Good day, and welcome to the Altria Group Third Quarter 2013 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. 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 Nachtmus, Vice President, Investor Relations for Altria Client Services.
Please go ahead, ma'am.
Thank you. Good morning and welcome to Altria's 3rd quarter earnings conference call. We're here this morning with Marty Barrington, Altria's Chairman and CEO and Howard Willard, Altria's Chief Financial Officer. This morning, we will only be discussing Altria's business results for the Q3 and 1st 9 months of 2013 and we will not be discussing the status of tobacco litigation. Our remarks contain forward looking and cautionary statements and projections of future results.
And I direct your attention to the forward looking and cautionary statements section at the end of our earnings release for review of the various factors that could cause actual results to differ materially from projections. Time periods referenced in these remarks are to the relevant 2013 period unless another year is identified. Similarly, comparisons are to the comparable year ago periods unless otherwise stated. For a detailed review of Altria's business results, please review the earnings release that is available on our website altria.com. Altria reports its financial results in accordance with U.
S. Generally Accepted Accounting 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 press release and are available on our website. Now, I'll turn the call over to Marty.
Thanks, Sarah. Good morning, everyone. In the 1st 9 months of the year, Altria continued to execute against our long term objectives of delivering consistent adjusted diluted EPS growth in the range of 7% to 9% and maintaining a strong and growing dividend. Strong third quarter results driven by contributions across our businesses helped produce adjusted diluted EPS growth of 9% for the 1st 3 quarters. Also during the Q3, we increased our dividend by 9.1%, marking the 40 7th dividend increase in the last 44 years.
Overall, our businesses are on track against their full year objectives and Altria remains focused on creating long term value for shareholders. During both the quarter and the 1st 9 months, our strategies and diverse business model continued to produce strong results. Our tobacco operating companies grew adjusted operating companies income behind their leading premium tobacco brands and our alcohol assets also delivered income growth. Additionally, we used our capital structure to reward shareholders through share repurchases and we expanded our buyback program. In the smokeable product segment, PM USA balanced income growth with share gains in a competitive environment.
Higher pricing helped drive income growth in both the quarter and for the 1st 9 months. PM USA grew its total retail share in both periods and held Marlboro's retail share flat versus its strong performance in both periods a year ago. The Marlboro Black family continues to contribute to the brand success and later this month PM USA will expand distribution of Marlboro Edge nationally. Marlboro Edge offers adult smokers bold smooth flavor. In the 3rd quarter, PM USA from stronger shipment volumes as volume declines moderated versus the previous quarters of 2013.
PM USA's reported cigarettes shipments grew 1.2% for the 3rd quarter. After adjusting for calendar differences and changes in trade inventories, PM USA estimates that its 3rd quarter domestic cigarette shipment volume was down approximately 3% less than the estimated 3.5% decline rate for the total cigarette category. Also after adjusting for trade inventory changes, PM USA estimates that both its cigarette volume and total category volume declined approximately 4% for the with the 3% to 4% category decline rate we've seen for the last couple of years. Altria's smokeless product segment continued to perform well as higher pricing and higher volume drove strong adjusted operating companies income growth for both the quarter and 1st 9 months. And retail share for both reporting periods.
In addition to producing strong results in our core businesses, we're developing innovative tobacco products for adult tobacco consumers. In August, Newmark introduced Mark 10 e vapor products into a lead market in Indiana and we're pleased with the results so far. Further, Newmark and our expectations for the rest of the year, we're reaffirming Altria's guidance for 20 13 full year adjusted diluted EPS to be in a range of $2.36 to 2 point $4.1 This represents a growth rate between 7% 9% from an adjusted diluted EPS base of $2.21 in 20.12. I'll now turn things over to Howard who will discuss our business results in more detail.
Thank you, Marty. Good morning, everyone. In the Smokeable Products segment, 3rd quarter reported operating company's income grew by 11.5%, primarily due to higher pricing, the previously disclosed NPM arbitration panel decision and higher reported shipment volume. These factors were partially offset by higher promotional investments, higher resolution expense and higher selling, general and administrative costs due to the timing of spending. For the 1st 9 months of 2013, the Smuggable Products segment's reported operating company's income grew by 16%, primarily due to PM USA's NPM adjustment settlement, the NPM arbitration panel decision and higher pricing.
