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Marlboro maker Altria's 4Q profit up about 32 per cent on higher cigarette, smokeless prices

RICHMOND, Va. - Marlboro maker Altria Group's fourth-quarter profit rose about 32 per cent as it commanded higher prices for cigarettes and smokeless tobacco and expanded its industry-leading share of the U.S. market.

The owner of the biggest U.S. cigarette maker, Philip Morris USA, on Thursday reported net income of $1.1 billion, or 55 cents per share, for the three-month period ended Dec. 31. That's up from $836 million, or 41 cents a share, a year earlier, when its earnings were hurt by lease, legal and restructuring charges. The results beat Wall Street expectations by a penny.

The company said revenue, excluding excise taxes, rose 3 per cent to $4.46 billion as higher prices were partially offset by higher costs to promote its top-selling Marlboro brand and lower revenue from its financial services business. Analysts polled by FactSet expected revenue of $4.35 billion.

Altria expects its full-year adjusted earnings between $2.35 and $2.41 per share. Analysts expect $2.38 per share.

In a conference call with investors, CEO Marty Barrington said consumers remain under economic pressure because of the end of the payroll tax holiday, as well as continuing high unemployment. Tobacco products also remain a target for tax increases as states grapple with budget shortfalls, he said.

Shares rose 9 cents to $33.79 in morning trading Thursday and have traded between $28.33 and $36.29 in the last 52 weeks.

Cigarette volumes grew less than 1 per cent to 33.8 billion cigarettes compared with a year ago. Volumes for discount cigarette brands like L&M increased 7 per cent, Marlboro volumes were essentially flat and volume for its other premium brands fell by about 6 per cent. Adjusted for trade inventory changes and an extra shipping day, the company said its cigarette volumes fell 1 per cent, compared with a total industry decline of 3 per cent.

Its share of the U.S. retail market rose 1 percentage point to 49.8 per cent. Marlboro brand gained 1 percentage point of market share to end up with 42.6 per cent of the U.S. market.

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.

Altria recently introduced Marlboro NXT — a cigarette that can be switched to menthol by crushing a capsule in the filter. It has said it has a pipeline of innovative products to supplement the Marlboro brand.

The company still faces pressure from less-expensive brands such as Pall Mall from Reynolds American Inc. and Maverick from Lorillard Inc. Marlboro sold for an average of $5.80 per pack during the fourth quarter, compared with an average of $4.26 per pack for the cheapest brand.

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 10 per cent from a year ago. For the quarter, the company's smokeless tobacco brands had 55.4 per cent of the market, which is tiny compared with cigarettes.

The company said inventory changes and retail share losses drove volumes for its Black & Mild cigars down 1 per cent during the quarter.

Altria Group Inc. also owns a wine business, holds a voting stake in brewer SABMiller, and has a financial services division.

For the full year, the company said it earned $4.18 billion, or $2.06 per share, compared with a profit of $3.39 billion, or $1.64 per share, a year ago. Revenue, excluding excise taxes, rose 5 per cent to $17.5 billion. Cigarette volumes were essentially flat at 134.9 billion cigarettes. Its full-year U.S. retail share increased 0.8 percentage points to 49.8 per cent of the market. Smokeless tobacco volumes grew about 4 per cent and it claimed 55.4 per cent of the U.S. retail market.

The company 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 multiyear 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, after recording net pre-tax restructuring charges of $271 million over the past five quarters.


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