Good day, and welcome to the Altria Group 2014 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. All lines have been placed on mute to prevent any background noise. If you would like to ask a question or make a comment, please press star one on your touch-tone phone. If your question has been answered and you wish to remove yourself from the queue, please press the pound key. 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 Ms. Sarah Knakmuhs, Vice President, Investor Relations for Altria Client Services. Please go ahead, ma'am.
Thank you. Good morning, and thank you for joining us. We're here this morning with Martin Barrington, Altria's Chairman and CEO, and Howard Willard, Altria's CFO, to talk about Altria's results for the first quarter of 2014. During our call today, unless otherwise stated, results are being compared to the same period in 2013. Earlier today, we issued a press release regarding our first quarter results. For a detailed review of Altria's business results, please review the earnings release on our website at altria.com. Our remarks contain forward-looking and cautionary statements and projection of future results. We direct your attention to the forward-looking and cautionary statement section at the end of today's earnings release to review various factors that could cause actual results to differ materially from projections. Altria reports its financial results in accordance with the 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 affects 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. I'll turn the call over to Marty.
Thank you, Sarah. Good morning, everyone, and thanks for joining our call. Altria continued to make excellent progress against its key strategies in the first quarter of 2014. We're maximizing our core premium tobacco businesses over the long term and making disciplined investments to grow new income streams with innovative products. Altria grew 2014 first quarter adjusted diluted EPS by 5.6% behind a strong performance from our Smokable Product Segment and growth in our Smokeless Product Segment. Lower financing costs also contributed to adjusted diluted EPS growth in the quarter. We're off to a good start against our full-year objectives. Here are the highlights from the quarter. Our Smokable Product Segment continued to deliver against its strategy of maximizing income while maintaining modest share momentum on Marlboro over time.
The segment produced strong adjusted operating company's income growth of 6.4% and expanded its adjusted operating company's income margin primarily through higher pricing. PM USA's 2014 first quarter reported shipment volume decreased 2.5%, primarily due to the industry's decline, partially offset by changes in trade inventories and retail share gains. PM USA's income and volume performance benefited from modestly higher wholesale inventories compared to the same period last year, though we expect inventory levels to moderate as we move through the year. Marlboro continues to be strong at 43.8 share points, larger than the next 10 brands combined. PM USA successfully grew Marlboro's retail share behind investments in the Marlboro architecture and grew its total share of the cigarette category driven by Marlboro and L&M in the discount segment. Turning to smokeless products, the segment grew first quarter operating company's income by 7.7%, primarily through higher volume.
The segment also grew Copenhagen and Skoal's combined volume and retail share behind another strong quarter for Copenhagen Long Cut Wintergreen, which now has posted 14 consecutive quarters of retail share gains. During the first quarter, USSTC began implementing strategies to enhance Skoal's equity and carefully manage Skoal Classic price gaps in select geographies. These strategies, including changes to Skoal's promotional plan, resulted in some retail inventory movements that negatively impacted USSTC's first quarter shipment volume. While these short-term dynamics also may impact the segment's second quarter results, USSTC's strategy should strengthen the brand over the long term, and we're encouraged by the early results.
This strong performance by our core tobacco businesses was partially offset by comparatively lower gains on asset sales at Philip Morris Capital Corporation and lower earnings from our equity investment in SABMiller, primarily due to gains from common stock issuances in the first quarter of 2013. Moving to innovative products. Nu Mark continues to make excellent progress against its long-term goal of achieving e-vapor leadership. The company is on track to begin its rolling national launch of MarkTen in June. Earlier this month, Nu Mark completed its acquisition of Green Smoke, adding significant e-vapor experience, broadening Nu Mark's product offerings, and strengthening its supply chain capabilities. We're happy to welcome Green Smoke's talented employees to our team. Of course, Altria continues to focus on returning larger amounts of cash to shareholders.
