Altria Group’s 2nd-qtr net income grows 3.2 percent; cigarette volumes fall

Altria 2Q net income grows 3.2 pct on lower costs

RICHMOND, Va. — Marlboro maker Altria Group Inc. is cutting costs faster than smokers are cutting back on its cigarettes, helping its earnings edge higher.

The owner of the nation’s biggest cigarette maker — Philip Morris USA — said Wednesday its net income grew 3.2 percent in the second quarter on lower costs even as it sold fewer cigarettes. It also raised its full-year earnings guidance.

Altria, based in Richmond, has been reining in expenses as tax increases, smoking bans, health concerns and social stigma make the cigarette business tougher. The company said it cut costs about $129 million in the second quarter and expects to save about $290 million more by the end of 2011. Those cuts are part of a larger initiative to reduce general and manufacturing costs by $1.5 billion compared with 2006.

“When you’re in a business that’s in decline you’ve got to keep chipping away at your costs,” said Edward Jones analyst Jack Russo. “That’s just going to be an ongoing part of the story.”

Overall, Russo said there wasn’t “too much drama” in the quarter and he said he believes the company “clearly feels good about things.”

Altria said it earned $1.04 billion, or 50 cents per share, in the April-June period, up from $1.01 billion, or 49 cents per share, a year ago. Results met analyst expectations.

Net revenue excluding excise taxes fell 5.5 percent to $4.34 billion. Analysts expected $4.36 billion. With taxes, revenue fell 6.6 percent to $6.3 billion.

It raised its full-year outlook for adjusted earnings from continuing operations to a range of $1.87 to $1.91 per share.

“The fundamentals of our business remain strong and the premium brands of our operating companies performed very well in what continues to be a challenging business environment,” CEO Michael E. Szymanczyk said in a conference call with investors.

Szymanczyk said the fragile economy “will be with us for a while.”

Its shares fell 11 cents to $21.41 Wednesday.

Meanwhile, cigarette sales excluding excise taxes decreased 5.8 percent to $3.7 billion during the second quarter even though Altria raised prices.

Total cigarette volume fell 10.2 percent to 36.5 billion cigarettes from last year, when retailers and wholesalers restocked following a one-time federal tax on inventory. Adjusting for that change, volumes fell 3.5 percent compared with its overall industry estimated decline of 4.5 percent.

Altria said Marlboro, its top-selling brand, averaged $5.50 per pack during the quarter and gained 1.6 points of market share to end up with a record 42.8 percent of the U.S. market. But its other brands, including Virginia Slims, Parliament and Basic, lost market share.

Like other tobacco companies, Altria is focusing on cigarette alternatives — such as cigars, snuff and chewing tobacco — for future sales growth because of expected continuing cigarette declines industrywide. The company also owns a wine business and holds a voting stake in brewer SABMiller.

Altria saw higher volumes on Black & Mild cigars and its smokeless tobacco brands such as Copenhagen and Skoal during the quarter. Excluding excise taxes, revenue from its cigar business grew 35 percent to $100 million and revenue from its smokeless tobacco business grew 4 percent to $363 million. Its cigar business lost retail market share during the quarter, while its smokeless tobacco brands grew to 56 percent of the market, which is tiny compared with cigarettes.