Question-and-Answer Session
Operator
(Operator Instructions) And our first question comes from the line of Filippe Goossens with Credit Suisse. Please proceed.
Filippe Goossens - Credit Suisse
Yes, good morning, gentlemen, and congratulations on a strong performance here.
Murray Kessler
Good morning, Filippe.
Filippe Goossens - Credit Suisse
Good morning. My first question, Murray, can you give us an update in terms of your current thinking as it relates to the pending FDA and FET deals, and how that would affect your outlook for the remainder of this year and next year, please?
Murray Kessler
Sure, let's do the FET bill first. The SCHIP bill was passed out of the Senate, I think we aligned with the industry that we're opposed to any tax increases, I think that bill from our perspective has a long way to go.
The administration has certainly signaled a willingness to veto it. The Republican minority in the Senate has suggested they have sufficient votes to withhold a veto. So it's hard to actually forecast or predict that that is going to have an impact and if it did it certainly wouldn't be this year.
The timing of that will take pretty much through the end of the session before anything would get implemented. Going a step beyond that, I would say that if something was to go through, while we are opposed to it, taxes and tobacco are part and parcel, and we would adjust our plans, and I don't think as I look at that bill right now it would have any material shift in our projections for a 10% shareholder return, as going forward on a consistent sustainable basis.
As it relates to the FDA bill, I think, as we are in this conference call they are in the second round of the Committee hearings that started yesterday for the chairman's mark out of the Senate, and that bill also has a long way to go, it hasn't been considered in the House yet.
Our position on the FDA, I think has been quite clear. We are opposed to the bill in the current form, but we're not opposed to the notion of regulation, if it's fair, and it recognizes the distinct different between smokeless tobacco, and cigarettes and allows us to compete fairly and there's a number of examples, as we stated in prior filings and communication. That bill also has not been considered by the House yet; it's got a long way to go.
So right now we'll see how they play out. But we'd like to support FDA if they could or some type of legislation and regulation if they could make some meaningful changes and we'll continue to work through that process. And on the FET side, we opposed the tax increase.
Filippe Goossens - Credit Suisse
Okay. Just coming back on the FET, Murray, what does the language of the bill look like right now, in terms of how smokeless would get taxed, would it be a similar percentage increase of your current rate or is it somewhat different?
Murray Kessler
No. You're right; it's a similar percentage increase.
Filippe Goossens - Credit Suisse
Okay. Second question, as it relates to the $50 million in incremental savings. How should we look at that number at this moment in terms of when, and how much of that could actually flow towards the bottom line or is it too early to tell?
Are you in other words going to way to see what happens on the competitive side, before you're going to be making, or be willing to make some statement as it relates to how much of that can actually flow to the bottom line, as compared to reinvesting in the business?
Murray Kessler
We will consider both. And I've been very clear that I wanted to increase the company's competitiveness, I wasn't satisfied with the company's level of growth not growing as fast as the category.
We are making great progress on that. And then I gave a target that said 10% on a consistent sustainable basis over the long term and pretty much said we're going to deliver that number while at the same time increasing the companies competitiveness.
And anything you are pretty much on volume as to what you'd see if we beat on volume we pass through to earnings.
Now I have got to continue to monitor how we are progressing on that. Our share is obviously stabilizing, frankly faster than I even thought. We passed through; we were way ahead of our Project Momentum targets in the first half of the year.
We raised our earnings guidance so far $0.05 this year, which is passing through a significant portion of that. But other than that, I would say it is wait and see. I'm not changing my outlook, which says 10% going forward other than the fact that we are now starting at a higher base because we raised guidance.
Filippe Goossens - Credit Suisse
Then another follow-up on the FDA bill Murray, you have a whole bunch of new products in the pipeline. As a matter of fact in the past you've indicated or referred to the number of patents that you have applied for.
Are you still pretty much bound by what happens with the FDA bill before you may launch some of the more innovative products perhaps? Or you might decide hey if this discussion takes too long we are going to go forward anyhow.
And want to kind of build the first kind of first leader or whatever you want to call it position in the market with these new innovative products?
