William Marshall - Altria Client Services Inc Howard A. Willard - Altria Group, Inc. William F. Gifford, Jr. - Altria Group, Inc.

Bonnie L. Herzog - Wells Fargo Securities LLC Michael S. Lavery - Piper Jaffray & Co. Pamela F. Kaufman - Morgan Stanley & Co. LLC Christopher R. Growe - Stifel, Nicolaus & Co., Inc. Vivien Azer - Cowen & Co. LLC Nik Modi - RBC Capital Markets LLC Judy Hong - Goldman Sachs & Co. LLC Adam J. Spielman - Citigroup Global Markets Ltd. Steve Powers - Deutsche Bank Securities, Inc. Petros Voulgaris - Goldman Sachs

Good day and welcome to the Altria Group 2018 second quarter earnings conference call. Today's call is scheduled to last about one hour, including remarks by Altria's management and a question-and-answer session. 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 Mr. Bill Marshall, Vice President, Investor Relations for Altria Client Services. Please go ahead, sir. William Marshall - Altria Client Services Inc: Thank you, Laurie. Good morning and thank you for joining us. We're here this morning with Howard Willard, Altria's CEO, and Billy Gifford, Altria's CFO, to discuss Altria's 2018 second quarter and first half 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 2017. 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 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. With that, I'll turn the call over to Howard. Howard A. Willard - Altria Group, Inc.: Thanks, Bill, and good morning, everyone. We continued our strong start to the year with adjusted diluted earnings per share growth of 18.8% in the second quarter. Our core tobacco businesses performed well, as they continued to make strategic investments in support of their long-term objectives. Of course, our results benefited from a lower corporate tax rate. We continued to reward shareholders in the quarter by paying over $1.3 billion in dividends and repurchasing approximately $437 million in shares. This is a dynamic time in the tobacco industry, and just as we lead in traditional tobacco products, we intend to lead in offering adult smokers more choices with innovative reduced-risk products. In May, we announced a new corporate structure to maximize our core tobacco businesses and accelerate our innovation pipeline. We believe that our new structure will enhance our ability to drive the change necessary for us to continue our success in the future. Let's move now to our operating segments. Our strategy in the smokeable products segment remains to maximize income while maintaining momentum on Marlboro and Black & Mild over time. So far in 2018, we are pleased with the performance of the smokeable products segment. Adjusted operating companies income declined 2.8% in the second quarter and 2.4% in the first half, as expected, given our investments. PM USA entered the year focused on stabilizing Marlboro with investments in product expansions, packaging innovations, and brand equity. We are encouraged with our progress in the first half, as Marlboro market share increased 0.1 share point to 43.2% from the fourth quarter of 2017. PM USA is successfully executing its strategy, which resulted in strong smokeable segment net price realization of 6.6% and 5.6% in the second quarter and first half respectively. We estimate that when adjusted for the significant trade inventory movements, the smokeable segment's cigarette volumes declined an estimated 5% in the second quarter compared to an estimated industry rate of decline of 3.5%. This is consistent with our view that industry volume declines would moderate as the effects of the California SET were fully lapped. While industry performance may be volatile on a quarterly basis, over the past four quarters the industry's rate of decline was approximately 4%, consistent with the historical long-term decline rate of 3% to 4%. We believe the adult tobacco consumers' economic situation remains positive, and we continue to closely watch the many economic factors, including gas prices and wage growth, that could affect their spending habits. In the smokeless products segment, USSTC delivered adjusted operating companies income growth of 3.5% in the second quarter and 13.5% in the first half. In the first half, business fundamentals were quite robust, with strong profit growth and net price realization. Copenhagen and Skoal combined gained 0.2 share point from the fourth quarter of 2017. As for volume, USSTC believes that smokeless industry volume growth continues to be affected by adult tobacco consumers moving among tobacco product categories. USSTC estimates that over the past six months, the smokeless products segment adjusted shipment volume declined an estimated 1.5% and smokeless industry volume declined an estimated 1%. You'll recall USSTC submitted its modified risk tobacco product application for Copenhagen Snuff in March, and earlier this month USSTC submitted premarket tobacco applications for VERVE Discs and Chews, innovative oral tobacco products that offer adult smokers a discrete choice to get tobacco enjoyment almost anywhere when smoking is not an option. In e-vapor, Nu Mark grew volume by approximately 16% in the quarter, and 23% for the first half, primarily driven by expanded distribution. Most recently, Nu Mark expanded MarkTen Elite from over 6,000 stores in the first quarter to more than 23,000 stores by the end of the second quarter. In heated tobacco, PM USA's initial lead market plans are ready. And upon FDA authorization, PM USA can begin importing IQOS into the U.S. While this will create a two to three-month period between FDA authorization and availability at retail, PM USA will take advantage of that time to activate its marketing plan, which will use a