Good day, and welcome to the Altria Group 2014 4th 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. I would now like to turn the call over to Ms. Sarah Nokness, Vice President, Investor Relations for Altria Client Services. Please go ahead ma'am.
Good morning and thank you for joining us. We're here this morning with Marty Barrington, Altria's Chairman and CEO and Howard Willard, Altria's CFO to talk about Altria's 20 14 business results for the Q4 and full year. During our call today, unless otherwise stated, we're comparing results to the same period in 2013. Earlier today, we issued a press release regarding our Q4 and full year results. For a detailed review of Altria's business results, please review the earnings release on our website at altria.com or via the Altria Investor app.
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 also 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, which excludes items that affect the comparability of reported results. Descriptions of these measures and reconciliations are included in today's earnings release, which is available on our website and via the Altria Investor app. Now, I'll turn the call over to Marty.
Thanks, Sarah. Good morning, everyone, and thanks for joining our call. Altria had another terrific year in 2014. For the full year, we again delivered against our 2 long term financial goals. We grew adjusted diluted EPS by 8% and we paid out approximately 80% of adjusted diluted EPS to shareholders which totaled $3,900,000,000 We also raised our dividend by 8.3 percent, marking the 48th increase in the last 45 years.
We further rewarded shareholders by repurchasing nearly $1,000,000,000 in shares between the program we completed in 2014 and the new $1,000,000,000 program we announced in July. And in 2014 Altria delivered total shareholder return of 34.5 percent far outpacing both the S and P 500 and the Food Beverage and Tobacco Index. We achieved these results by the clarity of our core strategies and our talented employees' strong execution against them. Here are some important segment highlights from the quarter and the full year. The Smokeable Products segment produced outstanding results by consistently executing its strategy of maximizing income, while maintaining modest share growth on Marlboro and Black and Mild over time.
The segment grew adjusted operating company's income by almost 8% in the quarter and by nearly 7% for the full year primarily through higher pricing, the end of the federal tobacco quota buyout payments also contributed in the quarter. The segment also expanded adjusted operating company's income margins in both periods. Marlboro was the primary driver of these strong financial results. PM USA's long term investments in the Marlboro architecture have strengthened the brand's equity and expanded its ability to engage both loyal and competitive adult smokers. In 2014, the brand posted its 3rd consecutive year of retail share growth.
And Marlboro continues to innovate. In November, PM USA expanded distribution of Marlboro Menthol Rich Blue to 28 states primarily in the Eastern U. S. To enhance Marlboro's position in the menthol segment. It's early, but Rich Blue is off to a good start.
In the machine made large cigar category, John Middleton strengthened its leadership position in the tips segment. The company posted solid volume growth in the quarter and the full year driven primarily by Black and enhanced the brand with innovative introductions like Black and Mild Jazz. And in December, Middleton announced the national expansion of Black and Mild Casino, a dark tobacco blend in the Tipped segment. In the Smokeless Products segment, USSTC continued to execute 2014. USSTC grew full year adjusted operating company's income by more than 3% and expanded its already strong adjusted operating company's income margin by more than 1% despite a slowdown in the industry volume growth rate.
We estimate that growth rate to be about 2% for the last 12 months. USSTC maintained retail share leadership in the smokeless category in 2014 with its premium brands as Copenhagen and Skol grew their combined share in the quarter and for the full year. Copenhagen posted strong share gains in both periods behind the strength of Copenhagen Long Hutt Wintergreen. In 2014, USSTC began enhancing Skol's value equation with a new equity campaign and targeted investments to narrow price gaps on Skol Classic. We're pleased with the results we're seeing so far.
Turning to innovative tobacco products. Newmark made steady progress as it builds e vapor category leadership. The company is taking a disciplined approach and remains focused on building a robust portfolio of superior innovative products for adult smokers and vapers. In the Q4, Newmark evolved Mark nicotine concentration by weight in classic and menthol varieties. In December, Newmark completed its national launch of Mark 10 e vapor products achieving distribution in over 130,000 stores.
And at year end, Mark 10 was ranked among the top e vapor brands nationally based on retail market share. Newmark also acquired and integrated Green Smoke in 2014. This acquisition added great people, deep supply chain expertise and technology and we're excited about the brand's potential. It's still early days in this dynamic and evolving category, but we believe Newmark is increasingly well positioned for the future. In 2014, our alcohol assets continued to diversify our income and contribute to income growth.
