Altria Group Inc., the first U.S. tobacco company to report first-quarter results this year, may post the biggest drop in cigarette shipments in six years after a new tax reduced orders.
A law requiring retailers and distributors to pay the additional tax of 62 cents for every pack of cigarettes in stock as of April 1 may have helped push shipments by Altria's Philip Morris USA division down by 14.3 percent, according to an April 14 estimate by Judy Hong, an analyst for Goldman Sachs Group Inc. in New York. The company reports earnings tomorrow.
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The decline may cause the Richmond, Virginia-based maker of top-selling Marlboro cigarettes to miss analysts' average profit estimate of 39 cents a share, said Brian Barish, an Altria investor.
"The destocking impact could be pretty profound," said Barish, who oversees $4.2 billion as president of Cambiar Investors. The Denver-based firm owns 7.2 million shares of Altria, the largest U.S. tobacco company.
Shipments fell 16.1 percent in the first quarter of 2003, according to Altria filings. The company, which also makes Parliament and Virginia Slims, became more vulnerable to declining U.S. shipments last year after spinning off Philip Morris International Inc. and sending two-thirds of profit outside the U.S.
Buying Snuff
Altria's U.S. cigarette shipments dropped 3.2 percent to 169.4 billion cigarettes last year. Chief Executive Officer Michael Szymanczyk engineered the $10.4 billion acquisition of UST Inc. in January to bolster revenue growth from snuff brands Skoal and Copenhagen.
Szymanczyk, 60, wasn't available for an interview, David Sylvia, a company spokesman, said yesterday. The company hasn't projected 2009 cigarette shipments.
Philip Morris USA controlled 50.7 percent of U.S. cigarette sales in 2008, with Marlboro accounting for 41.6 percent of the market.
Altria fell 20 cents to $16.73 at 4 p.m. in New York Stock Exchange composite trading. The shares have dropped 27 percent since the spinoff of New York-based Philip Morris International on March 28, 2008.
Altria anticipated the biggest-ever increase in U.S. tobacco taxes by raising cigarette prices three times since December. The most recent increases on March 9, of either 71 cents or 81 cents a pack, covered 18 brands, including Marlboro.
Higher Prices
Profit will depend on the extent to which the higher prices countered the reduction in orders, said Adam Spielman, a Citigroup Inc. analyst in London. He rates Altria a "buy" and expects shipments to drop 15 percent.
Thilo Wrede, a Credit Suisse analyst in New York, puts the drop at 3.4 percent, reflecting extra orders by distributors and retailers before the company raised prices in early March. The impact of the inventory shifts won't be as severe as some analysts expect, Wrede wrote in a note April 16.
Customers who deferred orders last month to avoid the tax will compensate by ordering more cigarettes this month, Spielman said in a March 27 note to clients.
As a result, April shipments will be higher than normal and "will likely muddy the water sufficiently to make it impossible to interpret first- and second-quarter results accurately," Spielman said. He said the actual impact of higher U.S. taxes on cigarette demand won't be clear until the third quarter.
"We fully expect a quick recovery in the second quarter as wholesalers and retailers alike work to rebuild inventories," Christopher Growe, a Stifel, Nicolaus & Co. analyst in St. Louis, wrote in an April 17 note to clients. He recommends buying Altria shares.
Reynolds American Inc., the second-biggest U.S. tobacco company, plans to release first-quarter results April 29. No. 3 Lorillard Inc. plans to report April 27. Enditem
