Altria Group 1Q Profit Drops but Beats Forecast

Source from:  The Associated Press 04/23/2009

Cigarette sales dropped 8 percent at the nation's largest tobacco maker, Altria Group Inc., as retailers and wholesalers cut their orders in the first quarter ahead of a one-time federal tax on their inventory, though the company's overall revenue rose. Tobacco sellers had to pay a "floor" tax of 62 cents per pack on whatever they had on hand before the 62-cent-per-pack tax went into effect on all retail sales April 1. Including interest expenses, charges related to acquiring smokeless tobacco maker UST Inc. and the effects of spinning Altria's international tobacco business as Philip Morris International, the company's first-quarter profit slid 76 percent. Excluding those one-time expenses, its earnings slipped only 4 percent to 39 cents per share, topping Wall Street estimates by a penny. Sales of cigars, which weren't covered by the floor tax and rose in the quarter, helped offset the cigarette sales decline, as did higher prices across the product lineup of the Richmond-based maker of Marlboro, Parliament and Virginia Slims. Executives hope cigar and smokeless tobacco sales also will help offset the decline in cigarette sales to consumers, who are continuing to cut back due to smoking bans, health concerns and higher prices. Altria's shares rose 42 cents, or 2.5 percent, to $17.15 in afternoon trading. Altria said it earned $589 million, or 28 cents per share, for the quarter ended March 31, compared with $2.45 billion, or $1.16 per share, a year earlier. Revenue rose 2.6 percent to $4.52 billion compared with the year-ago period - topping Wall Street estimates of $3.99 billion. "It's fair to categorize our first-quarter performance as 'so far, so good,'" Chief Executive Michael E. Szymanczyk said in a conference call with investors. Much of the revenue increase came from strong sales of Altria's Black & Mild cigars and from UST, the maker of Copenhagen and Skoal. Sales of cigars jumped 26 percent due to higher prices and higher volume. Revenue in the company's financial services division also rose substantially. And the 8 percent slip in cigarette sales to $3.9 billion was partially offset by higher prices and lower promotional allowance rates. In a note to investors, Deutsche Bank North America analyst Marc Greenberg said Altria "has overcome what is likely to be its biggest hurdle" for the year in regard to the inventory rundown. By volume, Philip Morris USA reported declines among all cigarette brands, including Marlboro, Parliament, Virginia Slims and Basic. Its Marlboro brand, the best-selling cigarette in the U.S., gained 0.5 points of market share to end up with 42.4 percent of the U.S. market, according to data from Information Resources Inc. "We continue to believe (Philip Morris) USA will produce profit growth for the year; however, the reaction to the pricing will be key in determining the reality of this goal," Stifel Nicolaus & Co. analyst Christopher Growe said in a note to investors. He called Marlboro's performance "impressive." Altria said the net price for a pack of Marlboros in the quarter was $4.50 compared with the lowest-priced pack of cigarettes, which was $3.14. But the company said the gap narrowed toward the end of the quarter as retail prices continued to adjust in advance of the federal tax increase. Like other U.S. tobacco companies, Altria is focusing on cigarette alternatives - such as cigars, snuff and chewing tobacco - for future sales growth because domestic cigarette consumption is falling 3 percent to 4 percent a year. The company said it believes volume in the smokeless tobacco industry as a whole grew 6 percent to 7 percent in the quarter compared with the same period a year earlier, and machine-made large-cigar volume grew 4 percent compared with a year earlier. Altria also offered full-year profit guidance of between $1.70 and $1.75 per share for continuing operations excluding one-time charges. That's up from $1.65 per share on that basis in 2008. Analysts, whose estimates typically exclude special items and discontinued operations, predict profit of $1.73 per share. Enditem