range of tools to build adult smoker awareness and demand in the lead market while gaining key insights for subsequent market expansion. Now, a brief update on regulatory items. You'll recall that in the first quarter, the FDA published three advanced notices of proposed rulemaking. Earlier this month, we submitted our comments on each of these ANPRMs, and they're available for review on altria.com. As we've said before, we believe we're in the early stages of a long-term process in which we will remain actively engaged. In summary, we had a great first half of the year and believe we are well-positioned for the second half. We remain positive on our core tobacco business fundamentals and believe macroeconomic factors remain supportive of adult tobacco consumers. And we continue to make strategic investments to support long-term strength in our core tobacco businesses and our pursuit of leadership in innovative products. In light of a strong first half and continued confidence in our core tobacco businesses, earlier this morning we tightened our guidance, raising the lower end of our full-year 2018 adjusted diluted EPS guidance range, which is now $3.94 to $4.03, representing a growth rate of 16% to 19% from 2017. I'll now turn it over to Billy to provide more detail on our quarterly performance. William F. Gifford, Jr. - Altria Group, Inc.: Thanks, Howard, and good morning, everyone. Let's begin with our smokeable products segment. In the second quarter, adjusted OCI decreased 2.8% and adjusted OCI margins increased 1.1 percentage points to 52.6%. Results were driven by lower cigarette volume, partially offset by higher pricing and lower promotional investments. Reported domestic cigarette volumes declined 10.8% in the quarter, permanently driven by a large reduction in trade inventories. As you can see in our housekeeping items, the trade entered the second quarter with significantly higher cigarette inventories than it did last year. Over the course of the quarter, wholesalers depleted PM USA inventories by an estimated 1.6 billion units, compared to a build of 600 million units in the year ago quarter. While there can be volatility quarter to quarter, inventory movements typically smooth out over time. Looking ahead, we are monitoring the effects on the cigarette category from the excise tax increases in Kentucky and Oklahoma, which each went into effect on July 1. On a combined basis, these two states account for roughly 5% of U.S. cigarette industry volume, and Marlboro over-indexes with retail share, exceeding 50% in both states. As Howard mentioned, Marlboro's retail share was up a tenth of a share point from the fourth quarter of 2017. And we believe PM USA's investments in the first half have helped stabilize Marlboro. For example, in the first quarter, PM USA expanded Marlboro Ice nationally. We're encouraged by performance in the menthol segment. PM USA is pursuing options to adopt Marlboro Ice's innovative resale pack on other offerings in its portfolio. Additionally, Marlboro's Points West rewards program in Texas continued its early success by increasing Marlboro's digital engagement with adult smokers. Specifically, unique logins on Marlboro.com increased over 65% year-over-year in the State of Texas. Points West continues to exceed expectations, and we believe it will grow equity and loyalty among adult smokers. In the super-premium tobacco and water segment, Nat Sherman continues to build awareness and trial in Colorado, and we remain pleased with its performance. As a result, Nat Sherman expanded Nat's into 13 additional states across the Western U.S. in mid-June. In cigars, the business continues to perform well, as reported shipment volume grew 2.7% in the second quarter and 2.8% for the first half. Turning to our smokeless products segment, in the second quarter, USSTC grew adjusted OCI 3.5%, and adjusted OCI margins expanded 0.5 percentage points to 69.9%. These results were primarily driven by higher pricing, partially offset by lower volume. In the second quarter, USSTC's retail share declined two-tenths of a share point. Copenhagen's retail share remained unchanged at 34.3%, and Skoal's retail share declined 0.4 share points to 16.4%. Turning to our alcohol assets, Ste. Michelle grew adjusted OCI 8% in the second quarter, driven by higher volume and favorable mix, partially offset by higher marketing and sales expenses. In beer, adjusted earnings from our equity investment in AB InBev were $156 million in the second quarter, which reflects Altria's share of AB InBev's first quarter results. We continued to reward shareholders by returning significant cash to them through dividends and share repurchases. In the second quarter and first half of 2018, we paid dividends to shareholders of $1.3 billion and $2.6 billion, respectively. Altria's current annualized dividend rate of $2.80 per share represents an annualized dividend yield of 4.9% as of July 20, 2018, which compares to a 2.9% yield on the 10-year U.S. Treasury. We also repurchased approximately 7.6 million shares in the quarter at an average share price of $57.65 for a total cost of approximately $437 million. Through the first half of 2018, we repurchased approximately 15.6 million shares for a total cost of $950 million. In May, the board authorized a $1 billion expansion to the share repurchase program, and at the end of the second quarter, we had slightly more than $1 billion remaining in the current $2 billion repurchase program, which we expect to complete by the end of the second quarter of 2019. With that, we'll wrap up, and Howard and I will be 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. Operator, do we have any questions?

