Good day,
and welcome to the Altria Group 20 10 4th Quarter and Full Year Earnings Conference Call. Today's call is now like to turn the call over to Mr. Cliff Fleet, Vice President, Investor Relations for Altria Client Services. Please go ahead, sir.
Good morning and thank you for joining our call. This morning, we will only be discussing Altria's 20 10 business results for the Q4 and full year and will not be discussing the status of tobacco litigation. Our remarks contain forward looking statements and projections of future results, and I direct you 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. Since Altria acquired UST and its Smokeless Tobacco and Wine subsidiaries on January 6, 2000 and 9, U. S.
Smokles Tobacco Company's St. Michel Wine Estates financial results from January 6 through December 31, 2009 are included in Altria's 2009 consolidated and Segment Results. For a detailed review of Altria's business results, please review the earnings release that is available on our website, www.altria. Com. Altria reports its financial results in accordance with U.
S. Generally accepted accounting principles. Today's call may contain various operating results on both a reported and on an adjusted basis, which excludes items that affect the comparability of reported results. Description of these measures and reconciliations are included in the earnings press release or are already available on our website. In addition, comparisons discussed in this conference call are to the same prior year period unless otherwise stated.
Now it gives me great pleasure to introduce Mike Samanze, Chairman and Chief Executive Officer of Altria Group.
Thanks, Cliff, and good morning to everyone. Altria delivered strong results to its shareholders last year in a challenging business environment. Adjusted diluted earnings per share grew by 8.6 percent to $1.90 per share, which exceeded our original 2010 guidance for adjusted diluted earnings per share growth. We increased our dividend twice last year for a total increase of 11.8%. And Altria's total shareholder return in 20 10 was 32.9%, significantly outpacing the S and P 500's total return of 14.8%.
Solid operating companies income results from the cigarettes, smokeless products and wine segments as well as growth in earnings from our SABMiller equity investment were partially offset by lower operating companies income results from the Cigar and Financial Services segments. In In
the
share growth. A variety of new products continue to help build Marlboro's marketplace position. The successful launch of the 2 Marlboro special blend non menthol products in the Q1 last year and the introduction of Marlboro Skyline menthol in the Q4 of 2010 helped build the brand's position. In the Q1 of this year, Marlboro is launching 2 new special blend products, 1 non menthol and the other menthol to round out this portfolio. Marlboro's special blend products give the brand new flavor profiles designed to appeal to competitive adult smokers and offer its existing adult smokers equity building news on the brand.
In the Smokas product segment, US STC and PM USA successfully grew their combined 20 10 full year retail share, which enabled their combined adjusted volumes to grow faster than the category. This adjusted volume growth contributed to strong adjusted operating companies income growth for the Smokeless Products segment Long Cut Wintergreen, Long Cut Straight and Extra Long Cut Natural helped drive strong retail share gains and volume growth for the brand. In the Q4, the brand also offered Copenhagen Black as a unique offering, especially blended with a rich dark character for a limited time only. USSTC is now beginning to roll out a comprehensive set of brand building initiatives to enhance Skol's position in the marketplace. These include the national launch of 10 new products for Skol in the Q1 of 2011, including 8 new Skol Xtra products that build on Skol's heritage as an innovative smokeless businesses in the emerging snus segment of the smokeless products category.
In the Q1 of last year, PM USA expanded Marlboro Snooze nationally to build awareness and trial among adult cigarette smokers for these innovative smokeless tobacco products. This month, PM USA began shipping 2 new Marlboro Snooze varieties in a bigger and bolder format for adult cigarette smokers looking for a more flavorful experience. Also this month, Skol began shipping 2 new snooze varieties for adult smokeless tobacco consumers seeking a spit free smokeless tobacco alternative. We're pleased with business and financial results achieved since we acquired UST a little more than 2 years ago. The strong 2010 adjusted operating company's income results of our Smokeless Products and Wine segments, when combined with the cost savings realized across the Altria family of companies resulting from the acquisition, made it accretive to our 10 adjusted operating companies income, adjusted shipment volume and retail share were all down due to increased competitive pressures that forced Middleton to invest in promotional initiatives to defend its position in the marketplace.