In the wine segment, Ste. Michelle posted another year of double digit operating companies' income growth primarily through higher volume. Critics awarded Ste. Michelle's premium wines more than 1 180 ratings of 90 or better in 2014. Our earnings also benefited from our excellent year for our strong premium brands, for our company and for our shareholders.
We're maximizing income in our core premium tobacco businesses and innovating for the future. We're extremely proud of the results produced by our very talented employees and of our track record for creating value for shareholders. Looking ahead to 2015, Altria forecasts its 2015 adjusted diluted EPS will increase by 7% to 9% to a range of $2.75 to 2 $0.80 from an adjusted diluted EPS base of $2.57 in 20.14. Finally, today we are announcing some executive leadership changes all to be effective March 1 this year. First, Dave Moran, our President and Chief Operating Officer has decided to retire after 38 years of distinguished service to the company.
Dave's strong expertise, knowledge, financial acumen and leadership have contributed measurably to Altria's success and he will be missed. When Dave retires Howard Willard will become Altria's Chief Operating Officer. He has significant experience having been with the company since 1992. In addition to his current role of CFO, Howard has held leadership positions in numerous business functions of the Altria Companies. Billy Gifford will succeed Howard as Altria's Chief Financial Officer.
Billy has been with Altria since 1994 and also has held numerous roles including President and CEO of PM USA and his current role as Altria's Senior Vice President Strategy and Business Development. These moves are consistent with our long term succession planning and these talented experienced leaders will serve us well for the future. I'll now turn things over to Howard who will discuss Altria's business results in more detail.
Thank you, Marty. Good morning, everyone. In 2014, strong performance in our Smokeable Products segment helped drive adjusted diluted EPS growth of almost 16% in the 4th quarter and 8% for the full year. A lower effective tax rate on operations and lower interest expense were also contributors to adjusted diluted EPS growth in both periods. The Smokeable Products segment delivered strong adjusted operating companies income growth in the quarter and for the full year.
The segment also expanded operating company's income margins 1.8 percentage points in the 4th quarter and 1.9 percentage points in the full year. For the full year, PM USA grew Marlboro's retail share by 0.1th of a share point and grew its total cigarette category retail share by 0.2 of a share point. L and M share gains also contributed to PM USA's full year retail share performance, while the cigarette discount segment declined slightly. The Smokeable Products segment's 4th quarter
reported
operating companies income declined 2.7 percent, primarily due to higher gains on NPM adjustment items in 2013. After adjusting for trade inventory changes and other factors, PM USA estimates that its 4th quarter and full year cigarette shipment volume declined approximately 2% and 3% respectively and that total industry volumes declined approximately 2.5% and 3.5% respectively. The 2014 full year industry cigarette decline of 3 point 5% continues to be in the range of the decline rate we've seen in the last few years. In cigars, Middleton's reported cigar shipment volume increased by almost for the Q4 and over 6% for the full year, driven primarily by Black and Mild's strong performance in the Tipped Cigars segment. Black and Mild's retail share declined 0.4 for the quarter and 0.3 for the full year.
In the Smokeless Products segment, adjusted operating company's income was unchanged in the 4th quarter as higher pricing and higher volume were offset by higher promotional investments and the timing of selling, general and administrative expenses. For the full year, the segment grew adjusted operating companies income 3.3%, primarily due to higher pricing and higher volume, partially offset by higher promotional investments and product mix. Adjusted operating margins declined 2.5 percentage points in the 4th quarter to 60% and grew 1.1 percentage points to 63.4%
in the
full year. After adjusting for trade inventory changes and other factors, USSTC estimates that its domestic smokeless product shipment volume grew approximately 2.5% in both the Q4 and full year of 2014. Copenhagen and Skol's percent of a share point in the quarter to 51.3 percent and grew 0.5 percent to 51.2% for the full year. The wine segment delivered strong results in the 4th quarter and the full year. Primarily driven by higher volume.
Shipments increased 9.6% in the quarter and 4.8% for the full year. That wraps up our operating results. Marty and I will now take your questions. While the calls are being compiled, let's cover a few housekeeping items. As a reminder, comparisons when made are against the Q4 and full year of 2013 unless we note otherwise.