During the first quarter, Altria paid $957 million in dividends and purchased shares valued at approximately $272 million. To sum up, we're pleased with our first quarter performance, and we're continuing to focus on our key strategies to deliver strong, consistent results for the long term. Altria reaffirms its guidance for 2014 full year adjusted diluted EPS to be in a range of $2.52-$2.59, representing a growth rate of 6%-9% from an adjusted diluted EPS base of $2.38 in 2013. We expect stronger adjusted diluted EPS growth in the second half of the year compared to the first half, driven by various factors, including lower fourth quarter costs in the smokable product segment due to the end of the quota buyout payments, and a significantly lower fourth quarter effective tax rate compared to the year-ago period resulting from our 2013 debt tender offer.
I'll turn things over to Howard, who will discuss Altria's business results in more detail.
Thank you, Marty. Good morning, everyone. As Marty mentioned, our smokable product segment delivered strong first quarter results. The segment grew adjusted operating company's income by 6.4% to over $1.5 billion and expanded its adjusted operating company's income margin by 2.2 percentage points to 44.1%. Adjusted operating company's income growth was primarily driven by higher pricing, partially offset by lower volume. The smokable product segment's reported operating company's income declined 20.3%, primarily due to the NPM adjustment settlement in the first quarter of 2013 and lower volume, partially offset by higher pricing. After adjusting for changes in trade inventories, PM USA estimates that its first quarter domestic cigarette shipment volume declined approximately 3.5%, less than the category decline rate, which PM USA estimates was about 4%.
PM USA grew Marlboro's retail share by two-tenths of a percentage point to 43.8% and increased its total category retail share by two-tenths of a percentage point behind gains for Marlboro and L&M in the discount segment. These gains were partially offset by share losses on other portfolio brands. In cigars, Middleton grew Black & Mild's first quarter retail share by three-tenths of a percentage point, while shipment volume was essentially flat. Our smokeless product segment grew operating company's income by 7.7% to almost $240 million, driven by the higher volume and higher pricing, partially offset by increased promotional spending. The segment also expanded its operating company's income margin by 1.1 percentage points to 62.1%. USSTC and PM USA grew combined reported domestic smokeless products shipment volume by 5.9% in the first quarter, primarily due to volume growth for Copenhagen, partially offset by declines for Skoal.
The segment's first quarter reported volume benefited from an extra shipping day that was partially offset by changes in trade inventories. After adjusting for calendar differences and changes in trade inventories, USSTC and PM USA estimate that their combined domestic smokeless product shipment volume increased approximately 4% for the quarter. While smokeless products category volume grew at approximately 5.5% over the last 12 months. USSTC grew Copenhagen and Skoal's combined first quarter volume by 6.3%. USSTC also grew Copenhagen and Skoal's combined retail share by two-tenths of a percentage point to 50.8%, driven by Copenhagen. Turning to innovative products, Nu Mark continues to use its two MarkTen e-cigarettes test markets to refine the brand's value equation. For example, Nu Mark has experimented with different tools for creating awareness and trial in Arizona.
While brand shares continue to move over time as manufacturers change promotion levels, MarkTen remained the leading e-vapor brand in Arizona during the first quarter. Nu Mark's test markets are providing valuable insights that we'll use to compete for category leadership over the long term. In the wine segment, Ste. Michelle grew first quarter operating company's income by 10%, primarily driven by improved premium mix. Ste. Michelle's wine shipment volume increased 1.1%, primarily driven by increased distribution of 14 Hands, partially offset by changes in trade inventories. That wraps up our operating results. Marty and I will now take your questions. While the calls are being compiled, let me cover a few first quarter housekeeping items. Marlboro's price gap versus the lowest effective price cigarette was 33%. Marlboro's net pack price was $5.91, up from $5.80 in the first quarter of 2013.
The lowest effective price cigarette was $4.43, up $0.10 from the first quarter of 2013. The cigarette discount segment's retail share was 25.1%, down from 25.5% in the first quarter of 2013.
