Altria Group (MO)

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Altria Group, Inc. (MO)

Q1 2010 Earnings Call Transcript

April 21, 2010 9:00 am ET

Executives

Cliff Fleet – VP, IR

Mike Szymanczyk – Chairman and CEO

Dave Beran – EVP and CFO

Analysts

Christine Farkas – Bank of America-Merrill Lynch

Chris Growe – Stifel Nicolaus

David Adelman – Morgan Stanley

Judy Hong – Goldman Sachs

Thilo Wrede – Credit Suisse

Nik Modi – UBS

Adam Spielman – Citigroup

Chris Burritt – Bloomberg News

Michael Felberbaum – Associated Press

Ann Gurkin – Davenport

Thomas Russo – Gardner Russo & Gardner

Presentation

Operator

Good day and welcome to the Altria Group 2010 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. 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 of Investor Relations for Altria Client Services. Please go ahead, sir.

Cliff Fleet

Good morning and thank you for joining our call. This morning we will only be discussing Altria's 2010 first quarter business results and will not be discussing the status of litigation.

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

Since Altria acquired UST and its smokeless tobacco and wine subsidiaries on January 6, 2009, US Smokeless Tobacco Company and Ste. Michelle Wine Estates financial results from January 6, 2009 are included in the 2009 first quarter consolidated and segment results.

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

Altria reports its financial results in accordance with 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, as well as reconciliations, are included in the earnings press release.

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

Mike Szymanczyk

Thanks, Cliff, and good morning to everyone. We are pleased with the performance of Altria and its operating companies in the first quarter of 2010. Altria delivered strong adjusted earnings per share growth of 7.7%. In addition, we increased our dividend by 2.9% on an annualized rate of $1.40 per share. Reflecting our new dividend payout ratio target of approximately 80% of adjusted earnings per share.

Despite the continuing challenges of high unemployment and low consumer confidence as well as intensely competitive environment Altria’s operating companies continue to perform well.

Cigarettes segment’s adjusted operating companies income increased by 6.4% over the comparable year ago period to $1.3 billion. Marlboro achieved record retail share results as the brand grew its quarterly retail share both sequentially and on a year-over-year basis.

We are particularly pleased with the Cigarettes segment results considering that the prior year comparison period included cigarette segment’s adjusted operating companies’ income growth of 10.7% and a previous Marlboro retail share record high of 42.4%.

The smokeless products segment reported very strong adjusted operating companies’ income growth of 49.2% to $188 million. Copenhagen and Skoal’s combined retail share increased both on a sequential and comparable year-over-year basis and the brands combined shipment volume grew faster than the smokeless categories growth rate for the second straight quarter. Importantly, Copenhagen reestablished itself as the largest smokeless brand as measured by retail share in the quarter.

The Cigar segment’s adjusted operating companies’ income declined by 15.8% to $48 million. Middleton have very difficult income comparison against the first quarter of 2009 when its adjusted operating companies’ income grew by a very strong 32.6% due to the timing of trade purchases around the 2009 FET increase.

Wine segment’s adjusted operating companies’ income grew 33.3% to $12 million. Ste. Michelle reported strong volume growth versus the prior year period led by the 44.9% shipment growth of a Chateau Ste. Michelle wines.

Ste. Michelle continues to be recognized as a producer of a broad portfolio of high quality wines as wine industry publications had given over 30 of its wines ratings of 90 or better already this year.

The four premium brands of Altria’s tobacco operating companies perform well in a challenging environment. Marlboro had a particularly strong performance as I mentioned. The brand launched two Special Blend non-Menthol products in the quarter which contributed to the brand strong retail share performance.

The strength of these two new products help Marlboro grow its retail share one share point from the fourth quarter of 2009 to the first quarter of this year, despite continued heavy competitive spending on non-Menthol discount products.

PM USA plans to broaden the availability of two more variances. Special Blend in a hundreds length in the second quarter of 2010 to build on this success.

Marlboro also launched Marlboro’s Snus nationally, is a spitless, smokeless tobacco alternative. Since the products did not shift nationally to wholesale until late in the first quarter of 2010 it is premature to talk about retail share and adult consumer feedback. However, based on our test markets we believe Marlboro Snus has a good opportunity for future growth.

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