Good day. This concludes our prepared remarks for the Q4 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. Questions following the conclusion of the prepared remarks. I would now like to turn the call over to Mr.
Brendan McCormick, Vice President, Investor Relations for Altria Client Services. Please go ahead sir.
Good morning. Thank you for joining our call. I am joined this morning by Marty Barrington, Altria's Chairman and Chief Executive Officer and Howard Willard, Altria's Chief Financial Officer. This morning, we will only be discussing Altria's 2012 business results for the Q4 and full year and 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 the review of the various factors that could cause actual results to differ materially from projections. For a detailed review of Altria's business results, please review the earnings release that is available on our website altria.com. Altria reports its financial results in accordance with U. S. Generally accepted accounting principles.
Today's call will contain various operating results both on 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. In addition, comparisons discussed in this conference call are to the same prior year period, unless otherwise stated. Before we begin, I want to make you aware that high winds in the Richmond area have been causing interruptions to our phone service this morning. In the event we get disconnected, we have some backup plans in place and I ask for your patience.
If you remain on the line, we will rejoin quickly. Now it gives me great pleasure to introduce Marty Barrington.
Thanks, Brendan. Good morning, everyone. Altria delivered strong results and returns for its shareholders in 2012. Altria grew its full year adjusted diluted earnings per share by 7.8% behind the business performance of our operating companies complemented by higher earnings from our equity investment in SABMiller. Our 2012 total shareholder return of 11.8% for the full year outperformed our U.
S. Tobacco peers and the S and P 500's consumer staples sector, though not the S and P 500 Index, which delivered a total return of 16%. Altria's results were driven by effectively executing on our core strategies. 1st, our consumer products companies invested in strong premium brands that provide the foundation for future income growth. Each of our tobacco operating companies seeks to grow income, while maintaining modest share momentum for its core premium brands.
Despite a continuing challenging external environment, our tobacco operating company's premium brands had an excellent year as our companies continued investing for their long term success. These companies grew their adjusted operating companies' income and gain retail share in cigarettes, cigars and smokeless tobacco for the full year of 2012. Beginning with the Smokeable product segment. PM USA introduced Marlboro's new brand architecture in 2012 and supported Marlboro's 4 product families red, gold, green and black with brand building activities throughout the year. These activities included expanded distribution of products and equity enhancing promotions that engaged millions of adult smokers.
PM USA also engaged adult competitive smokers with trial generating promotions that PM USA moderated as the year progressed. Behind these investments, PM USA grew Marlboro retail share and strengthened the Marlboro brand. Middleton continued to enhance its product portfolio and new products contributed to its full year retail share gains. In the Smokeless product segment, Copenhagen and Skol delivered solid volume growth and retail share gains on a combined basis for the full year. These results were primarily due to the ongoing contributions of Copenhagen Long Cut Wintergreen and Long Cut Straight and the expansion of Copenhagen Southern Blend.
In wine, Ste. Michelle delivered solid volume growth through its continued emphasis expanding distribution into off premise channels. 2nd, our companies continue to pursue product innovation. Products introduced in recent years by Marlboro, Black and Mild, Copenhagen and Skol gained retail share and contributed to the company's full year share growth in 2012. During the year, PM USA repositioned Marlboro Black, expanded Marlboro NXT, a part of the Marlboro Black family into additional geographies and introduced Marlboro 83s part of the Marlboro Red family in updated packaging.
In 2012, Middleton continued to address adult cigar smokers' interest in variety with seasonal cigar blends, Black and Mild Dark Blend and Black and Mild Summer Blend as well as with its 2012 Q3 introduction of Black and Mild Jazz untipped cigarillos into select states. In December 2012, the brand announced plans to launch Black and Mild Jazz plastic tip and wood tip cigars nationally. In the Smokeless Products segment, U. S. STC expanded distribution of products, including Skol Readycut and Copenhagen Southern Blend.
Skol Readycut offers adult long cut dippers great taste in an innovative moist smokeless tobacco form. Copenhagen Southern blend delivers a mellow taste in a manageable long cut form. Our companies also continued to support the development of spit free smokeless tobacco alternatives to cigarettes with the 2012 introduction of Verve Discs into a lead market and an agreement to develop innovative nicotine containing products with Acono AS. 3rd, our tobacco operating companies effectively manage costs in 2012. For the full year, cost management and higher pricing supported the expansion of adjusted operating companies' income margins for the smokeable and smokeless product segments.