The estimated weighted average cigarette state excise tax at the end of the first quarter was $1.48 per pack, up $0.06 from the end of the first quarter of 2013. Copenhagen's price gap versus the leading discount brand was 32%. Copenhagen's retail price was $4.09, up from $4.07 in the first quarter of 2013. The price of the leading discount brand was $3.10, up $0.11 from the first quarter of 2013. CapEx was $27 million, and ongoing depreciation and amortization was $50 million. Operator, do we have any questions?
Thank you. Once again, as a reminder, if you'd like to ask a question, please press the star key followed by the number one on your touchtone phone at this time. 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. The first question comes from the line of Owen Bennett of Nomura.
Morning, guys.
Morning.
A couple of questions, please. Firstly, I was just wondering if you've got any comment on the pending deeming regulation announcement that's been in news articles this morning, and how you expect this to impact both your e-cigarette and cigar growth. Secondly, obviously, you had a very strong margin performance in the quarter, particularly in smokables. I was just wondering what was driving this and how we can expect margins to play out into the rest of the year, ignoring the fourth quarter relief from the tobacco buyout quota. Thank you.
Sure. Thanks for calling in. I don't have a comment on the deeming because I haven't read them yet. I guess they're releasing them even as we're on the call here. I've read only the press reports this morning, and I'd like to read them before I comment on them. With respect to margins, you're right to point out that we did have good margin performance. We had growth in smokable, we had growth in the smokeless, and that's all consistent with our strategies in the core tobacco business, which is to grow our income in the smokable, maximize our income in the smokable segment, and then to grow our income through volume growth in smokeless. I don't know, Howard, do you want to say more about quarters or no?
No, I think certainly in the first quarter, we had 3.8% revenue growth on a per pack basis in smokable. That was a strong driver in the first quarter. I think you said it's consistent with our strategy of maximizing profitability.
Okay, thank you.
Thanks for calling.
Our next question comes from the line of David Adelman of Morgan Stanley.
Hi, good morning, everyone.
Hi, David.
Marty, two things I wanted to ask you. First, the comment about faster second half earnings per share growth and the alluding to the absence of the quota buyout cost in the fourth quarter.
Yeah.
That obviously only flatters your profitability if pricing would more or less be as it would've been otherwise. In other words, if you or the industry collectively promote that away, it wouldn't have that benefit. Implicit in what you're saying about the outlook for the fourth quarter, is it your intent and hope to capture at least some of that net cost reduction benefit?
Well, I think it's consistent with what we said before when we talked about quota, which is if you're trying to maximize your income in the smokable segment, you obviously want to take every opportunity you can to do that, and that's how we're thinking about that.
Okay. That's a good segue to my second question, which is to talk about pricing and your attitude and approach to pricing in the smokeless business, Marty. The profit during the quarter, last year, profits have been growing 7%. That's not shabby, but there really hasn't been any net pricing in the last couple of years. I mean, do you aspire to get to a point and a place where you can add to volume growth with net pricing? What's holding it back? Is it the performance of Skoal? Is it the competitive environment in discount brands, et cetera?
Yeah, sure. Let's go back. Well, what I'd say first of all is remember for us in our smokeless business, we have margins above 62%. Of course, you can always have better net pricing realization. In a category that has margins like that and where the category is growing, we can grow our income very nicely. Remember, what we're trying to do there is to grow that income off of the volume, in line with the category growth, and then to have modest share momentum on Copenhagen and Skoal. That's the approach. Gee, I think at CAGNY, we did a fairly good job, I think, of laying out how that's played out over the last five years since we got the business. Whether it's volume growth or income growth, we've really grown those businesses very nicely.
Copenhagen, of course, has taken off well, and we're now working on Skoal.
Okay, thanks.
Thanks for calling in.
Our next question comes from the line of Nik Modi of RBC Capital Markets.
Yeah, good morning, everyone.
Hi, Nik.