These factors were partially offset by lower reported shipment volume and higher resolution expense. Excluding the special items identified in our earnings press release, adjusted operating companies income for the smokeable products segment grew by 3.1% to approximately $1,700,000,000 for the 3rd quarter and increased by 2% to approximately $4,800,000,000 for the 1st 9 months. PM USA grew its total retail share by 0.2 of a share point to 50.7 percent for the 3rd quarter and by 0.3 of a share point to 50.6% for the 1st 9 months. Marlboro's retail share was unchanged versus both prior year at 43.7% for the quarter and 43.6% for the 1st 9 months. PM USA's discount share was 3.9% for both periods, up 0.3 of a share point for the Q3 and up 0.5th of a share point for the 1st 9 months.
L and M contributed to PM USA's discount share gains in both periods. Cigar shipment volume increased 6% for the 3rd quarter and decreased 6.6% for the 1st 9 months. Black and Mild's retail share decreased 1.1 share points for the 3rd quarter and 1.6 share points for the 1st 9 months. Turning to the Smokeless Products segment. Reported operating companies income for the 3rd quarter increased 12.6%, primarily due to higher volume, higher pricing and 2012 restructuring charges related to the current cost reduction program.
These factors were partially offset by higher promotional investments and higher selling, general and administrative expenses. For the 1st 9 months of 2013, the segment's reported operating company's income increased 13.4%, primarily due to the same factors that drove growth for the quarter, partially offset by higher promotional investments and unfavorable mix due to the growth in products introduced in recent years at a lower popular price. When adjusted for the special items identified in our earnings press release, the Smokeless Products segment's operating company's income grew 9.1% for both periods. For the Q3, USSTC and PM USA's combined reported domestic smokeless product shipment volume increased 9.5%, primarily due to one extra shipping day and volume growth for Copenhagen and Skol. For the 1st 9 months, USSTC and PM USA's combined reported domestic smokeless product shipment volume increased 6% due to volume growth for Copenhagen and Skol, partially offset by declines for the other portfolio brands.
Copenhagen and Skol's combined reported shipment volume increased 10.5% for the 3rd quarter and 7.2% for the 1st 9 months. After adjusting for an extra shipping day, trade inventory changes and other factors, USSTC and PM USA estimate that their combined domestic smokeless product shipment volume grew approximately 4% for the 3rd quarter. After adjusting for trade inventory changes and other factors, USSTC and PM USA estimate that their combined domestic smokeless product shipment volume grew approximately 5% for the 1st 9 months, in line with estimated volume growth for the smokeless products category over the 12 months ending September 30, 2013. For the Q3 and 1st 9 months, Copenhagen and Skol's combined retail share increased 1 tenth and 4 tenths of a share point, respectively. USSTC and PM USA's combined retail share for the 3rd quarter and 1st 9 months decreased 0.3 and 0.2 of a share point respectively, as retail share losses for Skol and other portfolio brands were mostly offset by retail share gains for Copenhagen.
Saint Michel grew operating company's income by 7.7% for the Q3 due to improved premium mix and higher pricing, partially offset by higher selling, general and administrative expenses and lower shipment volume. For the 1st 9 months, St. Michel grew operating company's income by 15.9% due to higher shipment volume, improved premium mix and higher pricing, partially offset by higher selling, general and administrative expenses. Saint Michel's shipment volume decreased 2% for the 3rd quarter, primarily due to changes in trade inventories. For the 1st 9 months, Saint Michel's shipment volume grew 4.7%, primarily due to increased distribution of 14 hands.
During the Q3, Altria paid $883,000,000 in dividends and purchased shares valued at approximately 100 and $6,000,000 Marty and I will now take your questions. While the calls are compiled, let me cover a few housekeeping items. As a reminder, the tobacco product pricing and retail share figures are from the tracking services we introduced in the first quarter of 2013. We'll also provide you with restated figures from the Q3 of 20 12, so you will be able to compare the periods. Marlboro's price gap versus the lowest effective price cigarette was 34% in the Q3 of 2013 and 35% in the Q3 of 2012.