Marlboro's price gap versus the lowest effective price cigarette was 32% in the 4th quarter, down 2 percentage points and 33% for the full year, down 1 percentage point. For the 4th quarter, Marlboro's net pack price was $6.02 up $0.16 and the lowest effective price cigarette was $4.55 up $0.17 For the full year, Marlboro's net pack price was $5.96 up $0.13 while the lowest effective price cigarette was $4.49 up $0.15 dollars The cigarette discount segment's retail share was 24.9% for the 4th quarter and full year, down 0.3 in each period. The estimated weighted average cigarette state excise tax was $1.49 per pack for the 4th quarter, up $0.02 and $1.48 per pack for the full year, up 0 point 4 $4 Wholesale inventory changes are one factor PM USA uses to estimate adjusted
PM USA
and industry volumes. PM USA estimates that its 2014 wholesale inventories were approximately 2,400,000,000 units at the end of the 4th quarter and 2,300,000,000 units at
the end of the 3rd quarter.
In 2013, PM USA's wholesale inventories were estimated to be approximately 2,500,000,000 units at
the end of both the 4th and third quarter.
PM USA estimates that the 2014 cigarette industry wholesale inventory levels were 5,500,000,000 units at the end of the 4th quarter and 5,700,000,000 units at the end of the 3rd quarter. PM USA estimates that 2013 wholesale inventory levels were 5,900,000,000 units at the end of the 4th quarter and 6,300,000,000 units at the
end of the third
quarter. Copenhagen's price gap versus the leading discount brand was 32% in the 4th quarter full year, down 3 percentage points for the 4th quarter and 4 percentage points for the full year. Copenhagen's retail price was $4.19 in the 4th quarter, up $0.12 and $4.13 for the full year, up $0.07 The price of the leading discount brand was $3.17 in the 4th quarter and $3.14 for the full year, up $0.15 in each period. CapEx was $47,000,000 for the 4th quarter $163,000,000 for the full year. Ongoing depreciation and amortization was $59,000,000 for the quarter $208,000,000 for the full year.
Looking ahead to 2015, we expect capital expenditures will be in the range of 200,000,000 dollars to $250,000,000 and the depreciation and amortization will be approximately $200,000,000 Operator, do we have any questions?
Thank you. Our first question comes from the line of Matthew Granger of Morgan Stanley.
Hi, good morning everyone.
Hey, Matt.
Hi. And congratulations to everybody. There's a couple of people, so I'll just say to everyone.
Thank you very much.
So Marty, I guess first I just wanted to get your updated thoughts on the current economic outlook and how that's impacting cigarette consumption, because we've seen now 2 consecutive quarters of improving volume trends, which I know generally you would attribute just quarterly volatility and the full year was in line with the long term average. But at this point, can we say that we're seeing some evidence of stronger consumption or as you look across the industry better product better portfolio mix?
Yes. That's a great question. Let me give you our view of the adult tobacco consumer for 15% which I really think goes to the heart of what you're asking about. We've been cautious for the last several years as you know as we went through this difficult recession. We are actually seeing a modest improvement I think in the economic situation for the clearly improving as everyone knows and particularly in relation to the rest of the world economies.
We see unemployment and underemployment have come down. We see housing starts are coming back. We see very good consumer confidence numbers. So I think all of that is a positive those are positive factors. On the other side of the ledger, you have labor participation rates maybe not where they should be and then year over year wage gains are still modest.
But I think on balance our view is that the adult tobacco consumer is feeling better about their in that economic situation and their economic future and we expect some modest improvement in that over 2015.
Okay. And then do you have any sort of industry volume outlook that you're willing to share at this point?
No. We don't do that as you know. But I think especially if you look out over the last 3 to 4 years which includes of course this very difficult recessionary period, you see it Matt really 3 to 4 and you call it maybe 3 0.5% on average over the last 4 years. And PM USA has done better than that at about 3% because of its strong portfolio and its share gains. So we don't see any big disruptors in that, but we don't forecast volume going forward.
Okay. Thanks, Marty. And Howard, if I could just follow-up on smokeable products. The 8% adjusted OCI growth in the quarter, obviously, it's a very strong number. But I guess I'm almost surprised that it wasn't even stronger given the absence of quota buyout costs during the quarter.
Can you just talk about the increase that we saw in per pack costs year on year excluding the quota buyout? And where within the cost architecture of smokeable products you're seeing places to reinvest back in the business?
