Altria Group q3 2009 Earnings Call Transcript - keypoints..

October 27, 2009 Mike Szymanczyk, Chairman and Chief Executive Officer.

No mention of Marlboro SNUS but comment from Marty Orlowsky, Chairman and Chief Executive Officer of Lorillard Triumphs SNUS is performing inline with its competitive adventives, which is pretty flat and it’s not showing any real dynamic growth and it’s no different than the category is frankly.

Marlboro’s retail share for the third quarter of 2009 was 41.9%, an increase of 7/10th of a share point from the second quarter of 2009. It’s a brand responded well after the initial period of dislocation caused by the Federal Excise Tax increase, and by differing market pricing around the event.

Marlboro was the only leading premium brand to grow third quarter cigarette retail shares measured by IRI capstone, eithene, either sequentially or on a comparable year-over-year basis. We are particularly pleased with Marlboro’s balanced retail share growth between menthol and non-menthol from the second quarter to the third. As the brand grew its non-menthol retail share by 4/10 of the share point, and its menthol retail share by 3/10 share point. The successful introduction of Marlboro Blend 54 was an important contributor to Marlboro strong menthol share grow.

We are particularly pleased with Copenhagen’s retail share performance. Copenhagen grew its retail share of the smokeless category of 3/10 of a share point from the second quarter of 2009 to the third quarter. And its September monthly retail share was 8/10 of a share point higher than it’s retail share in April, the month immediately following the list price reduction.

We expect the launch of Copenhagen Winter Green long cut in the fourth quarter of this year to continue enhancing Copenhagen’s ability to grow retail share of the smokeless category. Skoal has also responded well to the actions enhancing its value equation. Since July, Skoal has demonstrated retail share stability with a consistent monthly market share of approximately 23.6%. USSTC has a number of initiatives planned for Skoal that should continue strengthening its position in the smokeless category in 2010.

Black & Mild continued its impressive performance growing its third quarter retail share of the machine made large cigar category by 7/10 of a share points versus the year ago period to 30.9%. Share growth was driven by a recent successful launch of Black & Mild Wood Tip and Black & Mild Wood Tip Wine, as well as the equity building campaign, Enjoy Black & Mild. Black & Mild’s growth within the machine made large cigar category should be further enhanced by expanding its portfolio of products into new segments, such as untipped cigarillos.

In the smokeless category, USSTC and PM USA estimate that the long term category growth rate remains stable at about 7%. Middleton estimates that the machine made large cigar categories long term growth rate also remains relatively stable, at about 3%, though the category growth rate has slowed after the Federal Excise Tax increase on cigars.

The second factor was the decline in trade inventories across all of our tobacco businesses. In the third quarter of 2008, the trade increased cigarette inventories, while in the third quarter of this year the trade substantially reduced them. PM USA estimates that trade inventory levels on its cigarettes were reduced by an estimated 20% at the end of the third quarter of 2009 versus at the end of the third quarter of last year.

Dave Beran, Executive Vice President and Chief Financial Officer of Altria Group.

Marlboro has growth 1/10 of a share point to 41.9% through the first nine months of this year, versus the same year ago period.

Through October 1st, 13 states, the District of Columbia, and Puerto Rico, have increased their cigarette excise taxes in 2009, with an average increase of $0.54 per pack in those 13 states and DC.

Our third quarter master settlement agreement in quota of buy-out rules, were $1.2 billion or $0.67 per pack. Of the $0.67 the MSA represents $0.61 per pack in the quarter buy-out represents $0.06 per pack.

The FDA user fee payments for cigarettes through September 30th were $11 million or $0.01 per pack.

Copenhagen’s national retail price in the third quarter was $4.21 and its net price GAAP versus the leading discount brand was 51% in the third quarter.

