Altria Group Inc
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Altria Group Inc
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Good day, and welcome to the Altria Group 2017 Fourth Quarter and Full Year Earnings Conference Call. Today's call is scheduled to last about 1 hour, including remarks by Altria's management and a question-and-answer session. [Operator Instructions]
I would now like to turn the call over to Mr. Bill Marshall, Vice President, Investor Relations for Altria Client Services. Please go ahead, sir.
Thank you, Bridget. Good morning, and thank you for joining us. We're here this morning with Marty Barrington, Altria's CEO; and Billy Gifford, Altria's CFO, to discuss Altria's 2017 fourth quarter and full year business results. Earlier today, we issued a press release providing these results, which is available on our website at altria.com and through the Altria Investor app.
During our call today, unless otherwise stated, we're comparing results to the same period in 2016. Our remarks contain forward-looking and cautionary statements and projections of future results. Please review the forward-looking and cautionary statement section at the end of today's earnings release for various factors that could cause actual results to differ materially from projections. Future dividend payments and share repurchases remain subject to the discretion of Altria's board. The timing of share repurchases depends on marketplace conditions and other factors.
Altria reports its financial results in accordance with the U.S. generally accepted accounting principles. Today's call will contain various operating results on both a reported and adjusted basis. Adjusted results exclude special items that affect the comparability of reported results. Descriptions of these non-GAAP financial measures and reconciliations are included in today's earnings release.
Now I'll turn the call over to Marty.
Thanks, Bill. Good morning, everyone, and thanks for joining the call. Altria had another strong year in 2017. We delivered outstanding financial performance and continued to focus on rewarding our shareholders. In 2017, we grew adjusted diluted earnings per share 11.9%, built on the success of our core tobacco businesses and complemented by the effects of federal income tax reform. We paid out more than $4.8 billion in dividends and repurchased more than $2.9 billion in Altria's shares. We are extremely proud of our company's long-term track record of creating value for our shareholders. From the end of 2012 through 2017, we paid shareholders $21 billion in dividends and repurchased more than $6 billion in shares.
Altria's total shareholder return of 9.4% in 2017 follows 4 consecutive years of 20-plus percent returns. Over this 5-year period, our total shareholder return of 181% outperformed both the S&P 500 and the S&P Food, Beverage and Tobacco Index by more than 70%.
Let's look first at our full year results, and then we'll say a word about the recently enacted tax reform legislation before turning to 2018 guidance.
In 2017, we continued to maximize core while innovating for the future. Our core tobacco businesses delivered strong income growth and expanded their already-high margins despite a year that presented some unique challenges in each business. We also, in 2017, accomplished several important strategic initiatives for future success, including making significant progress toward our goal of becoming the U.S. leader in authorized noncombustible reduced-risk products. We advanced our lead market commercialization plans for IQOS, prepared a modified risk tobacco product application for Copenhagen Snuff and invested in new innovative products at Nu Mark.
Our smokeable segment strategy continues to be to maximize income while maintaining momentum on Marlboro and Black & Mild over the long term. In 2017, the smokeable products segment delivered strong adjusted operating company's income growth of 7% and expanded adjusted OCI margins by 3 percentage points to 51.2%.
Across our brand metrics, Marlboro continues to have category-leading equity, strong demographics, and of course, is highly profitable. As for retail share, it remains the leading brand by far, but Marlboro declined by 0.4 share point to 43.3% for the year. The decline is explained by the challenging dynamics we've been describing, specifically the effects of California's $2 per pack SET increase and elevated competitive activity, which continued into the fourth quarter.
We look at share performance over the long term. And from 2011 through 2017, Marlboro's share grew by an average of about 0.1 of a point annually. But there's no question that 2017 presented a share challenge to PM USA, which is addressing by reallocating marketing resources and investing in product and packaging innovation. On the product side, Marlboro Black Label and Marlboro Ice are the latest innovations from Marlboro. In October, PM USA announced the expansion of Marlboro Black Label in California and Washington state. And this week, PM USA began its national expansion of Marlboro Ice. Marlboro Ice enhances Marlboro's menthol offerings and comes in an innovative reseal pack.
In November, PM USA expanded Benson & Hedges menthol into select stores in Maryland, Virginia and Washington, DC to complement Marlboro's menthol portfolio. We expect these and other actions planned for 2018 to help stabilize Marlboro share and enhance PM USA's premium offerings for the long term.