Thank you. Investors, analysts, and media representatives are now invited to participate in the question-and-answer session. We will take questions from the investment community first. Our first question comes from the line of Bonnie Herzog of Wells Fargo. Bonnie L. Herzog - Wells Fargo Securities LLC: Thank you, good morning. Howard A. Willard - Altria Group, Inc.: Good morning, Bonnie. Bonnie L. Herzog - Wells Fargo Securities LLC: Hi. I have a question on Marlboro. I guess I was hoping you could drill down a bit further to help us understand if some of the changes you made in the market earlier this year in terms of your promotional programs behind the brand are working. And then it appears there are some signs of stabilization already, but what's your outlook for the remainder of the year for the brand? And then do you guys have anything else in the pipeline to further improve the equity? Howard A. Willard - Altria Group, Inc.: Sure. I think if you look at the investments we made in the first half of this year behind Marlboro, probably the most significant one was the launch of Marlboro Ice, with an innovative package design. And that was launched at the Marlboro full price, although with some promotional offerings to drive trial. In addition to that, we've made some adjustments to our trade programs and improved the visibility of the brand at retail. So, I think we were quite pleased to see Marlboro up a tenth in the first half compared to fourth quarter, and we continue to believe we'll have plenty of activity in the second half of the year to continue with that stable to up trend on Marlboro. Bonnie L. Herzog - Wells Fargo Securities LLC: And then just a quick follow-on to that, in terms of the spending levels, Howard, how should we think about that just in terms of what you guys have got behind the brand in the first half? Do you expect those spending levels to ease as we head into the second half of this year? Or will they stay elevated? Howard A. Willard - Altria Group, Inc.: Well, I think as we look at the investments we've made behind the brand, I think we communicated that we plan to invest about a third of the tax reform benefit this year in a variety of investments, many of those in the innovative products segment, but certainly Marlboro received some of those investments. And we really expect those to roll out throughout the year. One thing I would point out though is that if you look at price realization on the smokeable segment in the first half, price realization was up about 5.6%. So, we had strong pricing, and I think that reflects the fact that although there was some trial offering on Marlboro Ice, overall, the price trend on Marlboro in the first half was quite positive. Bonnie L. Herzog - Wells Fargo Securities LLC: Okay. That's helpful. And then switching over to IQOS, and just maybe any update on timing of approval. I know you touched on this, but it just seems like you might think it could be any day now based on your remarks. And I guess I'm also suggesting this, and I'm aware that you guys have been certainly trying to secure additional shelf space at retail. So, I'd like to hear it from you how you think these efforts have gone, and then are you getting the space you need for IQOS? And has it been mainly incremental? And then finally on this topic, I just would like to hear how you guys are thinking about the rollout of IQOS, now that BAT just received substantial equivalent approval from the FDA for their Eclipse heat-not-burn product. So, just wondering how you think about the positioning of IQOS relative to that brand, and are you concerned at all that IQOS may lose its first-mover advantage? Howard A. Willard - Altria Group, Inc.: Sure. I'll start off with the fact that we have been ready for quite some time to launch IQOS into the U.S. market, and we are really just waiting for FDA approval. And as is often the case with FDA, they move at their own pace. So, I don't know that we can make a good forecast of that, but we certainly have taken advantage of the time we've had to make sure that we've got a very solid launch plan for IQOS in the U.S. market. We've been learning from all of the experiences that PMI has had overseas, and we will be ready with a very compelling marketing offering in the marketplace. You are right that we have been contracting to gain additional space for innovative products at retail. And certainly that space would be available for IQOS, for e-vapor, and for a range of other innovative products we're bringing to the marketplace. We think that would give us plenty of room to display the portfolio of products that we have in the marketplace, and we've been quite pleased with our success in securing that space. I did read in the BAT announcement about the SE they got on what I guess is an improved version of the Reynolds product. And I think in some respects, probably there's some benefit to having a number of different heated tobacco products in the market. And I have to tell you, given the success that the IQOS heat-not-burn format has had around the world, I'm happy to compete in the market with IQOS against that BAT product. And we're just eager for the opportunity to begin marketing. Bonnie L. Herzog - Wells Fargo Securities LLC: Okay, thanks, and then just one final quick question for me on your guidance. The revised guidance certainly suggests you have increased visibility for the year, but I'm curious if you still expect that your EPS growth rates in FY 2019 and 2020 will be above your long-term 7% to 9% EPS growth aspirations, as you stated earlier this year. Thanks. Howard A. Willard - Altria Group, Inc.: At this point, there's no change to that expectation. Bonnie L. Herzog - Wells Fargo Securities LLC: Thank you.

