Altria Profit Tops Street View, Outlook Raised

Source from:  Reuters 07/23/2009

Altria Group Inc (MO.N), the largest U.S. tobacco company, posted a higher-than-expected quarterly profit on Wednesday as price increases and cost cuts helped offset falling U.S. cigarette volume. The parent of Marlboro cigarette maker Philip Morris USA and Copenhagen tobacco maker U.S. Smokeless Tobacco Co also raised its full-year earnings forecast. But its top selling Marlboro cigarettes lost market share during the quarter as lower-priced competitors increased promotions that widened the price gap between their cigarettes and the price of Marlboros, Altria said. For the quarter, Marlboro market share slipped to 41.2 percent from 41.8 percent a year earlier. But as competitors' prices increased in June and Philip Morris USA adjusted its own promotional strategy, Marlboro regained some market share, the company said. Altria said profit was $1.01 billion, or 49 cents a share, in the second quarter, compared with $930 million, or 45 cents a share, a year earlier. Excluding one-time items, earnings were 50 cents a share, topping the average analyst estimate of 47 cents, according to Reuters Estimates. Revenue rose 32.9 percent to $6.72 billion, largely due to higher prices related to a tax increase. The company, like most U.S. cigarette manufacturers, raised prices earlier this year ahead of a sharp increase in the federal tax, although the higher prices and weak economy may have been behind its reduced cigarette sales. Philip Morris USA shipped 40.6 billion cigarettes in the second quarter, down 6.8 percent from a year earlier. But when adjusted for changes in customer purchasing patterns related to the tax increase, second-quarter cigarette volume would have been down 12 percent, compared with an 8 percent estimates decline for the industry as a whole, Altria said. In the first quarter, wholesalers and retailers reduced inventories that would have been subject to the higher excise tax if they held them on April 1. Those customers ordered more cigarettes after April 1 to rebuild inventories. "The cigarette business performed pretty much exactly how we expected," Morningstar analyst Phil Gorham said. "The volume decline is what you would expect given what you have seen in the past in regard to price cuts." U.S. Smokeless shipments fell 3.4 percent to 166.1 million cans, the company said, as retail customers reduced inventory levels as the company switched to a strategy of "every day low pricing" rather than offering deals on multiple-can packages, Altria said. For 2009, Altria now expects earnings before one-time items of $1.72 to $1.77 a share, up 2 cents a share from its prior forecast of $1.70 to $1.75 a share. Analysts on average were expecting $1.71 a share, according to Reuters Estimates. Altria shares were $17.40 in premarket trading, up from Tuesday's New York Stock Exchange close of $17.33. Enditem