Sure. Yes, I would tell you that as you note the cost per pack in the smokeable segment was up quite a bit in the 4th quarter. I have to tell you, I think that is primarily driven by timing. If you looked, we had less expense in the Q3 and we don't tend to manage our expenses and our project execution quarter to quarter. We're really managing to a full year.
And I think if you look at the trend of expenses in the full year, it was at a much more normal level. But certainly, we felt good about the 4th quarter performance. I mean, we had strong increases in net revenue per pack up around 5%. And of course, we did receive the savings in the federal payments in the quarter.
Okay. Thank you, both.
Thanks for calling in.
Your next question comes from the line of Vivien Azer of Cowen and Company.
Hi, good
morning. Good morning, Vivien.
So to follow-up on Matt's question, clearly the cigarette industry volume dynamics are easing, but we've got a deceleration in MST. So can you talk about the interplay? I know we talked about this a little bit last quarter and it's something you'll watch over time. But with another quarter of deceleration, I was hoping you could opine on what's causing that deceleration and whether there's a dynamic that involves cigarettes as well?
No. I think we'll have to see. Obviously, let's start with smokeable. I mean, it really had a strong Howard has already described a strong quarter and a strong year and we're very happy with the smokeable performance. And actually you see USSPC had a very good year.
It grew its income at about 3%. But we've observed this volume deceleration now over the last three quarters and that's at odds with what we've seen for the prior several years. So Vivien they have more choices today and so there's some movement there. But these things best I think are evaluated over time. So I'm not sure I have any big insights to share with you this morning on that except to say that it speaks I think first to the wisdom of having a total tobacco platform.
So as adult tobacco consumers move within these categories that Altria is well positioned to offer them premium brands with great margin structure. So that's how we think about the business and we'll have to study the volume I think for some time yet to know the answer to the question you're posing.
Fair enough. For our kind of modeling purposes if you will, is this a deceleration that you guys are planning for to continue internally as you think about 2015?
Well, I'd like to say we try to help you guys as much as we can with your modeling. But I can't and I applaud your courage for trying to get me to tell you. But I really honestly the answer I gave you was the honest answer which is we're going to have to see. And we've set up our year with our operating plans I think, which is all embedded in our full year guidance, which is quite strong at 7% to 9%.
Fair enough. On the cigarette side, as we look across to 2015, can you provide an update on the outlook for the state excise tax environment given how benign it's been over the last few years please?
I missed what you said Vivien. You paid it out right at the end. I'm sorry.
I apologize. Can you provide an outlook from the 2015 state excise tax environment?
Yes. Well, we're always cautious at the beginning of the year, aren't we? And we've all seen that the state excise tax environment has been more moderate in the last several years than it has been previous. But we go into each year prepared to answer the call because as you've observed and others have observed as soon as the legislature come back in January, we see the proposals start to roll in. And there are a number of them that are out there.
We have very good government affairs people that point out that this is unfair to tobacco consumers and these products are already highly taxed. But we'll have to see how the year plays out. It's been a fairly moderate environment over the last several years and we hope that plays out in 2015.
Terrific. Thank you very much.
Thanks for calling.
Your next question comes from the line of Bonnie Herzog of Wells Fargo. Good morning.
Hi, Bonnie.
Hi. So in terms of your EPS growth guidance of 7% to 9% for this year, it is in line with your historical trends and seems very conservative given the strong pricing and tremendous cost savings you have this year. So I assume you'll be fully reinvesting these savings into your different businesses. So my first question is why not let some of this strength flow to the bottom line? And then second, could you give us a sense of what the different investment buckets are?
For instance, 70% of the savings will be invested in e cigs vapor, 30% in combustible. Just again trying to get a sense of your priorities.
Sure. Let me offer you a slightly different previous years, we've come out I think for the last several years at 6% to 9%, not at 7% to 9%. And the factors that went into our judgment this year about how to guide include some of the things we've already spoken about on the call, which is a modestly improving situation for our adult tobacco consumer. Obviously, we have the benefit of some fetra payments. But we think pointed out in our release we have some pension and health care cost changes due to long term assumptions.
And so every year you put your guidance together and you have puts and takes about what you're going to do. Some years we invest. Some years we have factors which are flowing in the other direction. I think 7% to 9% in the current environment is a strong signal about the confidence we have in our business and our operating company plans. And Howard you may want to supplement that answer.
