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Executives

Murray Kessler - Chairman, Chief Executive Officer and President

David Taylor - Chief Financial Officer, Executive Vice President of Finance & Planning and Director

Robert Bannon - Director of Investor Relations

Analysts

Judy Hong - Goldman Sachs Group Inc.

Ann Gurkin - Davenport & Company, LLC

Christine Farkas - BofA Merrill Lynch

David Adelman - Morgan Stanley

Vivien Azer - Citigroup Inc

Andrew Kieley - Deutsche Bank AG

Nik Modi - UBS Investment Bank

Lorillard (LO) Q1 2011 Earnings Call April 26, 2011 8:30 AM ET

Operator

Good day, ladies and gentlemen. And welcome to the Lorillard, Inc. First Quarter 2011 Earnings Conference Call. My name is Nicole, and I will be your conference operator for today's call. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. At this time, I'd like to turn the conference over to your host for today's call, Mr. Bob Bannon. You may begin, sir.

Robert Bannon

Thank you, Nicole. And good morning, everyone. I'm Bob Bannon, Lorillard's Director of Investor Relations, and joining me on today's call is Murray Kessler, Lorillard's Chairman, President and Chief Executive Officer; and David Taylor, its Chief Financial Officer. By now, you should have received a copy of our first quarter 2011 earnings release. It can be found on the company's website, lorillard.com, under News Releases. But before we begin, I'd like to remind you that some of the comments on today's call and some of the responses to your questions may contain forward-looking statements. These statements are subject to the risks and uncertainties as described in the company's earnings release and in other filings with the SEC. And I would now like to turn the call over to Murray Kessler.

Murray Kessler

Thank you, Bob. And good morning, everyone. I'm pleased to show the results of another very strong quarter for Lorillard, both in absolute terms and relative to the rest of the tobacco industry. Our comments will be brief this morning, as we will be sharing our results and strategies going forward in great detail at the company's investor day next week. The meeting will be held on Wednesday, May 4, from 9 a.m. to 12 p.m. at the Mandarin Hotel in New York City. We hope you can join us in person or by webcast.

Starting with volumes. For the first quarter, Lorillard domestic wholesale shipments increased 9.4% versus a year ago, while the industry in total declined 3.4%. That's a pretty remarkable difference in trend, totaling 12.8 points.

Even after adjusting for the industry-wide benefit of 1 extra shipping day in the quarter and slightly offset by year-to-year inventory fluctuations, we estimate that Lorillard's domestic volume was up 8.3% versus a year ago.

Lorillard's domestic volume growth was driven by an 8% increase in total Newport, a 22.7% increase in Maverick and a 26% increase in Old Gold.

Encouragingly, Newport Non-Menthol was a solid contributor to the quarter as weekly volume and share on this new brand continued to grow.

As Lorillard volume trends continue to outperform the industry, we gain market share. Total Lorillard retail market share as measured by our proprietary retail database, EXCEL, in the first quarter increased 150 basis points versus a year ago to 14.1%.

Newport Non-Menthol achieved about 3/4 of a share point by the end of the quarter. Our core Newport Menthol business also gained share both versus the year ago, up 38 basis points, and sequentially versus the fourth quarter, up 63 basis points.

Our discount brands, Maverick and Old Gold, also continued to gain share.

Total volume growth, along with higher prices net of promotion, translated to a 12.9% increase in net sales. Strong net sales growth, coupled with the accretive impact of the company's share repurchase plan, resulted in a 14% year-over-year gain in earnings per share. EPS finished at $1.71 for the quarter.

A quick word on potential menthol regulation. The issue is now with the FDA and out of the hands of TPSAC. We believe that the evidence presented in both the industry reports and even in the TPSAC report itself supports the company's position that no disproportionate menthol regulation is warranted.

We believe that this is further supported by the Gance [ph] study from Vanderbilt University, funded by the National Cancer Institute, which was surprisingly published only moments after the March 23rd deadline for reports on this topic.

Beyond the scientific evidence, we believe that when the countervailing effects are seriously studied, such as the black market implications of an additional menthol restriction, that the case that there should be no disproportionate menthol regulation becomes obvious.

So in conclusion, the Lorillard story for quarter 1 remains the same: strong volume, good cost control and a focus on returning cash to shareholders.

Remember, we recently increased the dividend on February 17, and we continue to repurchase company stock.