Our companies made significant progress on our current cost reduction program by reducing headcount, consolidating certain facilities, improving business processes and pursuing other savings. These actions with initiatives planned for 2013 as part of the program make us confident that we will achieve our goal of $400,000,000 in annualized savings versus previously planned spending by the end of 2013. Finally Altria maintained a strong balance sheet, which enabled it to continue to deliver strong cash returns to shareholders. In 2012, Altria enhanced its capital structure by purchasing high coupon debt and issuing new lower cost debt. These actions reduced our 2018 2019 maturity towers, lowered future interest expense and reduced our weighted average coupon rate.
Dividends contributed 5 point 8% to our 2012 total shareholder return of 11.8 percent as Altria maintained its target dividend payout ratio approximately 80% of its adjusted diluted EPS and increased its dividend by 7 point 3% in August. As you know Altria joined with a broad coalition of businesses, associations and shareholders to support making permanent the lower personal tax rates on dividend income and maintaining parity between the tax treatment of dividends and capital gains. Congress and the President now have established dividend and capital gains tax rates for couples earning $450,000 or less between 0% 15% and at 20% for couples earning more than $450,000 We are pleased that parity has been retained between the tax treatment of dividends and capital gains. In addition to returning cash to shareholders through dividends, Altria repurchased $1,100,000,000 of its shares in 2012. We have $57,000,000 remaining under the current 1.5 $1,000,000,000 program and expect to complete the program by the end of the Q2 of 2013.
In summary, in 2012, Altria continued its track record of delivering strong returns to shareholders. We achieved these results through disciplined execution of our core strategies and we believe that our 2012 performance including investments in our premium brands positions us well for 2013 and beyond. Turning to 2013. While there are signs of modest improvement in certain economic indicators, we remain cautious about the business environment. Adult consumers remain under economic pressure as they face the end of the payroll tax holiday as well as continuing high unemployment.
And with a number of states facing budget shortfalls, tobacco products will remain a target for excise tax increases. Altria forecasts that its full year adjusted diluted EPS will increase by 6% to 9% to a range of $2.35 to 2 point $4.1 from a base of $2.21 in 2012. We also expect to achieve 2013 reported diluted EPS in the range of $2.34 to 2.40 Howard Willard, Altria's Chief Financial Officer will now discuss Altria's business results in more detail.
Thank you, Marty. Good morning, everyone. The Smokeable Products segment's reported operating company's income results for the 4th quarter increased 25.9%, primarily due to higher list prices, lower restructuring charges and lower charges related to tobacco and health judgments, partially offset by higher promotional investments by PM USA behind Marlboro's new brand architecture and increased resolution expense. For the full year of 2012, reported operating companies income for the segment increased 8.8%, primarily due to higher list prices, lower restructuring charges, lower charges related to tobacco and health judgments and effective cost management, partially offset by higher promotional investments, increased resolution expense, unfavorable mix due to L and M's volume growth and lower shipment volume. Adjusted operating company's income, which is calculated excluding restructuring charges in tobacco and health judgments, increased 5.9 percent to $1,500,000,000 for the 4th quarter and 4.2 percent to $6,300,000,000 for the full year of 2012.
For the Q4 and full year, adjusted operating company's income margins for the smokeable products segment increased 0.9 percent to 39.9 percent and 41.2 percent respectively. PM USA's reported cigarette shipment volume increased 0.4% for the 4th quarter, primarily due to retail share gains and one extra shipping day, partially offset by the industry's rate of decline. After adjusting for the extra shipping day and changes in trade inventories, PM USA's 4th quarter domestic cigarette shipment volume was estimated to be down approximately 1%. For the full year, PM USA's reported shipment volume decreased 0.2%, primarily due to the industry's rate of decline, partially offset by volume growth as a result of retail share gains and one extra shipping day. When adjusted for an extra shipping day and changes in trade inventories, PM USA estimates that its full year domestic shipment volume was essentially unchanged, outperforming the estimated adjusted industry rate of decline of approximately 3%.
Brand building initiatives to support Marlboro's new architecture contributed to the brand's retail share gains of 1 percentage point for the 4th quarter and 0.6 percentage point for the full year. Marlboro's retail share was 42.6% for both the Q4 and full year. These gains were complemented by L and M's growth in discount. PM USA's discount products gained 0.3 percentage point to deliver a 3.9% retail share for the 4th quarter and 0.5 percentage point for a 3.8% share for the full year. PM USA's total retail share grew 1 percentage point to 49.8 percent for the 4th quarter and 0.8 percent for the full year.
