Altria first in tobacco industry to report on 4Q; analysts eye cigarette volumes, market share

Earnings Preview: Altria Group Inc.

RICHMOND, Va. — Altria Group Inc. reports its fourth-quarter results on Thursday. The following is a summary of key developments and analyst opinion related to the period.

OVERVIEW: The Richmond, Va.-based owner of the biggest U.S. cigarette maker — Philip Morris USA, which sells Marlboro cigarettes, Black & Mild cigars, and Copenhagen and Skoal smokeless tobacco products __ still holds a majority of U.S. market share despite a decline in the demand for smokes.

Altria reported in October that its cost-cutting and its cigar business had helped boost its third-quarter profit 1.7 percent. Marlboro was the only leading brand to increase market share during the third quarter as many consumers switched to cheaper brands or bought fewer cigarettes to save money. The brand lost market share the previous quarter.

Altria reported sales declines among all its brands, including Marlboro, Parliament, Virginia Slims and Basic. It estimated a total industry decline of about 10 percent.

As tax increases, health concerns, smoking bans and social stigma continue cutting demand for cigarettes, Altria and other tobacco companies are seeking growth in cigarette alternatives — such as cigars, snuff and chewing tobacco.

For the fiscal year that ended Dec. 31, Altria forecast annual profit of $1.74 to $1.77 per share, from $1.72 to $1.77 per share. Analysts on average predict earnings of $1.77 per share on $16.84 billion in revenue.

BY THE NUMBERS: For the fourth quarter, analysts expect Altria to post a profit of 40 cents per share on revenue of $4.14 billion. A year earlier, Altria earned $679 million on revenue of $4.65 billion.

ANALYST TAKE: Credit Suisse analyst Thilo Wrede wrote in a Jan. 19 that he expects Altria to post market share losses during the quarter, including Marlboro, due to promotions by No. 2 Reynolds American Inc. on its Pall Mall brand.

Wrede also questioned whether Altria would be able to balance overall income and Marlboro’s retail share growth, but still expects the company’s earnings to rise by about 5 percent compared with same period last year.

WHAT’S AHEAD: Wall Street will be looking to see how the growing scrutiny from the Food and Drug Administration, new marketing restrictions and the need to spend more on promotions to prop up branded cigarettes may weigh on profits for the tobacco industry.

Companies are also looking to see what the FDA decides to do on the issue of menthol, a growing segment of the declining cigarette market. A scientific committee being organized by the FDA must study and issue a report on the public health impact of menthol cigarettes.

Altria offers menthol versions of its market-leading Marlboro brand, including a new extension called Marlboro Blend 54. Despite the possible restrictions on menthol, the nation’s top cigarette companies are ramping up efforts to grab some of the menthol market.

Analysts also expect softer cigarette volumes to continue from the 62-cents-per-pack federal tax increase that took effect April 1.

STOCK PERFORMANCE: During the quarter, shares of Altria rose 11.9 percent to end the period at $19.63. Over the past 52 weeks, the stock has traded between $14.50 and $20.64. It closed Monday at $19.91.