From a portfolio perspective, with the Nat Sherman acquisition in 2017, Altria now has a presence in the super-premium cigarette segment. Since the acquisition, we successfully integrated Nat Sherman, expanded its cigarette production capabilities, and aligned them with our strong distribution system. In the fourth quarter, the Nat Sherman team began a lead market test in Colorado for its repositioned brand, Nat's. We're very pleased with the early results and excited about the opportunity to compete more effectively in the super-premium segment.
We continue to build our portfolio of noncombustible nicotine-containing products for authorization by the U.S. Food and Drug Administration. In USSTC, we have the most profitable, noncombustible tobacco business in the world. The smokeless segment delivered outstanding adjusted OCI growth of more than 11% in 2017 despite the voluntary recall. Copenhagen continued to grow, and USSTC improved Skoal's overall profitability while investing behind its snus and blends offerings. Copenhagen's retail share grew 0.5 share point to 33.7%. On a combined basis, Copenhagen and Skoal retail share declined 0.9 of a share point, reflecting USSTC's continued focus on growing Copenhagen while refining its Skoal investments to enhance profitability. The product recall also affected retail share in the year, predominantly for Skoal. We're excited about USSTC's role in a regulatory framework that recognizes the continuum of risk. The MRTP application for Copenhagen Snuff is on schedule to be submitted this quarter.
In e-vapor, Nu Mark grew MarkTen's volume by approximately 60% driven by expanded distribution and category growth. MarkTen had a full year national retail share of approximately 12.5% in mainstream channel. Nu Mark expanded the distribution of MarkTen Bold to approximately 25,000 stores. At Investor Day, we displayed Nu Mark's expanded product portfolio, which it built through a combination of internal development, joint development with PMI, strategic partnerships and acquisitions. These products include APEX and VIM by MarkTen, which are 2 closed tank systems, and MarkTen Elite and CYNC, which are 2 pod-based products.
In Heated Tobacco, the team at PM USA has made significant progress on its commercialization plans for IQOS, including a consumer engagement program and the development of digital strategies. The team is ready to act promptly upon FDA authorization of IQOS.
So in summary, we're very pleased with our performance through a dynamic and challenging year.
Let's now turn to the recently enacted tax reform legislation. As we mentioned earlier, the strong 2017 results from our operating businesses were complemented by tax reform. As a result of a onetime deemed repatriation tax related to the legislation, the dividends we received from AB InBev last year were tax-free on an adjusted basis and lowered our 2017 adjusted tax rate. Beginning in 2018 and going forward, our results will benefit from the lower 21% U.S. federal statutory corporate rate and lower taxes on AB InBev dividends.
So let's turn to our guidance for 2018. We expect to deliver full year 2018 adjusted diluted earnings per share of $3.90 to $4.03 per share from a 2017 adjusted diluted EPS base of $3.39. This range represents a growth rate of 15% to 19% from 2017 and reflects expected higher net earnings as a result of tax reform net of strategic long-term investments we are making in our business. These investments are focused on key areas of long-term growth, including innovative product development and launches, including IQOS, regulatory science, equity enhancements to our brands, retail fixtures and future retail concepts. For example, our guidance reflects both anticipated investments in the IQOS lead market and equity enhancements designed to help stabilize Marlboro's share.
Our 2018 plan includes reinvestment of approximately 1/3 of the total tax reform benefit we are receiving with a moderating level of investment in subsequent years. We believe this balanced approach will deliver annual adjusted diluted EPS growth rates above our long-term 7% to 9% aspiration through 2020.
Before turning the call over to Billy, today, we announced my decision to retire later this year when I turn 65. I'll step down following our annual shareholder meeting in May, after 25 years of service with the company. Though this change won't occur until May, let me say a word about it, most especially about Howard and Billy. Through its long-term succession planning process, the board has elected Howard Willard to serve as the company's next Chairman and CEO. Howard is immensely qualified to lead Altria, having served in numerous leadership positions during his 25-year career with us. Billy Gifford has been elected to serve as Vice Chairman and Chief Financial Officer, reflecting his leadership and the valuable contributions he's made to our company. I just can't imagine 2 leaders more qualified and ready to take our company forward. Howard and Billy, with the other talented members of our leadership team, have been key contributors to the strategies that have delivered our strong results for the last several years. I firmly believe our business is well positioned for future success, and I'm confident we have the right leadership in Howard, Billy and the team to deliver continuing winning results.