Your next question comes from the line of Michael Lavery of Piper Jaffray. Michael S. Lavery - Piper Jaffray & Co.: Good morning. Howard A. Willard - Altria Group, Inc.: Hi, Michael. Michael S. Lavery - Piper Jaffray & Co.: Could you just give us an update on any potential tariff impact, either on your vapor products or, obviously IQOS isn't yet approved for launch. Would there be anything on the devices or potentially the Heatsticks there that we should have in mind? William F. Gifford, Jr. - Altria Group, Inc.: Good morning, Michael. From a tariff impact, we've had minor impacts from tariffs. I would call it clearly immaterial. We are monitoring to see if it's going to expand to any of the other categories, some of those that you mentioned, but we don't see any expectations at this point. So really, from a tariff to date, it's very immaterial to our business. Michael S. Lavery - Piper Jaffray & Co.: Okay, great, thanks. And on the state settlements, I just want to make sure I understand a couple things correctly. It looks like you're excluding those benefits from your adjusted earnings, but you're getting the cash. Roughly it seems like around $225 million. Is that the correct starting point? William F. Gifford, Jr. - Altria Group, Inc.: You're in the right range there, Michael. We try to exclude the benefits that were related to previous years, and so that's the exclusion you see between adjusted and reported earnings. Michael S. Lavery - Piper Jaffray & Co.: And I know there are quite a few states in there, and they may vary one to another. But does that close the books on all of those, or do those states still have any disputed amounts that could potentially lead to future additional settlements? William F. Gifford, Jr. - Altria Group, Inc.: That catches us up-to-date, Michael, for those that we've settled with. So that takes the total to, if you include states and territories, to 36. Arbitration process has started for those that are non-settling states, but there would be additional years potential for those that have settled thus far. Michael S. Lavery - Piper Jaffray & Co.: Okay, great. Thanks. And then just a last one, could you give any sense of now at the beginning of this quarter, we had fully lapped the California tax hike. Can you give any sense of just sequential momentum throughout the quarter, or maybe how the volume trajectory has been progressing and just what it may look like today? Howard A. Willard - Altria Group, Inc.: Sure. I think you're probably referencing that the cigarette category decline rate in the first quarter was about 5.5% on an adjusted basis for the industry, and in the second quarter, it was 3.5%. I think probably the biggest driver of that was, as you said, we lapped the California state excise tax increase. And I think that this was a fairly solid trend through the second quarter, and I think it was to be expected, although it's a bit complex because you've got the lapping of the California state excise tax increase. You've got generally a positive environment for adult tobacco consumers, but you do have gas prices up over 10%. And then you've got growth in the e-vapor category. But I think the best way to look at the overall impact of that is to look at the adjusted 3.5% decline number. Michael S. Lavery - Piper Jaffray & Co.: That's helpful. Just to clarify, within the quarter, was there any notable sequential evolution, or was it roughly steady close to that 3.5%? Howard A. Willard - Altria Group, Inc.: I don't know that we pay that close attention to week-to-week variations, but I think the 3.5% down for the quarter I think represented the trend well from the second quarter to the first. Michael S. Lavery - Piper Jaffray & Co.: Thank you very much. Howard A. Willard - Altria Group, Inc.: Thank you.

Your next question comes from the line of Pamela Kaufman of Morgan Stanley. Howard A. Willard - Altria Group, Inc.: Hi, Pamela. Pamela F. Kaufman - Morgan Stanley & Co. LLC: Hi, thanks for the question. I was wondering if you can talk about the acceleration in the e-cig category, and to what extent you think that JUUL's growth is coming from cigarette volumes. BAT mentioned today that they think there was around a 40 basis point impact to industry volumes from e-vapor in the first half. What's your estimate, and do you think that this impact is going to grow? Howard A. Willard - Altria Group, Inc.: Sure. I don't know that we have the information to make that precise a calculation. But clearly in mainstream retail channels, the e-vapor category has returned to very strong growth. I think what makes it a bigger challenge to gauge its impact on the cigarette category is that, unlike most of the other tobacco product categories, most of the volume in the e-vapor category falls in vape stores and on e-commerce that are less well measured. And so I think that some of the growth in mainstream retail channels likely represents cannibalization in those other channels. And then I think the second impact or the second thing to consider is that as part of the secular decline rate that makes up this long-term 3% to 4% decline, we normally view the secular decline rate as a 2% to 3% decline. That includes consumers that moved to other tobacco categories from cigarettes. It includes people that stopped tobacco products altogether, and it includes changes in their consumption in number of sticks per day. So, there's always a certain amount of movement between categories in that secular decline rate. And so, the real question here is, is there an abnormal amount of impact on the secular decline rate? And I think given the 3.5% decline for the cigarette category in the second quarter, I think it seems to be covered by that long-term decline trend. Pamela F. Kaufman - Morgan Stanley & Co. LLC: Okay, thank you. And just another question, I was wondering, what the disconnect is between what we're seeing in measured channel data, where Altria's volumes and market share are outperforming the industry versus what we are seeing in your reported results? Does that imply that we're seeing elevated weakness in non-measured channels that's contributing to the higher declines in your reported numbers? Howard A. Willard - Altria Group, Inc.: I think the best way to judge the way our business is performing over time is to rely on the IRI numbers that we generate and share in our quarterly earnings release. We have a custom IRI panel that is designed to accurately predict and project activity in any given quarter in mainstream retail channels. And of course, we go to great care to make sure that IRI has access to the new products we put in the market, any promotional activity. So, I think that's the best read. I know that there are some less complete services that others look at, but I think when we looked at it this quarter, certainly there are always differences. And frankly, sometimes those differences benefit the trends for our business, sometimes they don't. But I think our view is the best gauge of the success of our business is what we report in our quarterly earnings release, and we go to great care to make sure the year-over-year comparisons are fair. Pamela F. Kaufman - Morgan Stanley & Co. LLC: Thank you.

