Altria Group, Inc. (MO) Q4 2013 Earnings Report, Transcript and Summary

Good day and welcome to the Altria Group 2013 Fourth Quarter Earnings Conference Call. Today, call is scheduled to last about one hour including remarks by Altria’s management and the question-and-answer session. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. (Operator instructions) Representatives of the investment community and media on the call will be able to ask questions following the conclusion of the prepared remarks. I would now like to turn the call over to Ms. Sarah Knakmus, Vice President, Investor Relations for Altria Client Services. Please go ahead ma’am.

Thank you. Good morning and thank you for joining us. We are here this morning with Marty Barrington, Altria’s Chairman and CEO; and Howard Willard, Altria’s CFO to talk about Altria’s results for the fourth quarter and full year of 2013. During our call today unless otherwise stated, results are being compared to the same period in 2012. Earlier today we issued a press release regarding our fourth quarter and full year results. For a detailed review about Altria’s business results please review the earning release on our website at altria.com. Our remarks contain forward-looking cautionary statements and projection of future results. And we direct your attention to the forward-looking and cautionary statement section at the end of today’s earnings release for review of the various factors that could cause actual results to differ materially from projections. Altria reports its financial results in accordance with U.S. generally accepted accounting principles. Today’s call will contain various operating results on both a reported and adjusted basis which exclude 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 web site. Now I will turn the call over to Marty.

Thank you Sarah. Good morning everyone and thanks for joining our call. Altria successfully delivered against its financial goals in 2013 and continued its strong track record of delivering earnings and dividends growth for its shareholders. For the full year, Altria delivered adjusted diluted EPS growth of 7.7% on the strength of its diverse business model and solid performance by its core tobacco businesses. We also enhanced our capital structure in 2013 and provided significant cash returns to our shareholders. We increased our dividend by 9.1% in 2013, our 47th dividend increase in the last 44 years, and paid shareholders more than $3.6 billion in dividends. Altria further rewarded shareholders by repurchasing shares totaling $600 million in 2013. We have approximately $457 million remaining in the current $1 billion program, which we expect to complete by the end of the third quarter of 2014. Of course the timing of any purchases will depend on marketplace conditions and other factors. In the fourth quarter of 2013, Altria tendered for high coupon debt and replaced it with new lower cost debt. These transactions along with the retirement of debt at its scheduled maturity improved our debt maturity profile and lowered future interest expense. As a result of our 2013 capital market’s activities, Altria reduced its weighted average coupon rate to 5.9% at year-end 2013 from 7.2% at year-end 2012. We also delivered on our cost reduction commitments. Altria completed its cost reduction program in the fourth quarter of 2013 by achieving $400 million in annualized savings versus previously planned spending. And Altria continued to deliver value to shareholders through mixed diverse income streams, including our equity investment in SABMiller, which generated pretax income of approximately $1 billion for Altria in 2013. So in summary, in 2013 Altria complemented its operating company’s performance…

Thank you, Marty. Good morning, everyone. As Marty mentioned, each of our reportable segments grew adjusted operating company’s income in 2013. Notably each of the segment also expanded adjusted operating company’s income margins through solid price realization and a continued focus on cost management. Although we have concluded the $400 million cost reduction program, we will continue to focus on carefully managing costs in 2014. In the fourth quarter of 2013, the smokeable product segments reported operating company’s increased 4.5% to $1.6 billion, primarily driven by higher pricing lower selling, general and administrative costs and lower restructuring charges partially offset our lower reported shipment volume. The segments fourth quarter adjusted operating company’s income grew 3.6% and its adjusted operating company’s income margins grew 2.2 percentage points to 42.1%. For the full year, Altria’s sociable product segments grew reported operating company’s income 13.2% to over $7 billion, primarily through higher pricing. PM USA’s non-participating manufacturer’s adjustment settlement and the NPM Arbitration Panel Decision as well as lower selling, general and administrative expenses. These factors were partially offset by lower reported shipment volume and higher resolution expense. Excluding the impact of items detailed in today’s press release including the NPM adjustment items, adjusted operating company’s income increased 2.4% in 2013 to approximately $6.4 billion. For the full year, sociable product segments adjusted operating company’s income margins increased one percentage point to 42.2% in 2013. Over the last couple of years PM USA estimates its cigarette category volumes have declined at a rate of 3% to 4%, and we believe that trend continued in 2013. After adjusting for trade inventory changes and other factors PM USA estimates that its domestic cigarette shipment volumes decreased approximately 4% for both the fourth quarter and full year of 2013 and that the category also declined approximately…