Now here's Billy with more detail on our performance.
Thanks, Marty, and good morning, everyone. Let's start with some further color on the smokeable products segment. For the full year, smokeable segment reported cigarette shipment volume declined 5.1% primarily driven by the industry's rate of decline, retail share declines and 1 fewer shipping day. When adjusted for calendar differences, PM USA's cigarette shipment volume declined by an estimated 5%, and total industry cigarette volumes declined by 4%.
The fourth quarter reported cigarette shipment volume numbers were especially noisy with inventory movements, declining by 8.9%. When adjusted for inventory movements, PM USA's cigarette shipment volume declined by an estimated 6.5%. Total industry cigarette volume declined by an estimated 4.5%.
The cigar business continues to perform extremely well. For the full year, cigarette volume -- cigar volumes grew nearly 10% as Black & Mild volumes grew 10.7%. For the full year, smokeable segment adjusted OCI margins expanded by 3 percentage points to 51.2% driven primarily by higher pricing and lower SG&A expense. In the fourth quarter, adjusted OCI margins increased by 3.2 percentage points to 49.9%, primarily due to higher pricing, lower costs and lower promotional investments, partially offset by higher resolution expense.
In the smokeless segment, USSTC's reported shipment volume declined by 1.4% for the full year, reflecting, in significant part, lost volume from the voluntary recall. After adjusting for trade inventory movements, USSTC estimates that adjusted smokeless products shipment volume declined by 2% for the year. In the fourth quarter, smokeless segment volumes declined by 0.6%. After adjusting for trade inventory movement, USSTC estimates that adjusted smokeless products shipment volume declined by 2.5%. USSTC estimates that smokeless products category volume was essentially unchanged over the past 6 months.
Smokeless products segment full year adjusted OCI margins expanded by 3.4 percentage points to 67.8% driven primarily by higher pricing and lower costs, partially offset by unfavorable mix. In the fourth quarter, adjusted OCI margins increased by 8.7 percentage points to 68.1% due primarily to the same factors.
Turning to our alcohol assets. For the full year, wine segment adjusted OCI declined 12% due primarily to lower volume. In the fourth quarter, Ste. Michelle's adjusted OCI was essentially unchanged from the year-ago period. In beer, fourth quarter adjusted equity earnings from our investment in Anheuser-Busch InBev were $251 million, reflecting AB InBev's third quarter results, which it reported in October. As a reminder, a year ago, we had essentially no adjusted fourth quarter equity earnings from our beer investment as a result of the 1 quarter reporting lag.
Marty mentioned tax reform, so let me take a moment to explain this in a bit more detail. There were 3 main effects of tax reform on our results and ongoing business. First, in 2017, we revalued our net deferred tax liabilities to reflect the new lower rate. We also incurred a onetime tax related to our share of accumulated earnings from our historic beer investment, often called a deemed repatriation tax. The net tax benefit of these items is reflected in our reported results, and we've included more details on our housekeeping page posted to altria.com. Second, beginning in 2017 and going forward, we'll benefit from lower taxes on AB InBev dividends we receive. And third, we expect our 2018 adjusted tax rate to be between 23% and 24% primarily due to the lower corporate tax rate and lower taxes on ABI dividends.
Turning to our share repurchase program. We repurchased more than $2.9 billion in shares in 2017, including approximately $558 million in the fourth quarter, leaving $18 million in the program as of December 31. We subsequently completed the program in January, and yesterday, the board authorized a new $1 billion share repurchase program, which we expect to complete by the end of 2018. We expect 2018 full year capital expenditures to be between $200 million and $250 million and depreciation and amortization expenses of approximately $210 million.
That concludes our prepared remarks, and Marty and I are now happy to take your questions. While the calls are being compiled, I'll remind you that today's earnings release and our non-GAAP reconciliations are available on altria.com. We've also posted our usual quarterly metrics, which include pricing, inventory and other housekeeping items.
With that, operator, do we have any questions?
[Operator Instructions] And our first question comes from Chris Growe with Stifel.
And Marty, I was surprised to see the news this morning, but I wanted to wish you well. It's obviously very well-deserved. So I just had a couple of questions very quickly.