Marlboro's net pack price in the Q3 of 2013 was $5.86 while the lowest effective price cigarette was $4.36 For the Q3 of 2012, Marlboro's net pack price was $5.77 while the lowest effective price cigarette was $4.27 The cigarette discount category's retail share was 25.3 percent for the Q3 of 2013, flat versus the Q3 of 2012. The estimated weighted average cigarette state excise tax as of September 30, 2013 was $1.47 per pack, an increase of $0.06 per pack versus the Q3 of 2012. This includes the $1.60 per pack increase that took effect on July 1 in Minnesota, the $1 per pack increase that took effect on July 31 in Massachusetts and the $0.10 increase that became effective August 1 in New Hampshire. For the Q3 of 2013, Copenhagen's retail price was $4.06 and its price gap versus the leading discount brand was approximately 36%. For the Q3 of 2012, Copenhagen's retail price was $4.02 and its price cap versus the leading discount brand was approximately 37%.
CapEx was $49,000,000 for the 3rd quarter $90,000,000 for the 1st 9 months of 2013. Ongoing depreciation and amortization was $52,000,000 for the 3rd quarter. We estimate that 2013 full year ongoing depreciation and amortization will be approximately $215,000,000 Thank you for your time this morning. Operator, do we have any questions?
Thank you. 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 David Adelman from Morgan Stanley.
Good morning, everyone.
Good morning, David.
Marty, I was surprised in the discrete third quarter that the smokeless division's margins were down with volume and pricing up. Can you just speak to that what the factors were? And there was this allusion to the timing of expenses? What exactly is going on there?
Yes. It's just the costs come in and out of the quarter at different times, David. I think the better number to look at the margin question is really the 9 month period. You can see there that actually the margin for that segment is up 0.6 percentage point to 42.2%. So that's how we look at it over time.
Again, for sort of a larger reference point, if you look back to the period 2,008 to 2012, as you know, the segment really grew its margin quite substantially by more than 7 percentage points. So I think the quarter is really too short a period to look at this. There's nothing particularly significant except for timing.
Okay. And then on e cigarettes, I'm curious having Mark 10 in the marketplace, what do you know now about the product, about consumers' reaction to it in terms of consumers' overall view towards e cigarettes that you might not have known prior to actually being in the market
place? Yes, that's a terrific question. Thank you for asking that. We're having a very successful lead market in Indiana. It's too early obviously to be rummage around I think in numbers.
But here's what we know. It was very enthusiastically received by the trade. We were shooting to get coverage. As you know across where cigarette volume is, we've got coverage in more than 3,000 stores covering about 85% of cigarette volume. We've gotten very good consumer feedback about the product.
And we had a learning plan, the particulars of which I won't go into as you might expect for competitive reasons. But we had several questions that we wanted to ask about our offering. And I think the lead market Indiana has given us excellent insight into the consumer, into the offering we have, its competitive position, how it's being received at the trade. And so as our announcement says this morning, it's on to Arizona. We've taken those learnings.
We've incorporated them into our offering that we will have in Arizona. Our aspiration there is to cover about 2,000 stores. And that's how we're trying to learn our way in this emerging category. We have new consumers, new products and we think that's the right way forward. But we're really pleased with what we've learned in Indiana.
Great. Great. Thank you very much.
Thanks for falling in, David.
Our next question comes from Philo Reed from Jefferies.
Good morning, everybody. Marty, your competitors this week have talked about the promotional environment in cigarettes being less promotional. Is that a view that you share?
I think I would refer to what we've typically said about the segment. It's a competitive space. It has been competitive. It remains competitive. I think what we've observed obviously as new products come in and out of the market and people try to get consumer awareness of those you see promotions from time to time and that's what we would observe.
So I interpret that as that you don't see much of a change then?
I think it's about what it's been which is to say competitive.
Okay. Is there given that environment is there any opportunity for you to accelerate your price increases in smokeables?