Thank you. (Operator Instructions) Our first question comes from the line of Vivien Azer with Citi. Please go ahead. Vivien Nicole Azer – Citigroup Global Markets Inc.: Hi, good morning.

Hi, Vivien. Vivien Nicole Azer – Citigroup Global Markets Inc.: My first question has to do with your outlook for 2014 and specifically for the U.S. cigarette category combustibles. Can you offer a little color on how you’re thinking about category volumes for the year?

Well, as you know, we don't forecast volume going forward, but I can tell you that what we see over the last several years is that the cigarette volume declines have been in the range of 3% to 4% and we’ve gone through our model on that of both secular decline and some pricing elasticity. That's what we see basically in 2013, the continuation of that trend and we don't see any particular drivers in 2013 that caused us to believe any differently about that. Vivien Nicole Azer – Citigroup Global Markets Inc.: That’s fair. Given kind of the state of the consumer, do you think it’s fair to say that volume declines will probably come in at the lower end of that range like it did in 2013?

Well, it’s hard to say going forward. I do think that a word or two about the consumer is important. It’s a good question. The macro trends are improving in some domains, but the way we look at our business is always – well, half of those macro trends impact our adult tobacco consumer. And so, I can tell you how we’re thinking about it is that unemployment remains unfortunately high at about what – six, seven underemployment is higher than that. Labor participation rates are not robust and as you know the adult tobacco consumer tends to over index in those domains. So it’s hard to find a lot of encouragement there. Consumer confidence generally is up, but it’s nowhere around where we’d like to see it, which is difficult for us, say 100 before the recession hit. We watch housing starts pretty carefully. We see some improvements in the housing figures, but again they’re far below where they should be. So we’re always hopeful that the economy is going to improve for everyone. It’s just hard to find a lot of drivers that cause us to believe that for the adult tobacco consumer 2014 is going to look very much different than 2013. Vivien Nicole Azer – Citigroup Global Markets Inc.: That makes a lot of sense to me. One last one please. On the competitive landscape, you cited since that competitive activity in the back half. Would you categorize that as relatively rational? Are you seeing any shift in kind of competitive bolstering?

Well, I’d say what I always say about this. This is a business that has always been competitive. It was competitive in 2013. Our plan assumes that the businesses will continue to be competitive. I think what’s important though I think is to have – look at how PM USA is able to navigate through that environment. We had very good price realization as you saw last year. We had margin expansion, grew adjusted OCI to nearly $6.5 billion, modestly grew Marlboro share, modestly grew overall PM USA share and that was at a time when we continue to invest in our plans like through the Marlboro architecture. So what I would say, Vivien, even though it’s competitive it’s an environment in which PM USA and has been able to really effectively operate on its strategy, had very good results in 2013. Vivien Nicole Azer – Citigroup Global Markets Inc.: Perfect. Thank you very much.

Thanks for your call, Vivien.

Our next question comes from the line of David Adelman with Morgan Stanley. David J. Adelman – Morgan Stanley & Co. LLC: Hi. Good morning, everyone.

Good morning, David. David J. Adelman – Morgan Stanley & Co. LLC: I had two questions, Marty. The first, can you explain or speak to this gap in the fourth quarter between your cigarette shipments down 5.8% and your estimate that the underlying consumption was down 4% and I asked that in the context that the timing of your – end of your price increases both years were fairly similar.

