Good day, and welcome to the Altria Group 2017 first 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. To ask a question during this time, simply press star, then the number 1 on your telephone keypad. Representatives of the investment community and media on the call will be able to ask questions following the conclusion of the prepared remarks. I would now like to turn the call over to Mr. Bill Marshall, Vice President, Investor Relations for Altria Client Services. Please go ahead.
Thank you, Crystal. Good morning, and thank you for joining us. We're here this morning with Marty Barrington, Altria's CEO, and Billy Gifford, Altria's CFO, to discuss Altria's 2017 first quarter business results. Earlier today, we issued a press release providing these results, which is available on our website at altria.com and through the Altria investor app. During our call today, unless otherwise stated, we're comparing results to the same period in 2016. Our remarks contain forward-looking and cautionary statements and projections of future results. Please review the forward-looking and cautionary statements section at the end of today's earnings release for various factors that could cause actual results to differ materially from projections. Future dividend payments and share repurchases remain subject to the discretion of Altria's board. The timing of share repurchases depends on marketplace conditions and other factors.
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 adjusted basis. Adjusted results exclude special items that affect the comparability of reported results. Descriptions of these non-GAAP financial measures and reconciliations are included in today's earnings release. Now, I'll turn the call over to Marty.
Thanks, Bill. Good morning, everyone. Thank you for joining us. Altria is off to a solid start in 2017, despite some short-term headwinds. We grew first quarter adjusted diluted earnings per share by 1.4% against a difficult comparison in the year-ago quarter when we grew adjusted diluted EPS more than 14%. The smokable product segment continued to generate strong results, which offset lower equity earnings from our beer investment and the effect of the voluntary product recall in the smokeless product segment. Our business fundamentals remain strong, and we believe we're well-positioned for the rest of the year. Earlier this morning, we reaffirmed our 2017 full-year adjusted diluted EPS growth guidance of 7.5%-9.5%, and we continue to expect adjusted diluted EPS growth to be weighted to the second half. Here is some color on the businesses.
The smokable product segment grew its adjusted operating company's income by more than 8%. PM USA estimates that cigarette industry volume declines were in line with the historical rate as the industry lapped the improving consumer conditions and benefits from lower gasoline prices. Against this backdrop, the industry remains competitive, and PM USA saw several competitive product expansions and promotional changes. In this environment, PM USA remained focused on maximizing income while maintaining momentum on Marlboro across its measures of brand strength, which include equity, demographics, retail share, and profitability. PM USA implemented list price increases in March and continued to compete effectively at retail. PM USA was steady in its strategy and execution, resulting in strong smokable segment price realization. In the machine-made large cigar category, Middleton's focus on the more profitable tipped cigar segment continued to generate good results, and the business is performing very well.
The cigar category strength and trade inventory movements drove Middleton's reported shipment volume up over 12% in the quarter. Turning to the smokeless product segment, it was a disappointing quarter resulting from the product recall caused by a product tampering incident. USSTC did the right thing by moving quickly to address the issue with consumers, the trade, and other stakeholders, but the recall's effect shows in the numbers. Smokeless segment adjusted OCI declined 7.8%, and USSTC estimates that the recall had an approximately one retail share point impact. The recall is concluded, and USSTC has now largely completed replenishing wholesale and retail inventories. We expect that USSTC will recover the share loss over time. Turning to innovative tobacco products, Altria continues to develop a portfolio of products to meet evolving adult tobacco consumer preferences.
In April, Nu Mark announced the expansion of MarkTen to approximately 10,000 more stores and the availability of three more flavors for its adult vapors: Wintermint, Summer Fusion, and Smooth Cream. In heated tobacco, Altria continues to partner with Philip Morris International in seeking regulatory authorization to commercialize the IQOS system in the U.S. Both the modified risk tobacco product and premarket tobacco product applications for IQOS now have been submitted with the FDA. PM USA's team continues to build its U.S. commercialization plan for IQOS. In summary, we believe that Altria remains well-positioned for the rest of the year, thus, we are reaffirming our full-year guidance. Now here's Billy for more detail on our performance.
