Altria Reports 2012 First-Quarter Results; Reaffirms 2012 Full-Year Reported And Adjusted EPS Guidance

Middleton’s 2012 first-quarter reported cigars shipment volume increased 14.3% primarily due to retail share gains, changes in wholesale trade inventories and one additional shipping day. Middleton’s volume performance for machine-made large cigars is summarized in Table 4 and Schedule 6.

Table 4 - Smokeable Products Reported Shipment Volume (Sticks in Millions)
																First Quarter
																2012						2011						Change
Cigarettes
Marlboro																26,913						27,861						(3.4	)%
Other Premium																2,036						2,250						(9.5	)%
Discount																2,159						1,836						17.6	%
Total Cigarettes																31,108						31,947						(2.6	)%
Cigars
Black & Mild																323						282						14.5	%
Other																5						5						-	%
Total Cigars																328						287						14.3	%
Total Smokeable Products																31,436						32,234						(2.5	)%

Note: Cigarettes volume includes units sold as well as promotional units, but excludes Puerto Rico, U.S. Territories, Overseas Military, and Philip Morris Duty Free Inc.

In the cigarette category, Marlboro’s 2012 first-quarter retail share performance benefited from the launch of Marlboro Black. Marlboro’s 2012 first-quarter retail share increased 0.1 share point versus the prior-year period to 42.3%. On a sequential basis, Marlboro’s 2012 first-quarter retail share grew 0.7 share points versus the fourth quarter of 2011. PM USA believes that some of Marlboro Black’s 2012 retail share gains were driven by trial generating activities that are likely to moderate in 2013.

PM USA’s 2012 first-quarter retail share increased 0.4 share points versus the prior-year period, reflecting discount share gains by L&M and share gains on Marlboro, partially offset by share losses on other portfolio brands. On a sequential basis, PM USA’s 2012 first-quarter retail share increased 0.6 share points versus the fourth quarter of 2011 driven by Marlboro’s retail share performance, partially offset by a 0.1 share point loss on Other Premium brands. PM USA’s cigarettes retail share performance is summarized in Table 5 below.

Earlier this year PM USA announced a new Marlboro architecture that it plans to support with brand-building initiatives and equity-enhancing products and programs throughout 2012 and 2013. For example, building upon PM USA’s 2011 launch of Marlboro Black in non-menthol and menthol varieties in bold, modern packaging, PM USA plans to introduce Marlboro EIGHTY-THREES Box in the Marlboro Red family during the second quarter of 2012. Marlboro EIGHTY-THREES Box provides classic Marlboro flavor in modern, updated packaging.

In the machine-made large cigars category, Black & Mild’s 2012 first-quarter retail share increased 1.4 share points to 30.7% as the brand continued to benefit from new products that were introduced in 2011, including Black & Mild Classic, Sweets and Wine untipped cigarillo varieties. Middleton’s retail share performance is summarized in Table 5 below.

Table 5 - Cigarettes and Cigars: Retail Share (Percent)
																							First Quarter
																							2012					2011					Change
Cigarettes
Marlboro																							42.3					42.2					0.1		pp
Other Premium																							3.5					3.7					(0.2	)	pp
Discount																							3.6					3.1					0.5		pp
Total Cigarettes																							49.4					49.0					0.4		pp
Cigars
Black & Mild																							30.7					29.3					1.4		pp
Other																							0.2					0.2					-		pp
Total Cigars																							30.9					29.5					1.4		pp

Note: Cigarettes retail share results are based on data from SymphonyIRI Group/Capstone, which is a retail tracking service that uses a sample of stores to project market share performance in retail stores selling cigarettes. The panel was not designed to capture sales through other channels, including the Internet, direct mail and some illicitly tax-advantaged outlets. Retail share results for cigars are based on data from the SymphonyIRI Group (SymphonyIRI) InfoScan Cigar Database for Food, Drug, Mass Merchandisers (excluding Wal-Mart) and Convenience trade classes, which tracks machine-made large cigars market share performance. Middleton defines machine-made large cigars as cigars made by machine that weigh greater than three pounds per thousand, except cigars sold at retail in packages of 20 cigars. This service was developed to provide a representation of retail business performance in key trade channels. It is SymphonyIRI’s standard practice to periodically refresh its InfoScan syndicated services, which could restate retail share results that were released previously.

SMOKELESS PRODUCTS

The smokeless products segment continued to deliver strong results in the first quarter of 2012 behind Copenhagen and Skoal’s combined performance. The segment achieved excellent adjusted OCI and OCI margin growth, had solid adjusted volume growth and delivered significant combined retail share gains for Copenhagen and Skoal.

The smokeless products segment’s 2012 first-quarter net revenues and revenues net of excise taxes were essentially unchanged primarily due to higher pricing, offset by lower reported volume. The smokeless products segment’s 2012 first-quarter reported OCI decreased 0.5% primarily due to higher restructuring charges related to the cost reduction program announced in October 2011 and lower volume, mostly offset by higher pricing and lower costs. Adjusted OCI, which is calculated excluding the special items identified in Table 6 below, increased 8.8% for the first quarter of 2012. Adjusted OCI margins increased 4.8 percentage points to 59.8% for the first quarter. Revenues and OCI for the smokeless products segment are summarized in Table 6 below.