Middleton's 4th quarter reported cigar shipment volume declined 1%, primarily due to changes in trade inventories and retail share losses. For the full year of 2012, reported cigar shipment volume declined 0.7 percent, primarily due to changes in trade inventories, partially offset by volume growth as a result of retail share gains. Black and Mild's retail share declined 1.4 percentage points to 29.3 percent for the 4th quarter and increased 0.5 percentage point to 30.0 percent for the full year. The Smokeless Products segment's 4th quarter reported operating company's income grew 27.1%, primarily due to lower restructuring charges related to our cost reduction program, higher volume and higher pricing, partially offset by unfavorable mix due to growth in products introduced in recent years at a lower popular price. For the full year, reported operating companies income increased 8.4%, primarily due to higher pricing, higher volume and effective cost management, partially offset by unfavorable mix.
Excluding the impact of restructuring costs and UST acquisition related costs, operating company's income grew 9.5% to $254,000,000 for the 4th quarter and 7% to $959,000,000 for the full year. USSTC and PM USA smokeless product shipment volume increased 9.6% for the 4th quarter and 3.9% for the full year, primarily due to the combined volume growth of Copenhagen and Skol. Copenhagen shipment volume increased 12.4% for the 4th quarter and 10.8% for the full year, as the brand continued to benefit from products introduced in recent years, including the May 2012 expansion of Copenhagen Southern blend into select geographies. Skol grew its shipment volume by 9.0% for the 4th quarter and 0.6% for the full year. Comparisons of Skol's full year shipment volume were negatively impacted by the delisting of 7 SKUs, partially offset by the growth of Skol Extra.
After adjusting for changes in trade inventories and other factors, USSTC and PM USA estimate that their combined 2012 Q4 and full year domestic smokeless product shipment volume grew approximately 5%. USSTC and PM USA believe that the smokeless category grew at an estimated rate of approximately 5 percent over the 12 months ended December 31, 2012. Copenhagen and Skol grew their combined retail share by 1 percentage point for the 4th quarter and 1.6 percentage points for the full year. Copenhagen's retail share increased 1.6 percentage points to 29.0 percent for the 4th quarter and 2 point 2 percentage points to 28.4 percent for the full year, as the brand continued to benefit from products introduced in recent years, including the 2012 expansion of Copenhagen Southern blend. For both the Q4 and the full year, Skol's retail share declined 0.6 percentage point to 21.9% and 22.2% respectively.
Skol share for both periods was negatively impacted by competitive activity and Copenhagen's strong performance, partially offset by share gains by Skol Extra. The 2011 delisting of SKUs also negatively impacted Skol's retail share comparisons for the full year. USSTC and PM USA's total smokeless products retail share decreased 1 tenth of a percentage point to 55.4 percent for the 4th quarter and increased 3 tenths of a percentage point to 55.4 percent for the full year. The Wine segment delivered strong operating companies income and volume results in 2012. The Wine segment's 2012 4th quarter and full year reported operating company's income increased 10.8% and 14.3%, respectively, primarily due to higher pricing, improved premium mix and higher shipment volume, partially offset by costs related to St.
Michel's sales force expansion. Comparisons of full year reported operating company's income results were also impacted by higher costs for select vintages incurred in 2012, partially offset by UST acquisition related costs incurred in 2011. Adjusted operating companies income, which is calculated excluding USD acquisition related costs, increased 10.8% for the Q4 of 2012 and 9.5% for the full year. Ste. Michelle's 2012 wine shipments grew by 2.9% for the 4th quarter and 3 point 7% for the full year.
The Financial Services segment's reported and adjusted 4th quarter operating company's income was unchanged at $10,000,000 as comparisons were impacted by an increase in the allowance for losses in 2011 related to the American Airlines bankruptcy and lower gains on asset sales in 2012. Comparison of the segment's full year reported operating company's income were impacted by special items. For the full year of 2011, the Financial Services segment reported an operating company's loss of $349,000,000 primarily due to the 20 11 second quarter charge of $490,000,000 related to the tax treatment of PMCC's LILO and Silo transactions. Additionally, the Financial Services segments reported operating company's income for the full year of 2012 was positively impacted by a decrease in the allowance for losses and recoveries related to transactions involving PMCC's leases to American Airlines. These factors were partially offset by lower lease revenues.