Murray Kessler
Yeah. It's a good question. We had, it's not like we are on a hold yet anyway, remember I had said in the Investor Conference last December, that we were talking about the end of the year or the fourth quarter this year, the first quarter of next year to test one of those innovative new products.
And I still think we're on track with that, you've got the FDA bill going along concurrently. So, it's kind of silly for me right now to predict where the FDA might come out how it relates, etcetera.
As that happens, as we see what happens with the Senate and the House and potential legislation and see the progress of where we are for test markets, I will sure share with you what the status of that is.
But right now they're sort of concurrent, there are two paths that are going on, one is not affecting the other today.
Filippe Goossens - Credit Suisse
Okay. Then the final question Murray for this morning. Given the stepped-up activity on this new side by your two competitors. Are you changing at all your game plan with regard to your own solution test marketing programs?
Murray Kessler
Dan, do you want to answer?
Dan Butler
Good morning Filippe, it's Dan. I guess as a basic question of what it really means. Snus in our view really means discrete spit-free pouches and we've been testing that concept with Rebel and Skoal Dry and other things for a number of years.
So we clearly have the technology and we've been gathering a lot of learning about this for some time. I think we and our competitors might think are all probably trying to optimize the product bundle and get that right and get the positioning right.
We continue to learn from our test markets both in Denver with Rebel and our other two markets with Skoal Dry and we will make adjustments. We do think that there is a strong concept here.
I think it's going to take some time, some education, awareness building and I expect it to be a slow build. At this point I would say none of those products are in the marketplace are off to a rapid vapid start. I believe it is going to be a long slow build but we are committed to the concept we think there's something there.
The other thing I would say about snus is I don't view that at all as something that has a major impact on our core business. It is not traditional round can moist smokeless tobacco in all of the test markets.
Ours and competitors, we have seen no impact on our core business and in fact have seen category growth accelerate, those are products that are really designed for and positioned to adult smokers that appears to be the source of volume.
And I think with us and others making investments in building the awareness and the trial for these things will be good for the overall category.
Filippe Goossens - Credit Suisse
Great. Thank you very much, gentlemen.
Murray Kessler
Yes and I would just add to that Filippe, there's nothing we have seen from those competitive test markets that would dictate a change in our strategy. We will make the decisions that are right for our shareholders based on our ability to create value and launch winning products, that's always our model.
Filippe Goossens - Credit Suisse
Great. Thanks, Murray.
Operator
And our next question comes from the line of Judy Hong with Goldman Sachs. Please proceed.
Judy Hong - Goldman Sachs
Hi, everyone.
Murray Kessler
Good morning Judy.
Judy Hong - Goldman Sachs
Hi Murray. I guess I just want to better understand your guidance for the second half of the year, you beat Q2 by, that you beat Q2 by $0.04 at the high end of, actually, I think the Q2 expectation. It looks like your guidance is going up only by $0.03 and the top end is only going up by $0.01. And Dan sounded pretty positive about the volume outlook for the rest of year.
So, I'm wondering what's causing you a little bit of caution as far as earnings growth for the second half of the year is concerned?
Murray Kessler
Well, we are not cautious. I mean Actually I think we beat it by $0.05 and we beat the first quarter by $0.02 and we raised the year by $0.05. We have made a decision in the second half in order to create some additional momentum to spend back about $0.02 additionally, not on trade support or price kind of programs, but primarily behind category growth brand building. And specifically there's a big piece of that in support of the new Cope launch.
So, that's just a decision on our part. I also said at the end of my comment that I thought there was, that we had retained flexibility and there's some earnings upside. So, we are continuing to monitor the environment.
We are looking at additional decisions, we don't want to spend imprudently. So, we will weigh all those factors in, but we are very bullish obviously on the second half of the year and the momentum we have on the business.
As it relates to only going up a penny on the high side of the range, that's just because we knew we had Project Momentum savings that were significant so if you look at our original range we weren't in the middle. So as we've been taking some of those savings to the bottom line raising the target, you were eating into the higher end of the range, does that make sense?