Well, I've said this before and I'll repeat it again. 2009 is a year of transition for the company, so we've restructured the whole company. We bought UST, we've restructured that entire business enterprise as a part of a larger restructuring of Altria. I wouldn't try to read anything in quarter to quarter movements in that business at this point in time. We have absorbed all of the smokeless costs now together into one smokeless unit. We had smokeless costs over in the PM USA so that's been absorbed over in the smokeless side.

Can't tell you what our overall menthol share was. Our menthol share for Marlboro was up and I think I mentioned that and I think it was up by three-tenths, quarter versus a year ago.

Question: Copenhagen with the Long Cut Wintergreen. How does that — can you talk about how you're thinking then the evolution then of Skoal as well, because that struck me as a brand that perhaps was more suited to that kind of innovation. Should we expect line extensions or innovation in Skoal next year as well as you start to work toward maintaining share in both these brands with the long-term category growth rate of about 7%?

Michael E. Szymanczyk - Yes. We have actually some initiatives for Skoal that are planned. We haven't announced them yet as we're not quite ready to do that, but I would point out to you that relative to Copenhagen Wintergreen, about 40% of the MST segment is Wintergreen and it's a growing segment and Copenhagen has no business in the Wintergreen segment. So it's a very appropriate expansion for Copenhagen. It should participate in that segment, and we believe we have an excellent product to put forth to the consumer, and we believe it's going to stimulate growth on Copenhagen and create a lot of interest for the brand, among adult MST users.

But we also have some interesting initiatives for Skoal and so we'll kind of play all that out. As we get into 2010 we like to make focused efforts and make sure that we make the most of them and so we'll take advantage of that brand a little further into the year.

Question: And then secondly, just a quick question on the FDA Tobacco Products Scientific Committee, should we still be expecting that report around this time next year or is that still further delayed?

Michael E. Szymanczyk - I think it's still around this time next year if I remember right — August next year if I remember right. And frankly, I'm not aware of a changing on timing for that. There have been some pushback where FDA has moved back the date for some submissions, but not long periods of time — 30 days, those kinds of things. I am not aware of one related to menthol at this point in time.

Okay. You're talking about relative to MST. Well, I'll tell you, there were several movements in the third quarter. One of them was, and I explained this in our last earnings call, that we moved our list price down and we moved it down a particular amount. We didn’t' want to go too deep with it. We wanted to set it at a level where then we could go into particular spots where we knew there would be a necessity for a bit more in order to get the gaps the way we wanted them and that we would do that in the third quarter once we were able to see what the impact was of the reduction that we took in the second quarter.

Question: Guess the question that I'm trying to get around is with Pall Mall obviously having an impact on Marlboro and with your focus on L&M kind of coming back to the fore, I mean, do you think of using L&M as more of a fighter brand within your portfolio as you've kind of now started to focus on just Marlboro and maybe one discount brand versus looking at Parliament Basic and the rest? Any thoughts on L&M specifically?

Michael E. Szymanczyk - Well, we have a strategy for how we use L&M. It's not a primary focus for us. Our primary focus is the Marlboro brand and that's where we'll continue to focus our effort. But relative to some differences between where basic has a nice franchise and where it doesn't, we have some activity with L&M. And we have some activity planned with a product called L&M Bold which is a full flavor menthol product where we're underdeveloped in the full flavor menthol. So that's really how we focused on L&M, but it is not our primary strategy. Our primary strategy is Marlboro.

Nik Modi - UBS - And Mike, just last question when it comes to the sales force. I mean clearly you have your current sales force selling all three different categories with cigar, smokeless and cigarettes, how long do you think it's going to take for that group to really get up the learning curve across all of the categories?

Michael E. Szymanczyk - Well, I think they're doing a great job. They're picking all of that up. They have a lot of work to do because we have launched some new programs relative to these new categories so those have to be sold in. We have (inaudible) activity before us that they'll be dealing with so they have a lot of activity.
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Altria Group, Inc. Q3 2009 Earnings Call Transcript. - More information on webcast coming..

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