For the full year, PMCC's adjusted operating company's income increased 29.8 percent to $183,000,000 Marty and I will now be happy to take your questions. While the calls are compiled, let me cover a few housekeeping items. Marlboro's price gap versus the lowest effective price cigarette was 36% in the 4th quarter and for the full year. Marlboro's net pack price in the 4th quarter was $5.80 $5.75 for the full year, while the lowest effective price cigarette was $4.26 in the 4th quarter $4.23 for the full year. The cigarette discount category's retail share was 27.8% for the 4th quarter and 27.5% for the full year.
The estimated weighted average cigarette state excise tax at the end of the 4th quarter was $1.41 per pack, unchanged from the Q3 and up $0.04 from the Q4 of last year. Copenhagen's 4th quarter retail price was $4.11 and its price gap versus the leading discount brand was approximately 38% in the quarter. For the full year, Copenhagen's retail price was $4.09 and its price gap versus the leading discount brand was 39%. CapEx was $47,000,000 in the 4th quarter and $124,000,000 for the full year. Ongoing depreciation and amortization was $56,000,000 for the 4th quarter $225,000,000 for the full year.
Operator, do we have any questions?
Thank you. Investors, analysts and many 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 Nik Modi with UBS.
Yes. Good morning, everyone.
Good morning, Nik.
So just a quick question on the Marlboro architecture. And I guess now that's been kind of in place for a year and you saw some pretty good retail share gains with pricing improving. Just curious, are there any diagnostics that you have or you can share kind of giving us some insight on how effective this has been and so we can think about next year and the years after in terms of some of the benefits you'll get from this initiative?
Well, thanks for your question. Sure, we have diagnostics some of which are internal and some of which we talk about in settings like this. I think you've already alluded to one, which is the we had nice share gain, which is consistent with PM USA's objective to maximize income, but trying to keep Marlboro healthy. We had a diagnostic, Nick, on resetting retail. One of our objectives during the year was to try to get a number of retail stores reset to better reflect the Marlboro architecture.
And I think our sales and distribution group did an excellent job of doing that. If you've been in stores, I think you've seen the improvements that have been made in the presentation of the Marlboro brand at retail. But at the end of the day, it's always about that balance about trying to maximize income while taking the steps that are appropriate to make sure that Marlboro is healthy over the long term. And we're very pleased with how PM USA executed on that this year.
And Marty just a quick follow-up to that. I don't think I remember 2 quarters in a row where Marlboro has gained this much market share, which is quite a feat given how big the brand is. And just philosophically, I mean, you say you want to maintain market share momentum and optimize income. I mean, would it be crazy to me to think that this is just too much share gains for a brand that size?
I think, Nick, the difference simply isn't in what time period you're looking at. If you look at it, say for a quarter or even for 2 quarters, you have to be sure that there were some share gains there, but that is not the strategy. I did give you, for example, just one data point, because we manage the brand over time. And when we say over time, we're talking about more than several quarters, in fact, over years. If one looks back, I'll pick a data point, Q4 of 2009 and you measure share gains to the Q4 of 2012, it's 0.09.
So you have 0.09 per share point over 3 years. We would characterize that as modest share momentum for Marlboro over time. And of course, we have other metrics to measure Marlboro's health. We want to make sure that all of its brand equity numbers are strong and hopefully improving in the right direction. Nick, I think that's how we think about it.
And we try to be sure share gains are not just a function of how much we invest in the brand, but other competitive dynamics. And so it's awfully, awfully hard to read simply on a quarter or over 2 quarters. So I would return I think to understanding our strategy. Our strategy is to maximize income
there. Fair enough. Thanks a lot guys.
Thank you for the calling in.
Your next question comes from the line of David Adelman with Morgan Stanley.
Good morning, Marty and Howard.
Hi, David.
Just a follow-up on pricing, Marty, if I could. So in 2012 relative to the last few years, there was clearly a greater emphasis on investing in Marlboro promotional spending, somewhat less net pricing and very good share growth. Can you give us a sense what's in the plan for 2013 in terms of the relative emphasis of those variables?
No, I think we'll continue with our strategy David. And obviously for competitive reasons, we're not going to lay out PM USA's promotional plan for 2013. But I do think at a strategic level, it's important for investors to remember our strategy is to maximize income. You've seen the numbers in the release. In the smokeable segment, we've got revenue net of excise up 3.6% for the Q4.