Thanks, Chris.
Sure, sure. A couple of questions very quickly. I guess, I just -- we haven't heard from -- other than maybe a press release from Philip Morris, just it's this kind of the assessment at TPSAC meeting last week, and I guess, it's a bit of a mixed result that came out of the meeting in terms of the voting there. But -- and I never realized it's not a binding decision. But so -- and maybe you could share your thoughts on how that process went and kind of how you're looking at 2018. It sounds like you do hopefully expect to launch that throughout the year.
Yes. Look, it's been widely covered and analyzed, and I agree with much of what has been written about it. Chris, I think the best way to see it is it's an important step forward in the process that's required to get an MRTP approval, which we continue to believe will be the case. I thought that the teams who presented did an amazingly good job of presenting the science and the evidence and then responding to questions. I thought it was extremely important that the TPSAC was convinced very thoroughly, convinced, obviously, that IQOS significantly reduces exposure to constituents of concern. So we're looking forward to continuing to work with PMI and the FDA on that. And our view is that it had, if anything, a positive effect on the PMTA application.
That's great. And then just a question for you about your investments you're making in 2018. And I think you have a broad array of areas in which you're investing, and obviously, the tax benefit allows for that. I'm curious, as we think about -- without getting too specific, of course, but like as you -- you have a lot of investments in, say, reduced-risk product, done a lot of activity this year, as well as investments back in the underlying business. Is there any way you can better characterize where you're putting is most of the incremental investment dollar going behind reduced-risk products and MRTPs and that kind of thing? Or is it more behind the base business?
It's both. And we tried to articulate it both in the release and then in our remarks, Chris. But I can try to give you an inflection point or 2, if it'll help, within the bounds of trying to be wise about competition. We have several areas that we've called out. So if you look at innovative products, which is obviously, a significant step forward for us, we have investments in there for the IQOS launch, that's our plan. We expect to get that approval, and so we put investment there. We're going to expand MarkTen Elite, which is a pod-based product, and there's going to be investment there. You remember from the investment day, for example, that Brian Quigley was talking about, an expansion of our Verve product. And all of that, of course, has to be supported by regulatory science. So those of you who watched the TPSAC, I think now understand the importance of having very good science done and good clinical trials, and that all takes investment. In the core, what we're trying to do is make sure that the long-term equity of our brands is strong. That's why we have the successful business we have. So whether it's the national expansion of Marlboro Ice or what I described in the remarks around investing in hedges or improving our digital platform, those are all areas that we invest in. But we now have some benefits from the tax reform, and so it's a good year to make those further investments because they will pay long-term returns for shareholders. So I don't want to get into numbers, as you can appreciate, Chris, but those are the areas we're thinking about.
And your next question comes from Judy Hong with Goldman Sachs.
And best wishes to you from me as well, Marty.
Thank you.
So I guess just going back to investments and kind of guidance, because I think that given Marlboro's relatively soft share performance in 2017, there's a lot of people concerned that this investment implies potential for sort of changes in terms of how you're thinking about pricing or promotions. So I guess, if you could just maybe elaborate on sort of that, not being the case, because it sounds like it's -- a lot of it is equity and innovation-driven activity. And then when you think about Marlboro, you talked about California and elevated competitive activity, so share performance for Marlboro outside of California, and how do you expect the share performance to progress in 2018 because, obviously, you're going to be starting to lap the California tax in April of this year?
Sure. I think your description is good, one about the investments, which is that is going to be equity and innovation-driven. Our strategy continues to be to maximize income in the smokeable segment while maintaining momentum. Momentum is best measured over time, I think, and is best measured over multiple metrics. Share is one, and it's important, but it's not the only one. So I won't reprise this in full because I know you know it. But when we look at its equity, its demographics and its profitability, Marlboro is in really good shape. But you heard me call out unique challenges. When California, a market of that size, has a $2 per pack SET, increase all at once, it disrupted the market there. The good news is that in the fourth quarter, the Marlboro shares stabilized in California, so we're hopefully now in the section where we can reset from that base. What we're trying to do is to stabilize Marlboro share, which I believe the team has excellent plans to do and some of the remarks we've already made about that, and that's the objective. But it's always done within the context of the strategy, which is to maximize income. So it's about equity. It's about innovation. Of course, you have to compete, but we're mindful of how the category operates for us.