With that, I'll turn the call over to David Taylor, our Chief Financial Officer, who will review the company's strong first quarter results in more detail. After David completes his review, we will answer your questions. David?

David Taylor

Thanks, Murray. And good morning, everyone. As you've already heard from Murray, we're pleased with our first quarter results. We saw a continuation of the positive volume, market share and profitability trends that we experienced all last year.

Net sales for the first quarter of 2011 increased to 12.9%, to $1.535 billion as compared to the first quarter of 2010. Driven by the 9.5% increase in total shipment volume and higher average net selling prices, partially offset by higher sales promotion costs associated with the launch of Newport Non-Menthol.

Unit volumes for Newport were up 8.2%, and Maverick volumes were up 22.7%. Shipments of Newport Non-Menthol, which was launched in the fourth quarter of last year, was a significant factor in the year-over-year comparison.

Fluctuations in wholesale inventory levels in this year and last year had some dampening effect on our volume comparison but was not a significant factor. It was about 1/2 of 1%. So after adjusting for the 1 additional shipping day in the first quarter this year and the modest effect of different trade inventory patterns, we estimate that our total volume was up 8.3%.

While the quarter shipments included the introduction of Newport Non-Menthol, Newport Menthol continued its very strong trend.

In fact, as I look at the shipments from wholesale to retail in our database, which is a better indicator of consumer takeaway, Newport Menthol's volume was slightly up for the quarter.

In addition, net pricing was up for the quarter compared to last year, as the significant price realization on Newport Menthol overshadowed the impact of the mix change, both from the Newport Non-Menthol and from higher Maverick volume.

Gross profit in the first quarter of 2011 increased by $65 million to $543 million from $478 million in last year's first quarter.

Cost of goods sold in 2011 first quarter reflects increases over last year in certain costs, including increased FDA user fees.

Amounts due under the State Settlement Agreements and the Tobacco Growers' Assessment increased $46 million compared to last year's first quarter.

Selling, general and administrative cost increased $26 million from last year's first quarter, primarily due to legal fees and expenses associated with increased litigation activity during the quarter.

This increase in litigation costs actually comprised most of the increase in SG&A and is primarily due to an unusually high number of active trials this year as compared to last year, many of which are Engle progeny cases underway in Florida.

For example, this year we had 3 Engle trials in the first quarter: a filter case trial, the City of St. Louis trial and various post trial motions in the Evans case. Now that may not sound high for some, but it's high for Lorillard, so it impacts the comparison. Some other items included in SG&A were also higher this year than last. These includes various costs and expenses of all the activities surrounding the company's position and industry report to the FDA regarding menthol and some additional advertising and brand-building costs in support of Newport Non-Menthol.

So first quarter operating income increased 10.2% to $421 million, or 27.4% of sales from $382 million or 28.1% of sales in last year's first quarter. Net sales per unit and operating income per unit were both up compared to last year's first quarter.

Fully diluted earnings per share for the quarter increased 14% from last year's first quarter to $1.71 per share. Those results reflect the strong performance we've already discussed but also the effect of a lower average share count this year. The lower share count, as compared to the year ago quarter, added $0.11 per share to EPS for this year's first quarter.

During the first quarter 2011, we substantially increased our dividend by 16% to an annualized dividend of $5.20 per share, and we continue to repurchase shares in the market. For the quarter, through March 31, we repurchased approximately 3.8 million shares at a cost of $289 million under the $1 billion share repurchase authorization that we announced last fall. That's an average cost of $76.76 per share. As of March 31, we still had $335 million remaining on that program.

So, we're off to a good start in 2011, and we're pleased with the company's performance thus far. Of course, challenges remain for us on a number of fronts, macro economic, competitive, and regulatory. We believe that we have the ability to meet these challenges and continue to build value for our shareholders over the long term.

And with that, we'd like to open the line for questions. Operator, can you help us with that?

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of David Adelman with Morgan Stanley.

David Adelman - Morgan Stanley

Murray, I wanted to ask you 2 things. First, on Newport Menthol, the brand share was fairly consistent throughout 2010, and now it stepped up in the first quarter. And I'm just curious, what do you attribute that to? Is there a different competitive dynamic in the marketplace? Were your programs any different than they had been throughout last year?

