US: Altria 3rd-Quarter Profit Down 44% on Debt Repurchase Charge

Source from:  Dow Jones Newswires  10/26/2012

Altria Group Inc.'s (MO) third-quarter earnings fell 44% due to a debt repurchase charge, though sales rose as the tobacco company reported higher cigarette volumes despite the broader industry's decline. When excluding the $874 million pretax charge tied to Altria's debt repurchase, which it completed last month, adjusted earnings met Wall Street's expectations while sales growth was better than expected. Shares were up 0.7% to $32.35 in premarket trading.

Altria, the maker of Marlboro and other cigarette brands, has been gaining market share this year as the company has issued promotions that lower the price for some of its products. In the third quarter, Altria's total cigarettes volume jumped 1.2%, easily besting the industry's 2.7% decline. Marlboro's shipments grew 1% while discount brands notched a 14% jump. Altria's overall cigarette market share expanded to 49.9% from 48.7%. Altria's competitors Reynolds American Inc. (RAI) and Lorillard Inc. (LO) have said promotions have gotten more disruptive in recent months, and executives at both companies said they planned to get more aggressive on cigarette pricing. Earlier this week, Reynolds American posted a steep decline in third-quarter volume and Lorillard only modestly outperformed. Though domestic tobacco producers have been successful in enacting price increases in recent years to help offset volume declines, that pricing power has lessened as Altria's promotions are driving Reynolds American and Lorillard to get defensive. Some observers worry that trend could dent earnings growth over the next several quarters. Overall, Altria reported a profit of $657 million, or 32 cents a share, down from $1.17 billion, or 57 cents a share, a year earlier. Excluding the debt repurchase charge and other items, earnings rose to 58 cents from 56 cents. Revenue, excluding excise taxes, rose 3.2% to $4.47 billion. Analysts polled by Thomson Reuters most recently forecast earnings of 58 cents a share on revenue of $4.36 billion. Altria's smokeless products saw continued strength, with volume jumping 5.9% as growth for Copenhagen and Skoal was partially offset by declines for other brands in the portfolio. Copenhagen had a particularly strong performance, as new products continue to hit the market. The company has also touted brand-building efforts, like Marlboro NXT, which expanded into 27 states at the end of the third quarter. Marlboro NXT contains capsules that allow smokers to switch from non-menthol to menthol. Menthol, which is popular among younger smokers, makes up roughly 31% of domestic tobacco volume and though the market has been dominated by Lorillard, Altria and Reynolds American have launched their own new menthol variations. Altria, which reaffirmed its full-year guidance, spent about $262 million to repurchase 7.7 million shares during the quarter. The company also expanded the authorization of its share repurchase plan by $500 million. It now has about $550 million remaining under the program, which it expects to complete by the end of 2013's second quarter. Tobacco shares had a strong performance in 2011 and throughout the first half of this year as dividend yields and strong cash flows drew investors to the sector. But valuations have dropped in recent months and all three players are underperforming the Standard & Poor's gain in 2012. Still, Altria's shares have gained 9.1% this year, while Reynolds American and Lorillard are slightly in the red. Enditem