Judy Hong - Goldman Sachs
Yes. I was just wondering if there's sort of the timing difference in terms of when you are recognizing the product, Project Momentum savings throughout the year. Is there any difference in terms of quarter-to-quarter, fluctuations there?
Murray Kessler
No. I mean it's pretty evenly spread throughout the year. The original goal was, I think we had a $15 million run rate at the end of last year. We had budgeted $45 million with $20 million upside. We beat by $0.05, that's something like $13 million in additional operating profit, a portion of that, a good portion of that is Project Momentum.
So, it's all coming in ahead of schedule. It's just been a home run initiative for us and fits right into our strategy on building momentum. But you shouldn't read anything negative in our estimates of the second half of the year. You should read this as UST having a very good year, retaining flexibility, raising volume, creating momentum, prepared for anything that might happen in the marketplace and potentially a little bit of above side.
Judy Hong - Goldman Sachs
Okay. And then secondly, just following up on the SCTE question, to the extent that the bill does get past in the current sort of proposal, as it looks in the Senate or from the House.
Do you think that given that the cigarette practice prices could probably go up a lot more than smokeless tobacco, do you think that actually could bring more cigarette smokers into the smokeless category and that actually could end up being positive for you guys? And just from a price gap relative to PV standpoint that could narrow as a result of the price increases on both products or segments?
Murray Kessler
Well, here I think that the latter half I think that the impact on the price gap between PV and premium would be very tiny. I'm not sure that would fundamentally change any dynamic in that segment.
The cigarette question is an interesting question. I don't think we have a lot of experience with that. I've asked the same question myself and we are digging into it because you have, you have some experience in some state levels where those kinds of things have happened.
For example, Texas, where cigarettes had a significantly bigger tax increase, but I haven't been able to model out yet, sort of how much you could attribute to one versus another and separate out. Because remember when we have increases we tend to adjust our plan accordingly. But it's an interesting point, but I think you would have to wait and see it play out.
Judy Hong - Goldman Sachs
Okay. And then just in terms of the competitive dynamics in the price value segment with the stepped-up promotional spending, or activity from year-end and some of the competitors. Can you just talk about your share performance within PV in the context of we stepped-up spending both from your end and some of your competitors?
Murray Kessler
Well, I can comment on ours. I'm not going to talk too much about competitors, but I think, as I outlined the volume and the RAD results early on, I said Husky, was growing strong double-digit, it is, Husky gained share overall in the category and it gained share within price value. It grew faster than the segment overall.
We told you these segment grew 15.8% for that 26-week period and Red Seal was up low single digits, which is what, if you recall, I think on several occasions we said that brand went through a few tough quarters, was declining.
It's kind of a mid-tier brand; very profitable brand and we wanted to get it to a low level of sustainable growth in the low single digits, which is what we have achieved. So Red Seal is growing slower than the category and slower than PV so it is eating some share, but we are more than making that up on Husky.
Judy Hong - Goldman Sachs
Okay. And then just my final question on the snus products. I understand that it really hasn't had much impact on your business at the moment, but you sort of look out in the future and assuming that these products get rolled out in additional markets.
Is it, your view is sort of the more likely scenario that the snus products, it could accelerate the category growth enough so that you have enough, you have more new users coming into the category. And you have enough volume to go around for both your premium and these new products.
Or is it your view that the percentage of new users that are coming into the category there are switching to the snus as opposed to moist smokeless is relatively small? That it doesn't really impact your premium brands?
Murray Kessler
I think that we see that that potential in the U.S. market would only be good news for UST. We are not worried at all about those products hurting our core MST business. Our ability to convert smokers.
There's 45 million smokers and it takes a very little amount to convert to keep the growth going and we have been testing Rebel, then Skoal Dry almost seven years now and we continued despite even in the markets where we are testing those to do have tremendous success converting smokers with our core products.
And we see nothing getting in that way, especially as we continue to evolve with pouches and products that appeal that are designed and appeal to smokers. So I just, we are not worried about those products. I know it gets a lot of press and there's been a lot of hype about it, but...
