Altria Group Inc. Earnings Call Nuggets: E-Cigarettes and Marlboro Black

Source from:  Wallstcheatsheet.com 04/28/2012

On Thursday, Altria Group Inc. (NYSE:MO) reported its first quarter earnings and discussed the following topics in its earnings conference call. Here's what you need to know. E-Cigarettes Nik Modi - UBS: Mike, congrats on retirement again. Two quick questions I have. First is, just curious on your thoughts on the e-cigarette category just in lieu of what Lorillard (NYSE:LO) and now (indiscernible), that's question number one? The second question is if I understand the architecture correctly it's going to be fully implemented at retail by the end of the second quarter and I am just curious if you tested this and kind of you have what some of the early context you got from those test markets, those two questions any context would be helpful thank you. Michael E. Szymanczyk - Chairman and CEO: Well I am not sure what the first question was Nik, relative to e-cigarettes is there a specific question. Nik Modi - UBS: Just curious on your thoughts in that category I mean is this something you think Altria should get involved in is it a category you think is viable I mean certainly there is a lot of different viewpoints of snus I am just curious on your viewpoint on the category. Michael E. Szymanczyk - Chairman and CEO: We pay attention to all of these I guess emerging segments, and watch what's going on, and do some research and so we've been monitoring this one for some time, around for a while there is pretty high awareness, but it represents still pretty small business proposition and so we are mindful of it, paying attention to it. That's about all I can say about it. And then relative to your second question what was it. Nik Modi - UBS: Just on the architecture, I guess it's going to be fully… Altria Group Earnings Cheat Sheet>> Michael E. Szymanczyk - Chairman and CEO: On the architecture we did some of very specific consumer research relative to this architecture it's not the kind of things that you would market test because it'd be pretty hard to read it among all the noise that exists in the market, but you really rely more on consumer research relative to communication around the segments and the particular audiences, that each segment's designed to appeal to and yes we do research that before we decided to move to this architecture. I hope that answers your question. Marlboro Black Vivien Azer - Citi: Curious about the share gains from Marlboro Black. Could you quantify the contribution from that line extension to the quarterly share gain for Marlboro? Michael E. Szymanczyk - Chairman and CEO: Well, no, we haven't. We don't usually break out the individual segments of Marlboro, but as I said in my remarks, we are pretty pleased with Marlboro Black so far. We've recognized that some of that is driven by introductory support, but that's okay, that's part of introducing a new product and we are pretty pleased with the rest of the franchise as well. Vivien Azer - Citi: Then, in terms of the introductory support that you are offering for Marlboro Black, on a percentage basis, is it roughly in line? The kind of level of discounting your promotions that you are putting behind that line extension is in line with the prior Marlboro line extensions? Michael E. Szymanczyk - Chairman and CEO: I don't know if I quantified it, but I would say there's nothing unusual about it, okay. It's not an abnormally high level. I mean, we have a promotion level and we have trial events for adult smokers that are more limited and in terms of their quality and duration. So both of those things are typical as part of a new product launch. So there's nothing really I would say that's exceptional or meaningfully different about Marlboro Black's introductory plan from things that we've done in that past. Vivien Azer - Citi: Lastly, could you just comment on inventory levels at wholesale? That was certainly a big topic of discussion over the last two days and where you guys fell like things that were down at the end of the quarter? Michael E. Szymanczyk - Chairman and CEO: Well, there was inventory movement downward, wholesale inventory movement a little bit of retail inventory movement downward in the first quarter not wholly unexpected. So we kind of I think said at the end of the year and the fourth quarter that our inventory levels for the fourth quarter of '11 were pretty much in line with where they were in the prior year and then they've dropped a bit as we (brought) to the first quarter. You expect some permanent inventory loss relative to the cigarette business because the business has a decline rate associated with it, that's ongoing and then there are movements in inventory that are driven by various wholesaler activities and needs that are less predictable. It's hard to quantify how much of this is permanent and how much is kind of sporadic movement, but I think most of its probably sporadic movement. I don't think that we expecting to see any real changes in wholesale inventory levels beyond what you predict just from the normal industry change. Enditem