MO
#Thanks, Marty, and good morning, everyone
Let me start with the smokeable products segment
Adjusted OCI margins expanded by 2.9 percentage points in the first quarter to 51%, due primarily to higher net pricing and lower resolution expenses
Smokeable reported cigarette shipment volume declined 2.7% in the quarter
After adjusting for trade inventory movements and other factors, PM USA estimates that its cigarette volume declined approximately 3%, in line with PM USA's estimate for the industry decline rate
In addition, California's cigarette SET, which went into effect on April 1, will also affect shipment volumes in the short term
PM USA's first quarter retail share was 51%, down 0.1 share point; Marlboro's retail share declined by 0.2 share point to 43.6%
In smokeless, adjusted OCI margins decreased by 3.6 percentage points to 61.9%, driven principally by the Recall impact, partially offset by higher pricing
The Recall drove USSTC's shipment volume down 5% in the quarter
USSTC estimates that smokeless industry volume grew at approximately 2% over the past six months
It was a tough quarter for wine
Michelle's adjusted OCI of $21 million was 25% lower than last year and its margins contracted 4.6 percentage points to 15.4% due to lower volume and higher cost
Ste
Michelle's lower volume was driven by wholesalers reducing year-end inventory and the timing of the Easter holiday, which occurred in the first quarter of last year
Let's now turn to our beer investment
As a reminder, ABI's fourth quarter 2016 results are included in our first quarter results due to the reporting lag
In the quarter, Altria's reported equity earnings from our investment in ABI were $23 million
These results included net pre-tax charges of $73 million for ABI special items
As ABI noted in its fourth quarter earnings release, its underlying results were negatively impacted by a challenging environment in Brazil and mark-to-market losses related to ABI's hedging of its share-based compensation payment programs
We, of course, continue to focus on our shareholders
In the quarter, we returned a large amount of cash to them, paying nearly $1.2 billion in dividends and repurchasing over $550 million in shares
As of March 31, Altria had approximately $1.4 billion remaining in the current $3 billion share repurchase program
We continue to expect completing this program by the end of the second quarter of 2018. As Marty mentioned, we continue to expect that our 2017 adjusted diluted earnings growth will be higher in the second half
This is due primarily to the financial effect of USSTC's Recall this quarter and the benefit of reporting four full quarters of equity income from our ABI investment
Lastly, a quick word on IRI's retail market share reporting
As a result of IRI's most recent database restatement, cigarette and smokeless retail market shares had been restated
Share information for each quarter of 2016 is available in our press release
You remember that IRI uses a sample of retail stores and certain wholesale shipments to project market share and depict share trends
Historical trends of restated numbers are generally consistent with those under IRI's previously reported numbers
That wraps up our results
Marty and I are now happy to take your questions
While the calls are being compiled, I'll direct your attention to altria
com
Along with today's earnings release and our non-GAAP reconciliations, we've posted for your reference a usual list of quarterly metrics, including pricing, inventory and other housekeeping items
Operator, we're ready for the questions
Question-and-Answer Session
Yeah, <UNK>
I think that's the proper way to look at it, <UNK>
What we quantified was about 100 basis points, the impact of the recall and you're right, in the actuals, we were down 70 basis points
Yeah, as Marty mentioned, we are pretty much done replenishing the out-of-stocks that occurred because of the recall at retail, and we are seeing share recover
Now, remember, whenever you have that consumer purchasing other products in the marketplace, it takes a bit of time for us to recover the share, but we're seeing promising signs
Hi, <UNK>
As we answered that question at CAGNY, you'll recall, when we provide guidance, we run a range of scenarios that are included in the guidance, and so that'll take into account these types of events, and so we feel the same that we felt at CAGNY
We feel good about guidance and that's why we were able to reaffirm today
Thanks for the question
If you recall, when we look at the cigar category, you have it in basically three segments
You've got the tipped, where Black & Mild participates and has over about 90% of that segment
You have the un-tipped and then you have the non-cigarillo form
We participate in the tipped and we have basically a large market share there
And so that's why we're running for profitability
That's where most of the profitability is in the cigar category
In the un-tipped segment, there's basically a price we're going on where people are competing for volume, but at a very low profitability, and we're really not participating in that segment
So it hasn't been a change for us, but I think that describes the strategy and the approach we have in the cigar category