Your next question comes from the line of Chris Growe of Stifel. Christopher R. Growe - Stifel, Nicolaus & Co., Inc.: Hi, good morning. Howard A. Willard - Altria Group, Inc.: Good morning. Christopher R. Growe - Stifel, Nicolaus & Co., Inc.: Hi. First I have a question, Howard, in relation to the inventory movements. I feel compelled to ask about that at least. But I know it's going to happen from quarter-to-quarter. I'm just curious, as you see inventory levels now, do you regard them to be at the right levels, if you will? They obviously are below the year ago. You had a larger decline than the category overall. So, I'm just curious if you could characterize the inventory levels overall? Howard A. Willard - Altria Group, Inc.: I'll turn that over to Billy. William F. Gifford, Jr. - Altria Group, Inc.: Yeah, Chris, you're right. I think it was exacerbated in the second quarter. As I mentioned, we saw depletions of 1.6 billion in the second quarter of 2018, and the opposite was taking place in 2017. They built inventories by 600 million. I think there are a number of different strategies that wholesalers and retailers use to manage their inventories. So that causes, to your point, distortions in the short-term. I think if you look over a longer-term period, you'll see that inventories are generally in line with consumer consumption. And so, I would encourage us to look over a longer period of time to really gauge where inventories are. You're right. Inventories are at the lower end as we ended the second quarter. Christopher R. Growe - Stifel, Nicolaus & Co., Inc.: Okay. Thank you. And then just a question for you on that, and you'd given some information in your release about the deep discount share growing and discount overall though, just growing modestly. It seems like L&M is getting caught up in that and then performed poorly in the quarter. I just was curious how you're addressing that. If there's any actions you've taken to address that shift in share amongst the discount segment? Howard A. Willard - Altria Group, Inc.: Sure. I would say we are addressing that L&M weakness in a measured way. I think it's helpful actually to go back and look at the discount category trends over a longer period of time, and I went back to 2011, which is the year before we launched the new Marlboro architecture. And if you look at first half trends in the discount category from 2011 to today, we've had growth of over a share point in our discount share, and that was really all driven by L&M. And the discount category is down over a share point over that period of time. What has happened more recently is that the overall discount category, I would say is stable. If you wanted to find a tick-up, it's up a tenth in the first half of this year compared to 2017, but I don't think that's a significant move. Really, the only news you can find I think in the discount category is that during that time period, branded discount gave up four-tenths and deep discount picked up five-tenths. And certainly, some of that share that branded discount loss came from L&M in this very short-term period. But I think to understand that, you have to consider two things, which is the margins on the branded discount products, which continue to make up the majority of the share in discount, have improved quite a bit since 2011, which is a real positive. And then secondly, while the economic situation is generally positive for adult tobacco consumers, it is being somewhat unevenly distributed, and I think there are some consumers that continue to be under economic pressure. And it's not surprising that a few of them are finding value in the deep discount, cheapest cigarettes in the store. I think our view is that first and foremost, we're pleased that the overall category is flat and it's healthy for premium brands, given our focus on Marlboro and on Nat's. And then secondly, I think we like the margin on L&M. So, we'll monitor it, but I don't think there's any significant action we feel is necessary. We're doing it more by making small adjustments on a state by state basis. Christopher R. Growe - Stifel, Nicolaus & Co., Inc.: Okay. Thank you for that color. Howard A. Willard - Altria Group, Inc.: Thank you.

Your next question comes from the line of Vivien Azer of Cowen. Vivien Azer - Cowen & Co. LLC: Hi, good morning. Howard A. Willard - Altria Group, Inc.: Hi, Vivien. Vivien Azer - Cowen & Co. LLC: So, following up on that theme, it's interesting that the cigarette industry volume declines are normal I think. Very encouraging to see that. That said, like you are seeing the deterioration in MST. So, is it your view that there's more kind of cross-elasticity of demand between some traditional tobacco categories relative to others? I'm just still trying to make sense of those diverging trends. Thanks. Howard A. Willard - Altria Group, Inc.: I think you are right. You used to have a smokeless segment that was growing, call it 4% to 5%, and now the category is flat to slightly down. I think probably the first driver of that is that there has been more price increase in the category over the last couple of years than there was previously. And just like there's a price elasticity in cigarettes, there also is in smokeless. So, that is certainly one driver. But then I would say the second driver, I think, is that if you go back five or six years, I think that the primary beneficiary of adult cigarette smokers moving out of cigarettes to alternative products was probably the smokeless category. And I think now that you have the e-vapor category that's got some new product options and is back in growth, I think that category potentially is intercepting some consumers that, in the past, would have gone to smokeless. Vivien Azer - Cowen & Co. LLC: Perfect, that's helpful. Thank you. And I heard your message on the IRI, but unfortunately, I subscribe to Nielsen. And so, when we're looking at the category price elasticity on combustible cigarettes, that data looks like it's deteriorating. So, can you comment on what you've been seeing in terms of cigarette price elasticities? Thanks. Howard A. Willard - Altria Group, Inc.: Sure. I'll hand it over to Billy, who I think is familiar with the number. And it sounds like you may be actually referencing relative pricing and mix, but we can certainly address any question about elasticity as well. William F. Gifford, Jr. - Altria Group, Inc.: Yeah, just to answer your question on elasticity right away, we see it's unchanged at this point. It's the negative 0.3 that we've quoted for quite a while, and that's been in place for well over 10 years. I think when you look at retail, there are a number of things that are moving price at retail. You have excise taxes in the prior period that don't repeat in this period. I think sample differences can cause that. So, we try to go right to the – our detailed information, and we're seeing it hold at negative 0.3. Vivien Azer - Cowen & Co. LLC: That's great. Thank you so much.