Yes. No, I think you covered it Marty. The only other thing I would point out and this has been with us for some time and I think has been quite orderly, but we're continuing to unwind the PMCC business. And as that progresses, there are fewer and fewer asset sales that are available. So that's another element that plays into the overall company performance.
Okay. That's really helpful guys. And I think it also highlights the consistency of your business as well with all of the different puts and takes as you mentioned. And then I do have a broad question on the consumer and uptraining. So I'm certainly hearing from a lot of the retailers that consumers' greater disposal income is leading to up trading.
So is this to what you've seen in your Marlboro franchise? And has there been a mix shift to premium marble if I could call it that? And also you generated the strong net price realization in cigs, but I'd be curious to hear from you what happens when gas prices go back up? In other words, how sustainable do you think the strong pricing in figs will be especially if and when gas prices rise?
Okay. Let me try to comment on a couple of those to try to help you. I think gas prices for us historically we have not called out gas prices as one of the principal drivers of consumer behavior, although we acknowledge that it had some effect to us. It was really more about the unemployment rate, consumer confidence and housing starts. Now the way that gasoline prices have gone down so precipitously has obviously had a bigger effect on the consumer right?
The C stores as you and others have pointed out are seeing better traffic. And I don't think there's any question that it's contributing to consumers feeling better about their economic situation. But historically, Bonnie, we have not called that out as one of the big three drivers. So I don't know what people are expecting for gasoline prices, but it probably not have that much more of an effect. We did have very good pricing.
And the way that we achieved pricing as you know is, we took list pricing in 20 14 combined $0.13 a pack. And then as always we can moderate our promotional allowances and we did so last year. We moderated our allowances on special blend, Marlboro special blend and on Black. And as you know, we're able to do that quite tactically by state by using our SPP tools. So we did see a year in which we think we could take some pricing and I think you see that in the numbers for 2014.
Okay. That's very helpful. Thank you.
Thank you for your
call. Your next question comes from the line of Judy Hong of Goldman Sachs.
Thank you. Good morning.
Good morning, Judy.
So one follow-up and another question. So on a follow-up perspective, so how are you you've talked about the 4th quarter being impacted by some timing of expense items. Just on a full year basis, so your marketing and R and D expenses were up over $200,000,000 So, I just wanted to get a bit better sense of where that spending was I just wanted to get a bit better sense of where that spending was allocated in 2014. How much is that sort of sustainable into 2015 and thinking about the guidance for 2015?
Yes. I think with regard to marketing and R and D, I really don't feel that there's been any dramatic departure this year versus prior years that I would call out with probably the one exception being that this was the year that we made some significant investments through Newmark in the e vapor category. And obviously that's had an impact on our R and D investments as we build that product pipeline. And certainly there's some marketing that supports that as well. But that's really the primary impact there.
Okay. And then maybe on the e vapor category itself. If you look at some of the measured channel data, the category has slowed. You've obviously expanded the Mark 10 distribution. I'm just wondering if you can talk about your assessment about the category generally at this point?
And then you also talked about more of a disciplined approach to building Mark 10. So can you just elaborate on that? And in light of the dynamics how you're thinking about the performance that you're seeing from Mark 10?
Sure. Well, let's start with the category. Our estimate is that the consumer spending in 2014 increased by about 50% to about $2,000,000,000 and that's compared to a year before, which I think you've seen the numbers of roughly 160% increase. So you can see that it has slowed although its 50% increase is still fairly large. It's growing in both traditional trade channels and it's also growing in vape shops which are harder to get a line of sight into.
To dimensionalize that spend though $80,000,000,000 is spent on conventional tobacco products versus the 2 that we estimate, so just to put it in its proper context. With respect to Newmark, our belief is that that is an interesting enough category for us to participate in and to aspire to have leadership in. That is leadership that will be achieved over the long term and for the long term, which is why we use these words about financially disciplined and over time. We want to participate there. We believe Newmark had a very good year.
Gosh, we got the Mark 10 product in 130,000 retail stores. And I mean that's easy to say and that's hard to do. And so our sales force at Newmark did a great job there. They rolled out as we mentioned in our remarks the 2.5 product. Consumers continue to look for their product.
And so I think a lot of what's going to happen with vapor is about manufacturers trying to bring out products that better satisfy their their consumers and that's what Newmark is doing. It's for the long term. It will be for the long term. And we are learning our way in with our consumer and using a disciplined approach. But with the acquisition of Green Smoke and their people and their technology in addition to Newmark, I am very encouraged about what we have in the pipeline for Mark 10.