Well, that's our strategy always is to improve our profitability in the smokeable segment, we look at that regularly as you know. That's done through a combination of factors including list price increases and changing our promotional levels as is appropriate. As we've discussed previously, we can do that not necessarily on a national level, but we can go into regions and states and even markets to adjust those promotional levels. That's certainly our strategy. We're trying to maximize income, while always making sure that Marlboro share in particular remains in good form with some moderate momentum.
Okay. Thanks a lot.
Thank you for calling.
And our next question comes from Chris Growe from Stifel.
Hi, good morning.
Hi, Chris.
Hi. Just want to ask first of all on keeping the wide range of EPS for the year and therefore has implications for the 4th quarter. Is there anything unique to the Q4 we should consider be it at the low end or the high end of the range? Anything unique to the comparisons?
There's one that I would mention Chris which is that there's one fewer shipping Monday in the smokeless business. As you know a lot of volume goes out on our Mondays. And there's one fewer of those in the Q4 than there was in the Q3. So that's a factor. We're investing obviously in our e vapor business.
So those are two factors I might bring to your attention.
Okay. And I want to ask with the stronger volume performance this quarter not only for on an adjusted basis, but on a reported basis. The OCI for Smokable the Smokable segment came in a little below my expectations. So I'm just curious if again there was anything unique to the cost this quarter or maybe even the phasing of the cost savings? Any factors you can help us understand the sort of the margin performance for that division?
No. Again, I think the best way to understand that Chris is that this comes is best understood over time. We're trying to maximize income. We look at that over time. If you look back at some other figures again for context, you know that they're higher in the 2012, I think was 4.2.
So we are making investments in Marlboro. We continue to roll out the Marlboro architecture. We've improved the Web site. We've got digital technology for our marketing platform now. So, I think that's the way to understand it.
Howard, you may want to say more. Yes. I mean,
I think just two comments on the Q3. I mean, when you look at year over year pricing, I mean, the price realization was affected by the comp from last year. And then there were more expenses in the 3rd quarter from a year over year trend perspective than there were in the first half. But I don't think that that is a particularly a change in trend. It's just that they just happen to fall more heavily in the Q3.
And certainly part of that is related to the phasing in the cost reduction program. We got more of the cost savings earlier in that program. But I still think to go
to the ether question that David asked about the change in your comment how you've made some changes. Are you some learnings I should say from Indiana. Was there any change to the actual physical product that you're selling in Arizona?
I'm not going to kind of get ahead of what we're going to do in Arizona, but I can tell you that we're always looking at the product. I think we've talked earlier that for this product, Chris, it's on the earlier part of the technology curve probably than the later part of the curve. So we're consistently looking at that product to see if we can improve its acceptability to the adult tobacco consumer. And there as you know, the way we think about going to market is through our value equation with not just product, but price and promotions and packaging and the like. We're looking at all of that to make sure that our total bundle and offering to the consumer is the best we can offer.
We'll have more to say about that as we get closer to December.
Okay. Thank you.
And your next question comes from Vivien Azer from Citi.
I wanted to circle back on the timing of the investment spending. I mean, I heard you loud and clear that more investment to come on the e vapor business. So should part of the investment timing that we saw drive the timing that we saw drive the increase in SG and A reverse out in the Q4? Or is there more incremental spending to come in 4Q?
Well, I think specifically looking at our investment in e vapor, there's been a ramp up in the back half and I think probably a further ramp up in the Q4, obviously, with the new test market being opened up. I think as it relates to expenses in the rest of the business, I think that that is more of a 3rd quarter phenomenon.
Okay. Understood. And on your smokeless business, it looks like maybe Copenhagen is finding its footing from a price gap perspective kind of holding steady at 36% and potentially finding an inflection point in the average price per tin. Can you comment on how you view Copenhagen from a price gap perspective today and where it can go from here?
Well, I guess I'd start again with the strategy, which is we're trying to sure that Copenhagen and Skol will grow together and you saw that in the numbers both for the quarter and the 9 months. Together they're growing their volume quite nicely. They're growing their retail share. Copenhagen as you know we put some SKUs there Vivian that really have taken off. That includes products that compete at popular price level.
And it's that mix I think that you may be referring to. We're pretty happy overall with Copenhagen's performance in the marketplace. It's a very highly differentiated product and we like its performance.