And overall, the Marlboro brand is heading in the right direction. We have the Marlboro architecture started. But remember, big brands like Marlboro, we don't do everything in 1 year. We've been clear, I think, about saying that we're going to invest in Marlboro appropriately throughout 20122013. But I think that's just more of executing against that consistent strategy.
In some years as we say we invest a bit more, some years a bit less, years the share go up a bit more, it comes down a little bit, but it's consistent with that long term strategy of trying to maximize income. I think that's the way to understand it.
Okay. And then Marty with respect to the total U. S. Cigarette category dynamic, you mentioned volumes for the full year or consumption down about 3% with almost no net price increase to the consumer. Is that the kind of secular volume decline you would have expected and that you envision going forward?
Well, I don't know about going forward because it's awfully hard to predict the future. But I think that we've seen estimates of the secular decline rate being in the neighborhood of 2% to 3% for some period now and that's probably in the right neighborhood.
Okay. And then lastly, Marty, you would be surprised if the FDA doesn't release its report on menthol by when?
I try not to be surprised by regulatory action. I just don't think we know. I mean, they've had it for some time as you know and they our understanding remains I think the last time we spoke about this, which is they've sent it out for peer review on the science. We are led to understand that they probably have it back and are looking at it. And we would expect that would be the first action that they would take would be to publish their position on the science on methanol.
And as you know, they've had it for quite some time. So would you expect something in 2013? I suppose so. We just don't have a lot of line of sight into that.
Okay. Thank you very much.
Thanks for coming on the call.
Your next question comes from the line of Michael Lavery with CLSA.
Good morning.
Hi, Michael.
Just looking at CapEx, your guidance is for sort of roughly flat to up for 13% and it looks like this 12% was ahead of last year as well. What's driving some of that increase?
Yes. I don't think there's any this is Howard. I don't think there's any single big item. As you will note, our CapEx runs at a relatively low level for a company our size. I think that's driven by the declining cigarette business.
But our direction to our operating companies is that they ought to spend the appropriate amount of money to keep the infrastructure appropriately ready to manufacture our products and execute our programs. So I think it really is more driven by the addition of a number of relatively modest sized projects across the business.
Okay. Thanks. And then just as you look at the e cigarette segment, it's clearly got some strong growth at least in very recent times especially. How do you view that? Is it an opportunity to get involved in, a threat, something that you sort of dismiss?
What's your thinking there? I mean, you obviously haven't made any announcements yet, but do you have plans to participate in that somehow?
Well, what I would say about e cigarettes Michael is that we're monitoring it carefully. It's obviously a development that has resulted in high awareness among adult smokers and everyone else as best I can tell. There is some trial, but it's still relatively new phenomenon. You're right to point out that it does grow off of a relatively low base. The FDA has said, as you know, that it intends to regulate e cigarettes.
So we're monitoring all of that very carefully.
Okay. Thanks. And then lastly, just looking at share repurchases, you mentioned that you had $57,000,000 remaining in this authorization. But you said you would expect to complete that by the end of 2Q, which would be a sharp slowdown. You did $360,000,000 in 1H 12.
If you use that up sooner, how quickly could you get a new authorization? Or do you think it will run as late as 2Q before you have another one?
I think it's hard to project exactly when we'll finish that authorization. But certainly, we'll have it complete by the end of the second quarter. I think you point out, I think rightly so that we had fairly heavy purchases in the Q4 and with only $57,000,000 left, there's not a lot of share repurchase needed to complete that. But at this point, the only authorization that we have out is that authorization that's scheduled to end at the Q2.
Okay. Thanks a lot.
Thanks for coming on the call, Michael.
Your next question comes from the line of Judy Hong with Goldman Sachs.
Thanks. Good morning, everyone.
Good morning, Judy.
Marty, just some general kind of a macro comment. I know in the press release you've talked about and then also in your prepared comments some of the cautions that you pointed to with the expiration of the tax holiday etcetera. I know you sort of start the year with similar caution in the past. But is there anything that you're seeing in the marketplace that gives you a bit more caution at this point particularly with the tax holiday being expired?
No. We haven't seen any evidence of that, but we're just we're reminded almost every day right how complex the macro environment is. It looks like on some days that things are starting to turn in the right direction say housing starts or the like, which is important. And then you get a big drop in consumer confidence or you see kind of a tepid prediction on GDP. I think that's part of it.