Murray Kessler

Actually, David, some had speculated that we had stepped up some promotional spending on Newport Menthol. That's 180 degrees from the truth. We actually -- if you were to be able to get to the underlying numbers, you would see Newport Menthol's net pricing was very robust in the first quarter as we actually pulled back on some buy-down support. I just think the brand, for all the reasons I'll talk about next week at the Investor Conference in great detail, is just very strong and continues to organically grow. And I think, I've always believed this, that you sort of build it a little bit as the year goes along then you lap the year again and you get sort of the biggest increases in the first half of the year and then it reaches the level and then you lap it again. And that's been the pattern for almost 7 or 8 years.

David Adelman - Morgan Stanley

Okay. And secondly, Murray, can you quantify to any extent the degree to which you think that there is consumer interaction or cannibalization across Newport Non-Menthol, Newport Menthol and Maverick? Presumably it's very low.

Murray Kessler

It's a very low. I'll show you at the conference next week a source of volume analysis, but it's -- just to give you sort of some rough numbers, it looks like less than 7% or 8% that comes directly, which when you sort of translate that numbers, it’s tenths impact on the percentage change on Newport, like 0.3%, 0.4% at tops.

David Adelman - Morgan Stanley

Okay. Thank you very much.

Operator

Your next question comes from the line of Judy Hong with Goldman Sachs.

Judy Hong - Goldman Sachs Group Inc.

Thanks. Murray, on the menthol regulation, since the TPSAC report, has there been any communication with you and the FDA? And what is your understanding of how the FDA might be approaching the progress report that's due at some point?

Murray Kessler

Well, there's lots of communication, but it's not really on the topic of Menthol. It's been on substantial equivalents. The FDA has requested plant tours. There's been other dialogues as well. As it relates to menthol, it's been pretty quiet. We may be wrong, but we speculate, and it's pure speculation, that this will be a procedural update, but we'll see.

Judy Hong - Goldman Sachs Group Inc.

Okay. And then the Newport Non-Menthol, I think you called out the retail share being up of about 0.7 share in the quarter, and it looks like it's still growing on a week-to-week basis. So can you just give us your perspective on the brand's equity, maybe how much of the growth you think is coming from some of the trials associated with the higher promos? Are you getting repeats at this point? Just any color on the Newport Non-Menthol performance.

Murray Kessler

Again, trying not to steal too much thunder from next week because we have the source of volume analysis. We have repeat numbers. We have all that to show you. The brand's performing extremely well, and I'm going to emphasize that while people talk a lot about the discount level -- the discount level is not even a little unusual for other premium brand launches. It's basically $1 a pack discount versus the average premium-priced product. So if you're in with some of our big markets like New York, where it's $10 or $11 per pack of cigarettes, you're talking about a 10% discount. And if you get to some of the average-priced markets, you get as high as a 20% to 25% discount during this trial period. That’s nothing like the buy 1, get 1 frees and deep, deep discounts that make it hard to ultimately get to premium pricing. I'll walk you through source of volume. I'll walk you through repeat. I'll walk you through all that data next week, but I'm going to keep you a little hungry so you'll be there ready to go next week.

Judy Hong - Goldman Sachs Group Inc.

Okay. And then, David, just finally, in the SG&A expenses, can you just quantify how much the -- I think, you all see -- in addition to Engle progeny-related legal costs, you also called out some spending related to the menthol reports and perhaps some of the other advertising expenses related to Newport Non-Menthol. So, I guess I’m just wondering how much of those really contributed to the increases. And as you think about the trial calendar for the rest of the year, is there a way to appropriately forecast sort of how much the legal expenses could be up for the balance of the year?

David Taylor

Okay, let me take this in parts. The increase in litigation defense cost accounted for more than 1/2 of the $26 million increase in SG&A.

Judy Hong - Goldman Sachs Group Inc.

Okay.

David Taylor

And the other portion of the increase in SG&A was partly due to the increased advertising and brand building kind of cost surrounding Newport Non-Menthol, and there were all the other activities like taking the lead on the industry report regarding menthol, a number of consultants helped in developing that report. I'd rather not try and quantify those, but those comprised less than -- the other 2 things that I called out comprised less than 1/2 of that increase. And as we look forward to the trial calendar for the rest of the year, it is pretty difficult to forecast. I don't believe that our trial calendar over the next few quarters is as heavy as what we experienced in the first quarter of this year, but we really just have to take this as it comes. We're going to defend ourselves in every case to our -- to the maximum extent, and it's really just sort of activity driven. And unfortunately, we are reactive in this matter, although the Engle progeny cases are a big deal, not just the number of trials. I think we had something like 50% more active cases, whether they were in trial or not, 50% more active Engle-chased [ph] cases in the first quarter this year than the first quarter last year. So this Engle defense cost is going to be with us for a while. It's just difficult to predict the peaks and valleys in it.