Terrific. And one last one on the Smokeless business. It looks like Skol's market share declines are accelerating. Can you dive a little bit deeper into what's driving that?
Yes. I think as we've discussed previously, we've been working hard at Skol. That's a brand that required some further work on its positioning at the time that we acquired that brand. We've been hard at work at Skol. Obviously, we started first with Copenhagen.
Copenhagen has really taken off as we've given it its SKUs and gotten a position correctly in the marketplace. The strategy I think continues to work quite effectively because of the combination. But there's no denying that we would like to see Scholes share stabilized and we're working very hard to make sure that that happens.
Fair enough. Thank you very much.
Thank you for your question.
Our next question comes from Bonnie Herzog from Wells Fargo.
Good morning. Hi, Bonnie. Hi. In terms of Edge, you mentioned you're rolling it out nationally later this month. So could you talk about this national rollout relative to your recent rollout of Marvel NXT?
And what are the similarities and potential differences of your rollout plans? And which line do you believe has the most upside potential?
Sure. Good question. I think it's best understood in the context of expanding the Marlboro Black family. And so we know how we do this, right? We look for places in the market where there may be an unmet need or there's a place in our portfolio to look for attracting competitive smokers to our brands and just put the latest of that.
It's very similar actually to the approach with NXT, which is we try to put the market in front of the consumer. We try to learn. If it's successful, we try to expand it. We try to raise awareness through some introductory pricing and then we try to move it on to the promotional platform that's best. But I think it's best understood as part of the Marlboro architecture and in this case Marlboro Black in particular.
Okay. And then Marty, I'm curious how you think broadly about line extensions and maybe
what the right number
of line extensions there's extensions there should be on any kind of or any of your brands? And if there's a point where there might be too many extensions that could possibly hurt Marvel's brand equity? I just want to understand your thinking there.
It's a good question. You always want to be thoughtful about your brand portfolio and we examine that rigorously. We never bring an SKU to market simply for the sake of bringing it to market. We have to satisfy ourselves generally speaking that there is a consumer need for it and that it fits in with our overall brand strategy. And in Marlboro's case in particular, we always want to make sure that any SKU we bring to the market is going to enhance its equity and its premiumness.
And we don't bring anything out of the Marlboro portfolio until we've gone through those filters. And Marlboro Edge is a good example I think where we have satisfied ourselves. We have high expectations for Edge to add to the overall portfolio as well as to contributing to Marlboro's equity. But you're right, you have to be thoughtful about your portfolio. And we try to do that particularly on Marlboro, but certainly on all our
brands. Okay. And then just my final question on, Mark Tan, just a bit of a follow on question. How did it perform relative to your internal expectations? And what have your repeat purchase trends been in the state?
And then I'm curious if you're seeing quite a bit of dual usage with cigarettes? Just any other consumer trends?
Again, I think it's too early to talk about the numbers, because I just don't think that they're well developed enough to share and to be confident in them. But I can tell you that with respect to who's trying the products in e vapor generally, we do know that there is dual use. And in particular as adult smokers try e vapor products. We know that some of them are satisfied, others are not. Some of them use them situationally.
We have a pretty robust as you might expect consumer research program into who adult papers are, their patterns of use, how they may be segmenting the products that we want. And that's all part of our learning plan in Indiana. And again, for proprietary reasons, I'm not going to discuss that at this time, but I can tell you that we've learned a lot. It's informed our judgment about move forward in Arizona and we're very excited about being able to move this platform forward.
All right. Thank you.
Thank you for your call.
And our next question is from Judy Hong with Goldman Sachs.
Thanks. Good morning.
Good morning, Judy.
First, just I just wanted to get clarification on the wholesale inventory level at the end of the Q3. I think some of your competitors have also noted a movement to really limit inventory loading in Q4 ahead of price increase speculation. So just wondering if you expect a similar limitation to put on whole sellers and that potentially limits some of the volatility that we continue to see on a quarter to quarter basis on the inventory movement?
Well, we have an allocation program that we've had for a long time. So that's hardly anything new to us. And with respect to the 3rd quarter inventory levels from Q3 to Q3 a year ago in our observation.