Some manufacturers are reportedly sourcing untipped machine made large cigars from overseas locations. Because the are importing cigars may be structuring their import transactions in such a manner intended to reduce their tax payments below resolved, in the short term, Middleton plans to balance its operating company's income results with Black and determining the best approach to deal with the post FET increased challenges. Milton launched Black and Mild Royale last year to address adult cigar smokers' preferences for different blends and tastes in cigars. This launch in conjunction with Black and Mild's other initiatives restored the brand to sequential retail share growth in the back half of twenty ten compared to the first half of twenty ten. Black and Mild has a strong pipeline of new products and initiatives planned for this year, including 2 new untipped Cielo products currently in test markets.
Altria sales and distribution made significant progress in the back half of 2010, creating an enhanced retail platform to support future initiatives in the smokeless tobacco and cigar businesses. Over the last 4 months, we have announced the national launch of 13 new smokeless products that are expected to build U. S. STC's and PM USA's smokeless products businesses in 2011. In the line segment, last year, St.
Michelle achieved strong volume growth, which contributed to strong operating companies' income performance. Ste. Michelle drove this volume with continuing efforts to build distribution of the wines it owns or represents and by continuing to produce high quality premium wines. Last year, wines at Ste. Michelle either produced or represented more than 150 ratings of 90 or higher.
Altria and its operating companies delivered 3 $17,000,000 in cost savings in 20 10. We have now delivered over $1,300,000,000 in cost savings across our companies against the $1,500,000,000 cost reduction program of our 2,006 cost base. We are confident that we will successfully complete this program by the end of the year. Altria remains committed to returning a large amount of cash to shareholders in the form of dividends, as evidenced by last year's increase in our adjusted earnings per share dividend payout ratio target of 80%. We are also pleased to announce that Altria's Board of Directors has authorized the 1 $1,000,000,000 share repurchase program as an additional way to return cash to shareholders.
Altria intends to repurchase these shares in 2011, but the timing of such purchases depends upon marketplace conditions and other factors. We also remain committed to reducing our financing costs over time and have made progress against this objective. In 2,009
2,009
of the low interest rate environment to issue $1,000,000,000 in new debt. These actions reduced our long term weighted average coupon cost and helped lower the company's debt to EBITDA ratio. As additional debt comes due over the next few years, Altria will decide whether to refinance or retire this debt in whole or in part depending upon the marketplace, business needs and conditions and other factors, including our desire to maximize cash returns to our shareholders. Environment for 2011 is likely to remain challenging. Adult consumers remain under economic pressure and face high unemployment.
We are also cautious about the competitive promotional environment and mindful of uncertainties facing our tobacco businesses as they enter the year. In the cigarette business, TMUSA is continuing to see significant competitive activity and is also cautious about the outlook for excise tax increases given the budgetary situation in many states. In the smokeless products business, while we are very pleased with our business results, USSTC is just beginning to execute its plans for Skol. And in the cigar business, Middleton faces an especially challenging competitive environment, which we believe will be resolved over time. Our guidance for 2011 is thus appropriately prudent in light of these uncertainties.
Altria forecasts that adjusted diluted earnings per share will increase by 6% to 9% to a range of $2.01 to 2 $0.07 from an adjusted base of $1.90 per share in 20 $10 Due to inventory movements in the cigarette business and the timing of new product launches in 2010, we anticipate 2011 adjusted diluted earnings per share to build and accelerate as the year progresses. I will now turn the call over to Altria's new Chief Financial Officer, Howard Willard, who will discuss Altria's business segment results in more detail.
Thank you, Mike. Good morning, everyone. Before I begin, let me take a moment to introduce myself. I have been with the Altria family of companies since 1992 and have leadership positions across the organization in finance, sales, information services, compliance and corporate responsibility. Middleton, USSTC and Saint Michel.
I look forward to meeting many of you at our Investor Day next week. The cigarette segment reported solid operating companies income results in 2010. Last year, the cigarette segment reported operating company's income increased by 7.8 percent to 5.5 $1,000,000,000 due primarily to higher list prices, lower restructuring costs and promotional spending, as well as higher cost savings from its manufacturing optimization program. These factors were partially 10 adjusted operating company's income by expanding its adjusted cigarette segment's operating margins by 1.6 percentage points to 38.3%. PM USA's reported cigarette shipment volume declined 5.3 percent for the full year, but was down an estimated 6% when adjusted primarily for trade inventory changes.