Judy Hong - Goldman Sachs Group Inc.

Okay. And the spending related to the menthol report on the advertising cost, are they more heavily weighted towards the first quarter? I guess, the menthol report probably?

Murray Kessler

Well, the -- this is Murray. The big introductory advertising, which is not huge, but the print campaign and initial point of sale and all that, which compares to nothing in the year ago period, is heavily skewed towards the introduction, although there is some sustaining advertising throughout the year but not to the same level. And the menthol report, it depends. We're going to work with the FDA any way they want us to on this issue, and so it depends on them. If they come back to us and they ask for support, we're going to support.

Judy Hong - Goldman Sachs Group Inc.

Okay. Got it. Thank you.

Operator

Your next question comes from the line of Nik Modi with UBS.

Nik Modi - UBS Investment Bank

Just sorry, hopped on a little late, but just 2 quick questions and apologies if they've been asked already. Just on the trade load, I know 1 of your competitors was talking about that and another 1 was talking about a trade de-load, actually. So, just wanted to get your perspective on if there was any of that in the quarter. Then the second question is I noticed in one of your tables that the menthol share gains were actually flat for Newport. I'm just curious on your thoughts around that. Is that timing of shipments from some of your competitors or promotions you had from a year ago? Any perspective on that would be helpful.

David Taylor

Let me talk a little bit about the inventory patterns. Yes, industry inventory is built in last year's first quarter, and they built in this year's first quarter. It's just that this year's first quarter didn't build as much as last year. So, when you try and adjust those 2 factors out, it just didn't build as much in the first quarter. So that only impacted our comparison by about 1/2 a percent.

Nik Modi - UBS Investment Bank

Okay. Fair enough.

Murray Kessler

But just to be clear, Nik, inventory didn't help us this quarter. It hurt us.

Nik Modi - UBS Investment Bank

Right. Yes, yes.

Murray Kessler

The other couple of points there, too, the industry-wide extra shipping day, we adjusted our numbers. We didn't try to adjust the numbers for the rest of the industry. So, we believe that the industry decline was probably a little bit worse than 3.4%. But we're only willing to sort of -- kind of a clear, transparent adjustment for our own shipments. As it relates to market share, I'm not sure where you're getting the numbers. Newport Non-Menthol gained share versus year ago, it was up…

Nik Modi - UBS Investment Bank

I'm talking about Newport Menthol, Murray. Sorry. I was just looking in the table. Menthol, the category gained share, but it looks like Newport share -- Newport Menthol share was flat like the...

David Taylor

Share of the Menthol segment?

Nik Modi - UBS Investment Bank

Yes, yes, yes.

David Taylor

Yes, it is -- that is correct, although Newport Menthol gained share as a result of the category gaining share.

Nik Modi - UBS Investment Bank

Yes, and I was just curious if there was any timing issues there. I'm just trying to get an understanding of what's behind…

David Taylor

Nik, there was also was some competitive activity in the Menthol stakes in the first quarter, as I am sure you are aware. That might have had a little bit of a dampening effect.

Nik Modi - UBS Investment Bank

Okay, it's more of a shipment issue.

Murray Kessler

I think -- we don't use scanned data because of where we sell. So the best we do is using EXCEL data, which ships from wholesale to retail. That counts pipeline load, and there were a lot of competitive menthol products that went into distribution into the first quarter.

Nik Modi - UBS Investment Bank

Okay, got you. Thank you.

Operator

Your next question comes from the line of Christine Farkas with Bank of America.

Christine Farkas - BofA Merrill Lynch

Thank you very much. David, you were helpful with the SG&A breakdown. I appreciate that. A couple of questions. Just on the shipping days in the first quarter, does that reverse at some point in the year? Will we see an additional day in the second quarter?

David Taylor

No, it will reverse in the fourth quarter. So the total year will have the same number of shipping days this year as last year, so in the fourth quarter, it will reverse.