Thanks, Marty. Good morning, everyone. Let me start with the smokeable product segment. Adjusted OCI margins expanded by 2.9 percentage points in the first quarter to 51%, due primarily to higher net pricing and lower resolution expenses. Smokeable reported cigarette shipment volume declined 2.7% in the quarter. After adjusting for trade inventory movements and other factors, PM USA estimates that its cigarette volume declined approximately 3%, in line with PM USA's estimate for the industry decline rate. In addition, California cigarette SCT, which went into effect on April 1st, will also affect shipment volumes in the short term. PM USA's first quarter retail share was 51%, down 0.1 of a share point. Marlboro's retail share declined by 0.2 of a share point to 43.6%. In smokeless, adjusted OCI margins decreased by 3.6 percentage points to 61.9%, driven principally by the recall impact, partially offset by higher pricing.
The recall drove USSTC's shipment volume down 5% in the quarter. USSTC estimates that smokeless industry volume grew at approximately 2% over the past six months. It was a tough quarter for wine. Ste. Michelle's adjusted OCI of $21 million was 25% lower than last year, and its margins contracted 4.6 percentage points to 15.4% due to lower volume and higher cost. Ste. Michelle's lower volume was driven by wholesalers reducing year-end inventory and the timing of the Easter holiday, which occurred in the first quarter of last year. Let's now turn to our beer investment. As a reminder, ABI's fourth quarter 2016 results are included in our first quarter results due to the reporting lag. In the quarter, Altria's reported equity earnings from our investment in ABI were $23 million. These results included net pre-tax charges of $73 million for ABI special items.
As ABI noted in its fourth-quarter earnings release, its underlying results were negatively impacted by a challenging environment in Brazil and mark-to-market losses related to ABI's hedging of its share-based compensation payment programs. We, of course, continue to focus on our shareholders. In the quarter, we returned a large amount of cash to them, paying nearly $1.2 billion in dividends and repurchasing over $550 million in shares. As of March 31st, Altria had approximately $1.4 billion remaining in the current $3 billion share repurchase program. We continue to expect completing this program by the end of the second quarter of 2018. As Marty mentioned, we continue to expect that our 2017 adjusted diluted earnings growth will be higher in the second half. This is due primarily to the financial effect of USSTC's recall this quarter and the benefit of reporting four full quarters of equity income from our ABI investment.
Lastly, a quick word on IRI's retail market share reporting. As a result of IRI's most recent database restatement, cigarette and smokeless retail market shares have been restated. Share information for each quarter of 2016 is available in our press release. You'll remember that IRI uses a sample of retail stores and certain wholesale shipments to project market share and depict share trends. Historical trends of restated numbers are generally consistent with those under IRI's previously reported numbers. That wraps up our results. Marty and I are now happy to take your questions. While the calls are being compiled, I'll direct your attention to altria.com. Along with today's earnings release and our non-GAAP reconciliations, we've posted for your reference a usual list of quarterly metrics, including pricing, inventory, and other housekeeping items. Operator, we're ready for the questions.
Thank you. Once again, as a reminder, if you would like to ask a question, please press star, then the number one on your telephone keypad. Investors, analysts, and media representatives are now invited to participate in the question and answer session. We will take questions from the investment community first. Our first question comes from the line of Bonnie Herzog with Wells Fargo.
I actually have a question on Marlboro. It looks like you've been losing slight share behind Marlboro over the past several quarters based on the adjusted data. I guess I'd like to better understand your current strategy with the brand and if some of the new SKUs haven't been as effective as you had hoped, and what your innovation pipeline looks like for the remainder of the year behind the brand.
Hi, good morning, Bonnie. Thanks for the question. Listen, I think the best explanation of Marlboro was the one we gave at CAGNY just a little while ago. As you know, Marlboro remains the strongest brand by far in the cigarette category. It's the iconic brand in the category. I think it's also useful to remember what our strategy is. Our strategy in smokeable is to maximize income while maintaining momentum on Marlboro over time. As we've explained, momentum is viewed by us across various metrics. Let me just mention a few of them. One is brand equity. Brand equity for Marlboro has never been higher. Indeed, I think the number we gave was 14 points higher than the next nearest competitor. Demographics are good. As you know, we've stabilized its share among the important 21-29 cohort.
Actually Marlboro share is very good across all the rest of the cohorts as well. Its profitability is undeniable. I think the number we put up at CAGNY was $34 billion in retail sales in 2016. We come to share. With share, we look at it over time. It's down two tenths in the quarter to be sure, but that's why we look at it over time, because promotions and the like come in and out of the quarter. If you look at it over a longer period, I don't know, say 2011, we've gained, call it a share point and a half to two share points. The strategy hasn't changed at all. It's to be the leading brand in the category and to maximize its profitability.
