Marlboro maker Altria 3Q profit falls on charges

Marlboro maker Altria Group Inc.'s third-quarter net income fell 44 percent on charges for a loss on early extinguishment of debt. But it sold more cigarettes at higher prices and expanded its industry-leading share of the U.S. market. Marlboro maker Altria Group Inc.'s third-quarter net income fell 44 percent on charges for a loss on early extinguishment of debt. But it sold more cigarettes at higher prices and expanded its industry-leading share of the U.S. market.

The owner of the nation's biggest cigarette maker, Philip Morris USA, on Thursday reported net income of $657 million, or 32 cents per share, for the three-month period ended Sept. 30, down from $1.17 billion, or 57 cents a share, a year earlier. Earnings were impacted by previously announced plan to buy back $2 billion in debt, which resulted in a charge of $874 million in the third quarter. Adjusted earnings were 58 cents per share, matching Wall Street expectations.

The Richmond, Va.-based company said revenue, excluding excise taxes, rose about 3 percent to $4.46 billion as higher costs to promote its top-selling Marlboro brand were offset by higher prices and volumes. Analysts polled by FactSet expected revenue of $4.36 billion. Its shares slipped 9 cents to $32.04 in midday trading.

They are 12 percent below their 52-week peak of $36.29 in early August. Altria said cigarette volumes grew about 1 percent to 33.7 billion cigarettes compared with a year ago, compared with an estimated total industry volume decline of 3.5 percent. Volumes for its discount cigarette brands increased 14 percent, Marlboro saw gains of 1 percent and its other premium brands fell by about 8 percent. Its share of the U.S. retail market rose 1.2 percentage points to 49.9 percent.

Marlboro brand gained 1 percentage point of market share to end up with 42.7 percent of the U.S. market. In the year-ago quarter, Marlboro experienced one of the biggest U.S. market-share declines in at least four years. The company has introduced several new products with the Marlboro brand, often with lower promotional pricing.

They include special blends of both menthol and non-menthol cigarettes to try to keep the brand growing and steal smokers from its competitors. At the end of the quarter, Altria said it expanded Marlboro NXT - a cigarette that can be switched to menthol by crushing a capsule in the filter - into 27 states.

 "Marlboro's got a big reach, it appeals to a lot of adult smokers. It's proven that not just recently, but over decades," CEO Marty Barrington said in a conference call with investors. "It's a big brand, it's got a lot of room for a lot flavor segments, it's got room for a lot of adult smokers, and that's how we think about it." Altria still faces pressure in the current economy from less-expensive brands such as Pall Mall from Reynolds American Inc. and Maverick from Lorillard Inc. Marlboro sold for an average of $5.79 per pack during the third quarter, compared with an average of $4.24 per pack for the cheapest brand.

But Altria also saw volumes for its discount L&M brand grow this quarter. Like other tobacco companies, Altria is focusing on cigarette alternatives - such as cigars, snuff and chewing tobacco - for future sales growth because the decline in cigarette smoking is expected to continue. Volumes of its smokeless tobacco brands such as Copenhagen and Skoal rose nearly 6 percent compared with the year-ago period. For the quarter, the company's smokeless tobacco brands had 55.5 percent of the market, which is tiny compared with cigarettes.

 The timing of promotional shipments and other inventory changes drove volumes for its Black & Mild cigars down14 percent during the period, but its share of the U.S. retail market grew 0.8 percentage point to 30.1 percent. The company also owns wine and financial services businesses and holds a voting stake in brewer SABMiller. Altria has been forced to cut costs as tax hikes, smoking bans, health concerns and social stigma make the cigarette business tougher. After completing a $1.5 billion multi-year cost savings program last year, the company rolled out a plan to cut $400 million in "cigarette-related infrastructure costs" by the end of 2013 in advance of anticipated cigarette volume declines.

The company said that plan remains on track. Altria also reaffirmed its full-year adjusted earnings guidance in the range of between $2.19 and $2.23 per share. Analysts expect earnings of $2.21 per share. During the latest quarter, the company said it repurchased 7.7 million shares for a total cost of about $262 million as part of its previously announced $1 billion share buyback program, which was expanded by $500 million in a board vote earlier this week.

It has about $550 million remaining in the expanded program, which it expects to complete by the end of the second quarter of 2013. No. 2 cigarette maker Reynolds American said Tuesday its third-quarter profit grew nearly 7 percent as higher prices and smokeless tobacco gains helped offset a nearly 7 percent decline in the number of cigarettes it sold. And Lorillard Inc., the nation's third-biggest tobacco company, said Wednesday its third-quarter net income rose 6 percent, as higher prices helped offset a decline of about 2 percent in its cigarette volumes.