Okay. That's helpful.
And then lastly, Howard, just in terms of 2015 guidance, can you tell us how much share buyback is incorporated?
Yes. I'm not going to guide at that level. I think we've previously talked about the fact that we have an existing share repurchase program in place. It's got a little over $500,000,000 left and we had communicated we expected to finish that by the end of the year. So that hasn't changed certainly any share repurchase plans we have are incorporated into the 7% to 9% guidance.
Got it. Okay. Thank you.
Thanks, Judy.
Your next question comes from the line of Owen Bennett of Nomura.
Good morning, guys. Owen? Hey, Owen. How are you?
Yes. Hi there. Good. Thank you. Just following on from on the vapor question then I guess.
Just have you got any update on potential timescale for commercialization of PMIs heat not burn?
No, we're working on it. That has to go through the FDA process as you know and we're working closely with them on it. And I think we feel like we're making good progress and I think PMI would tell you the same thing, but I can't give you a date because it's subject to the FDA's processes. Okay, Hi,
good morning. Hi, Chris. Thanks for calling.
Hi. Hi. Hi, Chris.
Thanks for calling. Hi. Hi. Hi, Chris. Thanks for calling.
Hi. Hi, Chris. Thanks for calling. Hi. Hi.
Hi, good morning.
Hi, Chris. Thanks for calling.
Hi. Thank you. Just I have two questions. I think a bit of a follow-up from earlier questions. The first one would be Marty in relation to Marlboro and the discount products on the market today that price gap is quite narrow at 32%.
It's been there for several years. You talked about I think to an earlier question like the improving consumer environment. Can we see that price gap expand? So therefore, are economic conditions in such a place that it would allow for premium products to take a little bit more pricing than discount products?
Yeah. That would be our hope of course as we try to maximize income in the smokeable segment, which is the price gaps have been higher at times in its history and but you have to be thoughtful about how you do that and when. But certainly that would be in our interest of maximizing income.
Okay. And then another question on the call the other division where you have PMCC and Newmark. And I know it's hard if you can characterize each of those businesses and how they perform. But you had a large investment and a huge national launch in Mark 10 in 2014 and the investments of that operating loss in that division obviously expanded. I'm just curious, is it such that you've got a full pipeline that that operating loss couldn't come down?
Or has the Newmark business, which has obviously generated some decent sales now, gotten to the point to where we should see less operating loss in the coming year?
Yes. I know that everybody is trying to get under the all other, but we've really got 2 things operating there. We're investing in Newmark, which makes sense for the long term. And Howard has pointed out that as we wind down PMCC, we have fewer asset sales and they tend to be lumpy from time to time. So that's what's going on over there.
And we're just not going to guide down too much deeper than that Chris if you'll allow me.
I understand. Maybe I think you may have mentioned earlier just a follow on about a strong pipeline of products at Newmark. Should we expect some more activity behind product launches this year in 2015? Is that a fair question?
Well, it's a fair question and I'm going to reserve my answer so that I don't hand out my competitive plans on the phone. But yes, you should be thinking about this I think in terms of the category. We expect to have products that will be launched that will be better and better as I expect that other people are planning similarly. I think that's exactly the nature of the category right now. We've got good plans for that.
Okay. Thanks so much for your time.
Thanks for calling.
Your next question comes from the line of Michael Lavery of CLSA.
Good morning.
Hi, Michael. Can you just give
a sense of what some of the investments what type of investments would be ideal for the savings that you've got coming from the buyout? And just in terms of equity building, Obviously, you have some relatively limited options in some of your marketing capabilities. Can you just give a sense of what the tools are that would be highest priority for how you would think about applying some of those extra funds?
Well, again, I'm not going to lay that out to tell everybody exactly how we're going to spend our assets to improve our business. But you've seen us over time do such things as develop the Marlboro architecture to improve our Marlboro digital site, to roll out new products like Rich Blue and Black and so forth. There's lots of places for us to invest in our businesses. Our goal is to keep our brand franchises strong and relevant and there's lots of tools to do that even as you point out in a category which has higher regulation. And then we have obviously as has previously been described some investments to make in our innovative products.
So that's how I think about it Michael at a high level. I'm just not going to lay it out in detail as I'm sure you can understand.