Okay. That's helpful. I wanted to ask a question on your wine business. You mentioned it was certainly a tough quarter. Your margins were very low, probably the lowest they've actually been for a number of years. I guess I was hoping you guys could drill down a little further on some of the things that hurt your business during the quarter. You mentioned your volume was very weak due to the wholesalers reducing year-end inventory. More color on this and then any sense what your volume was excluding this inventory fluctuation?
this begs a question which I've asked you guys about before, but would love to hear any updated thoughts or plans that you might have for this business over the next several years in terms of further investments and if you need to actually increase your investments possibly to turn the business around. Thank you.
Okay. Thanks for the question. Listen, I think you have to put the wine quarter in context. If you look at its income growth over the last five years, it's grown double digit. Call it, I don't know, 12%, give or take. You have to place the quarter in context. They had a tough quarter. There's no denying it. There was inventory that got burned off from the end of the year and the Easter holiday was pushed back into the second quarter this year. That has the effect on all the numbers that you called out in terms of the volume and obviously in terms of the margin. The wine company does a terrific job out there. No quarter is perfect and this is ours, I guess, for the wine business. They do a great job.
I don't see the need for anyone to think that we have to step up in any material way the investment in the wine company. It was just a tough quarter.
Okay. That's helpful. Just maybe one final quick question from me.
Sure.
On your EPS guidance this year, I just wanted to confirm that it does include any potential expense associated with the commercialization of IQOS this year in terms of any hiring you might need to do, marketing, store openings, et cetera. Thanks.
Yes, it's all in.
Perfect. Thank you.
Okay. Thanks for calling.
Your next question comes from the line of Steve Powers with UBS.
Great. Good morning. Thanks.
Hi, Steve.
Hey. I wanted to pick up first just to round out the Marlboro discussion.
Sure.
Marty, you talked about, I think in the response to Bonnie, that share trends amongst that important younger adult smoker segment had stabilized?
Yes.
Just a little bit more color on, it seems like you have the granularity, what the sequential movement in that cohort looks like over the last year plus. Is it similar to the overall where the stable means down slightly or is it actually truly stable?
No, I think the last time we looked at it was equal to or slightly greater than. Actually, if you look at it, Steve, from when we implemented the architecture in 2012, that's when it really began to stabilize. Obviously with the implementation of the architecture, Marlboro Green and Marlboro Black in particular are helping in that cohort.
Okay. That's great. Then a question on IQOS and really it's a clarification for my benefit. As I understand it, your joint efforts with PMI right now are based on a relationship whereby you'd effectively be licensing IQOS IP owned by PMI for commercialization in the U.S. Is that the correct understanding?
I might be a tad more precise than that if you let me. They're sourcing the product to us, as you know. They're licensing it into us for commercialization, which is essentially the inverse of the relationship we have on e-vapor, which is we source the product for them for e-vapor outside the United States and we license the trademark and the IP to them. The only distinction, of course, is that before the spin-off, there was IP under the Altria tent, which we retained at the spin-off.
Okay. That's clarifying. I guess the question I'm thinking about, is there any reason, I know this is hypothetical, but just any reason why we couldn't evolve to a structure in the future where you would end up taking outright ownership of IQOS IP, at least as it relates to the U.S. market? Is there anything that prevent that kind of outcome?
No, I would agree with you that it's hypothetical though.
Yep.
There's nothing, I guess, that could foreclose a different arrangement being struck than the one that we have today. What I've described is the arrangement we have today with PMI.
Okay. Thank you very much.
All right, Steve. Thank you.
Your next question comes from the line of Chris Growe with Stifel.
Hi, good morning.
Good morning, Chris.
Hi. I just wanted to ask a question about the smokeless division and just want to make sure I'm looking at it properly. If you kind of quantified the market share loss around 100 basis points of market share, your numbers you gave in the press release show you lost 70 basis points. Am I getting to like an underlying performance to kind of X the recall of how you performed at retail?
Yeah, Chris, good morning. This is Billy. I think that's the proper way to look at it, Chris. What we quantified was about 100 basis points the impact of the recall. You're right. In the actuals, we were down 70 basis points.
Have you had any of the SKUs back on the shelf long enough to see how that rebuild is going of market share?
Yeah. As Marty mentioned, we are pretty much done replenishing the out-of-stocks that occurred because of the recall at retail, and we are seeing share recover. Remember, whenever you have that consumer purchasing other products in the marketplace, it takes a bit of time for us to recover the share, but we're seeing promising signs.