Yes. This comes up from time to time. I think we talked about this actually in the first quarter if memory serves. It really is the difference in trade inventory movements and other factors, but the trade inventory movements, as you know, make a big difference. If you look at it throughout the quarter though, on an adjusted basis or for the full year, David, on an adjusted basis, we’re confident that it’s about 4%. The pricing is, I remember, for the quarter was – I think PM USA announced its pricing, I think the last week of November this quarter to have become effective around the first of the year and though when we model that out that’s what it looks like to us. David J. Adelman – Morgan Stanley & Co. LLC: Okay. And then, Marty, with respect to MarkTen, could you speak to the market share you’ve been able to generate in the geographies in which you’re competing, what the trajectory of your market share has been in those markets? And also because the spending, considering the P&L wasn’t insignificant this year and you are calling out that as a potential headwind in 2014, what’s the potential opportunity that you’re calibrating, you’re spending against?

Yes, that’s a great question about MarkTen. Thanks for asking it. Look we have about a month’s worth of data and so I don’t want to roll out numbers. We’ll have more to say about this in CAGNY, which is coming up and I hope to have some numbers to show you there. What I can tell you is that we have a plan that we’ve set out in Arizona, the same way we did in Indiana really about what we’re trying to learn. That’s how you do test markets in a disciplined kind of way and I think we have very good plan in place to learn, and what we’ve learned is so far we wanted to get broad distribution of our MarkTen product at retail and our sales force has done a great job of doing that. As I mentioned in the remarks, we’re in about 1,900 stores there. We wanted to find out trade acceptance and I can tell you the trade acceptance of the product is enthusiastic and so we’re learning a lot about working with the trade there. I can tell you we like the MarkTen product a lot. It is a terrific product. We think we have a good offering and we believe if we can get it in the hands of consumers that they will think so too. And so we have a revised promotion plan that is setting us out to do exactly that. I can assure you when we enter these test markets though we had very specific goals we’re setting out to answer and to learn from. We have metrics that we have put in place to know whether we’re achieving them and then of course we’re always looking to try to leverage those learnings as we did, for example, from Indiana to Arizona about learning our way forward. We believe that’s the right way forward in emerging categories. We try to learn wisely and we try to learn it in a disciplined kind of way. So that’s how we’re thinking about Arizona. And again, I hope that we will have more for you at CAGNY about that. David J. Adelman – Morgan Stanley & Co. LLC: Okay, thanks. See you then.

Thanks for calling in.

Our next question comes from Bonnie Herzog with Wells Fargo. Bonnie L. Herzog – Wells Fargo Securities LLC: Good morning.

Good morning Bonnie. Bonnie L. Herzog – Wells Fargo Securities LLC: My first question is on Marlboro and I guess I’m trying to get a sense of the overall health of your Marlboro franchise in light of the recent line expansions with Edge and then NXT earlier last year. How incremental were these lines and how well did your core Marlboro perform and then any learning’s from these extensions and how full edge in your Marlboro innovation pipeline for this year?

Yes, well, we think Marlboro performed terrifically and we’ve talked from time to time about its brand equity using a variety of measures. I won’t repeat them all here, you know what they are in terms of the scale in terms of being the largest brand everywhere, in terms of being able to have a really premium price gap that’s been constant despite the ad recessions and FET’s and so forth and so on. We’ve spoken before about the number of SKUs in Marlboro. We don’t bring them willy-nilly. We try to make sure that there is a consumer demand for them there. And of course, we’re always trying to attract adult competitive smokers and I think that PM USA has done a very good job with that both over time and in 2013. Bonnie L. Herzog – Wells Fargo Securities LLC: Okay, thanks for that. And then I wanted to ask you a little more about the agreement you’ve reached with Philip Morris International, and you think it’s like a very big opportunity. So could you talk a little bit more about this opportunity as well as timing and next step and also how should we think about the potential upside to your earnings and the relative payment you’ll receive as PMI rolled out your e-cig technology internationally? And then finally as you work into the future could you talk about how you envision your reduced risk portfolio evolving?