Hey, how are you? Marty, two questions. First on, it's kind of interesting how the weather was so disastrous in the U.S. at least for January and February, and from this earnings season, broadly speaking, I mean, companies really haven't seen an impact. I'm just curious on your kind of state of the union on the consumer. I mean, is the consumer stronger than we all thought as we started out the year? The second question is, now that the Green Smoke acquisition is closed, curious on if you plan on kind of launching it nationally in conjunction with MarkTen, so you have kind of two different brands in the marketplace to try to capture as much growth as you can.
Sure. Good questions. Well, thanks, Nik. Look With respect to the weather, we did see some disruptions from time to time, but actually, it didn't really translate into a drag on either our operating or our financial performance. With respect to the adult tobacco consumer, I don't think that our view has changed since last we spoke about this. Given the unemployment and the underemployment rates and labor participation rates and the like, and consumer confidence still being better, but nowhere where it needs to be. We're hopeful that things are going to improve, but our operating plans for 2014 assume that the adult tobacco consumer's going to be cautious, as he or she was in 2013. Good question about Green Smoke. We closed on Green Smoke, and we're working now. We have our integration teams working on supply chain and marketing and the like.
Our launch, though, nationally, will be focused on MarkTen. Obviously, Green Smoke has retail opportunities in the U.S. and we'll be working on that, but that's not a part of the national plan.
Marty, one just follow-up to that. It strikes me as the innovation cycles in the e-cig category are much more rapid, obviously, than the traditional cigarette and tobacco businesses.
Yep.
What is Altria doing, just from a capability standpoint, to kind of prepare for kind of a faster innovation timeline? It seems like most companies are struggling right now. They have the next generation of products, but they can't launch them because they still have the existing product in the marketplace. Just curious on your view on that topic.
Yeah, that's another good question. We actually started back on this, Nik, a couple of years ago to really improve our innovation system as a whole. We thought that we had opportunities to get faster, to develop better consumer insights, and to more rapidly turn them into products to satisfy their needs. We've actually been after this, not just on e-cigarettes, but on all of our businesses for about two years now, and we've made significant improvements, I'd like to think, in the system itself. Then with respect to e-vapor, you're right to point out that the learning cycles are shorter. We're working very hard on our consumer insight system and our market read systems to make sure that those systems are adjusted to give us quicker reads of what's happening with the consumer and in the marketplace.
We're using lots of techniques like ethnography and other techniques to make sure we're staying close to that consumer because they're moving around a bit.
Thanks for the time, Marty.
Thanks for calling, Nik.
Our next question comes from the line of Judy Hong of Goldman Sachs.
Thanks. Good morning.
Hi, Judy.
My first question is just really trying to better understand your investment spending behind the Nu Mark and MarkTen, specifically just looking at the all others segment with the loss of $1 million. It's actually a little bit better sequentially from the fourth quarter. Trying to strip out what was PMCC versus your investment on Nu Mark. As you prepare for the national launch in June, do we see a step-up in terms of the spending, particularly in the second quarter there? Just any help on your thoughts on the investment spending there?
Sure, Judy. This is Howard. I think as you look at the year-over-year comparisons in the other segment, I think first quarter reflects what we said is going to occur for the year, which is we had unfavorable comparisons year-over-year on PMCC. We've also increased our investment related to Nu Mark. I think as we move into the second quarter, you're going to continue to see trends of us continuing to invest in Nu Mark as we kind of ramp up to that national launch in June.
Just if I can follow up on that, Howard, because just in terms of thinking about guidance, there's a lot of moving parts below the line. If you can just help us understand just in terms of the interest expense, because you did see a big drop-off. If we just take the runway for Q1, it's a pretty meaningful decline in terms of the interest expenses. Just in terms of the SABMiller, it seems like that's coming in on a year-over-year basis, more of a drag in terms of your guidance. Any help you can provide us in terms of Q1 below the line, and then how we should think about that for the rest of the year?
