UPDATE 3-Altria revenue misses estimates, shares fall

Wed Oct 21, 2009 11:23am EDT

* Q3 EPS $0.48 ex-items vs Wall St $0.46 view

* Sees 2009 operating EPS $1.74 to $1.77

* Revenue ex-excise taxes $4.32 bln vs estimate $4.66 bln

* Cigarette volume falls 16.4 pct

* Shares down 2 pct (Adds executive comments, byline)

By Brad Dorfman

CHICAGO, Oct 21 (Reuters) - Altria Group Inc (MO.N), parent of Philip Morris USA, posted lower-than-expected quarterly sales as retailers cut cigarette inventories, and its shares fell 2 percent.

Cigarette volume fell 16.4 percent due to increased prices related to a federal cigarette tax increase and because customers cut inventories, the company said.

Altria saw cigarette market share fall to 49.7 percent in the quarter from 50.6 percent a year earlier, though its top-selling Marlboro brand saw its share edge up to 41.9 percent from 41.8 percent.

Revenue rose to $6.30 billion from $5.24 billion a year earlier. Revenue excluding excise taxes was $4.32 billion, below the average analyst forecast of $4.66 billion.

Altria's shares were down 37 cents at $18.29 in late morning trading on the New York Stock Exchange.

Marlboro was the only leading premium brand to grow its retail share sequentially or from the year-ago third quarter, Chairman and Chief Executive Michael Szymanczyk said during a conference call, citing industry data.

Altria estimates that cigarette industry volumes declined 10 pct in the quarter, and have fallen about 8 percent so far this year, he said.

Analysts said that Altria seemed to be doing well in reaping price increases for its cigarettes, though some thought the company could charge even more and also cut more costs.

"So long as they are focused more on market share rather than on profits, they probably aren't focused on the right spots," said Charles Norton, portfolio manager at USA Mutuals Vice Fund (VICEX.O), which holds 205,000 Altria shares.

PROFIT BEATS VIEW

Altria, which also makes Skoal smokeless tobacco, said third-quarter profit was $882 million, or 42 cents a share, compared with $867 million, or 42 cents a share, a year earlier.

Excluding one-time items, earnings were 48 cents a share. Analysts on average forecast 46 cents, according to Thomson Reuters I/B/E/S.

The federal cigarette tax rose to $1.01 a pack on April 1 from 39 cents and many tobacco companies, including Altria, raised prices to compensate for the increase.

In June, a law that gave the Food and Drug Administration authority to regulate tobacco took effect. Szymanczyk said it was too early to know how the FDA will approach legislation.

Altria's U.S. Smokeless Tobacco unit saw market share drop to 54 percent in the quarter from 54.4 percent a year earlier. But market share was flat versus the second quarter.

Altria lowered the price on its Copenhagen brand earlier this year to reduce the gap with lower-priced competitors and try to attract more customers.

Those lower prices are not doing enough to help improve sales at UST, which Altria bought for $10.4 billion in a deal announced on Sept. 8, 2008, Norton said.

"I don't think they paid top dollar, pretty much at the top of the credit market, for stable market share," Norton said.

The company said it would introduce a Copenhagen wintergreen long-cut product in the fourth quarter, which it expects will spur growth for the brand.

Wintergreen is a "very appropriate expansion" for Copenhagen, as the flavor accounts for about 40 percent of the moist smokeless tobacco industry and is growing, Szymanczyk said. He also said the company has initiatives planned for Skoal, but gave no details.

Altria also narrowed is 2009 earnings guidance to a range of $1.74 to $1.77 from continuing operations from its previous range of $1.72 to $1.77 a share.

The company has long expected the UST acquisition would add to earnings in 2010, but signaled in July that it may be accretive this year, depending on certain items. Now, Altria does not expect the deal to add to profitability until 2010. (Additional reporting by Jessica Wohl; Editing by Lisa Von Ahn, Dave Zimmerman)

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