PM USA estimates that the total cigarette categories adjusted volume declined 5% last year, which is in line with historical price FET as the category lapped the FET related pricing actions, which occurred in the first half of 4% in the second half of twenty ten. Marlboro performed very well last year as it grew its full year retail share of the cigarette category by 0.8th of a share point to 42.6%. Marlboro had balanced retail share growth as its non menthol business grew 0.5 share point to 36.6 percent and its menthol business grew 0.3% of a share point to 6%. Marlboro's strong retail share growth largely offset retail share declines from the balance of PM USA's brand portfolio. PM USA's 2010 retail share of the cigarette category was down 1 tenth of a share point, 49.8%.
The cigarette segment's operating company's income, shipment volume and retail share results in the 4th quarter were impacted by trade inventory changes and differentials in retail pricing around the list price increases taken by some cigarette manufacturers in the quarter. In the Q4 of 2010, reported cigarette segments operating costs, the cigarette segment's 4th quarter adjusted operating company's income grew by 1% to $1,200,000,000 PM USA's reported 4th quarter cigarette shipment volume declined by 7%, but when adjusted primarily for changes in trade inventories declined an estimated 6%. This volume decline rate exceeded the estimated 4th quarter cigarette category decline rate of 4% due to moderate retail share losses in the quarter for PM USA's cigarette brand portfolio. Marlboro's 4th quarter retail share grew by 0.6 of a share point to 40 2.3%. Continuing momentum from the Marlboro Special Blend products launched earlier in 2010, as well as the introduction of Marlboro Skyline menthol in the Q4 contributed to these strong retail
0.2
Products segment had strong financial results for both the full year and Q4 of 2010. Reported Smokeless Products segment's operating company's income for 20 10 grew over 100 percent to $803,000,000 Excluding restructuring $3,000,000 Excluding restructuring and acquisition related costs, 20 10 adjusted operating company's income for the Smokeless Products segment grew 30.9 percent to 827 $1,000,000 In the Q4, USSTC and PM USA reduced promotional activities and allowed trade inventories to adjust and stabilize as ALS and D implemented its enhanced retail platform in about 60,000 stores. These activities impacted the adjusted operating company's income margins, shipment volume and retail share $17,000,000 Excluding restructuring and acquisition related costs, 4th quarter adjusted operating company's income for the Smokeless Products segment increased 63.5 percent to $224,000,000 In 2010, USSTC and PM USA's adjusted smokeless products volume growth exceeded the smokeless products categories estimated growth rate of 7%. Reported smokeless product shipment volume increased by 12.2% last year, but when adjusted primarily for trade inventory changes and new product pipeline volume was estimated to be up 8%. In the Q4, reported Smokeless product shipment volume increased by 2.5%, but when adjusted primarily for trade inventory changes and new product pipeline volume was estimated to be up 7%.
USSTC estimates that the smokeless products category grew 6% in the Q4 of 2010. USSTC and PM USA grew their combined full year retail share of the smokeless products year more than offset Skol's retail share declines and was a principal driver of overall retail share growth. In the Q4, USSTC and PM USA's retail share of the smokeless products category declined 1 tenth of a share point to 54.5%. Copenhagen grew its 4th quarter retail share by 1.1 share points to 25.7 percent behind the continuing marketplace momentum from its new product launches. Skol's 4th quarter
quarter
0.2 percent to $20,000,000 respectively. When adjusted for integration costs, adjusted Cigar segment's operating company's income for the full year declined by 8.6 percent to $169,000,000 and 43.6 percent to $22,000,000 for the 4th quarter. Adjusted Cigar Segment's operating company's income declined in both periods largely due to promotional investments made by Middleton in response to competitive dynamics in the marketplace. Middleton's 2010 reported cigar shipment volume declined by 1% and when adjusted for changes in trade inventories declined by an estimated 4%. In the Q4 of 2010, reported cigar shipment volume was essentially unchanged and when adjusted for changes in trade inventories declined by an estimated 1%.