Judy Hong - Goldman Sachs
Yes and I guess I'm just trying to understand why you are not worried. Is it because you think you'll actually accelerate the category growth that you just have incremental new users coming into the category from cigarette category? Or you just don't think that these products will take off meaningfully that would impact your traditional moist snuff segment. And was it a combination of both?
Murray Kessler
Both. And to be very clear we have test market data for seven years on the impact of this on our core business and the category. In all cases we have found that these dry spit free pouches do not source from the core business nor inhibit our ability to continue to grow the core businesses. In every case, including our competitor test markets, Copenhagen and Skoal grew, as fast if not faster than the rest of the country.
So I'm not, I don't have to guess or speculate on what it might be. We have years and years of data now that suggests that we will be fine with our core businesses continue to be able to convert? And the second part is also true that, I said this in the past that these products were going to be a runaway success. I would have been national five years ago.
Judy Hong - Goldman Sachs
Okay. Thanks.
Operator
And our next question comes from the line of Erik Bloomquist with J.P. Morgan. Please proceed.
Erik Bloomquist - J.P. Morgan
Hi. Good morning.
Dan Butler
Good morning Erik.
Murray Kessler
Well, Good afternoon to you.
Erik Bloomquist - J.P. Morgan
Yeah thank you. Couple of questions, one with respect to the new products you are launching the new Cope and also some of the patches that have been very successful. Do you have any different data in terms of the smoker conversion ratio? Are those converting smokers at a higher rate than the 10% we had seen historically?
Dan Butler
Good morning, good afternoon Erik, its Dan. I have I guess a different sort of spin on that. What I would say is that for the couch product particularly, if we look at smoker conversion and what percent of smokers are using those products they way over index versus their presence in moist smokeless tobacco.
So for instance pouches index is close to a 500 to smokers and our long cuts and long cut flavors are probably well over 200 in terms of an index, in terms of what percentage of new to category smokers are converting there.
So they are very effective in new to category consumers, particularly smokers. They very disproportionately go to the patches especially and kind of secondly to the long cut.
Erik Bloomquist - J.P. Morgan
Second question is with respect to the announcement in terms of the state tax conversion from ad valorem to specific. Is there any impact from the conversion of Delaware that we might expect in the second half? Or is that too small? Then, secondly, are there other states that are on the bubble in terms of changing their tax structure?
Dan Butler
There are always states on the bubble and it's hard to predict. But in total, you've had five states over the past 12 months and I think there's enough data on the first four states that would demonstrate that what we've said in the past is true.
That state revenue department's benefit. The category continues to grow. It doesn't have a negative impact particularly on any individual competitor, but our share positions improve, and it puts it on a fair and equal basis when the subsidy is changed; Delaware doesn't change until January 1st I think.
Erik Bloomquist - J.P. Morgan
Okay, but in terms of what you are having to spend in terms of closing those price gaps. With the changes in the tax structure, I am assuming that means you have less you need to spend.
Murray Kessler
Yeah. I think that question got asked to Dan at the last conference call as well; we haven't made any significant adjustments to our trade plan either way; last year when it implemented the premium loyalty plan. We did a lot of fine-tuning and adjusted it, this year sort of plan we've put in place and the amount of dollars we said is exactly what we're doing.
Is that an opportunity over time as you got broader coverage, sure; but I also think you just probably have an opportunity within the entire trade plan; right now it's been a series of adjustments to get the gaps right, to get the volume growing, there's probably a Project Momentum efficiency opportunity in that big trade planning budget in years to come as well, where you start a little bit more optimization.
Erik Bloomquist - J.P. Morgan
Okay, great.
Murray Kessler
And that could be a part of it.
Erik Bloomquist - J.P. Morgan
Okay, thank you, last question that is with respect to the incremental 50 million units today in Project Momentum; can you give us some broad guidance on where that is coming from, I mean what kind, where you are realizing those savings.
Murray Kessler
Yeah. I think Jim in his comments said it was primarily manufacturing and procurement, but just think about it this way; that in the initial Project Momentum in the manufacturing side of the business.
