"Marlboro has, for a while, had a program available to retailers that wanted to use Marlboro as a means to draw traffic in their stores," Szymanczyk said during yesterday's first-quarter 2011 earnings call. "So this is really [image-nocss] a redesign of that program because all programs kind of become less relevant over time and their structure as marketplace conditions change, and that's the case with this one.... So we update this program effective April 1."
The current quarter should flesh out some of the results of the controversial MLP option, which suggests placing a price ceiling on what retailers should charge for Marlboro and runs through October 1. The company has said it is geared toward attracting cash-strapped consumers to the brand; some retailers are concerned that draw comes at the expense of margin for them.
"Some retailers won't choose to do it. That's what we expect," Szymanczyk said. "We'll see what the impact is in the marketplace, but we expect to see some positive impact from the brands' performance as we have in the past."
Nik Modi, tobacco analyst, UBS Securities LLC, New York, asked about the profit and loss impact for Richmond, Va.-based Altria, saying that it seemed like a reallocation of money within the company's existing trade agreements. Szymanczyk responded that it would be neutral.
In a recent report, Modi wrote of MLP, "Altria is unlikely to see any profit hit from this initiative given they are simply reallocating promotional monies around their customer base. Volumes should benefit from narrower price gaps as well."
Meanwhile, as Szymanczyk pointed out, Marlboro gained share as the quarter progressed, but Marlboro's 2011 first-quarter retail share decreased 0.5 share points due primarily to the timing of new product launches. Marlboro's 2010 first-quarter retail share benefited from the January introduction of two Marlboro Special Blend products, while two new Marlboro Special Blend products, which began shipping at the end of February 2011, had a minimal impact on the brand's retail share in the first quarter of 2011.
Philip Morris USA's retail share for the three-month period decreased 1.2 share points.
Altria Group results outside of cigarettes:
Overall. In the first quarter of 2011, Altria's net revenues decreased 2.0% to $5.6 billion due primarily to lower net revenues from cigarettes and cigars, and revenues net of excise taxes were essentially flat.
Smokeless.The smokeless products segment's 2011 first-quarter financial, shipment volume and retail share comparisons were impacted primarily by new product launches and promotional product introductions. The smokeless products segment's 2010 first-quarter results benefited from the launch of new Copenhagen products, the national introduction of Marlboro Snus and a Skoal Slim Can pouch promotion. In the first quarter of 2011, the smokeless products segment's net revenues and revenues net of excise taxes decreased 0.5% and 0.6%, respectively, due primarily to lower shipment volume and costs for brand-building initiatives, partially offset by higher pricing.
Cigars. The cigars segment's 2011 first-quarter financial results were negatively impacted by events following the 2009 federal excise tax (FET) increase on tobacco products. Middleton saw increased competitive activity, including significantly higher levels of imported, low-priced machine-made large cigars. Middleton responded with promotional investments to defend its position in the marketplace. In the first quarter of 2011, the cigar segment's net revenues and revenues net of excise taxes decreased 13.3% (from $135 million to $117 million) and 24.1% (from $87 million to $66 million), respectively, due primarily to increased promotional investments.
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