The primary driver of volume declines in both periods was retail share losses on Black and Mild. Middleton estimates that the machine made large cigar category grew by 2% in 20 full year retail share of the machine made large cigar category declined by 1.3 share points to 28.5%. For the Q4 of 20 10, Black and Mild's retail share declined by 1.5 share points to 29.1%. Black and Mild's retail share declines in both periods were driven primarily by increased competitive activity. Black and Mild's successful brand building efforts, which included the launch of Black and Mild Royale last summer, helped the brand return to sequential retail share growth.
The brand's 10. The Wine segment's reported operating company's income increased by 41.9 percent to 61,000,000 for the full year of 2010 and by 42.9 percent to $30,000,000 for the 4th quarter. Excluding restructuring and acquisition related costs, adjusted operating companies income for the wine segment increased by 13.7% to $83,000,000 for the full year and by 23.3 percent to $37,000,000 for the 4th quarter. Ste. Michelle's 20 10 wine shipments grew by 10.8 percent in the 4th quarter and 11.3% for the full year.
The Financial Services segment's reported operating company's income for 20.10 declined by $113,000,000 to $157,000,000 due primarily to lower gains on asset sales. For the Q4 of 2010, the Financial Services segment's reported operating company's income increased by $60,000,000 to $70,000,000 due primarily to higher gains on asset sales Mike 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 Marlboro's net pack price in the 4th quarter was was $5.55 while the lowest effective price cigarette was $4.20 in the 4th quarter and 4.14 dollars for the full year. The cigarette discount category's 4th quarter retail share was 20 weighted average cigarette state excise tax at the end of the 41%.
As of January 1, 2011, 20 states in the District of Columbia used a weight based smokeless tobacco excise tax system, representing approximately 32% of the smokeless tobacco categories volume. And CapEx was $52,000,000 $168,000,000 for the 4th quarter and full year of 2010 respectively. And ongoing depreciation and amortization was $68,000,000 2.70 $6,000,000 for the Q4 and full year time periods respectively. Operator, do we have any questions?
Thank you. Our first question is coming from Christine Farkas of Bank of America Merrill Lynch.
Thank you very much. Good morning, everyone. Mike, I'm wondering if I can ask you regarding your opening remarks, you talked about a competitive promotional environment as you enter the year, yet your cigarette pricing in the Yet your cigarette pricing in the Q4, the net pricing to Altria was strong over 7% as per our calculations. Were your comments really about cigars or broader tobacco?
Well, I think the answer is yes, yes, yes. All of these categories are competitive and continue to be competitive. And so that's not a new thing in particular to the business. So I would say that, yes, the cigarette category continues to be competitive. There continues to be competitive activity out in the marketplace, but the other two categories are competitive as well.
Okay. Thanks for that. And moving to smokeless, also you mentioned trade inventories were adjusted or you allowed trade inventories to adjust in the Q4 and this is a factor in your smokeless share. Would you say that we're at normal levels now? And of course, with remarks
that we in our remarks that we've been busy really getting the space right for the category in a large number of stores. We've worked on that through the entire back half of the year. I think we've accomplished in about 60,000 stores that represent a good percentage of the smokers volume in the U. S. Part of what we did was we reduced significantly in the 4th quarter the amount of promotion activity in the smokeless in our smokeless business.
In order to be able to let the inventories get stabilized in light of a change in the shelf space that had occurred over the back half of the year. So I can't speak to whether or not that's fully balanced out in retail stores right now, because I don't know. I just can tell you we wanted to give it a chance to occur. And you're right, there will be a number of new items that go into the category. All of these products are shorter shelf life products, Christine, so they don't tend to have large amount of inventory go in when they are launched, because you have to be mindful of the limited
terms of more or less or different?
Well, the post the FET, you had a pretty good decline in overall cigarette volumes in the industry and you've continued to have growth in the smokers category and you've continued to have growth in the cigar segment. And so much of this was really a rebalancing of the space in these stores in order to get the room right for cigarettes and to the inventories right sized for cigarettes relative to the changes in overall industry volume. And then take that space and use it to accommodate the growth because the smokeless category was behind relative to its growth rate in terms of how space is being allocated, just wasn't being focused on the way it should have been. So it really is, I think, best way to describe it is a reallocation of space within the total sector to accommodate the trends that have been going on for a while in those sectors.
Great. That makes sense. And finally for Howard, if I could. On CapEx, the guidance for 2011 is $200,000,000 as per your press release. And I'm just wondering why that would tick up from 2010?