Your next question comes from the line of Nik Modi of RBC Capital Markets. Nik Modi - RBC Capital Markets LLC: Yeah, thanks. Good morning, everyone. The question is on just helping dissect the delta between the Marlboro volume declines and the industry volume declines. Just trying to get better perspective on what you think is driving that disconnect, just so we can understand kind of the future and forward drivers. That's the first question. Howard A. Willard - Altria Group, Inc.: Yeah, I mean I think the explanation of the category being down on an adjusted basis 3.5% and us being down more than that is quite simply the fact that on a year-over-year basis, second quarter this year compared to last year, Marlboro did lose some share. But when you look at our share trends in the first half compared to fourth quarter, we're up a tenth of a share point. And I think if you run the math, the share difference really explains the difference between our smokeable segment's decline rate versus the adjusted number for the industry. Nik Modi - RBC Capital Markets LLC: That's a fair point, Howard. I'm just trying to understand, like was it the excise taxes, I mean, as you kind of look at the business and try to understand why the share losses occurred? That's what I'm trying to get at just some of the drivers? Was it the new excise taxes? Are you more sensitive to gas prices than maybe some of your competitors? I'm just trying to get a little bit more context around that. Howard A. Willard - Altria Group, Inc.: Sure. I'm sorry. I understand your question now. I think if you look at last year, after a number of years of modest positive share growth, Marlboro's share had a tough time last year. And I think there were really two primary drivers of that. The first was the California state excise tax increase. And while that impacted all of the premium brands and all the brands in the market, it was a large excise tax increase at $2, and it was in a geography, where Marlboro was significantly overdeveloped. So, it had a greater impact on Marlboro, which essentially impacted Marlboro's share trend last year. And then the second driver of that was that we had a heightened level of competitive activity and competitive spending last year that we decided to be more restrained in responding to, with the knowledge that we knew we had a good first half and full year plan for this year. So, we gave up some share last year. You'll recall that while we gave up some share, we had quite strong profit growth and price realization in the smokeable segment, and essentially, we decided to really make our investments to stabilize Marlboro in the first half, which we're pleased has come through. Nik Modi - RBC Capital Markets LLC: Thanks, Howard, for that. And then the second question, just maybe you can give us an update on some of the e-vapor products. I know you said it grew 16%, but just trying to get an understanding of maybe some of the consumer metrics behind MarkTen Bold and MarkTen Elite. Howard A. Willard - Altria Group, Inc.: Sure. I think there's some insight in the way you asked the question. If you look at it, the primary products that we have in distribution at retail in large numbers of stores are the Original MarkTen, the MarkTen Bold product with nicotine salts, and then MarkTen Elite. The drivers of the growth in second quarter and first half was MarkTen Bold and MarkTen Elite. So those products are getting traction with consumers, albeit in the shadow of a product that's growing much more quickly. And then we continue to focus on some of the other products in our pipeline, but they are not distributed in retail in any significant numbers. Nik Modi - RBC Capital Markets LLC: Great. Thanks, Howard. Howard A. Willard - Altria Group, Inc.: Thank you.

Your next question comes from the line of Judy Hong of Goldman Sachs. Judy Hong - Goldman Sachs & Co. LLC: Thank you, good morning. Howard A. Willard - Altria Group, Inc.: Good morning, Judy. Judy Hong - Goldman Sachs & Co. LLC: So I wanted to go back to the e-vapor category and just wanted to get your assessment in terms of what you're seeing from JUUL, because I guess in the past when you talked about the brand leadership in that category, you've talked about how that cycle is pretty short. You've got new product coming into the category, and that leadership changes pretty quickly. Clearly, that brand has maintained very strong momentum, getting distribution gains as well, and velocity is still very high. So I'm just wondering, from your perspective, how would you characterize that brand's leadership and the sustainability of that leadership versus some of the prior products in that category? And what data points would you be watching to gauge how much it's impacting the Marlboro's performance or just the combustible business in general? Howard A. Willard - Altria Group, Inc.: Sure. There's no question JUUL has had a strong performance with regard to volume growth in mainstream retail channels in the first half, and you are right that this has happened before. I'd reference back to – I call this the third growth phase of e-vapor in the U.S. The first growth phase was in 2013 and the second was in 2014. Both of those growth phases were driven by new, different products being offered into the market, and they went through a period of very strong trial, and then ultimately, consumers that tried them sorted themselves out. Many went back to their traditional cigarette product, and then some decided to continue to dual use or switch to those e-vapor products. Actually, interestingly enough, the amount of growth that happened in 2014 seems to line up with the rapid growth that's happening in 2018 if you look at it on a number of pods or number of milliliter basis. And I think this growth phase is really depending on whether you measure it either two quarters in or three quarters in. So I think based on historical patterns, if it follows, you'd expect that it could have some more room to run here through the end of the year. I think the best indication of its impact on the cigarette category is to look at the adjusted cigarette decline rate of 3.5% in the second quarter. And I would note that during the prior two growth phases for e-vapor, you had in both of those years a 4% decline in the cigarette category, albeit the smokeless category was growing at a higher rate, 2.5% and 5% respectively. So I think there's a fair amount of room in the secular decline rate that makes up that 3% to 4% decline for there to be growth in some