Altria Group's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Altria Group (MO)

Q1 2012 Earnings Call

April 26, 2012 9:00 am ET

Executives

Brendan McCormick - Vice President of Communications

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

Howard A. Willard - Chief Financial Officer and Executive Vice President

Analysts

Nik Modi - UBS Investment Bank, Research Division

Vivien Azer - Citigroup Inc, Research Division

Christopher Ferrara - BofA Merrill Lynch, Research Division

Judy E. Hong - Goldman Sachs Group Inc., Research Division

Christina McGlone - Deutsche Bank AG, Research Division

David J. Adelman - Morgan Stanley, Research Division

Thilo Wrede - Jefferies & Company, Inc., Research Division

Michael Lavery - CLSA Asia-Pacific Markets, Research Division

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

Ann H. Gurkin - Davenport & Company, LLC, Research Division

Presentation

Operator

Good day, and welcome to the Altria Group 2012 First Quarter Earnings Conference Call. Today's call is scheduled to last about 1 hour, including remarks by Altria's management and a question-and-answer session. [Operator Instructions] I would now like to turn the call over to Mr. Brendan McCormick, Vice President, Investor Relations for Altria Client Services. Please go ahead, sir.

Brendan McCormick

Good morning. Thank you for joining our call. I'm joined this morning by Mike Szymanczyk, Altria's Chairman and CEO; and Howard Willard, Altria's Chief Financial Officer. This morning, we will only be discussing Altria's 2012 business results for the first quarter, and we'll not be discussing the status of tobacco litigation.

Our remarks contain forward-looking and cautionary statements and projections of future results, and I direct your attention to the forward-looking and cautionary statement 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. For a detailed review of Altria's business results, please review the earnings release that is available on our website, altria.com.

Altria reports its financial results in accordance with U.S. Generally Accepted Accounting Principles. Today's call will 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 today's earnings press release and are available on our website.

In addition, comparisons discussed in this conference call are to the same prior year period unless otherwise stated. As part of Altria's cost reduction program, our January 1, 2012, John Middleton became a subsidiary of PM USA, reflecting management's goal to achieve efficiencies in the management of these businesses. Beginning this quarter, we are reporting the financial results for the new smokable products segment, which includes cigarettes and cigars.

Now it gives me great pleasure to introduce Mike Szymanczyk.

Michael E. Szymanczyk

Thanks, Brendan, and good morning to everyone. Altria delivered strong financial results in the first quarter, growing its adjusted diluted earnings per share by 11.4%. Behind the strength of our diverse business platform, our business model generates income streams from the largest and most profitable tobacco categories, as well as from our alcohol assets and financial services business.

Our smokable and smokeless products segments grew their adjusted operating companies income and margins behind the strong performance of our tobacco companies premium brands and effective cost management. All of our tobacco companies grew retail share of the categories in which they compete.

PM USA, Middleton and USSTC are pursuing initiatives to build their premium brands for the long term. As we discussed at the CAGNY conference in February, PM USA has evolved Marlboro's brand architecture to support its future growth. This new architecture is focused on 4 product families: Red, gold, green and a new product family, black.

In the first quarter, PM USA made investments in Marlboro Black, which builds on Marlboro's rich heritage of its adventure and ruggedness. Marlboro's cigarette retail share benefited from the investment in this new architecture. Marlboro delivered strong 2012 first quarter sequential share growth of 0.7 of a share point versus the fourth quarter of 2011 and grew its year-over-year share by 0.1 of a share point.

We launched non-menthol and menthol versions of Marlboro Black last year in bold modern packaging, fitting with the personality of the Marlboro Black family and are pleased with its first quarter results. The Marlboro Black family is off to a great start, has generated [indiscernible] among competitive adult smokers as intended and gained retail share. However, some of Marlboro Black's retail share gains were driven by trial-generating activities that are likely to moderate in 2013.

Marlboro will continue to focus on the introduction of its new brand architecture throughout 2012 and plans a number of brand-building and equity-enhancing products and programs across all 4 of Marlboro's brand families during this year and 2013.

In the second quarter, PM USA is introducing Marlboro EIGHTY-THREES Box that provides the Classic Marlboro flavor in modern updated packaging in the red family.

Black & Mild delivered strong retail share gains for the first quarter, driven by its continued leadership in tip cigarillos and the success of new untipped cigarillos introduced in 2011. Our smokeless products segment continued to deliver strong adjusted operating companies income growth behind Copenhagen and Skoal. These brands grew their combined first quarter adjusted volume and retail share versus the prior year as Copenhagen continued to show strong momentum.

Skoal's retail share was stable on a sequential basis versus the fourth quarter of 2011. Skoal's year-over-year retail share losses, including those attributable to the 7 SKUs delisted last year, were partially offset by share gains for Skoal X-tra, which was introduced at the end of the first quarter of 2011.

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