We put in a number of efforts to improve performance, right; so those types of performance enhancements are the ones you would typically expect, reductions and scrap, improved utilization, etcetera.
As you improve utilization you free up line space, and that gives you a whole another set of opportunities in terms of scheduling shipping schedules between facilities. Working with logistics, outsourcing opportunities.
And this Phase II folds into those types of categories, which needed the foundation of enhancing the performance and the plants before you could do it, and then it creates procurement opportunities and everything else along the way.
But it's really just been a terrific project, that $150 million doesn't count the $100 million from the sale of the building and it doesn't count what we continue to get and we've seen since the start of this initiative is just a heightened awareness of making every dollar count within the company.
And we are not counting in our $150 million, at this point probably millions of millions of dollars of just standing efficiency where people are being more prudent; if there is not a project attached to it we don't count it in this initiative.
Erik Bloomquist - J.P. Morgan
So on a qualitative basis you'd say the company is being far more efficient with the money they're spending and people have really bought into the program.
Murray Kessler
Very much so.
Erik Bloomquist - J.P. Morgan
Great, thank you.
Operator
And our next question comes from the line of Andrew Kieley with Deutsche Bank. Please proceed.
Andrew Kieley - Deutsche Bank
Good morning everyone.
Murray Kessler
Good morning, Andrew.
Andrew Kieley - Deutsche Bank
Just first question on the discount segment; you guys are tapping growth in that segment pretty aggressively now; if we assume that strategy continues, and the high growth rates continue. How do you think a more aggressive stance by UST might impact the overall industry-pricing environment in that segment?
Dan Butler
We are committed to competing more effectively in that segment that is clearly strong and legitimate, it is about 43% of the total category today, but when I say it we want to be more competitive in price value. It means we want to have a better share and a stronger participation in that segment where we are just a little over 22% a share; we are under shared in the segment.
But as we do that and get more competitive in price value, we do not see that it increasingly sources volume from premium, it is really competition within that segment, and just like you are seeing our sequential market share in total start to stabilize partly due to our efforts in price value. We are also seeing sequentially over time that the overall shift from premium to price value is starting to slow.
And I expect that in the future we are going to see that come into some level of equilibrium; so, I think the price value. You are seeing the total segment growth slow down; it used to be 30% a few years ago, to 25 to 20 to now 15.
I think we are going to get to an equilibrium place, and we just want to have a strong competitive position within all segments. And remember the overarching umbrella and goal that we set up in the beginning of the year was not volume for volume's sake; I mean we are all about growing profitable volume.
Andrew Kieley - Deutsche Bank
All right, okay. Second question I had just I guess a more strategic question, given your fairly conservative leverage and a very solid credit rating you guys pay out a very high amount to shareholders through dividends and buybacks. How do think longer term about your ability to maybe use the balance sheet flexibility and potentially raise shareholder payouts.
Murray Kessler
I've said in the past that, it's clear that we are not a highly leveraged company, I mean the ratios speak for themselves, and now that I was bringing in a new CFO. I wanted to go out on a path of getting a CFO that was sort of particularly strong in financial strategy, I think Ray is exactly that and he will be a partner in crafting that strategy going forward.
And we will share sort of our points of view on that going forward. In the meantime, it's little but we did spend more cash than we earned this year back; so we are starting to be a little bit more aggressive already.
Andrew Kieley - Deutsche Bank
Okay, thanks.
Operator
And now our next question comes from the line of David Adelman with Morgan Stanley. Please proceed.
David Adelman - Morgan Stanley
Good morning.
Murray Kessler
Good morning, David.
David Adelman - Morgan Stanley
Murray, I am curious, how do you set the categories pricing power from here going forward, you obviously didn't take a premium price increase this year; arguably there's a higher level of competitive intent to be at the low end of the market now than there was six months ago. In part because of your behavior; how do you think things can involve from here?
Murray Kessler
Well, I'll answer that question two ways; one, relative to UST, I'd say pricing flexibility as increased over the last year, and clearly there's sort of a demonstration across the industry on a focus on profitable volume growth; there's the price gaps from where we were a year ago.