Sure. That's fair enough. Thanks. And just looking at the 4Q market share numbers even with the improving consumer health you had the discount segment really driving the share gains with Marlboro flat. Is that a focus for 2015 to try to obviously, I'm sure you enjoy getting the lift in the discount share, but is there a way you want to try to manage that to bring Marlboro further ahead?
Or is the sort of steady state also how do you think about Marlboro versus the total portfolio? And what the priorities are in terms of just how you approach that?
Yes. It's a good question. Our aim is modest share momentum on Marlboro. And we previously characterized I think that as if we get a 10th or 2 tenths a year that's great for Marlboro. Listen our focus is on premium.
Over 90% of our shipments are premium. But there is a discount segment and so we try to participate there and L and M is a great offering at that price point.
Okay. Great. Thanks. And then just lastly on Green Smoke. It's been the Mark 10 rollout you've taken nationally.
What's the next step for Green Smoke? Would that follow it?
Well, we're working on that. I mentioned I think to someone else that we've been integrating Green Smoke. They've really helped us quite a lot on the front end with supply chain. They had a well established supply chain and we've been relying on them quite heavily to help us in that regard. They have very good people and they do have a good technology pipeline.
We've been integrating all that in 2014. Remember we closed on this I think in April if memory serves. And so we've now been integrating that and we have an integrated pipeline of products as well as we become more efficient with those 2 organizations. So yes, I would expect to see more from the combined Newmark Green Smoke assets.
Great. Thank you very much.
Thanks for calling.
Your next question comes from the line of Nik Modi of RBC Capital Markets.
Yeah. Good morning, everyone. Hi, Nik. First, I wanted to say congrats to Howard, Dave and Billy on all the new roles. So congrats to you guys.
Two questions from my end. The first one is on the Marlboro architecture. I mean, it's been a couple of years now since it's been implemented. And I was wondering if maybe you had some context perspective you can share in terms of brand equity scores or any kind of indicator quantitative indicator on kind of what the effect has been? I mean, clearly, we've seen the Marlboro franchise do well over this time frame.
So I just wondered if you had some more granularity on some of the quantification behind Marlboro. And the second question is and this is I guess more strategic. It seems like the super premium cigarette segment is doing fairly well and has been doing fairly well. And there's really not that many players in that market. And I wondered from a strategic standpoint how Canadian U.
S. A. Really thinks about that?
Yes. Let me tackle those in turn. Good questions both. You're right. Marlboro architecture has been a terrific boost for our business.
We've talked previously about having the flavor families and allowing different marketing approaches in the families and what it's done for Marlboro.com has been great. I think that's shown up in the performance of Marlboro. With respect to any quantitative brand equity data, we may talk about that some in CAGNY. So if I could just ask you to hold tight on that, I think we'll have some further information for you in that regard. With respect to super premium, the way let me just mention a strategic approach to this, which is we're always looking for places in the market where there is business, where we either are under indexed or we don't have an offering.
And so we look at things all the time. And while I don't have anything to announce about that, I can assure you we look at places to build our business both there and elsewhere.
Great. Thanks, Marty.
Thanks for calling, Nick.
Media representatives are now invited to ask questions by pressing star 1 on your touchtone phone. Your next question comes from the line of Michael Felderbaum of the Associated Press.
Good morning. Hi, Michael.
Hi. I was wondering if you could give a little bit more color more broadly on the strength of the Marlboro brand and how it's been able to stave off some increased competition as well as weather the economic the recovering economic situation?
Well Marlboro is a fantastic product for adult smokers that comes with decades of leadership with lots of innovation and with lots of offerings for people who are in the category. And it has consistently grown its share over decades. We are the stewards of this brand and we pay a good deal of attention to Marlboro. It speaks both to the product's function and to its equity. And that's been Marlboro's story.
I commented earlier on the call about we see that the economy is strengthening a bit hopefully for our adult tobacco consumers. We certainly hope that's going to be the
case in 2015. Thank you.
Thank you
for your question.
Thank you. At this time, I would like to turn the call back over to Ms. Sarah Nockmas for closing comments.
Thank you everyone for joining our call this morning. If you have any follow-up questions, please contact us at Investor Relations. We look forward to seeing many of you at our CAGNY presentation on February 18.
Thank you. This does conclude today's conference call. You may now disconnect.