Okay. And then a couple of questions on the e cigarettes. I think this is more of a broad category question. And now that you have participation in the category, I'm just curious to your observation about the pace of category growth that you're seeing at this point versus maybe a year ago. Sequentially it looks like the pace of category growth is a little bit more modest.
Just curious to what you think is driving that and whether we really need something a bigger innovation or better consumer acceptance to really accelerate a category growth? And then related to that just in terms of how your dialogue with some of the regulators both at the FDA level and at the state legislators are evolving as you now have a stake in the category with your product?
Thanks. Those are all excellent questions. Let's talk first of all about the category. Obviously, the category has grown very quickly off a very low base. Whether it will continue to grow at that trajectory of course, no one knows yet.
We've identified I think the factors that are likely to be contributing to that. We've run scenarios against these. We've talked about these previously I think. One is the product itself. As the products get better and become more acceptable to adult smokers, you would expect for perhaps greater transition to the product.
2nd is regulation. If they're regulated very heavily by the FDA in ways that don't encourage adult smokers to try them or to switch to them depending on what the FDA says about that. That certainly is going to have a big effect on the category growth. And then of course we have to deal with excise taxes. We have engaged with all of the stakeholders in those questions for some time now including I would say before we even entered Indiana.
We have strong views on this. We think that the FDA should regulate on a scientific basis. And we have been communicating with FDA regularly about both the category and our product. The same has been true with respect to excise taxes. I think you know we have a robust government affairs organization.
We have a lot of experience here. We're trying to help legislators think about the correct excise tax approach, which in many ways is bound up in the same questions as the regulatory approach. And so we're fully engaged on this. And I think as to how fast it grows or how slow it grows, those will be the factors in our view that will determine that largely.
Okay, great. Thank you.
Thanks for your call.
Our next question comes from Felipe Guzzens from Mizuho Securities.
Yes. Good morning, Marty. Thanks for taking my call. A couple of questions as well on E6, if I may. One of your competitors stated yesterday they see E6 as actually a global opportunity, hence their acquisition of a player in the U.
K. Market. Is there an understanding between yourselves and PMI as to your ability to enter that space as well globally if that is what you would decide to do at some point in time?
Well, I think you referred back obviously to the spin off of PMI and there were arrangements in place of course dealing with the existing businesses at that time which was cigarettes. Obviously e cigarettes and e vapor is a category that has emerged since that time. So the answer is no.
Okay. And then secondly, probably still too early to tell, but based on your current read with regard to the potential of E6 now in the U. S, do you think that at some point in time this could start cannibalizing the smokeless category as well?
Well, we'll have to see I guess. We haven't really been any the question usually comes in the form of whether it's going to take some volume away from cigarettes. And what we've said there of course is that it's still small. It's hard to tease that out. We know that some adult smokers are certainly trying e cigarettes.
And so it will have some effect on volume, but you can't tease it out. We haven't seen very much about that on smokeless, but I guess time will come.
Okay, great. Thanks very much Marty.
Thank you for calling in.
Your next question comes from Michael Lavery of CLSA.
Good morning. When you're launching Marlboro Edge now, Does that have any impact on the rest of how you think about discounting and promotions on the rest of Marlboro Black? And has it allowed you to dial back any of the discounting levels on other SKUs there?
Well, Marlboro Edge is a premium product and it's in the premium family of Marlboro. What we try to do there is to offer introductory pricing to try to attract competitive adult smokers to it. So that's I think the best way to understand that, which is it's a premium offering. We do offer some promotions to try to get some awareness and certainly trial, because we think if they try it they'll like it.
Yes. I guess what I'm getting at is you've had some of these similar launches over the last couple of years now and some of these ones that are 1 or 2 or more years old, how long does introductory pricing last? I mean, is there some color you can give on what the discount levels are doing on these ones that have had introductory pricing? Is that sort of passing the baton to Marlboro Edge now? Or do some of those still have more extended periods of an introductory pricing level?