Okay, there is a lot there. Let me see if I can impact that a little bit for us. It is an important step forward and I appreciate your asking about it. From the Altria perspective, as I was just discussing with David, we really like our technology in e-vapor. We think we’ve done a very good job with that, and so it’s great that we have an opportunity to partner with PMI so that it can be sold in international markets. As you know PMI is a terrific company. We have a higher regard for it. It has global scale, it has global infrastructure. And I think putting our technology in PMI hands to trying to sell that to a adult vapors elsewhere in the world is a good thing for Altria, it’s good thing for PMI. I think, in addition, as we’ve spoken about previously, our innovation strategy for adult tobacco consumers is to offer them a variety of products that are innovative from conventional products and may hold out the promise, if FDA where able to approve them of reduced harm and that's exactly what PMI has been working on with its NGP platforms one and two. So we now have those in our portfolio through this agreement and as PMI and with our support work on FDA it’s an extremely important strategic step forward for harm reduction, I think for consumers and we're hopeful about that. In terms of contribution to earnings, I think it’s early there. There are royalty agreements in place, but really I think this is more about getting the products in each other’s hands and seeing if we can bring them to adult tobacco consumers and see if they will take themselves. From our perspective that's the way we’re thinking about innovation. We follow the consumer. The consumer will decide about the innovative products. Our job is to invent them, to commercialize them, and to work with the FDA where appropriate to make sure that they make it to market. So that's kind of our strategy in a nutshell. Bonnie L. Herzog – Wells Fargo Securities LLC: All right. Thanks for that.

Thanks Bonnie.

Our next question comes from Thilo Wrede with Jefferies. Thilo Wrede – Jefferies LLC: Good morning, everybody.

Thilo. Thilo Wrede – Jefferies LLC: Just a follow-up on the MarkTen question. In your base business case for MarkTen, what level of indoor usage restrictions is built into that base business model?

You broke up just a little bit Thilo. Say it again. Thilo Wrede – Jefferies LLC: Oh, sorry. For the base business case for MarkTen what level of usage restriction is similar to smoking ban? What level of user instructions you have included in that base business case for MarkTen?

Yes, we have modeled out basically three scenarios. We don't know there are some unknowns obviously in e-vapor and innovation generally. They regard excise taxes, technology improvements and then the regulatory situation. So, rather than to have a [indiscernible] we have three cases where we assume there is varying degrees of flexibility or regulation there, so we’ve actually done three cases. Thilo Wrede – Jefferies LLC: And what's the assumption for the base case?

Well, I’m not going into get into the proprietary nature of how we’ve modeled it out. I think it's fair to say though that if there is a general belief by the regulators and others that moved into e-vapor is a good thing for adult tobacco consumers. You can assume that there will be greater migration than less. Thilo Wrede – Jefferies LLC: Fair enough. And then, in your outlook for fiscal 2014 or calendar 2014 what impact will the end of the tobacco grower buyout have on the competitive landscape, what's your expectation there?

Howard?

Yes, I mean I think with regard to the end of the quarter, it happens really the impact of the fourth quarter of 2014 and that really occurs across the industry, so I think it’s a cost reduction opportunity really across the sector in the U.S. With regard to how the various players react to that cost reduction I think we’ll have to wait and see how that plays out but of course, we continue to be focused on our strategy in the smokeable segment of maximizing profitability while maintaining modest share momentum on Marlboro and clearly that cost reduction is an opportunity. Thilo Wrede – Jefferies LLC: So there is no assumption that – yet that you would be willing to share whether you can be able to keep that cost reduction or whether you have to pass it on to smokers given the competitive environment?

Yes, I think we’re not going to share kind of our plan at that level of detail, but certainly that is one of items that’s baked into our overall guidance for the year. Thilo Wrede – Jefferies LLC: Okay and then last question I have for you. Can you give us an update on your strategy and plans for L&M? I think so far you’ve always commented that it was supposed to offset the share losses for Basic, is that still the case or is that maybe something more ambitious in place for L&M?

No, I think it’s pretty much as we described it before deal – there are some people who participate in the discount segment that’s not our focus of course, but we want to have an offering there. L&M is the offering that we give them our retailer, trade partners in particular who like for us to have a good discount for them, but we’re not trying to grow the discount category. That’s not our focus. Thilo Wrede – Jefferies LLC: Okay. Perfect. Thank you.

Yes.

Our next question comes from Greg Hessler with Bank of America.

[indiscernible] for Greg.

Good morning.