Certainly. I'd refer back to our annual guidance, I think you are right that this is going to be a bit of a unique year in that as the quarters unfold, you might have different trends in the quarters than are reflected in the total year performance. Certainly, that's reflected in the first quarter related to SABMiller. In SABMiller, we actually had an unfavorable year-over-year trend, although that was really driven by the fact that SABMiller issued more stock in the first quarter of last year than they did in the first quarter of this year. That has a negative impact on our earnings. If you actually looked at the performance excluding that, SABMiller had a growth in the quarter. I think that certainly was a unique impact in the first quarter with regard to SABMiller.
We've already communicated that on an annual basis because of the strong asset sales in the past from PMCC. As those slow down, there's going to be an unfavorable impact. Of course, kind of below the operating company's income line, there are a number of favorabilities for the year. You started to see the interest decline in the first quarter, which certainly benefited earnings, and that'll continue to unfold through the year. You also see that our tax rate on an adjusted income basis has come down in the quarter, and that is going to be reflected through the total year. Of course, there's an impact on EPS growth from our share repurchase program. There are certainly a number of positives in the quarter, including a strong performance on the smokable segment.
That is being offset by SABMiller, by PMCC, and some investments in Nu Mark, although ultimately resulting in what we thought was a nice 5.6% EPS growth for the quarter.
Is the run rate for the interest expense for the year, the Q1 run rate should be what we should be using?
Yeah. I don't know that you can just take and annualize the first quarter because there were a number of different things that happened last year. Certainly, you should expect to see a nice favorable interest impact to the total year, just like we had a nice favorable interest impact in the first quarter.
Okay. Marty, I just wanted to go back to sort of the cigarette industry consumption question. The question just really is more just thinking about the longer term run rate, because clearly you have smokeless and some of these other tobacco products that have grown pretty nicely. Also just thinking about your MarkTen launch in a couple of test markets, what are you seeing in terms of substitutability and kind of the trade-off you're seeing on cigarette consumption versus e-cigarettes? Is really the decline for cigarette consumption, even if we come out of the economy and the more challenging economic conditions, does the decline really get accelerated just because all these other tobacco products really grow at a faster pace?
That question comes up a lot, there's no reason to think that right now. We don't predict the consumption decline rate going forward, we do look at a number of factors, as you know. What have we seen is that over the last several years, it's really been 3%-4%, and that's been through periods when there have been other products that come into the marketplace, e-cigarettes, I would argue, being just among the last. Is it possible that it could speed up or head the other way? I suppose anything is possible. When we look at the data, and we look at it pretty carefully to see if there are any new drivers that would change what the historical rate has been, at least right now, Judy, we don't see that.
Our model, as you know, is to use an estimate of secular decline of, call it, 2%-3% in that neighborhood. Embedded in that, in our model, are people who are trying other products or even indeed migrating to other products. That seems like that, plus the historical price elasticity, still seems to do a pretty good job of explaining the decline rate.
In the test markets that you've launched MarkTen, any difference that you're noticing in terms of the cigarette consumption behavior?
No, that's pretty early there with respect to the test markets to be reading that.
Okay. Thank you.
Judy, thanks for calling.
Our next question comes from the line of Bonnie Herzog of Wells Fargo.
Good morning.
Hi, Bonnie.
Hi. I have a two-part question on Marlboro. I guess first, could you drill down further on what drove the share gains, then how much of the gains were driven by your relatively new line extensions, or has your core Marlboro improved and contributed to the gains? Second, I'd be curious to hear from you how you're going to balance keeping your eye on your core Marlboro brand and then innovation behind the brand while also focusing on driving innovation in e-cigs. I know you touched on this a little bit, but just wanted to hear from you how you think about the priorities for the businesses.
Sure. Let me start with Marlboro. I think the answer to Marlboro lies in the main in the implementation of the Marlboro brand architecture, which is itself a terrific example of innovation in the business. You know the story behind the Marlboro brand architecture. I won't repeat it, but what we see there is that by employing it, we've been able to reach out in different ways to adult smokers. You take Marlboro Black, which is doing extremely well. Really the Marlboro brand architecture, along with innovation, say on marlboro.com, the age-restricted website and the like, has really helped Marlboro grow in the way that it wants to grow. I would also say, if you look at Marlboro's historical share growth, it's completely consistent with that. I think that's the answer on Marlboro.