Okay. Just a quick question if I could. A bit of a follow-up on the e-vapor business. PMI has launched a new form of their platform for their e-vapor product in the U.K. Is that technology that Altria has access to or has helped develop? Could you have access to that product for the U.S. market?
I can describe generally to you the way that we're handling it at Vapor, which is in addition to the two agreements that I described with Steve. I think you know, Chris, that we also have a technology sharing agreement with PMI to work on vapor products. The way that basically works, at the risk of an over summary, is technology that's developed under that agreement can be deployed by each of us in our respective geographies.
Okay. That's very helpful. Thanks for your time this morning.
Thank you for calling.
Your next question comes from the line of Matthew Grainger with Morgan Stanley.
Hi, good morning, everyone. Thanks.
Morning, Matt.
Just a quick follow-up on cigarette industry volumes, which improved a bit sequentially versus what we saw in the fourth quarter, despite the fact that retail consumption in measured channels appeared to slow. We had some headwinds from slower C-store trends, difficult comp. How did that 3% compare to your expectations, and are there any favorable dynamics at the consumer level, maybe consumer confidence that you'd point to as having helped support volumes in the short term?
I guess our view is that it's going back to about where we expected, Matt, is the honest answer. If you look at long-term trends, call it a five-year trend for the industry, it's about 3%. As you know, we were flattered there for the period that we've discussed previously. Last year was at two and a half, and now for this quarter, we're back at about three is our estimate. Our view is that the secular decline is what drives this. It has since the 1980s, and it looks to us like it's going about back. In the quarter, there may be some movements in and out because we've got some excise tax activity, particularly in California, but I don't think it's material over the course of the year.
Okay. Thanks, Marty. On IQOS, are there any updates you can provide on the level of, or pace of engagement at the state level as you're talking to legislators about tax treatment? Any sense you can give on timeline and your level of confidence that you could potentially align those discussions with the outcome of the FDA's review of pre-market approval?
Yeah. That's an interesting question. We are talking to state legislatures about the policy issue, of which IQOS is but a part, of having differential taxing, obviously, on lower risk products. That would make good sense. Tax policy gets changed over time. We're working on that, but I don't have anything new to announce on that, but it is one of the elements of our work streams.
Okay, thanks. If I could squeeze in one last one. Sorry.
Sure.
With the advent of deeming in the vapor space, just curious, any observations on what the implications have been at retail since August? Have there been changes in retailer inventory levels in vapor? Have you seen better flexibility in being able to secure and manage shelf space as a result of those rules going into effect?
No, I wouldn't say that. I distinguish probably how the dynamics with respect to our vapor business, which as you know, is going quite well with MarkTen XL. You saw a big boost in the number of stores that we're in. We see very good consumer response to the new product. I would say the thing to watch probably from an industry dynamic are the vape shops. I know you're familiar with that phenomenon, but they now have to deal with FDA regulation where they didn't have to deal with any before. We have seen some evidence that there's been a reduction in the number of vape shops and that the volume is moving to more traditional channels, which would be a good development for our business, of course.
Okay. Thanks, Marty.
Thanks, Matt.
Your next question comes from the line of Nik Modi with RBC Capital Markets.
Morning, everyone.
Morning.
Hey, a couple questions. Just, Marty, maybe you can just comment on Nat Sherman and how that integration is going and if you're seeing more of your fair share of space in that higher end of the back bar. Then the broader picture question is on IQOS. I guess as you guys think about your plans to invest ahead of the approval process, what kind of consumer work have you been able to do? How do you know that the consumer's going to uptake on this product? Because obviously since you can't really launch it in the U.S. until you get that approval. I'm just curious on the science and the research that you're doing with the consumer to get a sense of what the uptake could be.
Sure. First on Nat Sherman. We're working through our plans now. We closed in January, if memory serves, and we're getting that ready to roll. I don't really have a lot to tell you about Nat Sherman yet because we're just getting started. On the IQOS consumer work, you know the situation, of course, which is you're right, we don't have the product in market, so we can't do any in-market consumer work. We certainly can do out-of-market work, which we are working on. In particular, we are using the learnings from PMI, which I think we've discussed before. Many of us have been in the international markets, and our teams are working quite closely. The idea basically is to try to extract trade and consumer insights and then try to apply them to what we know about our market here.
We're working on all of that now. When we get in a lead market, that's when we're going to learn more, once we have that product available for consumers. We're trying to do as much as we can to get a fast start. You're right to point out, and we pointed out, until you get it in the consumer's hands, you have to be careful.