Okay. And then just going back to guidance. So I know it's an unusual year just because you've got this tax benefit. But if you kind of strip out the tax benefit, given the reinvestment, it actually does imply very little, if at all, earnings growth. So I'm just curious, number one, had there not been a tax reform, would you have actually guided to kind of a flat year in 2018? And as shareholders, and I think this is probably more important question, as shareholders, how do you think they should assess whether these investments are really paying off? I mean, is it really about earnings growth being above your long-term targets? Would top line growth have to accelerate more meaningfully? Just understanding how you would recommend us to kind of assess whether these investments are actually the right investments.
Yes. I'm not going to tear its constituent parts apart as you can appreciate. But I think the best evidence of what we would have done, absent the tax reform, is what we have done, which is we have grown at about an 8% adjusted EPS growth rate through thick and thin. We obviously have the benefit of the tax reform. What we've tried to do is to be thoughtful about it, so that we can make the investments that are appropriate for the long term, reward shareholders. My goodness, 15% to 19% guidance at the adjusted EPS line. And remember, Judy, it's off a higher base right of $3.39. So we think that's the right thing to do. There will be some variability at the operating company income line because we make investments, and as you know, depending upon when they hit and the timing of each quarter, and what I would suggest investors is they just look past that because we continue to have strong operating companies that are consistent in their strategies, and we're guiding to 15% to 19% EPS growth. And then even though we don't guide past '18, we knew there would be interest in understanding what might happen in '19 and '20, and that's why we made the comment we did about we would expect to moderate the investments after that. So investors should expect that as well. I hope that's helpful to you, but I don't want to tear apart adjusted guidance.
And your next question comes from Adam Spielman with Citi.
First of all, my congratulations on your retirement. I hope it goes very well.
Thank you, Adam.
And just very quickly, there was a question that actually Judy asked that didn't get answered, which is an interesting one, is how we should judge the success or not of the investments. I guess there's one way of thinking about that is in terms of Marlboro market share. You've used the term stabilized. And I guess the question is, if at the end of 2018 you have the same market share as you had in 4Q '17, that's, in my mind, would be stabilized, but I would've thought you'd want to see it sort of claw up towards the high 43s as opposed to just staying at around 43%. So I guess that's one question, and I do have a completely separate follow-up question on the tax.
Okay. Let me take the first one then, Adam. I think when you are declining throughout 2017, the first order of business is to get it stabilized. So I think that's the sensible thing to do, and the way that we're going to do that is through equity investments and other means that I've already described, so I won't repeat that. I also think that it is helpful for people to remember that share is 1 of 4 measures that we use to measure the brand health, and so that's another way to answer Judy's question, which is, well, how is Marlboro's equity, how are its demographics, what is the profitability that it generates. And so those are good metrics, along with share, I think, to gauge the brand health. And I won't repeat again to you what you already know, which is those metrics are all very quite strong. We had a unique year with the share, and we're addressing it.
Yes. No, that's fair enough. And then just turning to the tax. Obviously, the national tax rate has gone to 21%. You're suggesting you're going to have a tax rate of 23% to 24%. And I was just wondering if you could highlight why and what the difference is between that 21% national rate and the 23%, 24% you expect to have.
Yes, Adam. The major difference there between those 2 numbers that you're quoting is state tax impact. So that's an all-in number for us.
And your next question comes from Bonnie Herzog with Wells Fargo.
And congratulations on your retirement, Marty. You'll be missed.
Thanks, Bonnie. Appreciate that.
So my first question is on Marlboro. I guess, I wanted to hear from you guys if you were surprised with the magnitude of the sequential deterioration of the brand's share performance in the quarter. And then, how has some of your new line extension been performing on the brand such as Marlboro Ice?
Yes. Well, let me take the second part first. It's early, as you know. And I think you had a discussion with us at Investor Day about that. We continue to work through the effects of California, is the honest answer on the share question. And remember, we've got a quarter to go to lap it in 2018. But again, I'd encourage people to think about this over the long term. Again, I looked back over the last 6 years, on average, we gained about 1/10. In some years, it went up a lot, and then the questions were about, are you overheating Marlboro and how it's gone down because of California, and people get concerned about it. The brand health is strong. We have excellent new innovation that we're bringing to the brand. I think the team has very good plans for 2018, and that's how we're thinking about it. And I think we're going to have a strong year in 2018.