So far we've been able to execute our strategy well, I think, of maximizing income while keeping Marlboro on a good momentum path.
Okay.
The way we describe the answer to your question about how can you focus on your core business while also paying attention to innovation is almost exactly like that. We call it maximizing the core business while innovating to the future. Our organization is filled with enough talented people, and we have enough resources to do both. I just don't accept the notion that the world is so binary as you have to do one or the other. I think that you've been able to see that recently. We continue to maximize the income that comes out of our core tobacco businesses. At the same time, we've entered the e-vapor space. We've created our own product. We've been in two test markets. We've done a transaction with PMI to hopefully sell those products internationally.
Now we've done a very nice tack-on acquisition to improve our capability in such things as the supply chain and entrepreneurial culture. You know what? I'm very proud of the organization. We have really, I think, done quite a good job of describing this to our people and where we're going and how we're going to get there. I'm very proud of the work that's been done in that regard.
Okay. That's helpful. Just looking at other companies. Historically, a lot of times they fail as they start to chase growth and maybe lose focus on the core. I think it's just something to
To make sure you guys are paying attention too, that was very helpful.
Okay.
My next question is a little bit of a follow-on in terms of your approach to building your e-cig business. You did mention you're going to make disciplined investments. I'm curious to hear how willing you are to let this business be a drag on your earnings, or how should we think about this in the next couple of years in terms of the potential impact on earnings?
Well, the way we think about it is through our mission, our mission is to satisfy adult tobacco consumers. If adult tobacco consumers want to move to innovative products like e-vapor, probably won't be the last, by the way. There'll be other products that they want to try, particularly those that may hold out the promise for less harm if the FDA were to approve them. I think it's the wrong approach to try to run the business away, to hold that back. We're in the job of satisfying our adult tobacco consumers, we're going to have products for them that are premium and that have margin and that are done responsibly. That's how we think about it. It's about understanding your consumer and trying to give them what they want.
All the while, of course, paying attention and keeping, the word discipline is important, we use that word deliberately, that we keep our eye on our core businesses.
Bonnie, I think this is Howard. I do think, though, that we remain committed to our long-term EPS growth of 7%-9% and continuing to return a large amount of cash to shareholders through our 80% dividend payout ratio. As we see it now, we think the different levers we have to pull and the strength of our business platform ought to allow us to make the appropriate investments and stay consistent with our long-term strategy.
All right. Very helpful. Thank you.
Thanks for calling.
Your next question comes from the line of Chris Growe of Stifel.
Hi, good morning.
Morning, Chris.
Hi. I just had two questions for you, if I could.
Sure.
First would be that I've asked you before about, you've had a pretty healthy stream of new products while the industry's been a little, especially in cigs, a little slower just due to the SE approvals, and we have more of those theoretically coming out from the FDA. It's maybe not so much your portfolio or innovation of new products, but do you expect to see an increase in activity with these new SE approvals coming out over the next few months?
Yeah, I suppose so. You may have seen that the FDA issued new performance metrics about how it's going to try to turn SEs faster, beginning with fiscal year 2015. They've had some inquiries from various people about the time it's taken for SEs. I can only talk about ours, of course, but we remain, I think, with a very healthy portfolio. Ultimately, of course, that's the way the industry's going to work. The FDA is going to have to look at new products and approve them.
Okay. Just another question in relation to taxes. There's obviously an FET proposal for this year. I just want to get a sense of what you're expecting at this early stage of the year for state excise tax increases for the year. Do you see there'll be a larger than average burden this year?
Well, I hope not. We've been working very hard to make that not happen with many others. Far, the activity, Chris, has been very active in terms of proposals, actually fairly modest in terms of passage. We don't have any SETs to memory that have passed so far this year, although there have been lots of proposals. There remain proposals in the state houses. Our government affairs team is hard at that. The FET is still hanging around out there, although it does not seem at this moment in time, anyway, to have gained a lot of traction.
