Altria Group 4th-qtr profit climbs due to higher prices, cost-cutting, strength of smokeless

Altria 4Q profit rises on higher prices, cost-cuts

RICHMOND, Va. — Marlboro maker Altria Group Inc. said raising prices on cigarettes and cigars and cutting costs more than $150 million helped its fourth-quarter profit climb 7 percent, even as it sold fewer cigarettes and cigars than a year earlier.

The Richmond-based owner of Philip Morris USA said, however, that it expects 2010 to be challenging and that continuing economic pressure and proposed state tax hikes could hurt tobacco sales.

The company said it sold 11.4 percent fewer cigarettes in the fourth quarter than a year earlier. Altria estimated a total industry decline of about 10 percent.

For the year, its cigarette volume fell slightly faster — 12.2 percent — while the industry’s was more stable, falling 8 percent, according to Altria’s estimate.

Altria reported that its full-year profit also plunged — 35 percent to $3.21 billion, or $1.54 per share. But the figure reported for 2008 included Philip Morris International Inc. — which makes Altria’s brands for sale overseas and was spun off in March that year — and the 2009 figure included smokeless tobacco company UST LLC, which Altria bought last year.

The quarterly picture was prettier: Altria earned $725 million, or 35 cents per share, in the period that ended Dec. 31, compared with $679 million, or 33 cents per share, a year earlier. The company credited higher operating income and higher earnings from its investment in SABMiller PLC for that 7 percent increase.

Excluding the excise taxes Altria collects, its revenue also increased 7 percent in the fourth quarter, to $4.1 billion, with most of the increase due to adding smokeless tobacco company UST. Wall Street expected the revenue figure to be $4.14 billion.

The company’s smokeless tobacco products — seen as its most likely growth area — held 54.7 percent of the retail market in the fourth quarter.

CEO Michael E. Szymanczyk said Thursday that the company looks forward to growing its smokeless business, including Skoal and Copenhagen sales, in 2009. But smokeless products accounted for just $317 million of Altria’s quarterly sales.

In contrast, its quarterly cigarette sales amounted to $3.5 billion.

“The four leading premium brands of Altria’s tobacco operating companies displayed great strength in the challenging economic and competitive environment,” Szymanczyk said in a conference call with investors.

Marlboro, the best-selling brand in the U.S., lost 0.4 point of market share in the quarter to end up with 41.7 percent of the U.S. market, according to data from Information Resources Inc.

Even though Altria is trying to diversify, Edward Jones analyst Jack Russo said, the company still relies on cigarettes.

“Those other categories are growing,” Russo said. “It’s just that to move the needle — as big of a brand as Marlboro is — it’s really hard to do.”

Altria’s shares rose 2 cents to close Thursday at $20.01.

The company said it cut expenses $157 million during the fourth quarter and $398 million for the full year and expects additional cost savings of about $462 million by 2011. It closed its Cabarrus County, N.C., cigarette factory in July to bring its manufacturing capacity in line with falling demand, and streamlined it sales force.

While Altria expects 2010 to be difficult due to high unemployment and the soft economy, its guidance for adjusted earnings of $1.85 to $1.89 per share is in range of analysts’ $1.87-per-share prediction.

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AP Business Writer Michelle Chapman in New York contributed to this report.