And I think the other part of it is excise taxes. We're always careful at the beginning of the year with respect to state excise taxes. State budgets remain in difficult circumstances. Nothing's happened yet, but you've seen already a number of states proposing and proposing is one thing and getting them is another, but they're proposing fairly significant excise tax increases. And given that the SCTs have been relatively restrained in the last couple of years, we would expect that there would be an uptick in activity there.
So to answer your question directly, it's not that we see anything in the market that gives us that any cause for alarm. We're just trying to be careful as we read the macro environment.
Okay. That's fair. And then just going back to the Marlboro brand architecture. So heading into sort of the 2nd year of that program, can you elaborate on sort of your success with some of the line extensions certainly the Black and then now with the NXT? How are each of those brands kind of tracking versus your expectation?
What are some of the other innovations or line extensions that we should look forward to in 2013? And then just in terms of the level of investments behind the brand equity program as well as some of the retail programs, how do you sort of gauge whether the spending level is sort of at the right level or if there is a need to continue to step up that spending? Okay.
Well, there's a lot in your question there. Let me see if I can take sort of pieces of it at a time. If you look back at 12 at the accomplishments of the Marlboro architecture, I think they're actually quite significant. And we pointed out that when we talk about building out the Marlboro architecture, it consists of multiple elements, right? It's focusing on all of the elements of the value equation that we use to manage that terrific brand.
So what have we done in packaging? You see what we've done with Marlboro 83s which is really a nice expansion into some more modern and classic packaging for that brand to bring news to red. You saw our product expansions in Marlboro Black, which has been a terrific contribution to the And it certainly contributed, I think, to the overall And it certainly contributed I think to the overall Marlboro Equity. What do we saw Marlboro NXT? You see all this innovation in the Marlboro space and that's good for the brand.
And we think of building out the Marlboro architecture sort of less as a program, if you will, than what good stewards of wonderful brands like Marlboro are supposed to do. They manage the brand over time. They keep it fresh. They keep it relevant to its target audience and that's how we've been working on it. So you see I've already mentioned retail.
You see product introductions. You see packaging changes. I think that's the way to try to understand how we're thinking about Marlboro. It's a big brand. It has a big franchise.
And our 4 product families, I think, are working hard to try to understand their consumer set carefully and bring to the market what that consumer wants. So we don't announce in advance of when we're ready to announce what we're going to do in 2013, but you're probably aware of Marlboro Southern Cut, which has been launched already in January. So there's a lot of innovation at Marlboro, But we do this in a disciplined way, because all of that that I've described sits under the strategy of trying to maximize income in that segment, while making sure that the brand does well. So it's a balance. That's what we get paid the balance and that's what we're trying to do throughout 2013.
But I think that PM USA did an excellent job of that in 2012 as you see in the results.
Okay. Thank you.
Thanks for the question.
Your next question comes from the line of Bonnie Herzog with Wells Fargo.
Hi, good morning. Hi, Bonnie.
Hi. I guess my first question is on retailers. And what are your thoughts on retailer cigarette margins being squeezed over the past year? How do you strike the right balance between growing your own profitability and then maintaining a mutually beneficial relationship with your retail partners? And also how do you ensure that retailers continue to emphasize the important cigarette category and prevent them from shifting resources to other categories either within tobacco or other categories outside of tobacco maybe such as foodservice?
Okay. Well, thanks for that question. Our approach to retail has really been the same for some time, which is our we want to have a terrific relationship that's mutually beneficial for both us and them. And we work really hard at multiple levels to do that and we do that programmatically. And so you see that we have programs like MLP and Marlboro Flex and the like.
And we try to have a range of options. So retailers can decide which programs if any they want to participate in with us and we try to make it attractive for them to do so. Retailers for their part of course, the cigarette and the tobacco category is a big part of their traffic, a big part of their revenue stream and we try to work with them very carefully. We do that through our very talented sales people who have very good market data to help them almost down to a store basis. But our job isn't to tell them what to do or to prevent them from doing something else.
It's to try to align their interest with ours, so that as we go to market that that's a robust trade channel. And I think overall, I think our retailers would tell you we do I think a pretty good job of that. And we also meet with retailers regularly Judy both at the executive level and all the way down to the store level to get feedback from them about how we're doing. Our hope is that we're really the category leader for them in terms of solutions.
