures and getting retail the same kinds of practices relative to ordering that maintains a really high in stock tradition with fresh product to occur in the Smokeless business, as is the case in the Cigarette business. So there's 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. Christopher Growe - Stifel, Nicolaus & Co., Inc.: In that change or the 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. I mean Skoal has a lot of SKUs but the distribution on those SKUs isn't consistent across the country. So in each geographic situation, we've accommodated how to position Skoal xtra in the store based on the circumstance. So that would really vary by store by development of particular SKUs on Skoal.

Your next question comes from the line of Ann Gurkin with Davenport. Ann Gurkin - Davenport & Company, LLC: 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's 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 and a case on some of these similar kinds of leases, LILO/SILO called the Wells Fargo case not too long ago, the other day. So we just decided to add this additional disclosure. Ann Gurkin - Davenport & Company, LLC: 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 doesn't seem to have changed a lot, and I think you can add to that, geez, they've 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'd like to say that and you may see some strength in the stock market. I don't think that the general consumer is getting the same outcome out there right now. So we're still cautious about that.

Your next question comes from the line of Thomas Russo with Gardner Russo Gardner.

Question about any victories, any progress underway with the illicit trade or the counterfeit channels that you might share with us?

Well, that's 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's over but that kinds of activity continue to occur. And I think that I don't think there's anything new to report relative on that subject in terms of impact on the business but it's 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.

And then just an observation from you. What reads do you have from Duty Free or from parts of the U.S. where there's heavy international traveling about the separation of the Marlboro brand equity for those who are non-U.S. consumers in light of what they're seeing abroad in their home markets versus the U.S.? 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 U.S. Duty Free has been U.S. 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've had products in those different environments that are manufactured in different places for some time now. So yes, there's nothing new there.

[Operator Instructions] At this time, I would like to turn the floor back over 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.