of the smaller alternative product categories. Judy Hong - Goldman Sachs & Co. LLC: Okay, that's helpful. And then just following up on an earlier question about the investment spending, and I know you gave some high-level color just in terms of some of the initiatives that you have planned to do and have done so far. But I guess in terms of maybe timing of some of the spending, first half versus second half, would there be any big difference in terms of the phasing? And then the nature of the investment, so combustible versus the new products versus at a brand level, would there be any big differences in terms of the first half versus second half spending phasing? Howard A. Willard - Altria Group, Inc.: I don't think there's been real significant change in our spending plans or our phasing since we announced it earlier in the year. We're making investments in our smokeable segment and in our smokeless segment. Certainly in smokeable, the Marlboro Ice launch was included in that. And then we've made equity investments in both smokeable and smokeless in the first half. We've also invested in some of the expansions of our innovative products. I mentioned in the release that we've expanded VERVE into some test markets, and of course we've expanded our MarkTen Elite product. And then we've got a significant amount of scientific activity going on to support future applications to the FDA. The only thing I think is worth calling out from a timing perspective is that we did include in our investment plans for this year the lead market launch of IQOS. And that is obviously FDA approval dependent. So we'll have to wait and see how that develops in the second half. Judy Hong - Goldman Sachs & Co. LLC: Got it. And just quickly on the IQOS, Howard, you talked about the two to three-month lag once you get the FDA approval to the lead market launch. So I'm just wondering what that lag is. Howard A. Willard - Altria Group, Inc.: It really involves the time necessary in order to ship the product over, get it through customs, get it tax stamped, and get it distributed to the stores. And while on the surface it might feel like optimally you'd like to go faster, it actually turns out that given that we can't communicate about the product until it receives FDA approval, actually having a couple of months to build awareness and to do some early trial on that product, we find that actually hits the sweet spot to make sure that as we have the product available – full availability at retail, that there's significant awareness and significant demand for the product. And of course, we'll communicate through traditional mass communication vehicles as well as through digital. Judy Hong - Goldman Sachs & Co. LLC: Got it, okay. Thank you.

Your next question comes from the line of Adam Spielman of Citi. Adam J. Spielman - Citigroup Global Markets Ltd.: Thank you for taking the question. Can I just follow up to make sure I've understood the last answer to Judy's questions? I think what you were implying, and I want to check this, is if for whatever reason the FDA does not grant approval for IQOS this year, that would actually result in, let's say, a positive surprise for you in terms of profit because you wouldn't be spending marketing dollars you were otherwise budgeting for that I guess would move you towards the upper end of your EPS guidance. Howard A. Willard - Altria Group, Inc.: I think you are right that we have some dollars allocated in this year to the IQOS launch. But of course, every year, we have a number of puts and takes that result in the number we ultimately deliver. But certainly, if IQOS was not approved by the end of the year, that would be a positive variance that we would put into the kitty with other changes in deciding where to end the year from a profit growth perspective. Adam J. Spielman - Citigroup Global Markets Ltd.: Okay, thank you very much. And I just wanted to follow up on this, your marketing plans. You've said that they're broadly unchanged, and I'm talking about the sort of equity building and the rolling out of Ice in terms of first half, second half split. But the question is, is there anything that we should be aware of that is either going to accelerate or decelerate in the second half versus the first half? I mean, for example, it might be that you're expecting much more in terms of promotions behind Ice or maybe less. I was just wondering how your marketing plans I guess differ in the two halves? Howard A. Willard - Altria Group, Inc.: Sure. I think if you're talking about the smokeable products segment, I wouldn't call out a significantly different level of investment in the back half of the year than in the front half of the year. I think that the initial trial promotions for Ice have largely run their course. And anytime you launch a new brand, in the third and fourth quarters of that brand launch, you are going to have some level of trial promotion. But typically it steps down from the initial launch. So, I think that we'll have a fairly normal distribution of marketing resources across the core businesses this year. The only thing I would call out that is a back half impact is that we're going to have excise tax increases that take a place on July 1 in Oklahoma and Kentucky. And while those excise tax increases are substantially less of an increase than we had in California, and they don't have the volume that we had in California, they do happen to be two other states that Marlboro's overdeveloped in. So, there'll be a little bit of pressure I think on Marlboro in the third quarter, but we continue to feel good about our performance in the back half. Adam J. Spielman - Citigroup Global Markets Ltd.: And then one final question for me: If you look at Marlboro Ice's performance now and compare it with your plans you had when you launched it last year, is it in line with those plans, little bit better, little bit worse? Howard A. Willard - Altria Group, Inc.: To be specific, we launched Marlboro Ice in the first quarter of this year, so we've really got two quarters' worth of information. And I would say Marlboro Ice is largely on plan, and we're very pleased with its performance. And I think it was driven by the fact that I think it's a nice new Marlboro offering in a menthol category that has been growing. And I have to tell you that the innovative reseal pack has been well received by consumers. So, we would mark this up as a success for the Marlboro brand launch. Adam J. Spielman - Citigroup Global Markets Ltd.: Thank you very much.

