UST, Inc. Q3 2008 Earnings Call Transcript

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UST, Inc. (UST)

Q3 2008 Earnings Call

October 24, 2008 9:00 am ET

Executives

Mark Rozelle – Vice President, Investor Relations

Murray S. Kessler – Chairman & Chief Executive Officer

Raymond P. Silcock – Chief Financial Officer

Analysts

Judy Hong - Goldman Sachs

David Adelman - Morgan Stanley & Co.

Erik Bloomquist - J.P. Morgan

Christine Farkas - Merrill Lynch

Nik Modi - UBS

Ann Gurkin - Davenport & Company

Andrew Kieley - Deutsche Bank Securities

Mark Cohen – Merrill Lynch

Presentation

Operator

Welcome to the third quarter 2008 UST, Inc. earnings conference call. (Operator Instructions) I would now like to turn the presentation over to your host for today's call, Mark Rozelle, Vice President of Investor Relations.

Mark Rozelle

Good morning and thank you for joining us as we discuss our third quarter results. For those who have not seen the release, it is available on our website under the Investor Relations section. This presentation is being webcast live and is available on playback mode. The audio is also available on our website in MP3 format.

Hosting the call will be Murray Kessler, Chairman and CEO of UST. Also joining us today will be Ray Silcock, our CFO. At the end of our prepared remarks, Murray and Ray will take your questions.

Murray will make a few comments on the status of the agreement announced on September 8, 2008, for Altria to acquire all outstanding shares of UST for $69.50 per share. Other than that, we do not plan on further discussing or answering questions concerning the agreement. The purpose of this call is to review third quarter 2008 results and we ask that all questions be focused on this.

In order to help you understand the company and its results, we will be making some forward-looking statements. Accordingly, it is possible that our actual results may differ from the predictions we make today. Additional information regarding factors that could make such a difference appear in our Safe Harbor statement included in our public filings. We also encourage you to read the Other Information section in our release.

We will be discussing non-GAAP financial measures in this call. A complete reconciliation of GAAP to non-GAAP financial measures can be found in our press release, which we issued this morning, which I mentioned is available on our website.

And just one more thing before we get started. In connection with the proposed acquisition, UST intends to file with the SEC in the coming weeks a proxy statement on Schedule 14-A. Investors and shareholders are encouraged to read UST’s proxy statements and all relevant documents filed with the SEC because they will contain important information about the proposed transaction.

I will now turn the call over to Murray.

Murray S. Kessler

Good morning and thank you for participating in UST’s third quarter 2008 earnings call. Given the big news of the quarter, the pending acquisition of our company by Altria, today’s call will be structured a bit differently than our usual call format. I will handle the call and comments in what may be my last opportunity to do so.

I am pleased to say that we have good news to report, not just on the progress of the transaction, but also on the continuing good performance of our business, particularly in the face of unprecedented economic head winds.

While I will be leading the call, I speak on behalf of my entire team in thanking you for the support you have shown us as shareholders these past few years. But now on to the quarter.

As announced on September 8, 2008, we are being acquired by Altria for $69.50 per share. As you heard from Altria yesterday during their conference call, the process for completing the transaction is proceeding smoothly. We have received federal regulatory approval, Altria has committed financing in place, and a special meeting of UST shareholders will be held on December 4, 2008. Assuming shareholder approval at that meeting, Altria expects the transaction to close during the first full week of January 2009 and no later than January 7.

I will not be commenting any further on the transaction during this conference call. Details of the transaction are, however, available in the definitive proxy statement which we will mail next week. A preliminary proxy was filed and is available on the SEC website.

Where I will be focusing my comments this morning is on business results. In the face of the increased competitive activity, strong economic head winds, higher gasoline prices, the suspension of our share repurchase program, and distraction associated with this transaction, I am very pleased to report that UST:

One, exceeded our internal quarterly estimated adjusted diluted EPS, which finished at $0.91 per share, 4.6% ahead of last year’s third quarter;

Two, exceeded our nine-month estimate for adjusted diluted EPS, which finished at $2.70 per share, up 7.1% versus year ago;

Three, successfully responded to increased competitive activity with additional investment on our premium smokeless tobacco brands that returned them to over 1% growth by the latter half of the quarter;

Four, stabilized sequential market share on our smokeless business as a result of that same investment;

Five, delivered project momentum cost savings in excess of estimates, which along with favorable tax reversals, allowed us to make those investments that were necessary in USSTC without compromising quarterly or annual earnings estimates;

And six, continue to deliver outstanding double-digit top and bottom line growth in our wine business.

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