Well, I think there's a number of factors. But when you look at our capital expenditures, you have to look at at what's occurring across not only cigarettes, but also other tobacco businesses. And then of course in the wine business, that's a bit more capital intensive as well.
Okay. Thank you very much everyone. Your next question comes from the line of Chris Growe with Stifel Nicolaus.
Good morning.
Good morning. Hi.
I had two questions for you. The first one would be, when you talked about kind of the phasing of earnings in the first half of 'eleven versus the second half, you mentioned cigarette inventories and some of the introduction of smokeless products. I guess I just want to better understand, do you foresee some inventory adjustments to cigarettes here early in the year? And is there any follow on from what you do on the smokeless side to cigarette inventories? Are we seeing inventory levels at cigarettes come down because of the space allocation changing?
Well, I can't suggest to you that I think you're going to see retail cigarette inventories come because of the space changing in retail stores, because I think much of that has been reflected in 2010. But I think the comment that we made was that we expect to see our earnings growth build and accelerate as the year progresses in 2011, both because we don't run the same set of plans in each year. We are putting out things in the marketplace based on what we think is best for the business in that coming year and relative to the competitive environment. And there are other factors that influence inventories during the year, things like timing of how it will unfold based on what we know today.
Okay. And then I have a question regarding the I guess really in regard to promotion behind the smokeless tobacco business. There was a pullback here in the Q4. It sounds like it may have accomplished most of what you want to do, maybe there's some lingering there. But with 10 new products behind for Skol, I guess I'm trying to understand is from a promotional standpoint in 2011, do you see any material change year over year for the full year?
Could we see that pick a bit here around the new product activity? Do you expect to back off a little bit on Copenhagen? Is there any
color you
can offer there? No, I think that would be competitively sensitive information. So I don't think I'll go into any detail on that.
Okay. And then my final question is to be, you did discuss the state excise taxes as a, I guess, a bit of a risk factor for 2011. Do you have an estimate of what you believe today? I know it's hard to predict that, but what sort of increase we could expect for this coming year? And I guess, as it all depends on state budgets and that kind of thing, but any sort of early indication?
Well, we make estimates and they're a part of our planning process and that would be included in the guidance that we've provided. Beyond that, I wouldn't provide specific detail.
It sounds like you would start with a conservative estimate for the year given what you know today. Is that right?
Well, we with an estimate.
Okay. Thank you.
Your next question comes from the line of David Adelman with Morgan Stanley.
Good morning, everyone.
Good morning, David. Good morning.
Mike, first let me follow-up on the Skol effort. These 10 new product launches, how much or approximately what percent of Skol's volume do you think those products will ultimately be? I'm just trying to understand the magnitude of what you're doing. 10 products is obviously a lot to introduce on
any brand. Well, not so much when you see the variations of styles that exist in the smokers business. It's really 4 flavors in a line of products that have multiple forms. So that's the bulk of these product launches. But no, we wouldn't give out what we would estimate to be the volume.
I mean, it's just not being announced. So it's a little early to start predicting how they're going to perform in the marketplace.
Can you comment on where those products are likely to be priced versus discount competition because obviously Copenhagen Wintergreen is essentially priced as far as I understand is in line with discount Wintergreen products?
Well, they'll be launched with some introductory pricing. And then beyond that, we won't speak to what we're going to do with them.
Okay. And then are you willing to comment on what you envision as a reasonable rate of decline of the U. S. Cigarette category during 2011?
No, I wouldn't say anything other than I guess the way we look at it is there's no evidence that we have from history that the category decline rate based on normal price elasticities is going to show some deviation from that history. So, I don't have any reason to believe that it will.
Okay. And then lastly, what is the intent or the capacity for material cost reductions through the organization upon the completion of the existing program this year?
Well, as you know, over the last 3 years, we've done a major restructuring of the corporation and made a couple of acquisitions and taken out factories as a part of that restructuring. And so we've announced what it would produce when we did that and how long it would take. And we've been getting that work done. I think looking ahead, as we look at cost saves, we believe that we'll continue to see declines in volume in the cigarette industry and in our cigarette business. And so we're focused on continuing to affected by that decline because we only have 1 major manufacturing facility now.
