Altria Group 1st-quarter profit up as Marlboro gains market share, company cuts costs

Altria Group 1st-quarter profit rises

RICHMOND, Va. — Cigarette maker Altria Group Inc. said Wednesday its first-quarter profit rose 38 percent as Marlboro took an even more commanding share of the market and Copenhagen smokeless tobacco also made gains.

The Richmond-based owner of nation’s biggest cigarette maker, Philip Morris USA, said those price boosts, gains in its cigarette, smokeless tobacco and wine business and cost cutting helped it weather current economic pressures.

Altria continues to perform well despite high unemployment and low consumer confidence, as well as an intensely competitive tobacco market, CEO Michael E. Szymanczyk said in a conference call with investors.

Marlboro, which sold for an average of about $5.42 per pack, gained 0.3 points of market share to end up with a record 42.7 percent of the U.S. market, driven by its menthol and special blend brand extensions. The brand helped Altria’s cigarette sales excluding excise taxes increase 5.5 percent to $3.4 billion during the first quarter.

The company says cigarettes sold fell less than 1 percent to 34.1 billion from last year’s quarter, when retailers and wholesalers cut their orders ahead of a one-time federal tax on inventory.

But Altria said that, when adjusted for last year’s inventory cuts, its overall volumes fell about 11 percent, compared with its estimate of a 10 percent decline for the whole industry.

Marlboro’s volume was up 1.6 percent, while all of the company’s other brands, including Virginia Slims, Parliament and Basic saw declines in volume and market share.

Szymanczyk said that given Marlboro’s price gaps and its market share gains indicate that “the status of things right now seem to be acceptable to consumers.”

The company said it earned $813 million, or 39 cents per share, compared with $589 million, or 28 cents per share, a year ago. Excluding one-time items, profit was 42 cents per share. Analysts polled by Thomson Reuters expected adjusted earnings of 40 cents a share.

Its shares rose 31 cents, or about 1.5 percent, to $21.48 in afternoon trading Wednesday.

Revenue excluding excise taxes rose about 2 percent to $3.9 billion. Wall Street expected revenue of $3.84 billion. With taxes, revenue rose 27 percent to $5.76 billion, mostly because of the 62-cents-per-pack federal tax increase on tobacco products that took effect in April 2009.

Like other tobacco companies, Altria is focusing on cigarette alternatives — such as cigars, snuff and chewing tobacco — for future sales growth as tax increases, smoking bans, health concerns and social stigma make the cigarette business tougher. It’s still unclear how well that business, much smaller than cigarettes, can make up for long-term smoking declines.

Altria saw lower volumes on Black & Mild cigars, but its smokeless tobacco business, which includes brands such as Copenhagen and Skoal, saw its volume grow 21.9 percent during the quarter. Excluding excise taxes, revenue from its smokeless tobacco business grew 24 percent to $355 million, and revenue from its cigar business fell 12 percent to $87 million.

The company’s perfomance was boosted by cost savings. Altria said it cut costs about $43 million in the first quarter and expects to save about $419 million more by the end of 2011.

In a note to investors, Credit Suisse analyst Thilo Wrede noted the strong performance of its Marlboro, Copenhagen and Skoal brands. But he also highlighted worries that Altria lost cigarette market share for the fifth consecutive quarter and its smokeless business is growing at a slower pace than industry estimates.

Altria reaffirmed its full-year outlook for adjusted earnings from continuing operations to a range of $1.85 to $1.89 per share.