A year ago we were saying we had to get things back into line and reach an equilibrium to where we could grow again, and more recently, we've talked about stabilizing our market shares which are happening.
So in an environment where the category is growing it's a more rational price market, and we've gotten those price gaps back into place where we can; one would argue that there's more pricing flexibility. Having said that, we didn't not take a price increase because we couldn't last year.
We didn't take a price increase because we didn't need to relative to all the tools that we now have available to us, and you know that was part of my investment thesis when I presented it in December was this notion of putting more tools in UST's toolbox, so that we were, could get back to not just relying on pricing but growing volume, taking tough looks at cost, working our share repurchase program; accelerating growth in the winery; and all of those tools and we balanced each of those with an overarching goal, that says we want to consistently and sustainably deliver that 10%, and at the same time we're not satisfied with our volume not growing as fast in the category.
So, I think we're purposely making decisions, but that doesn't mean tomorrow we couldn't take a price increase. It means that each one of those factors gets considered at the time. But if you ask me do I think we have more pricing flexibility or less than a year ago? I think given our share positions and the price gaps, we have more.
David Adelman - Morgan Stanley
Okay. And then, as a follow-up, Murray, how do you assess, not in the next six months, but over time, the risk of the emergence or the development of a pricing tier that has substantial volume and share at where the lowest price points in the marketplace are today?
Because obviously, if you go back over a long period of time, Grizzly essentially developed as a brand at a price point at which -- years earlier -- Red Seal was priced. What's the risk that two or three years from now in your view that the emergence of a new lower-priced tier, because obviously you can be profitable at very low price points in this market and particularly with the prevailing tax structure?
Dan Butler
Good morning, David. It's Dan. I do think the environment has changed versus where it was some years ago. The rate of pricing in the category has slowed considerably and the bottom line has -- I think it comes down to how are you delivering value to consumers?
And I would tell you that at the low end, you've got brands in tier three today that are very strong and legitimate brands. They're not just low-priced cans of snuff. They're legitimate brands that deliver a compelling value to consumers.
At $2.25 a can is a very good value for a quality product with a legitimate brand name on it, and I don't believe that there's a huge opportunity to deliver significant consumer value underneath that price umbrella, because on its face is a good and a fair value.
Now having said that, there have been a number of folks who have tried to come in underneath that umbrella and none of those things has gained any traction, because you not only have to come in with a very compelling price point.
But you're going up against a handful of pretty strong brands in the sub price value segment today. So I just don't think it's that easy. And I think the brands that are there today already represent a pretty compelling value.
David Adelman - Morgan Stanley
And you mentioned, Dan, at some point reaching an equilibrium between the aggregate price value segment and premium, where do you think price value share ultimately sort of crescendos?
Dan Butler
That's a fair question. I don't really want to speculate on that here today other than to say that I think the rate of sequential share increase in price value over time recently has started to slow. And I do think that we're going to see that equilibrium in the, what we call it, relatively near future, and I'll decline to be much more specific than that.
David Adelman - Morgan Stanley
Do you think that there's a point where you get a level of either distribution or retail shelf space for price value products from this point, where it could put the premium category under incremental pressure?
Or do you think realistically the products have brought enough distribution and brought enough visibility and retail that even if they were to gain another 5, 7, 8 share points cumulatively over time that that in and of itself wouldn't radically change the competitive set from where it is today?
Dan Butler
Yeah. I think actually in the retail trade -- and we do a terrific job of working with customers and have pretty sophisticated category management tools. I think today versus a year ago there's a heightened understanding of category profitability.
I think that a lot of sophisticated retailers are looking at their shelf sets and realizing that in the days of 30% price value growth, there was a lot of distribution build. That's what killed some of the growth was distribution build.
All of the low fruit on that, I would say, has basically been taken and now people are taking stock of where they are and realizing in some cases they're actually over-SKUed in the low-priced, low margin end of the business.
And they are sort of rebalancing their shelf sets and I think we have a very compelling category -- management category profitability story that will help to bring things into balance, I think in terms of the retail shelf set. So, I think most of the taking shelf space has already occurred.
