Earnings Preview: Altria Group

Source from:  The Associated Press 10/20/2009

Altria Group Inc. reports its third-quarter results on Wednesday. The following is a summary of key developments and analyst opinion related to the period. OVERVIEW: The Richmond, Va.-based seller of Marlboro cigarettes, Black & Mild cigars, and Copenhagen and Skoal smokeless tobacco products, is battling loss of market share. Still, the owner of the biggest U.S. cigarette maker, Philip Morris USA, said its second-quarter profit rose 9 percent to $1.01 billion as it cut costs and integrated smokeless tobacco company UST Inc. The industry rebounded somewhat during that period as retailers went back to ordering cigarettes. Retailers and wholesalers had cut their orders ahead of a one-time federal tax on their inventory in April. Consumers also adjusted to higher prices that included new federal taxes. In the second quarter, the company reported volume declines among all cigarette brands, including Marlboro, Parliament, Virginia Slims and Basic. Marlboro, the best-selling brand in the U.S., lost 0.6 points of market share to end up with 41.2 percent of the U.S. market, according to data from Information Resources Inc. At the end of July, Altria stopped production at its Cabarrus County, N.C., cigarette factory to help bring its manufacturing capacity in line with declines in cigarettes sold in the U.S. Altria said the closing would save $188 million by 2011. It said it expected pretax charges of about $175 million in the second half of 2009, primarily for closing the plant. In last year's third quarter, Altria said it earned $867 million on revenue of $5.24 billion. BY THE NUMBERS: Analysts surveyed by Thomson Financial on average expect Altria to post a profit of 46 cents per share for the third quarter on revenue of $4.66 billion. ANALYST TAKE: Analysts expect the quarter to be the first real indicator of true cigarette volumes for the year as the industry saw declines the first half of the year from the federal tax increase that took effect April 1. Credit Suisse analyst Thilo Wrede wrote in an Oct. 13 investor note that he expects Altria is expected to post continued market share losses and volume declines. But Deutsche Bank-North America analyst Marc Greenberg said volume declines will be offset by higher prices. Greenberg said positive earnings based on Altria's ability to match prices with sales volumes and its focus on profit growth makes the company a "compelling value." WHAT'S AHEAD: The industry continues to see the effect of the U.S. Food and Drug Administration's new authority to regulate tobacco granted in June. It is believed the regulation will hurt Altria least because the tighter regulations on marketing and new product introductions could cement its position as market leader. Wall Street will be looking at how further smoking bans, tax increases and regulation could affect cigarette volumes and profitability. STOCK PERFORMANCE: During the quarter ended Sept. 30, shares of Altria rose 6.8 percent to end the period at $17.81. Over the past 52 weeks, the stock has traded between $14.34 and $20.74. Enditem