Okay. That makes sense. And then I had another question, kind of circling back on some of the earlier questions regarding promotions. And I guess I'm aware that your promotions on certain lines of Marlboro have decreased this month and then in February. So I guess this leads me to believe the volume impact has been minimal on Marlboro.
And I just want to make sure this is the right way to think about this. And maybe you could touch on other levers you have to pull to improve your net price realization this year? And I definitely would like to clarify or verify that this is in fact a priority for you in 2013?
Well, I think I would say what I've said before on this topic, which is when you're trying to maximize income, there are a number of ways one can do that. Certainly pricing has been important in the category. It has been, it's likely to be, it's certainly something we look at very carefully. You saw PM USA took 2 price increases list last year. You've already pointed out that you've seen some of the promotions moderate over time.
And so PM USA is very attentive to keeping an eye on the pricing element, but it's not the only one. You can expand your margins as you've seen them expand through effective cost management. And Howard has already described where we are in our current cost programs. We try to be efficient in going to the market. So we keep a good eye there.
We have very good margins there. We've expanded them throughout 2012 and we're mindful of that as we head into 2013. Okay.
And then just my final question is on innovation and your portfolio and understanding your strategy regarding innovation this year in light of the lack of progress with substantial equivalence application approvals. So I guess I'd like to know if your innovation will be as robust as last year if approvals don't happen for a while? And maybe you could update us on the status of that please? Sure.
While we continue to engage with the agency on our substantial equivalence applications and we I think we have good dialogue with them back and forth as they work through that. You probably know Bonnie, there's something in the order of 4,000 applications that came in, in March 2 years ago. But they're coming up on the 2 year anniversary of that batch of filings. And so I think you would expect for them to start working through those at some point in time. With respect to our pipeline, we were pretty thoughtful I think about trying to get ready for the new regulatory environment.
And you saw actually in 20 12 that we've been able to keep a pretty robust pipeline of products and other offerings to our consumers. And we do that in compliance with all the rules that are in place. We would expect to continue to do that. So it's awfully hard to predict, right, because we don't see into the agency. I know you don't and I don't, but I would expect for them to start moving things along.
All
right. Thank you.
Thanks for calling.
Your next question comes from the line of Priya Ora Gupta with Barclays.
Good morning. Thanks for the question.
Can you
share your view around upcoming maturities just given the current market backdrop? Thank your upcoming maturities just given the current market backdrop? Thank you.
Sure. This is Howard. I think as everybody is aware, we did do a tender for some debt last year. And one of the drivers of that was we were mindful of the fact that we had some high maturity towers in 2018 2019. Additionally, it provided us with some ongoing interest savings when we reissued debt at a lower interest rate.
I think we're pretty comfortable with our maturity towers right now. And I think as we look at both debt issuance and any kind of tender and refinancing activity. I think we look at it in the context of a much broader analysis of how to effectively use our cash. And I think as you know, 80% of our underlying EPS goes out in the form of dividends. And then each year, I think we make a decision as to what the most effective use of that remaining cash is.
And I think we're going to remain flexible as to how we'll use that cash going forward.
And then just any comments on how you think about the way ahead of the maturity if you're thinking about refinancings? Do you like to have a 3 to 6 month cushion or something afterwards just given the flexibility from commercial paper usage?
Yes. Obviously, when we're looking at issuing debt, we do quite a detailed analysis. I don't know that we have a kind of a hard and fast rule like you may be suggesting there, but it's something we analyze quite carefully.
Thank you.
Your next question comes from the line of Vivien Azer with Citi.
Hi, good morning.
Good morning, Vivien.
I was hoping we could talk a little bit more about Marlboro and specifically the share gains that you've posted. If you could give any color on the contribution from new product introductions to the share gains that you've seen in 2012 as well if you could offer some color on some of the consumer demographics if you've done any work on that? Are you gaining outside share with smokers 18 to 30 or anything like that?
We do look at those of course, but those are competitively sensitive details that we don't discuss in these kinds of settings. But I can tell you Vivien overall we're really happy with those product introductions and what they brought to the brand. They brought innovation to the brand. They brought great packaging to the brand. We like the contribution that they're making to the overall equity of the brand.
And as you might expect, our brand teams monitor all of that activity carefully. And I think overall, we're very pleased with that. We just don't break it out at this level for these purposes. I'm sorry.
That's fair. In terms of your guidance for 2013, you're coming off of a big year in terms of contribution that you got from SABMiller. Certainly, that's really been a good contributor to your earnings growth. But I was wondering if you could give us a sense of what your expectations are and how you're thinking about the balance between kind of non operating items like that and then your reported operating income growth for your segments?
