Altria Group 2009 3Q Profit Rises on Cost-Cutting

Source from:  AP 10/22/2009

The Marlboro Man roped in a larger portion of the cigarette market even as smokers bought fewer of Altria Group Inc.'s cigarettes in the third quarter. Cost-cutting and Altria's cigar business helped keep the company in the saddle with a 1.7 percent increase in its third-quarter profit. The Richmond-based parent company of the nation's largest cigarette maker, Philip Morris USA, said Wednesday that Marlboro was the only leading premium brand to increase market share during the third quarter as many consumers switched to cheaper brands or bought fewer cigarettes to save money.

While Marlboro's volume fell about 15 percent, it regained market share lost the previous quarter and ended up with 41.9 percent of the U.S. cigarette market, according to data from Information Resources Inc. "The good news for Marlboro is it is such a strong brand," Edward Jones analyst Jack Russo said of the cigarettes, which now sell for an average of $5.29 per pack of 20. "That's pretty darn expensive. You have to really like the product." In a conference call with investors Wednesday, CEO Michael E. Szymanczyk said the company was up against an "environment characterized by high unemployment and low consumer confidence." Altria, which also sells Black & Mild cigars and Copenhagen and Skoal smokeless tobacco products, kicks off the third-quarter earnings season for the industry. Its report was watched particularly closely because it included the first volume figures for the period, which followed a drop in cigarette sales during the first half of the year as a 62-cent-per pack federal tax increase took effect. The company said it earned $882 million, up from its $867 million a year earlier, even though its revenue excluding taxes fell one-half percent to $4.3 billion in the quarter that ended Sept. 30. Altria's cigarette sales excluding excise taxes decreased 9.2 percent to $3.7 billion. Including the new federal tax, the company's overall revenue was $6.3 billion. Lower income taxes, earnings from its acquisition of smokeless tobacco company UST LLC, and higher earnings from its investment in SABMiller PLC and its financial services division boosted Altria's profit, the company said. Excluding one-time items, including buying UST, Altria earned more than analysts polled by Thomson Reuters expected. The shares fell 45 cents, or about 2.4 percent, to close at $18.21 in trading Wednesday. The company said it sold 12 percent fewer cigarettes in the quarter than a year earlier and reported declines among all its brands, including Marlboro, Parliament, Virginia Slims and Basic. It estimated a total industry decline of about 10 percent. Like other tobacco companies, Altria is focusing on cigarette alternatives - such as cigars, snuff and chewing tobacco - for future sales growth. The company said it expects the smokeless tobacco industry to grow about 7 percent per year by volume, though Altria's smokeless volumes fell about 4.5 percent during the quarter. Altria expects its machine-made large-cigar volumes to grow at 3 percent annually. Its cigar volumes rose 3.9 percent as sales increased 17.9 percent to $99 million, excluding taxes. The company said it cut expenses $76 million during the third quarter and expects to trim annual costs $619 million more by 2011. It closed its Cabarrus County, N.C., cigarette factory in July to bring its manufacturing capacity in line with falling demand. Altria narrowed its forecast for its annual profit to $1.74 to $1.77 per share, from $1.72 to $1.77 per share. Analysts predict earnings of $1.76 per share for the year. Enditem