Altria Group (MO)

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Altria Group, Inc. (MO)

Q3 2010 Earnings Conference Call

October 20, 2010 9:00 AM EST

Executives

Cliff Fleet – VP, IR for Altria Client Services

Mike Szymanczyk – Chairman and CEO

Dave Beran – EVP and CFO

Analysts

Chris Growe – Stifel Nicolaus

Judy Hong – Goldman Sachs

David Adelman – Morgan Stanley

Christine Farkas – Banc of America Merrill Lynch

Nik Modi – UBS

Chris Burritt – Bloomberg News

Philip Gorham – Morningstar

Karen Lamark – Federated Investors

Adam Spielman – Citi

Presentation

Operator

Good day and welcome to the Altria Group 2010 Third 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.

At this time, all lines have been placed on mute to prevent any background noise. Representatives of the investment community and media on the call will be able to ask questions following the conclusion of the prepared remarks.

(Operator Instructions)

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.

Cliff Fleet

Good morning and thank you for joining our call. This morning, we will only be discussing Altria's 2010 business results for the third quarter and year-to-date through the end of September and will not be discussing the status of tobacco 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, U.S. Smokeless Tobacco Company's and Ste. Michelle Wine Estates financial results from January 6 through June 30th, 2009 are included in Altria's 2009 consolidated and segment results. For a detailed review of Altria's business results, please review the earnings release that is available on our website, www.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 the earnings press release.

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

Mike Szymanczyk

Thanks, Cliff, and good morning, everyone. The Altria family of companies delivered excellent financial results in the third quarter of 2010, as adjusted diluted earnings per share in the quarter grew by 12.5% versus the year-ago period.

This strong third quarter earnings per share grow builds on our solid business results from the first half of the year. On a year-to-date basis, adjusted diluted earnings per share are up 6.6%, giving us confidence that we can achieve our earnings per share growth objectives for the year.

This strong business performance occurred in what remains a very challenging and competitive business environment. Despite these challenges though, we delivered solid business results across our reigning companies, particularly for our cigarettes and smokers products businesses, and the four premium brands of our tobacco operating companies continued performing well in the marketplace.

We believe that the strengths of our adult consumer product business has well positioned us to continue delivering superior returns to our shareholders for the foreseeable future. These returns include a commitment to return cash to shareholders in the form of dividends.

In August, Altria increased its dividend by 8.6%, which when combined with the 2.9% dividend increase earlier this year results in a total dividend increase of 11.8% since the beginning of 2010. As of October 15, Altria’s annualized dividend yield was 6.1% versus the S&P 500’s annualized dividend yield of 2.1%.

We are particularly pleased with the performance of the cigarette segment. In the third quarter, the cigarette segment suggested operating companies’ income grew by 9% versus the prior-year period and increased by 5.6% for the first nine months of the year. PM USA delivered the strong income growth with margin expansion, while continuing to build Marlboro’s position in the marketplace.

Third quarter adjusted cigarette segment’s operating companies’ income margins grew by 1.9 percentage points versus the year-ago period to 40.2%, and by 1.8 percentage points on a nine-month basis. Marlboro continue to perform very well as it grew its retail share for the three and nine-month periods by a strong seven-tenths and eight-tenths of a share point respectively versus the comparable year-ago periods.

The smokeless products segment also reported strong results. Adjusted operating companies’ income grew by 36.5% in the third quarter of 2010 versus the same year-ago period and by 21.8% through the end of the quarter on a year-to-date basis. These income results when combined with the cost savings achieved across the Altria family of companies resulting from the UST acquisition lead to our continued belief that the UST acquisition will be accretive to Altria’s 2010 adjusted diluted earnings per share.

Smokeless products retail share also continued to show growth on a year-over-year basis. USSTC and PM USA’s combined retailed share of the smokeless products category for the three and nine-month periods increased by 1.9 and 0.9 share points respectively. Copenhagen and Skoal’s combined third quarter retail share growth of 1.4 share points versus the year-ago period and retail share gains resulting from the national launch of Marlboro Snus drove the strong retail share results.

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