Quick question about your – good morning. Quick question for you about kind of your debt plans and capital structure plans going forward. I know you guys did the tender at the end of last year as well as paying down that maturity. What are your plans for the upcoming maturity and do you and kind of as a follow-up to that do you have any more liability management plans going on in the future?

I think we’re pretty pleased with the progress we made on our balance sheet. We’ve got our weighted average interest cost down to 5.9%. And we feel pretty comfortable with our current credit ratings as well as our current debt to EBITDA ratio. So I don’t know that I would communicate anything beyond the fact that we’ve been following a pretty consistent strategy over time to bring our interest rate down, we think we’ve been successful and we’ll continue to look for opportunities in the future to improve that, but we’re certainly not going to share anything at the detailed level about changes in the short-term.

Thank you.

Thank you for calling in.

Our next question comes from Michael Lavery with CLSA. Michael S. Lavery – CLSA Americas LLC: Good morning.

Hi, Michael. Michael S. Lavery – CLSA Americas LLC: So your press release in smokeable in the quarter was good, it was roughly about the pace it's been all year or even a slight uptick from 3Q even despite that the competitive launch of Newport Gold. What are you seeing kind of in the marketplace there and can you compare or contrast that to when Newport Red would have launched?

Well, I guess maybe I’ll take it up a level. We did have good price realizations. You could see both – we had all the quarters then above 4% for the year. So I think this is consistent with what Howard just said about trying to maximize income in the smokeable segment. It is always a balance between growing income and watching the share. And I think PM USA did a good job of that and I expect a good job of that in 2014. Manufacturers do launch products into the market from time to time, you do see promotional pricing as they try to gain adult tobacco consumer awareness. That's just part of the usual backdrop of how the business gets done, Michael. Michael S. Lavery – CLSA Americas LLC: All right, that's helpful, thanks. And somewhat related on the margins you had a strong list in that segment as well, against a decent comparison and even stronger one the year before. Is there anything specifically driving that or part of what I’d love to get a little color onto is the fourth quarters gone from one of the lowest margin quarters in the year, so one of the higher ones, is there any shifts you have made in kind of the operations or is it just getting some better pricing there. What's been driving that?

Yes. I wouldn't put too much into kind of quarter to quarter variations in the cost trend. I would probably tend to look at this full year of 2013 compared to the prior year to get a better estimate. You certainly – you’re pointing out to the fact that we had and above trend for the quarters, cost reduction in the fourth quarter. But I think that has more to do with just the way the spending unfolded on a quarter by quarter basis, and of course we're always managing to a full year. So I don't think there is anything significant that I would call out there was a change in trend. Michael S. Lavery – CLSA Americas LLC: Okay, that’s helpful. And then just on the review process for the dealing regulations with the FDA, it’s been that OMB now for a few –close to months. Is there any involvement you have with them or any visibility you have on that process or is that a little bit of kind of a black box.

Yes, I mean we said before we had lots of ongoing relationships with the Agency and also with OMB and others. But I just don't have anything to offer you on that. You are exactly right, splendid [ph] OMB and there have been periodic announcements that is coming, but we haven’t seen it and we haven’t heard – really heard much about when it might be coming other than what they have said. Michael S. Lavery – CLSA Americas LLC: Now, okay that’s helpful. And then just one last one on e-cigarettes in terms of how you think about a broader launch internationally. Is it just a question of getting the learning and the products in the sort of toned or is there any capacity issues or what are the sort of things that would trigger that international launch?

Well, we haven’t said anything about that and I won’t this morning, but we have a disciplined way of learning our way in, all of the factors you mentioned of course are important to make sure that we would know, if and when we decide to do that. We want to make sure that product offering would be right and the branding is right and the promotion is right. We just think about this through our value equation that you heard us talk about before and certainly you want to make sure the capacity is in line. Michael S. Lavery – CLSA Americas LLC: Great, thank you.

Michael thanks for calling in.

Our next question comes from Judy Hong with Goldman Sachs. Judy E. Hong – Goldman Sachs & Co.: Good morning.