Okay. Just if I could ask one quick one, maybe of Howard, in relation to share repurchase activity. You have some availability. You're going to finish up by the third quarter. My calculation, you've got a lot of free cash flow as well still coming through this year. Are there any other unusual or needs for that cash that maybe keep you from being a little bit more aggressive with share repurchase activity this year?
Well, I think you're right to point out that on the current program, we're coming towards the end of it. We've got about $187 million left. Our normal practice has been to have most of the cash return to shareholders come through our 80% dividend payout ratio. Opportunistically, we'll do some share repurchase. Additional share repurchase is sure to be a discussion topic here over the next several months. I think with regard to incremental cash needs going forward, I don't think we see that there are dramatically different incremental needs going forward than we've had over the last year. Certainly, use of cash is something we'll be looking at over the next few months.
Okay. Thank you.
Good to hear from you, Chris.
Thanks.
Once again, if you'd like to ask a question, please press * one on your touchtone phone. Your next question comes from the line of Michael Lavery of CLSA.
Morning.
Michael.
I guess almost conspicuously absent is any mention of competitive impact from new product launches in your largest non-menthol, non-full flavor segment. Can you just give a little color there? You've gained share, and since 3Q, your price mix gains have accelerated. How does that look? Obviously, you're getting on just fine. Can you give a sense of what you're seeing in the market there?
Well, I think PM USA, the short answer is PM USA has done a heck of a good job of managing its plans. We say this at the beginning of the year, and it's a good reminder to us, actually. When we do our planning, we take everything into account, including the fact that competitors will launch products from time to time. We don't disclose how we think about that or the actions that PM USA takes to protect its franchise. You're right to point out, I think, that the metrics of its performance in the face of that and other challenges really speaks to the strength of the PM USA franchise.
Okay, that's fair. Just looking back at PMCC, versus about three years ago, your asset balance there is less than half what it was. Certainly, if you had the asset sale run rate that you did over the last few years, that business would entirely go away in two and a half or so years. I realize there's some assets that don't make sense to sell for any of a combination of reasons, and there's probably a little bit of a long tail. Just looking ahead, can you give us a sense of what you expect in terms of the split in that segment's income between sales and just ongoing operations? Are there still sales that make sense to do? Are they going to be sporadic or few and far between? Can you just give some color on how the outlook is there?
Sure. I think you've assessed PMCC about right, which is our goal really has been to rapidly unwind that business, but to do it in a way that is maximizing the profit and cash flow that Altria gets from it. We're pleased to see that we're down to a net finance receivable of only about $2 billion, down quite significantly. Frankly, our goal, with an eye towards still having an appropriate earnings impact and cash flow impact, is to unwind that business as quickly as possible, because we think that our focus really is elsewhere at this time. I would say that we've had quite strong asset sales over the last couple of years. I would expect to see those asset sales continue, but at a lower rate. That's really what our belief is.
What results from that is that while we'll continue to get an income contribution from that business, the year-over-year comparisons, certainly for this year, are likely to be unfavorable, and it's going to be lumpy. In any given quarter, you're going to see part of the variance in that quarter driven by what goes on at PMCC. I think the good news is, as you pointed out, the business is a much smaller part of Altria now, and I think its impact is going to diminish greatly here over the next year or two.
That's helpful. Then just lastly, this is nitpicking your wording a little, but you mentioned in your release closing the Green Smoke deal and its affiliates. Does it have any notable affiliates or like maybe a vaporizer business or anything that you might be looking at that's interesting? Or is that just sort of terminology that doesn't really mean much to it?
It's just meant to describe that there was more than one company in that family, but the business is exactly as we've described it before.
Okay, great. Thank you very much.
Glad to hear from you. Thanks.
Thank you. At this time, we'd now like to turn the call over to Ms. Sarah Knakmuhs 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.
Thank you.