Christine Farkas - BofA Merrill Lynch

Okay. That's helpful. And then, this may be a bit of a stretch, but looking at the momentum of the menthol share gains in the first quarter. I'm just wondering your perspective with respect to consumer views of the category, are they -- would you say they are aware of the discussions around potential bans? Has something been heightened? How far do these concerns or this attention really reach down to the consumer level or is there just none of that, of course, in the numbers?

Murray Kessler

Look, I'm speculating like you are. But we're out in front of consumers. We do focus groups on other top topic. I hear none of that. I don’t think there is general awareness in the consumer population of smokers that this is even going on.

Christine Farkas - BofA Merrill Lynch

So should the menthol share of the category that we did see step up nicely sequentially and, of course, year-over-year, would you say again back to your pipeline fill comments, or is really the consumer demand and growing appeal of the flavor?

Murray Kessler

I would say for us, it's just organic growth business as usual. And I would say that -- I would agree with you that there was a number of SKUs that were launched, and that probably affected it to some extent that you just have to fill all the shelves around the country in 250,000, 300,000 stores. But I think at the heart of your question is, do I think the consumers were hoarding it anyway? No, I don’t.

Christine Farkas - BofA Merrill Lynch

Okay, great. And then last question, just with respect to a segment you're not in and that's Smokeless, we understand there maybe some shelf resets whereby greater space is allocated to Smokeless, I am wondering, if you've seen that at retail, if it impacts your shelf space, certainly not your volumes, but just wondering what you're seeing at retail.

Murray Kessler

Well, all of this, we go through an annual reset ourselves based on our contracts, and all of the contracts are written that -- both for us and for our competitors, some more aggressive than us, that we get share that’s basically in line with our shelf space, and we continue to gain share. And we have a very focused and narrow product line. So we continue to discuss this. I've been in a number of talk to talks [ph] with customers, but we haven't had a negative impact. It's more of a challenge of are growing fast enough for what we deserve. And that’s the discussion I have with key retailers.

Christine Farkas - BofA Merrill Lynch

Okay. That's great. Thanks, Murray.

Operator

Your next question comes from the line of Andrew Kieley with Deutsche Bank.

Andrew Kieley - Deutsche Bank AG

Murray, did you give the 8% Newport volume growth number? Did you give the number excluding what it would have been without Newport Red?

Murray Kessler

No, I do not. And I don't think we break it out by SKU.

Andrew Kieley - Deutsche Bank AG

Okay. And in the markets where Newport Red is doing particularly well, are you seeing competitors respond at all in terms of promotion on their non-menthol brands?

Murray Kessler

Again, just to put it in perspective, they're already at those prices with competitive brands. So, we're in no -- and just to pick an example, if you look at sort of the industry leader, they have a version of their product that are priced exactly the same already. So, no, we have haven't seen any major swings.

Andrew Kieley - Deutsche Bank AG

Okay. And then just wanted to ask, we're hearing a lot about Philip Morris changing some of the promotional programs of the retailers recently. Do you expect that to competitively impact your brands at all in the next few quarters, or how would that play out and impact you?

Murray Kessler

Good question. It really depends on participation. We’re watching it very carefully. There is a number of scenarios. In general, I think the most important thing you need to know is that this is a push by the industry leader that feels like margins have been expanding at the retail level at the expense of sort of the competitive position relative to the amount of money that they spend on buy downs and the industry spends on buy downs and whether it's getting passed through and increasing their productivity. So, we have in our contract a fair and equitable clause, so, if margins come down for them, they come down for us. So, presumably, that would be a favorable impact. The other important thing to know is, we saw a lot of volume, which are not markets where they are even under contract. So, presumably, it's no effect there. There are some modest areas where they may get a little more competitive. And if we need to, we'll adjust. But there's a whole lot of other areas where you would think we would benefit, especially depending on the participation level. So, we'll see how it plays out, but it's a different answer if there's 10% participation or 90% participation.

Andrew Kieley - Deutsche Bank AG

All right. Okay. And then just lastly on FDA, it sounds like you -- if there's an update in mid-June, you expect that to be mostly a sort of procedural thing without much content. But I was wondering, as we look longer term when FDA would make a final assessment, where do you think they would disagree with some of the more negative conclusions or recommendations from TPSAC or I guess how they would reconcile some of the concerns that TPSAC raised in their report?