Yeah. I guess, Marty, the follow-up to that is, having been in the international business, are there any markets that you believe are analogous to the U.S. market just in terms of consumer behavior, tax structures, demographics?
I think the better way to look at it, Nik, is that there's no perfect market, but that each of the markets, if you're asking the right question, can give you insights into the behavior. Obviously, in terms of traditional cigarette markets, it's customary to compare the United States more to Western Europe. Obviously, there are insights to be generated from seeing the uptake that's taken place in Japan. Rather than to get locked in on a geography, we're focused in on the insights.
Excellent. Thanks so much.
Okay, Nik, good to hear from you.
Your next question comes from the line of Judy Hong with Goldman Sachs.
Thank you. Good morning.
Good morning, Judy.
I just had a few follow-ups. One is just California and Pennsylvania, just any color you could give us in terms of the impact from the excise tax increase in those markets.
Our estimate is that it'll have about a 1% impact on volume this year.
There's no change just based on what you've seen so far in those markets?
No, not so far.
Okay. Just in terms of guidance, I know at CAGNY, you talked about the potential recall related expenses in smokeless, and I think at that time, it wasn't clear whether it was going to be included in the adjusted earnings growth numbers. Now you're including it, but you didn't change the adjusted EPS number. Does that sort of imply that maybe the underlying trends were actually slightly better than what you would've thought during CAGNY?
Hi, Judy, this is Billy. As we answered that question at CAGNY, you'll recall, when we provide guidance, we run a range of scenarios that are included in that guidance, and so that'll take into account these types of events. We feel the same that we felt at CAGNY. We feel good about guidance, and that's why we were able to reaffirm today.
Got it. Okay. Just lastly, Marty, on MarkTen XL, just in terms of the conversion rates that you're seeing on that product versus the prior versions, is there anything you can share with us on that front?
Yes, we've had much, much better return business on the new product than we did on the former product. We can measure that by the number of cartridges that are purchased versus the device, and they're much, much better.
Got it. Okay. Thank you.
Nice to speak with you.
Your next question comes from the line of Vivian Azer with Cowen.
Good morning, Vivian. You there?
I am. Marty, I just wanted to double-click on your comment around promotional activity from competitors in the quarter. Can you elaborate on that at all and perhaps contextualize it in the broader context of the competitive landscape over time? I know we see these episodes of competitive activity bubble up from time to time. Thank you.
Yeah, that's probably the best way to describe it. Look, it's always competitive, and we're always monitoring, and we're always adjusting. That's basically how it works. We were trying to provide some color in the quarter about seeing some competitive product expansions and some promotional changes. PM USA has adjusted appropriately, as it always does. This is the storm and drag that goes on, I think, at retail and in competition, we watch it carefully, of course. Of course, if you look at net pricing for the quarter, you can see that PM USA's realization was still above 4.5%. That's what we were trying to convey, Vivian, which was some color about that.
That's helpful. Thank you. A bigger picture theoretical question, if you will. Yesterday, President Trump noted that he would be open to a gas price increase, and we haven't seen one since 1993. I know there are a number of macro factors that you look at to determine kind of the health of the consumer and the potential impact on cigarette volumes, can you just offer any commentary on how you guys would think about a gas tax increase impacting cigarette volumes? Thanks.
Yeah. Obviously, that announcement just came out yesterday. We're taking a look at what it might do to the c-store trade. Obviously, gas is a big deal at c-store. That's where most of our traffic runs through. I guess we'll have to take a look and see what it is. I know that there are sort of entrenched interests on both sides of the question about whether the gas tax should be raised. We'll have to wait and see, I guess.
That's helpful. The last one for me, from the FDA, from a menthol perspective, any updates there?
None.
Okay. Thanks very much.
All right. Thanks for calling, Vivian.
Your next question comes from the line of Adam Spielman, Citi.
Hi. Thank you for taking the question. As I look back, as I think about the quarter as a whole, you've had really strong growth in OCI in smokable against a really tough comp. Smokeless segment, yes, you've had the recall, but excluding that, profit looks really strong as well. On the other hand, I guess market share in cigarettes has been a little bit disappointing. The question is, as you look forward, is there any reason to suppose it won't return to a, let's say, more normal pattern with perhaps less price realization, a little less OCI, but equally a better market share trend in cigarettes? That would be the first question.
Okay. Well, let me respond to that. It's always a balance, is the honest answer. The strategy on the smokable business, as you know, Adam, is to try to maximize our income, and we try to do that, and we have done that, I think, as you point out, quite well over time. At the same time, we want to make sure we have momentum on the key brands, and we're mindful of that. The honest answer is it's a balance.