Your next question comes from the line of Stephen Powers of Deutsche Bank. Steve Powers - Deutsche Bank Securities, Inc.: Good morning. Thanks. Howard A. Willard - Altria Group, Inc.: Good morning. Steve Powers - Deutsche Bank Securities, Inc.: I guess, first just going back quickly to the topic of inventory rebalancing, I think you mostly addressed it before, Billy, but just to be specific, was there any particular reason that you see for why the trade decided to run inventories down as low as it did this quarter? Is there any specific driver that you can point to, or is it just normal, if outsized volatility? William F. Gifford, Jr. - Altria Group, Inc.: I think it's just normal outsized volatility. If you look over prior years, you'll see periods of times where inventories run up and periods of times where inventories run down. Steve Powers - Deutsche Bank Securities, Inc.: Okay. And then just to be clear, I'm assuming you expect the roughly 2 points or so, the 2-point gap between shipments and whatever rate of underlying demand is established in the second half. You expect that to close. Is that correct? William F. Gifford, Jr. - Altria Group, Inc.: I think based on what I said earlier, if you look through time, inventories tend to follow consumer consumption, and so you would see a balance through time. Steve Powers - Deutsche Bank Securities, Inc.: Great. And then look, I guess just stepping back, as you said in the opening remarks, there's been a ton of development this quarter from a regulatory perspective. But I actually wanted to ask your opinion on about two things that have happened more at the local level versus the federal level in the quarter. First is just the flavors ban in San Francisco that was passed in June. And the second, which I guess is outside the quarter, but the recent Attorney General investigation in Massachusetts into JUUL. I'd just love your thoughts on both as the potential precedents. And on the latter, just to be clear, I don't expect you to comment on a competitor situation specifically, but I am interested in your views as to what implications such an action might have indirectly on the e-vapor category broadly or even on your MarkTen business specifically? Howard A. Willard - Altria Group, Inc.: Sure. I'll start with the San Francisco flavor ban. What we have found is that there is some low level of activity in various localities and occasionally a city that is at odds with the general trend at the federal and state level. And that's really how I would frame that San Francisco flavor ban. I think it's more of an aberration than it is the beginning of a trend. But it would not surprise me if you had a handful of other localities or cities that are particularly anti-tobacco take up that activity. But I wouldn't expect it to get much traction on a larger scale. Steve Powers - Deutsche Bank Securities, Inc.: Great. Thank you. That's helpful. And then as to what the Attorney General is doing or may do in Massachusetts, as it relates to e-vapor? Howard A. Willard - Altria Group, Inc.: Sure. I think what we're seeing is that for quite some time, the tobacco industry has been expected to operate under a very specific set of rules, and the Master Settlement Agreement laid those out for the cigarette category. But frankly, as we've expanded into other categories, we've always had a significant focus on making sure that we market only to adult tobacco consumers, and that we minimize unintended reach of our marketing to folks that are non-smokers. And we are always aware that the FDA and the Attorneys General are watching everything we do to make sure we're operating responsibly. And I think that we think that has resulted in a category where the level of marketing that is seen by non-tobacco users has come down dramatically. And of course, youth smoking rates are at all-time lows. I think that that is the way any responsible tobacco company needs to operate in the U.S. And I think that the AGs, who monitor marketing activity and all other tobacco activity across the country, I think don't hesitate to reach out to tobacco manufacturers if they think they're not operating against the basic rules of the industry. And so, I can't specifically comment on the details of the action in Massachusetts, but I think as an experienced player in the category, we're not surprised, and frankly, we appreciate the AGs making sure that there's a minimum level of performance expected from everybody in the industry. Steve Powers - Deutsche Bank Securities, Inc.: Okay. That's very clear. Thank you very much.

Your next question comes from the line of Petros Voulgaris of Goldman Sachs. Petros Voulgaris - Goldman Sachs: Thanks. Good morning, everybody. Howard A. Willard - Altria Group, Inc.: Good morning. Petros Voulgaris - Goldman Sachs: So, just a few related questions I just want to throw out. Since IQOS isn't going to be sold as a cigarette, is not having IQOS in the MSA something you're going to pursue with the regulators? Or would you pursue a separate MSA for IQOS? And as a follow-up, can IQOS in an updated iteration of the product not be considered eligible for inclusion in the MSA? Howard A. Willard - Altria Group, Inc.: Sure. To be clear, based on the definitions of a cigarette in the U.S., our belief is when we enter the market with IQOS, IQOS will be classified as a cigarette under the federal definition and most state definitions. So, it will incur MSA payments and excise tax payments for the Heatsticks as a cigarette. But I think you do bring up the fact that when you look at the performance characteristics of the IQOS Heatstick used in the IQOS device, and you compare it to a cigarette, there's significant differences that we think would warrant a lower excise tax in order to encourage people to use the IQOS system versus a traditional cigarette. And we've been pursuing that with the governmental authorities primarily by saying, for any product that gets an MRTP, we try and get a lower state excise tax rate. We've had success in a couple of states. But I think as it enters the market, unlike the case that PMI has had in many international markets around the world, where it's been classified in its own tax classification category, at least at the beginning, that will not be the case in the U.S. Petros Voulgaris - Goldman Sachs: Thank you. Howard A. Willard - Altria Group, Inc.: Thank you.

Media representatives are now invited to participate in the question-and-answer session. Thank you. At this time, I'd like to turn the call back over to Mr. Bill Marshall for closing comments. William Marshall - Altria Client Services Inc: Thank you all for joining our call this morning. If you have any follow-up questions, please contact us at Investor Relations.

Thank you. This concludes today's conference call. You may now disconnect.