Murray Kessler

Look, I believe -- I think the industry believes that Dr. Deyton [Lawrence Deyton] and Commissioner Hamburg [Margaret Hamburg] will make sure that the FDA does their -- follows their charge which is to follow the science. If they follow -- I don't think they're ever -- they don't have an obligation to respond to the TPSAC report. They have an obligation to evaluate this issue, to follow the science and if they follow the science, we believe it strongly comes to the conclusion that there is no disproportionate harm from a menthol cigarette versus a non-menthol cigarette. They also have to deal with the issue that was really not even dealt with at all by the TPSAC report which is countervailing effects like black market and unemployment and taxes and smuggling and youth access. And we think when you combine that with it, they'll come to the right conclusion. So, hopefully, the worst is behind us on this issue.

Andrew Kieley - Deutsche Bank AG

Okay. Thank you.

Operator

Your next question comes from the line of Vivien Azer with Citigroup.

Vivien Azer - Citigroup Inc

Not to take too much away from the Analyst Day presentation, but I was wondering if you could offer a little bit of color around the demographics of the Newport share gains, either for the total franchise or Menthol versus Non-Menthol. In other words, of the incremental share that you are gaining, is it coming disproportionately from adult smokers under 30, or is it well balanced, anything along those lines?

Murray Kessler

To do that question justice, because it's a very important question, I have to answer it next week at the Investor Conference because I am going to go into great detail of how we believe the core Newport business performs and where it comes from and all those good things. And we'll deal with demographics and sort of the strengths of the brand. And then we'll obviously deal with opportunities. But I don't want to give that 1 a quick answer. I have like 15 slides to answer that 1 well.

Vivien Azer - Citigroup Inc

That's fair enough. I'll be looking forward to hearing that then. Separately, just in terms of new product launches and how long the payback takes, just can you offer some color just in terms of your experience on how long generally it takes to generate enough trials that you can start pulling back promo on new products?

Murray Kessler

Well, let me say 2 things. We're making money on Newport Non-Menthol right now, right now out of the shoot. We are not deficit spending. It's not the same margin as Newport Menthol, but we're making money, and it's almost completely incremental. So, it's helping us. The answer on when you pull back is different than a lot of other categories in my experience. And basically, in the old days, even in this category, you could do broad-scale television advertising and things like that. You had a lot more tools at your disposal to build trial. And right now, we're very limited, right? The tools that are left with us are price, a little bit of direct mail, a little bit of print advertising, and the brand continues to build. So, to me, I am going to watch it grow for a while, and then we'll make our decisions appropriately. And we're only out a couple of months at a time ahead of ourselves on the promotion plan, but our goal is, clearly, on this brand is to come off the introductory trial prices when it's appropriate.

Vivien Azer - Citigroup Inc

Terrific. Thanks so much. I look forward to seeing you next week.

Operator

Your next question comes from the line of Ann Gurkin with Davenport.

Ann Gurkin - Davenport & Company, LLC

Was wondering if you could comment -- in the quarter, you highlighted the amount of money roughly you spent towards brand building. Is that a level we should continue to see through the year or does it accelerate? Can you help me understand that? And then wrapped into that, should we see Lorillard become more aggressive with innovations or product launches as we move through the year?

Murray Kessler

So, the first question was, do we expect it to accelerate? No. I would say, it will stabilize to decelerate for the consumer portion of it, right? That's what you would have seen in the SG&A. The promotional spending is built into the pricing. Do we expect a higher level of innovation? You'll see that in the Investor Day presentation, but Newport’s success comes from focus. So, we're never going to be the company that's launching a zillion new products. That's not our style. We don't have the shelf space for that. It will be very, very disciplined and methodical as we go forward when we see we have an appropriate new product. The good news is we got one now, and it's already in market, and it's called Newport Non-Menthol.

Ann Gurkin - Davenport & Company, LLC

Great. That helps. Thanks so much.

Operator

I would like to turn the call back over to Mr. Kessler for any concluding remarks.

Murray Kessler

We look forward to seeing everybody next week. Hopefully we've whet your appetite. The brands continue to perform beautifully. The company continues to outperform on almost every financial measure that matters. Please join us on May 4 at the Mandarin Hotel in New York City, and we will talk about the business in more detail. Thank you for your interest in Lorillard.

Operator

This concludes the Lorillard Incorporated First Quarter 2011 Earnings Conference Call. For a replay of this call, please dial (800) 642-1687 or (706) 645-9291. The conference ID number for the replay is 59461547. Thank you for participating. You may now disconnect.

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