Okay. And then switching gears a bit, just on PM USA. I was hoping you could give us an indication of where you think the FDA might be [indiscernible] of your PMTA for IQOS. So I'm just trying to get a sense of the 180-day clock, and has it stopped, restarted along the way, so just trying to get a sense of when you might expect to hear a decision on that. And then, do you guys think that the outcome of the TPSAC meeting, given how the panel voted and the conversation, do you think that will have any bearing on the PMTA review process itself, just in terms of either the outcome or even timing?
Yes. So on the timing, I wish I could give you more, but it's a kind of a processes within FDA, so I really don't have any insight to share with you on that, other than the nominal time line that's in the statue and, of course, the activity that FDA has undertaken on it. I mentioned to another caller that we came away from the TPSAC believing that the team did an excellent job of presenting the case for the MRTP, and we remain very optimistic about that. And I don't think any damage was done at all to the PMTA. If anything, I mean, the TPSAC panel, which is, after all, an advisory panel, concluded that it reduced exposure relative to conventional cigarettes. And I would think that's an important thing that FDA will take into account in looking at the PMTA application.
Okay. And if I could just squeeze in one final question before I drop is, would love to get your take on the consumer and what you're seeing right now with the consumer, especially in terms of some growth we're seeing behind the deep discount or maybe 4-tier cig volume, and then your expectations for the consumer in this interesting year with tax reform and potential greater disposable income, especially for your demographics.
Sure. I'll give you the headline, then I'll give you the ledger. So the headline is I think we're net positive, okay? There are a number of continuing positive factors for our consumer. You know what they are, of course. But low unemployment, high consumer confidence, including for our consumer. We do see some wage gains starting to flow through, including with some minimum wage increases. Housing starts remain pretty stable, indeed, maybe up a tick. And it could be that tax reform will help our consumer. We certainly are hoping so. So I think those are all strong drivers. There are a few things that we watch. Naturally, we watch the excise tax environment. We're watching C store trends, and we're watching gas prices. So we do this every month, and we look at all of those. But right -- where we are right now, I think it's net positive. We're a long way into an economic uptick, but net-net, I think we're pretty positive on the consumer.
And your next question comes from Vivien Azer with Cowen.
I'll also extend my congratulations to you, Marty. Two questions for me, please. First, on the comment on above-algorithm EPS flow-through 2020. I just wanted to be clear, that's in each of the next 3 years, it's not just a function of '18 being above algorithms. So as you kind of think about the average growth through 2020, it's going to be above 7% to 9%.
I think I'll stick to what I said, so I don't get triple-wired here about guiding beyond the year in which we're guiding. So I'm -- I really have given you about as much as we can say about that without going astray there. What we're trying to communicate is because of the significant effect of tax reform, how we are thinking about it, not just for '18 but for '19 and '20. But I don't want to guide for '19 or '20. You just have to indulge me, Vivien, I'm sorry.
Certainly no. You can't fault me for trying, though. I wanted to follow up kind of on Bonnie's question, not necessarily about the consumer, and all of that makes a ton of sense. But specifically on your outlook for category volumes both in cigarettes and MST and, in particular, on the latter, at MST. If you could offer any thoughts on cross-category elasticities and the interaction with either cigarettes or e-cigarettes given the volume decline for the category.
Sure. We have some internal models on that, but I do think it's a fair conclusion that you do have movement between what an adult tobacco consumer is [ polly ] using products. I think the -- we estimate the category growth. The smokeless on a 6-month trailing basis, it's kind of flattish. It's probably due to 2 principal things. The first is price effects. There has been some pricing, including from excise taxes and interplay between the categories. And I would call out, in particular, . We've seen this once before, and it looks to us like there may be some interplay between cigarette smokers, for example, who may be going to vapor instead of to smokeless. That said, when I look at how UST did in a year with flattish volumes for the industry, its ability to grow more than 11% and to keep Copenhagen growing despite a recall on top, it was really a testament to the job they did, and I commend the UST team.
So just to be a little bit more specific then, do you think it's fair to kind of think of the MST category as flat now? I mean, obviously, like 5% growth, that was a long time ago at this point. But even kind of like 2% to 3%, is that reasonable anymore?