Table 6 - Smokeless Products: Revenues and OCI ($ in Millions)
													First Quarter
													2012							2011							Change
Net revenues													$	380						$	379						0.3	%
Excise taxes														(27	)						(26	)
Revenues net of excise taxes													$	353						$	353						-	%
Reported OCI													$	192						$	193						(0.5	)%
Asset impairment, exit and
implementation costs														19							-
UST acquisition-related costs														-							1
Adjusted OCI													$	211						$	194						8.8	%
Adjusted OCI Margins*														59.8	%						55.0	%					4.8	pp

*Adjusted OCI margins are calculated as adjusted OCI divided by revenues net of excise taxes.

USSTC and PM USA’s 2012 first-quarter combined reported domestic smokeless products shipment volume decreased 7.5% primarily due to changes in trade inventories and the timing of new products. Copenhagen’s 2012 first-quarter volume grew 5.5% as the brand continued to benefit from momentum from products introduced in recent years. Skoal’s 2012 first-quarter volume declined 15.0% due to the timing of new product introductions, which included the national launch of Skoal X-TRA and Skoal Snus in the first quarter of 2011, as well as the impact of seven Skoal SKUs that were de-listed in the second quarter of 2011. Other portfolio brands’ volume declined 26.2% primarily due to Marlboro Snus, which had lower levels of promotional support and was also impacted by the mix shift to tins with fifteen pouches.

While adjusted smokeless products volume is difficult to estimate on a quarterly basis, USSTC and PM USA believe that their combined 2012 first-quarter adjusted domestic smokeless products shipment volume grew ahead of recent category volume trends due to strong 2012 first-quarter retail share gains. USSTC and PM USA believe that the smokeless category’s volume grew at an estimated rate of approximately 5% over the twelve months ending March 31, 2012. USSTC and PM USA’s combined volume performance for smokeless products is summarized in Table 7 below.

Table 7 - Smokeless Products: Reported Volume (Cans and Packs in Millions)
																First Quarter
																2012					2011					Change
Copenhagen																85.9					81.4					5.5	%
Skoal																64.6					76.0					(15.0	)%
Copenhagen and Skoal																150.5					157.4					(4.4	)%
Other																19.4					26.3					(26.2	)%
Total Smokeless Products																169.9					183.7					(7.5	)%

Note: Other includes USSTC and PM USA smokeless products. Volume includes cans and packs sold, as well as promotional units, but excludes international volume. New types of smokeless products, as well as new packaging configurations of existing smokeless products, may or may not be equivalent to existing moist smokeless tobacco (MST) products on a can for can basis. To calculate volumes of cans and packs shipped, USSTC and PM USA have assumed that one pack of snus, irrespective of the number of pouches in the pack, is equivalent to one can of MST.

USSTC and PM USA’s 2012 first-quarter combined retail share increased 1.0 share point as Copenhagen’s share gains were partially offset by share losses on Other portfolio brands, and Skoal. Copenhagen and Skoal’s 2012 first-quarter combined retail share increased 2.3 share points.

Copenhagen’s 2012 first-quarter retail share grew 2.7 share points as the brand continued to benefit from new products introduced over the past several years. On a sequential basis, Skoal’s 2012 first-quarter retail share was unchanged versus the fourth quarter of 2011. Skoal’s 2012 first-quarter retail share declined 0.4 share points versus the prior-year period, as share losses, which included the impact of the 2011 second-quarter de-listing of seven SKUs, were partially offset by share gains on its Skoal X-TRA products that were introduced in the first quarter of 2011. Share losses from de-listed products will continue to impact Skoal’s retail share comparisons through the first half of 2012. USSTC and PM USA’s combined smokeless products retail share performance is summarized in Table 8 below.

Table 8 - Smokeless Products: Retail Share (Percent)
																First Quarter
																2012					2011					Change
Copenhagen																27.8					25.1					2.7		pp
Skoal																22.5					22.9					(0.4	)	pp
Copenhagen and Skoal																50.3					48.0					2.3		pp
Other																5.2					6.5					(1.3	)	pp
Total Smokeless Products																55.5					54.5					1.0		pp

Note: Retail share performance is based on data from the SymphonyIRI InfoScan Smokeless Tobacco Database for Food, Drug, Mass Merchandisers (excluding Wal-Mart) and Convenience trade classes, which tracks smokeless products market share performance based on the number of cans and packs sold. Smokeless Products is defined as moist smokeless and spit-less tobacco products. Other includes USSTC and PM USA smokeless products. New types of smokeless products, as well as new packaging configuration of existing smokeless products, may or may not be equivalent to existing MST products on a can for can basis. USSTC and PM USA have assumed that one pack of snus, irrespective of the number of pouches in the pack, is equivalent to one can of MST. All other products are considered to be equivalent on a can for can basis. It is SymphonyIRI’s standard practice to periodically refresh its InfoScan syndicated services, which could restate retail share results that were released previously.

WINE

Ste. Michelle delivered strong 2012 first-quarter revenue and volume results as it continued to focus on improving its premium product mix.

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