David Adelman - Morgan Stanley
Okay. Thank you very much.
Murray Kessler
Yeah, David and just two additions to Dan, I would say on the shelf space issue as well there is significant opportunity for the entire OTP set, which is growing across the board, relative to a much larger cigarette sections, ultimately over time.
And you're seeing with all the heightened interest especially with cigarette manufacturers now showing interest in smokeless tobacco and validating the category growth story we've been talking about for the past few years that there's opportunity to increase in total OTP, and that's not theoretical. That's happening every day.
And the only other point I would make on low-priced scenario that other low-priced brands come in, that's part of the reason why -- part of the way that happens is an unfair tax subsidy that is a structural cost advantage that's wrong, and it comes out of the Revenue Department's pockets and why we're so adamant and committed, no matter how long it takes, to converting to a specific or weight based tax structure over time.
David Adelman - Morgan Stanley
Okay. Thanks.
Operator
And our next question comes from the line of Ann Gurkin with Davenport.
Ann Gurkin - Davenport
Good morning.
Murray Kessler
Good morning, Ann.
Ann Gurkin - Davenport
Just wanted to ask about your raised outlook for premium moist smokeless growth and the biggest drivers, or the key driver, would it be the price value category slowing, higher promotions, are you stepping up promotions on your premiums in the back half, innovation? Can you help me understand kind of what's driving that increase? The biggest driver?
Dan Butler
Good morning, Ann. It's Dan. I think what we're really looking at is continued category growth in the back half. We're looking at the trend we've actually been able to post in the first half; it's not about increasing promotional spend.
The big increase in promotional spend and premium loyalty happened in 2006 was a little bit of upland increase this year. We're doing basically, exactly what we planned to do this year from a premium loyalty standpoint.
We are making some increased investments in brand building, specifically the new Cope launch that we mentioned earlier. I think that's going to give us some top stand on our premium volume. And we are lapping tougher comps for the back half on premium.
We were up .7% in the third quarter last year and 1.7% in the fourth and we expect to be 1.5% or thereabouts for the back half. So it's going to be growth on top of growth, but I believe with a growing category and stabilizing share and the kind of programming we have in place that we'll do that.
Ann Gurkin - Davenport
Great. And then, can you talk about sales at convenience stores in light of higher gas prices?
Dan Butler
We haven't really seen an impact of gasoline prices this year. We saw a huge seasonal increase like we saw last year. It popped up to record highs. Actually in the last week for the first time most recently, we're a little bit below where we were a year ago. But I think the kind of sticker shock we saw the first couple of times this thing went over $3, we didn't seem to see this year.
Ann Gurkin - Davenport
All right. Great. Thank you very much.
Operator
(Operator Instructions) And now our next question comes from the line of Michael Quan with UBS. Please proceed.
Michael Quan - UBS
Good morning.
Murray Kessler
Hello.
Operator
Mr. Quan, your line is open.
Murray Kessler
Maybe, we should go to the next question.
Michael Quan - UBS
Yes, hi.
Dan Butler
No, there we go.
Operator
Looks like his line went out again. (Operator Instructions) Okay, and we do have our question coming from the line of Michael Quan with UBS. Please proceed, Mr. Quan.
Michael Quan - UBS
Can you guys hear me now?
Dan Butler
Yes.
Michael Quan - UBS
Sorry. Actually I just want to say my question has been answered. Nice quarter.
Dan Butler
Thanks. This is Nick, right?
Michael Quan - UBS
Yeah, it is.
Dan Butler
Okay.
Michael Quan - UBS
Sorry, guys. I'm golfing right now. I knew you would have a good quarter, so I just wanted to get on and I was going to ask about the gas prices, but it's already been asked.
Dan Butler
Okay.
Operator
And there appears to be no additional questions at this time. I would now like to turn the call over to Mr. Kessler for any closing remarks.
Murray Kessler
Thank you for your continuing interest in UST.
Operator
This now concludes your presentation. You may now disconnect and have a wonderful day.
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