I don't know. We can only look at the data that we have. And we try to do it over a 6-month basis, Vivien, because there's a lot of movement up and down that distorts the numbers. But for the last 6-month period, it was flattish. I can't recall what it was on the last call, but it was in that range, I believe. So I can't predict what it's going to be, but we're watching it carefully because there is a lot of movement, I think, within the -- with the consumer within the categories.
And your next question comes from Nik Modi with RBC.
This is Russell Miller, on for Nik. Congrats, Marty, on your retirement.
Thank you.
We were wondering if you could provide more color on the competitive activity you mentioned in the release. Outside of California, is the competitive activity isolated to a certain geography or more broad? Any color there would be helpful.
Sure. Well, '17 was lively, I would say, on the competitive front. We had a lot of product expansions by competitors, including on multiple SKUs. Some of them were regional. I think that's actually a good insight into how the category is working increasingly, which is we tend to talk about all the national numbers, but we do see regional activity, and we see some activity, for example, in chains. A few chains have gotten behind some discount products. That push -- that puts pressure on everybody's brand, including ours. But you don't really see it affecting us, the discount that is, at the national level. Certainly, in the Southeast, we have some areas where there are products that are very significantly priced below our products, and that puts pressure on everybody's products. So I would say that it's always competitive in our industry, and '17 was no different. It may have been on the high end of what we've observed over the last couple of years.
And could you provide any more detail on the MarkTen Bold rollout and what the early consumer response there is?
Yes. It's been very good. I mentioned, I think, in the remarks, Russ, that we're now in 25,000 stores. And I think the consumer has reacted very well to the product, and we like what we see with MarkTen Bold.
And your next question comes from Matthew Grainger with Morgan Stanley.
And congratulations, Marty, as well. And we'll miss having the opportunity to work with you.
Thanks, Matt.
I guess, first question, just on the TPSAC meeting and the MRTP process. I know you've spoken about this a little bit, and I jumped on the call late, so apologies, if I missed anything. But just curious, lessons that you learned from those discussions and just the initial phase of the process so far, and not specifically to predict the outcome of the IQOS application, more just broader learnings that you can apply to trying to streamline the process for other applications you plan to file like for Copenhagen, for instance, in the future.
Yes, I think that's a good question. I think we learn every time we go there. And I think, you and I made and have discussed, we -- our presence during the Swedish match hearings and what we learned from that. Look, I think one takeaway is that the preparation really matters, and I thought that the teams were outstanding in that regard. I thought that they had complete mastery of the subject matter. They answered every question I thought very fully. But you can see the rigor that's going to be applied. That's probably the second insight, which is it is in the statute that these products should be approved. I continue to believe they are going to be approved. But there's no question that the applicant has to carry that burden, and that's how we're preparing our applications because we want to get the products approved. I think it's also useful to observe that there are TPSAC members and then the FDA itself, which will ultimately make the decision about whether it should be approved. I think that's another insight about the meeting dynamic that one can learn from, because after all, it is FDA that's going to decide it. But I think those are the insights, which is you need to have the science work done, you need to have a really good team that's going to present it, you need to anticipate the questions that will come, and then you really have to make the case for your product. And I continue to believe that's going to happen, and that's certainly what we're working toward.
Okay, Marty. And one question, just on the PM USA business, and you may have already said your piece on this. But I understand the comparative factors and the competitive dynamics that weighed on overall cigarette volumes. But I'm still just trying to understand the balance between the volume declines and the pricing realization during the quarter, the fact that promotional expenses were down, pricing was quite high. Is that -- I understand that, that's 1 quarter in time, but it's an unusual delivery of top line for you to have 7% to 8% price mix realization and volumes being down that much. Is there anything else you can add to why you chose to pull back on promotional expenses and felt that, that was the right approach to the business in Q4?
Well, it's really the reallocation, I would say, rather than pulling back. And Matt, it really is true that these things flow in and out of quarters, and it's really hard to extrapolate from that. But I'll try to help you by referring to the full year numbers. So when I look at the smokeable business, which, again, which had the share challenge, we've got income growing at about 7%, above $8.5 billion. We've got good margin expansion of 3 percentage points to 51%. The volume hit us because, obviously, with a 4% industry decline and the share challenge, we took more of a volume decline than we would have liked. We've already talked about Marlboro. So I've got net pricing for the year at about 5.9%. I would say that's within the range, but it's probably at the higher end of the range. And the other thing I'd say about '18, which may help, is we -- PM USA has 1 more shipping day in '18 than we had in '17. So that's how we look at it. I think they had a terrific year, not without its challenges, but in a segment that you run for income, I thought that they really did a good job.