Fine. Okay. Then just turning back to the FDA, at CAGNY, you gave quite a lot of detail about the expense of putting in applications for authorization for your cigars and e-products of various sorts. Can you just give an update about how those applications are going, whether you've had any response back from the FDA, and whether there's been any news there? What news is there?
I would say it continues to be as we described it at CAGNY, which is there's much more activity in terms of the interaction between the agency and our operating companies about their applications as they work through. You're right, it's much more expensive than the FDA has estimated. We're having to be mindful about which products we pick in order to put applications in because they come with an expense. Look, our strategy is to engage constructively with the agency and to try to encourage it to make good policy decisions, and that includes on approval of our submissions. We continue to believe that our submissions are well-founded and in good form, it's a process, and you have to go through that with FDA. I would say it's been more of the same since we last discussed this at CAGNY.
Okay. Thank you very much.
Thanks for calling in.
Your next question comes from the line of Michael Lavery with Piper Jaffray.
Morning.
Michael, good morning and welcome.
Thank you. You mentioned in your release that your strategy on Middleton is maximizing income. Obviously, that did not reference share momentum. I do not think that is new, but can you confirm that? In either way, can you just speak a little bit to your thinking there? Because certainly the volume momentum in cigars broadly, typically is a bit better than cigarettes. Is it just that the economics are not as attractive, or can you just frame why share momentum there would not be part of the strategy?
Sure, Michael, this is Billy. Thanks for the question. If you recall, when we look at the cigar category, you have it in basically three segments. You have got the tipped where Black & Mild participates and has over about 90% of that segment. You have the untipped, you have the non-cigarillo form. We participate in the tipped, we have basically a large market share there. That is why we are running for profitability. That is where most of the profitability is in the cigar category. In the untipped segment, there is basically a price war going on where people are competing for volume, but at a very low profitability. We are really not participating in that segment. It has not been a change for us, I think that describes the strategy and the approach we have in the cigar category.
Okay. Yeah, that is good context. Thank you. Just one last one on that, Sherman. I know you are still working on plans and working on the rollout, so it is still very small. In terms of the volume in that quarter, would that have had any material? How much did that add? Is it any amount of the volume there?
It's very small. As you know, that brand right now is pretty much a boutique brand. With this quarter, I wouldn't call anything out as material.
Okay. Thank you very much.
Nice to hear from you.
As a reminder, to ask a question, please press star one on your telephone keypad. Your next question comes from the line of Glenn Anderson with Maven Asset Management .
Hey, good morning. Thanks for the call.
Good morning.
I wanted to go back to IQOS and your conversations with the states. Have those conversations included how the IQOS would be measured as far as the MSA goes? Are the sticks going to be counted as a regular cigarette?
No, that's a good question as well. Our operating hypothesis is that the definition under the Master Settlement Agreement would cover the HeatSticks because they're tobacco wrapped in paper. It's a parallel definition. It's not the same as the states, it's parallel. You're right.
They would count as a cigarette then?
For those purposes, yes, sir.
Okay. Very good. Thank you.
Thank you for asking.
Our next question comes from the line of Nik Modi with RBC Capital Markets.
Thanks for the follow-up. Marty, I was just wondering, or Billy, if you can comment on just the general C-store environment, because most companies are suggesting it's been pretty tough from a traffic standpoint, but it looks like cigarette industry volumes actually came in a bit better than I think most folks were looking at. I was hoping to get your characterization on how you see the environment right now.
Yeah. It's a good question. We continue to see at least our consumer, who, of course, are moving to the C-stores. We think the environment continues to be largely constructive for them, Nik, when you look at all the factors we've discussed, whether it's unemployment rates or housing starts or consumer confidence. We have been following carefully the commentary by others in CPG about perhaps some softening for their consumer set, which obviously overlaps with ours in some respects. We just haven't seen it yet, and we haven't seen that in the C-store trade for our category, not yet.
Perfect. Thanks so much.
Okay, thanks for following up.
At this time, I would like to ask if there are any media people that want to ask a question. If so, please press star one. Again, if you have a question, please press star one for the media. Thank you. At this time, I would now like to turn the call back over to Mr. Bill Marshall for closing remarks.
Thank you all for joining our call this morning. If you have any follow-up questions, please contact us at investor relations.
Thank you. This concludes today's conference call. You may now disconnect.