Good morning, Judy. Judy E. Hong – Goldman Sachs & Co.: So Marty just wanted to go back to your 2014 outlook, between the interest expenses coming down the lower taxes and the share buyback benefit. It seems like the operating income growth in 2014 is expected to be pretty modest, and I understand you caught out some of the headwinds, but let’s just hoping to get some more perspective, and is this really the set of spending that’s causing a bit of a slowdown in terms of the operating profit growth. How should we think about that in the context of your guidance?

Yes, thanks for asking. Listen, we have a good plan for 2014, I like the plans of our operating company’s, I think they have done a good job at that, but it’s the factors that we identified for you really that we are trying to explain, which is we do had some headwinds in terms of making investments in the innovative space. And then we do have variability, I’m going to ask Howard to comment in this. We have variability in the capital core contributions from time to time, you want to talk about that, Howard?

Sure, I mean I think we’ve communicated this before that as we – in wine and PMCC not only does the lease income come down over time, but there are asset sales that equate variable on a year-to-year basis. And certainly in 2013 we had quite strong asset sales after settling some of the tax issues of the IRS on the LILO, SILO leases. We found the opportunity to sell several of those assets in 2013. So I think that certainly one of the drivers of the comparison from 2014 to 2013 is some of the lumpiness in PMCC’s income. And then I think the second thing is that while certainly we made investments in 2013 towards competing effectively in the e-cigarette category. We are certainly planning in 2014 to make further investments as we focus on being successful in that emerging new category. Judy E. Hong – Goldman Sachs & Co.: Okay. And then just may be a bit of a follow-up on MarkTen and just the e-vapor category generally Marty. As you obviously participate in the broader tobacco category, how do you sort of think about, you know how you build equity, brand equity in e-vapor category versus cigarettes or smokeless, are there some differences, similarities that you can call out and you know your thought process and thinking about how to invest in that particular product or category.

Yeah, I actually – that’s a terrific question. The brands obviously that have been in the take the cigarette category have obviously been out there for sometime and brand equity as you is built over time. Marlboro’s equity has been built over decades and because everyone is now launching products and trying to gain brand equity, it will take sometime. I think one of the advantages that some players will have is those that know how to build brands, will have an advantage here. I would argue that Altria and its operating companies have a long and a rich heritage of being able to built brand, that’s one. Two I think is making sure that you are just being consumer centric. You always have to start with a consumer, you have to get it in the offering that they want and then you build equity off of that platform. So that’s how we think about it at least, but its early days in e-vapor, it’s going to take some time for a lot of things to sort itself out and it will take time for equity to be build in this category just like most others. Judy E. Hong – Goldman Sachs & Co.: And the two test markets that you have entered Marty, have you noticed the pick up in the category growth in those markets as you have entered in those markets.

We obviously Arizona is very, very early. We’ll have some data to share about this, I expect at CAGNY, I don’t want to get ahead of looking at those numbers at this time. But we will try to get that information for you. Judy E. Hong – Goldman Sachs & Co.: Got it. Okay, thank you.

Judy, thanks for calling.

We will now take questions from the media. (Operator Instructions) Our next question comes from Nik Modi with RBC Capital. Nik H. Modi – RBC Capital Markets LLC: Good morning guys.

Hi, Nik. Nik H. Modi – RBC Capital Markets LLC: So just two quick questions, Marty, there’s been a lot of talk honestly about e-cigarettes, and different shift from regular cigarettes, but if you really look at the underlying trend and then go back kind of rolling over the last two years, looks like for this particular year in 2013. The category declined, it has moderated as year progressed despite e-cigarettes growing as faster as they’ve been growing. And I wonder that you can just provide some big picture thoughts on that. And then the second question which is more specific to Arizona, can you talk about some of the product changes that you have made to MarkTen, direct with the Indiana just kind of talk about some of the modifications that makes the product? Thanks.