I'll start and then Howard may want to say a word on this. I mean, we always start with the operating performance of our companies. This is you heard in my remarks that that's why we were able to grow the way we were in 2012, which was our operating companies had terrific business performance. And so we always start with that and they have robust plans for 2013. Now that said, we do have other levers that we can use to try to balance the overall equation.
But I think it's important to understand that we always start with the operating performance of our tobacco companies and our wine company because that's the core of our business. Howard, do want to say more on that?
Sure. I would just to comment on SABMiller, I think you point out rightly so that SAB Miller's had a strong performance last year and has had quite a run of strong performances over the years. And so when we put together our guidance, certainly factor in an estimate for SABMiller. And we have a fair amount of insight into that because of our Board participation. But certainly, we have a much deeper assessment of the operating plans for the businesses that we operate.
But we continue to expect SABMiller to be a nice contributor going forward.
Fair enough. Thank you very much.
Thanks for calling.
Your next question comes from the line of Ann Duerkin with Davenport.
Good morning.
Good morning, Ann.
I didn't know if you'd comment on the elasticity model and how it has performed or how it compares to historical measures following the price increase taken in December? And I guess elasticity for both the premium segment, the Marlboro brand architecture build out and the discount segment. Can you comment at all on that?
Well, I can comment generally on elasticity. Over time, it hasn't changed very much with respect to cigarettes negative 0.3. We've seen that really for quite some time now and we don't see any change in that. We haven't seen any change actually in a while. We certainly don't see any change in it now.
Okay, great. And then just want to be clear as you think about the Marlboro franchise and your MST business, are there still white spaces That's what
That's what the brand teams are doing every day. They're trying to study their consumer set, trying to figure out where there's opportunity and try to develop products for adult consumers that we can take to them sure.
Perfect. Thank you.
Thanks for calling.
Your next question comes from the line of Chris Ferraro with Bank of America.
Hey, thanks guys. Look sorry for the basic question in advance, but I guess following up on the elasticity question. Can you just talk about I guess how you gauge the long term capacity of the U. S. Consumer to endure higher cigarette prices?
Like I hear you that the 0.3 hasn't changed in a while, but I mean surely you guys must spend some time thinking about at what price levels that might change, right? So I'm just curious how you sort of think about that framework?
Yes. I think it's a I don't know how to predict that in the future other than to be informed by what we've seen in the past. There's been a lot of history with respect to what the prices have been in the industry over time and that elasticity has remained pretty durable. I guess another way of looking at it, Chris, is that if you look at pricing in the U. S.
Domestic market relative to other markets, of course, you see that it probably has a pretty long runway in front of it. But nobody knows that I think you get there and we're not there now.
Got it. And I guess just bringing it more to the short term, do you guys think that at current levels you could sort of maintain or drive modest share momentum without pricing below the industry average in the cigarette category?
Well, I go back to the comments I made before, which is it's always tempting I think to kind of break these things out into single constituent elements and it just doesn't work that way.
It depends on what
the economy is doing. It depends on consumer confidence. It It depends on what the economy is doing. It depends on consumer confidence. It depends on other factors that we've pointed out I think previously.
So the way we think about it is we try to be thoughtful about that as we run our business each year and we pay close attention to it. But to make a general statement about that is awfully hard to do. Thank you. Thanks for calling.
Your final question comes from the line of Chris Burrage with Bloomberg News.
Hey, thank you for your time.
Good morning. I was going to ask Gus, the release mentions headcount reduction and was wondering if you could discuss the number of jobs cut last year and whether there may be further cuts this year? Well, I could certainly talk about the program that we had in place, which was, I think, well described. And if I'm not mistaken, I think the results are in our public filings. We have to watch our headcount like every business does, but particularly in our category because cigarette volumes decline.
We prefer to manage that over time and we work really hard to do that over time by maintaining our headcount through attrition if at all possible. There have been programs in the past. No one can never say that there won't be one in the future, but that's not our current intention. We're trying to manage our headcount over time and we hope that we're going to be able to do that.
Thank you. At time, I would like to turn the call back over to Mr. Brendan McCormick for closing comments.
Thank you everyone for joining our call this morning. We appreciate your interest in Altria.
If you
have any follow-up questions, please contact us in Investor Relations.
Thank you. This does conclude today's conference call. You may now disconnect.