Well, I think the way to think about it is the total competitive set. So you want to have introductory pricing to try to make sure that the product has awareness that it's out there that it's a new product and that it's available. We also offer as you grow brands and as you know in this category brands don't grow overnight and particularly when you have a big share like we do in Marlboro bigger than the next 10 brands combined. These are trends that take place over time. And so we have promotional plans in place for them that we evolve over time, but it's always designed to how we're doing against the competitive set of adult competitive smokers.
And that's how we think about it. As you've heard us discussed many, many times, we take the long view in this business and with this segment and we're patient.
Okay. Thanks. And then just looking at the other segment, there was the help in the what used to be PMCC plus other line from what looks like an asset sale. Can you give any sense of how much impact that might have had or what that run rate would have looked like without that there?
Yes. I mean, we're not breaking out the other between the various contributors. But certainly within the Q3, you had a contribution from PMCC. And then the other item in there is our investments in the e vapor category. And so that results from a combination of the 2.
All
right. And then you mentioned on 4Q, is it just one less shipping day specifically for the smokeless segment? Or is that for everything?
Smokeless only.
Okay. And just kind of following up on Judy's question on the inventory. Is there a build it looks like you might have had a modest build into or at the end of 3Q. Is there much of an impact you would expect that to have on 4Q shipments to kind of make up for it?
Yes. I don't think that we did have a modest build in the Q3 and that compares to the prior year when there was a modest drawdown in inventory. But I don't I wouldn't expect that it's going to have much impact on the Q4, but it's too soon to tell. I think we're going to have to see how things shake out in the latter part of the quarter.
Okay. Thank you very much.
Thanks for your call.
And at this time, we have now reached the media portion of our question and answer session. Your next question comes from Chris Burrett from Bloomberg News.
Hey, good morning. Thanks for taking my call. Marty, I wanted to ask about E6, kind of a broader question. As they gain popularity around the country, I'm guessing that companies are beginning to look into whether to allow vaping in the workplace. How do you see that playing out?
And what are the factors FDA regulation and others that's going to direct or considering I'm sorry, what factors are going to guide how vape in the work place plays out?
Okay. Thanks for your question. Our view on that is it should be guided by the science. As the science develops around vaping and in this case your question really goes to the heart of is there any risk from secondhand vaping if you will. And as FDA looks at all of these questions, I think that there you need a scientific and an evidence based approach to that.
What we would like to see in the short term is that regulation should have a good reason for its basis. And in the absence of a reason or knowledge about that, we would like obviously to have FDA to have an opportunity to do the work that's required. So I think it will follow from the science. It will follow from the evidence. And we're engaging with FDA and other regulators about that.
Thank you very much.
Thanks for calling in.
And your next question comes from Thomas Russo from Gardner Russo.
Hi, good morning.
Hi, Tom.
Hi, good morning. A couple of questions on excise taxes. As a secret excise tax level, any upcoming planned increases? And if not, what are the prospects for any federal excise tax activity? 2nd, as for the smokeless category, where do you stand in the process of converting states from ad valorem to specific?
And what's the general level of excise taxes looking out for the next 12 months for the smokeless? Okay.
Let me take those in turn. Let me start with the FET. Tom, as you know there is a proposal that was floated in the budget and there is some activity trying to persuade people to get behind that. We oppose that as you know. These taxes are regressive.
It was a huge increase in 2,009. So far there has not been a lot of traction on that, but we're monitoring that carefully with our federal government affairs team.
Good.
Second question Tom was about smokeless and ad valorem. We continue to advocate where it's appropriate to do so to move to weight base. We think that's a much fairer system. There are opportunities that present itself in the States from time to time to advance that argument and we do that forcefully when we have opportunities to do that. I would say the SET outlook generally is Howard in his remarks I think covered what we've seen so far both with respect to really with respect to cigarettes.
And we're always guarded. State budgets are better than they were, but they still have gaps in them and we're watchful. You may have seen there was a media report on a proposal for an excise tax increase in the City of Chicago. So these things pop up from time to time. And our approach to them is to try to get in there and advocate for why they're unfair on our adult tobacco consumers.
Good. Thank you.
Thanks for calling.
And presenters, there are no further questions in queue. At this time, I would now like to turn the call back over to Ms. Farrah Nokomis for closing comments.
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