Sure. Thanks for the question. We continue to look carefully at the growth of e-cigarettes and its potential effect on cigarette volumes and we continue to believe that it’s modest. It’s obviously is a category that has grown very fast and you’re right. It gets a lot of attention. But we believe it’s probably still in the secular decline rate, which we’d estimated to be 2% to 3%, which makes up a variety of things which is lower incidents, fewer cigarettes per day – people babbling and pipe tobacco. We believe that the e-cigarette number is probably in that number. With respect to Arizona, we made a couple of changes that are probably worth mentioning. One of them is we put a new flavor system and we think it significantly enhanced the censorial experience. We changed the bundle that we were offering including a charger in the kit, and I think those things have been extremely well received by the consumer today.

Our next question comes from Chris Gowe with Stifel. Christopher Growe – Stifel, Nicolaus & Co., Inc.: Hi, good morning.

Hi, Chris. Christopher Growe – Stifel, Nicolaus & Co., Inc.: Hi, just a two questions for you. I want to ask first, maybe bit of a follow-up to the question earlier, and how can I get a response from the variability in PMCC. If you were to look at the fourth quarter where that division turned to a loss, is that – I just wanted to be clear or maybe you can categorize this. Was it the heavy investments in e-cigarettes, was that something like kind of a dramatic mover in the quarter or is it more about the volatility in PMCC that caused that to turn to a loss in the quarter?

Yes, certainly I would say that the year-over-year kind of variance there was driven by both PMCC and e-cigarette, but I would tell you that the Arizona test market given that that a lot of that investment occurred in the fourth quarter was certainly a driver. Christopher Growe – Stifel, Nicolaus & Co., Inc.: Okay. And so would you then expect that division in 2014, just from your commentary, to be down in profitability noting the investments that are making plus the volatility at PMCC?

Yes, I think as we indicated in kind of the guidance paragraph, we do expect to make incremental investments in the e-vapor business in 2014 compared to 2013. Christopher Growe – Stifel, Nicolaus & Co., Inc.: Okay. And then just a follow-up question on new products and we had a pretty slow process around the substantial equivalence approval you got from the FDA, and so I just was curious for Philip Morris USA. You had a good bit of activity, new productivity in that division. The longer this takes for SE applications, is it putting the division at more of a disadvantage going forward, which – do you have less than the half or if you will and you need more sort of activity from FDA on SE application?

We’re actually in pretty good shape I would tell you and we continue to interact with the FDA regularly about our SE applications. So I think, well, everyone would like to see more outcomes from the Agency I think we’re in pretty good shape, Chris. Christopher Growe – Stifel, Nicolaus & Co., Inc.: Okay. And if I could ask one follow-up which is just – you characterize the inventory change in the fourth quarter. If you said I didn’t hear because you characterize the inventory levels. Are you at the right levels you were or at where you were a year ago with the fourth quarter given that change that occurred in the quarter?

Well, the inventory levels of cigarettes ended the quarter lower in 2013 than it did a year ago what we were trying to phase it. Christopher Growe – Stifel, Nicolaus & Co., Inc.: Okay. Thank you.

Thanks for talking.

Our final question comes from the line Bonnie Herzog with Wells Fargo. Bonnie L. Herzog – Wells Fargo Securities LLC: Yes. Good morning.

Good morning. Bonnie L. Herzog – Wells Fargo Securities LLC: Wanted to see if you could talk a little bit about the smokeless category, it looks like your reported volume was down through the quarter and through the year, but I didn’t hear you talk about with some adjustments. Shipment volume, you estimate, actually grew about 5%.

Right. Bonnie L. Herzog – Wells Fargo Securities LLC: Can you help us reconcile the difference there?

Sure. The principal difference was, I think, in both the fourth quarter and in 2013 there was one fewer shipping day and in the smokeless business it had to be a Monday when a lot of the volume goes out. So it’s roughly equivalent to a shipping week and that basically explains it, few other factors, but it’s basically that movement. Bonnie L. Herzog – Wells Fargo Securities LLC: Okay. That’s helpful. Thank you.

Thanks for calling.

Thank you. At this time I would like to turn the call back over to Ms. Sarah Knakmus for closing comments.

Okay. Thank you everyone for joining our call this morning. If you have any follow-up questions please contact us at Investor Relations. Just a reminder, Altria will present at CAGNY and the presentation will be webcast. Thank you again. Have a great day.

Thank you. This does conclude today’s conference call. You may now disconnect.