And your next question comes from Michael Lavery with Piper Jaffray.
And Marty, congrats, too. You'll be missed.
Thanks, Michael.
Just wanted to touch back on the promotion side. I think one thing noticeably absent from your list of investments for 2018 is price, which I think investors would be encouraged by. But just in terms of some of the flexibility that you have there, can you touch on maybe how you're thinking about your positioning for Marlboro Ice? Will that have promotional spend or an introductory price similar to how say Special blend or Black first came on to the market?
No, it's going to have a mainline price, although we, obviously, will have offers to try to incent trial from competitive smokers.
Okay, great. That's helpful. And then as you touch on some of the color on the next couple of years, I realize you don't want to guide anything there. But if IQOS is approved for marketing authorization this year and gets into the market, it would presumably have a growing footprint over the next couple of years. Would some of the ability to moderate the spending over that same period be because a lot of the science costs come upfront and is more 2018-heavy? Is that the right way to think about it?
Well, I think there will be puts and takes. We have scenarios that we've built, depending upon what happens in the lead market. Obviously, if IQOS is a big hit as we believe and hope it will be, we will expand it and scale it up, and there will be costs associated with doing that. The -- most of the science work, I guess, would be -- would have been done on the PMTA under that scenario. But to the extent that further work needs to be done on the MRTP, we'll just have to see how that goes. This is the dilemma for us. We try to help you all with your modeling, but for us to tell you all the puts and takes would be to tell you something that we don't know until we see the year. So I'm trying to be careful about that.
And your next question comes from Priya Ohri-Gupta with Barclays.
Marty, congratulations on the retirement. Billy, I was wondering if we could just get some thoughts from you around how you're thinking about your debt profile going forward. You have a couple of early chunky high-coupon maturities this year and next year. Given some of the tax law changes, how should we think about your prioritization of paying those down versus refinancing those in the debt market?
Yes, thanks for the question. As you know, when we look at the debt, you've seen us take advantage of marketplace conditions in the past. It's all marketplace contingent. We have to assess the marketplace and decide what we're going to do. If not, then we reach the maturity date, and we go ahead and pay those off. So it really is marketplace-dependent, and I'm not going to get ahead of ourselves on that.
[Operator Instructions] And you do have a follow-up question from Adam Spielman with Citi.
I just want to -- so was thinking a lot about Marlboro. But I just like to return to the smokeless. Don't you think about Skoal and Cope all together? Obviously, your market share was down for the full year, 90 basis points, partly due to the recall. It has done a bit more than that in 4Q. And you said, for Marlboro, you said the first order was to stabilize market share. But if we think of those 2 brands together, Cope and Skoal, how, in broad terms, do you think we should think about it playing out? Because I guess, there will also be some equity investments in those, if I'm not wrong.
Correct. We're always investing in the equity of those brands, that's right. And the way we think about it -- no, that's all right. I think I have the thrust of your question. But if I don't, ask me again. But I think what you're really asking is what's the portfolio strategy there. And we've spoken about this in the past, and it hasn't changed. What we're trying to do is to unleash Copenhagen because it wants to grow, it's a terrific brand, and it's the aspirational brand in the category. We do have a brand that has large share in Skoal, and it has a role to play in the portfolio, particularly with respect to appealing to adult smokers who may want to come in to dipping, and that's why it has snooze, for example, and blends. But what we're trying to do is to increase the profitability of the overall portfolio, and we are doing that by changing the promotional mix on Skoal. So when you put those 2 constituent parts together, that's why you produce a year, for example, where you have income growth of greater than 11% is because Copenhagen is growing and because Skoal is more profitable.
But when I look at the 4Q market share for Cope, I mean, I understand the point about Skoal, but it was flat. And presumably, you'd like it to grow, not be flat.
It did. It grew 0.5 share point for the year, so that's why we try not to get too bound up in the quarter.
And at this time, I would like to turn the call back over to Mr. Bill Marshall for closing comments.
Thank you all for joining our call this morning. If you have any follow-up questions, please contact us at Investor Relations.
And thank you. This concludes today's conference call. You may now disconnect.