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Altria Group (MO)

Q4 2010 Earnings Call

January 27, 2011 9:00 am ET


Howard Willard - Chief Financial Officer and Executive Vice President

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Michael Szymanczyk - Chairman, Chief Executive Officer, Chairman of Executive Committee, Chairman of Philip Morris USA Inc, Chief Executive Officer of Philip Morris USA Inc and President of Philip Morris USA Inc

Clifford Fleet - Vice President of Investor Relations


Philip Gorham - Morningstar

Judy Hong - Goldman Sachs Group Inc.

Christopher Growe - Stifel, Nicolaus & Co., Inc.

Ann Gurkin - Davenport & Company, LLC

Christine Farkas - BofA Merrill Lynch

Priya Ohri-Gupta - Lehman

David Adelman - Morgan Stanley

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Good day, and welcome to the Altria Group 2010 Fourth Quarter and Full Year Earnings Conference Call. [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.

Clifford Fleet

Good morning, and thank you for joining our call. This morning, we will only be discussing Altria's 2010 business results for the fourth quarter and full year, 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 section 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 Companies, Ste. Michelle's Wine Estates financial results from January 6 through December 31, 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,

Altria reports its financial results in accordance with U.S. 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 or are already available on our website.

In addition, comparisons discussed in this conference call are to the same prior-year period, unless otherwise stated. Now it gives me great pleasure to introduce Mike Szymanczyk, Chairman and Chief Executive Officer of Altria Group.

Michael Szymanczyk

Thanks, Cliff, and good morning to everyone. Altria delivered strong results to its shareholders last year in a challenging business environment. Adjusted diluted earnings per share grew by 8.6% to $1.90 per share, which exceeded our original 2010 guidance for adjusted diluted earnings per share growth. We increased our dividend twice last year for a total increase of 11.8%, and Altria's total shareholder return in 2010 was 32.9%, significantly outpacing the S&P 500's total return of 14.8%. Solid operating companies income results from the Cigarettes, Smokeless Products and Wine segments, as well as growth in earnings from our SABMiller equity investment, were partially offset by lower operating companies income results from the Cigar and Financial Services segments.

In the Cigarette segment, PM U.S.A. successfully grew operating companies income by expanding margins, while also maintaining share momentum on Marlboro. The brand continued to perform very well in the marketplace, as both the Marlboro non-menthol and Marlboro Menthol components of the brand had solid retail share gains last year. In addition, careful management of Marlboro's value equation helped the brand expand its operating margins, while also supporting strong retail share growth. A variety of new products continued to help build Marlboro's marketplace position. The successful launch of the two Marlboro Special Blend non-menthol products in the first quarter of last year, and the introduction of Marlboro's Skyline menthol in the fourth quarter of 2010 helped build the brand's position.

In the first quarter of this year, Marlboro was launching two new special blend products, one non-menthol and the other menthol, to round out this portfolio. Marlboro Special Blend products give the brand new flavor profiles, designed to appeal to competitive adult smokers and offer its existing adult smokers equity building news on the brand.

In the Smokeless Products segment, USSTC and PM U.S.A. successfully grew their combined 2010 full year retail share, which enabled their combined adjusted volumes to grow faster than the category. This adjusted volume growth contributed to strong adjusted operating companies income growth for the Smokeless Products segment in 2010. Copenhagen performed particularly well in 2010 as the new product launches of Copenhagen Long Cut Wintergreen, Long Cut Straight and Extra Long Cut Natural helped drive strong retail share gains and volume growth for the brand. In the fourth quarter, the brand also offered Copenhagen Black as a unique offering, specially blended with a rich dark character for a limited time only.

USSTC is now beginning to roll out a comprehensive set of the brand building initiatives to enhance Skoal's position in the marketplace. These include the national launch of 10 new products for Skoal in the first quarter of 2011, including eight new Skoal extra products that build on Skoal's heritage as an innovative smokeless brand that delivers smooth taste. USSTC and PM U.S.A. also continued to build their businesses in the emerging Snus segment of the smokeless products category.

In the first quarter of last year, PM U.S.A. expanded Marlboro's Snus nationally to build awareness and trial among adult cigarette smokers for these innovative smokeless tobacco products. This month, PM U.S.A. began shipping two new Marlboro Snus varieties and a bigger and bolder format for adult cigarette smokers looking for a more flavorful experience. Also this month, Skoal began shipping two new Snus varieties for adult smokers tobacco consumers seeking a spit-free smokers tobacco alternative.

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