But we do have other areas in the operation of cigarettes that we can have decline in terms of cost as the volume comes down. So that will be a primary component. And then in the growth businesses, particularly the smokeless business, but also the we want to realize that growth, We want to realize that growth in a way that we're not adding a lot of cost. So we can have an impact that's positive on our cost per unit as the volume will grow and we won't have to expand capacity or take on major costs. So we're looking for ways to really be more efficient in the way we operate our smokeless operations as the volume grows, so we can absorb that volume growth and get a positive impact on our cost structure.
And that also is the case in some of the service areas like sales and distribution and the Altria client services operation. We're looking for ways to be able to absorb smokeless growth. Sometimes, we'll be able to in those service organization, transfer assets that have been applied to the cigarette business over to the smokers business. Sometimes we won't and we'll be taking some of those assets out. But that's really the fundamental approach as we look at how we're going to get productivity out of the business at least over the next few years.
Okay. Thank you.
Your next question comes from line of Judy Hong with Goldman Sachs. Thanks. Good morning.
Good morning. Good morning.
Mike, just looking at your cigarette performance in the 4th quarter, it looks like your net pricing per unit actually was down sequentially from the Q3, yet your Marlboro share was also a little bit weaker just compared to the Q3 performance. So I'm just trying to understand whether you think that the line extensions and some of the promotional activity that you're putting into place around these line extensions are actually benefiting the Marlboro trademark enough? And then just broadly longer term, the implication on the Marlboro trademark with these line extensions? Yes.
Well, first of all, I wouldn't get too focused on quarter to quarter comparisons because we really don't run the business that way. We really do have an approach that's longer term than that. We're looking for modest growth on the Marlboro brand in terms of share and maximizing profitability out of our cigarette business. That's the way we run the business. And we make decisions based on what we think is best for that outcome.
And it can those decisions, can have a negative impact on the comparison of 1 quarter versus previous year at any point in time. So we don't worry too much about that. We felt like Marlboro had nice growth, share growth in the Q4 versus the previous year and that the equity remains strong. We'll talk some about that on Monday in our Investor Day in more detail. But I don't see anything there to be particularly concerned about.
Okay. And then just in terms of broadly, I guess, just going back to my question about these line extensions and the strategy that you're using these line extensions to really help the Marlboro trademark, are they going after different consumer segments? Would the price points come up over time as you get more traction on these line extensions? I guess, I'm just trying to understand sort of the broader Well,
I wouldn't generalize on any of this. It's a big country. It's got lots of different markets within it, lots of different states, lots of different pricing variables that exist all over the place and there are different kinds of development on different products and competitive products in the marketplace. I think what you have to recognize is that Marlboro is a big brand and that in a declining category, the way that reach out to competitive adult smokers and give them an opportunity to join the brand franchise called Marlboro. The same token, we get an additional benefit on the brand, because it provides equity news.
And so, isn't interested SKUs isn't interested in the new SKU, it does in fact bring news about the brand to them. So that's the reason why we do them, because this brand is a brand that continues to show the equity strength to grow out into the future. But to grow, it has to reach out to competitive adult smokers.
Okay. And then the $1,000,000,000 share buyback program, I guess, I'm just curious in terms of how you've come up to a decision to buy back stock rather than maybe using more money to pay down the debt or just reduce the financing costs even more than what you've done so far?
Well, I think what we've said in the past on this subject is that when it comes to our balance sheet, our objective is to maintain a strong investment grade credit rating and it's to support a strong progress on reducing our financing costs relative to the debt that we took on from the UST transaction. We made good progress in all three of those fronts in 2010. And as the Board looked at the circumstance, we feel like we'll continue to make progress there, but that we have the capability to buy back $1,000,000,000 worth of 20 11. And so, our interest is in doing things that are in the interest of our shareholders and we think that is.
Your next question comes from the line of Ann Gurkin with Davenport.
Good morning.
Hi, Ann. Good
morning. Congratulations on continuing to gain share in Marlboro. I guess I'm still wrestling with the greater PM USA cigarette volume decline 2011? Is there some more trade inventory adjustment or how should we think of volume loss versus share loss gain? Can you just help me better understand that relationship?
Well, I actually think that when we look at the year for our overall cigarette volume that it was in line with what we would have expected. And as I said before, I wouldn't get too caught up with the quarter to quarter change given all the moving parts that can have an impact on a quarter and relative to this comparison with the previous year's quarter.
