Altria 1Q Profit Up 15% But Marlboro Loses Share

Source from:  NASDAQ 04/21/2011

NEW YORK -(Dow Jones)- Altria Group Inc.'s (MO) first-quarter earnings rose 15% as profit climbed in both its cigarette and smokeless-tobacco segments, but volumes continued to slide. Results were in line with Wall Street expectations. Much of the quarter's gains came from cost cuts, as well as an uneven inventory flow that should help results in the short run. However, the company warned that because it saw inventory buildup in the first quarter, earnings and volume growth could be choppy through the rest of the year. Chairman and Chief Executive Michael E. Szymanczyk said Altria's results were "solid" as the company "navigated through high unemployment, low consumer confidence and a competitive business environment." Altria, whose products include Marlboro cigarettes and Copenhagen smokeless tobacco, has continued to post solid results by using price increases to offset weak volumes. Cigarette volumes slid 6.4% in the most recent period, and smokeless tobacco--which had been growing in popularity in response to indoor smoking bans--fell 1.3%. Still, Szymanczyk said on a conference call that there's been no evidence that normal price elasticity is changing. While overall industry volumes continue to shrink by about 4%, Altria lost even more than peers. Its Marlboro market share declined 0.5 point to 42.2%, and total cigarettes fell 1.2 points to 49% of the U.S. market. According to Morgan Stanley, that's "the lowest in recent memory." Szymanczyk said much of the retail share decline can be linked to the timing of new products in the year-ago period, and he expects quarterly share to improve "significantly" in the second half of the 2011. Altria reported a profit of $937 million, or 45 cents a share, up from $813 million, or 39 cents, a year earlier. Excluding items such as asset impairment and integration costs and a pre-tax gain on the company's SABMiller PLC (SAB.JO, SBMRY) interest, earnings rose to 44 cents from 42 cents. Revenue declined 2% to $5.64 billion and edged 0.2% lower to $3.94 billion excluding excise taxes. Analysts polled by Thomson Reuters had most recently forecast earnings of 44 cents on $3.89 billion in revenue. Gross margin rose to 38.1% from 36.2%. Revenue from cigarettes fell 1.9% to $3.4 billion excluding excise tax, as profit increased 9.5%. Smokeless products revenue fell 0.5% to $379 million, while profit rose 8.4%, and cigar segment revenue dropped 24% to $66 million as profit tumbled 54%, which the company attributed to promotional investments. Wine brought in $101 million in revenue, up 6.3%. Marlboro cigarette volumes slid 5.7%, as other premium-cigarette volume fell 8.7% and discount-cigarette volume was off 13.5%. The company's attempt to turn around its Skoal smokeless brand is beginning to pay off, with volume up 12.2%. However, weak Copenhagen and other smokeless product volumes pushed the category down as a whole. Shares slid 0.8% to $26.17 in early trading. The stock has risen 24% the past year. Enditem