As we look out to 2011, should we see PM USA cigarette volume track more like the industry? Is that a fair assessment?
Well, I can't predict the future, but we don't see anything that's out of line relative to the way our volume is performing.
That's great. Thank you.
Your next question comes from the line of Vivien Azer with Citigroup.
Good morning. Good morning. I was wondering if we could circle back to the retail reset. It sounds like you guys did a ton of heavy lifting in back half of twenty ten in terms of reconfiguring the MSP category. Is there more work to be done in 2011?
Well, there's always work to be done in the New Year, but the initial phase of what we wanted to get accomplished in 2010 got completed. So that's on track. I mean, we'll continue to work on improving the segments retail presentation. But what we set out to accomplish in the back half of twenty ten, we accomplished.
Okay. Fair enough. And then on the margin, given that reconfiguration, does that give you increased confidence in the outlook for the category growth given kind of new basing structure?
Sorry, I didn't quite get all of that.
Where does that leave you in terms of your outlook for the MSC category in terms of volume growth?
I don't think we any fundamental change in the trend line in that category. It's been if you look at it, it's been pretty steady at a 7% growth rate. So I'm not anticipating any significant change in that.
Fair enough. And my last question has to do with the new Marlboro snus introduction. Are those incremental or are those replacing what's existing in the market today?
No, those are new products, incremental products. They are of a different format. So they offer as you study the consumer and this segment and the development of the segment, you see how different people have kind of different preferences relative to these snus products. So these products have a different pouch size, for example, and there are different set of flavor profiles and that's all based on continuing consumer research.
Fair enough. Thank you very much.
Your next question comes from the line of Philip Gorham with Morningstar. A
question on menthol. I think you said in the last quarter that you were building your share in menthol. And obviously, the special blend launch is part of that. Could you update us on how that's flowing? And just perhaps talk about what opportunities you see there?
Particularly curious because of the FDA overhang and the timing of that launch.
Well, first of all, the initial launches on special blend that took place at the end of 2,009 were both non menthol products. The launches that are taking place just beginning to be announced actually at retail and really won't impact the marketplace on our menthol business by special blend. The on our menthol business by special blend thus far. Okay. We did launch in the Q4 a product called Marlboro Skyline, which is a different blend on Marlboro that has a different appeal to competitive menthol smokers to the brand.
And that's off to a good start, but it's early for that product. But it's a continuation of us reaching out to competitive menthol smokers with products that they might enjoy. And then beyond that, relative to FDA, that process continues and sometime a year, I think, over the next couple of months, we ought to see whatever recommendations come out of the CHIPS Act Committee. We'll talk about that in a little more detail on Monday.
Okay. And could you update us as well on the rollout of the new retail platform in Smokeless? So how many markets are you in with that? And how much of
Well, it's in it's approximately 60 1,000 stores. They're spread around the U. S. Focused really on the more highly developed tobacco marketplaces in the country. And the space variation is really by store.
So it's really based on how the business is developed in a particular store. Averages don't mean much in that regard.
Okay.
Okay. Thanks a lot.
Your next question comes from the line of Priya Ora Gupta with Barclays Capital.
Good morning. I was just wondering if you could elaborate on your plans to fund the $1,000,000,000 share buyback program? Thank you.
If I could elaborate on what?
Your plans for funding of the share buyback program?
Our plans for funding it? Well, we'll fund it out of
cash
assets that we have on our balance sheet.
Yes, we have numerous sources of liquidity and we're not going to comment further.
That's helpful. Thank you.
Your final question comes from the line of Todd Dudzik of Bank of America Merrill Lynch.
Yes, good morning. A quick question for you on the balance sheet again. Can you just give us any updated thoughts in terms of whether or not you're still looking at your high coupon debt potentially taking out some of that or refinancing any of that?
No. We wouldn't make any comment on what our plans are in there.
Okay. All right. Thank you.
You
That was our final question. I'll now turn the floor back over to management for any closing remarks.
I want to thank everyone for joining us here today. If you have any follow-up questions, feel free to give us a call at Investor Relations. We also hope that you will participate in our Investor Day presentation on Monday, January 31, 2011, which we webcast on www.altria.com. Have a good day.
Thank you. This does conclude today's conference call. You may now disconnect.