UPDATE 2-UST profit dips on premium segment fall, shares down

(Adds company and analyst comments, share activity, byline)

By Brad Dorfman

CHICAGO, July 24 (Reuters) - UST Inc UST.N posted a dip in profit as rising gasoline prices and increased competitor promotions cut into sales of its higher-priced smokeless tobacco, sending shares down 4 percent on Thursday.

The company said weakness in its premium smokeless sales was limited to the southeastern U.S. and that it will adjust its own promotions to solve the problem.

But the decline in premium tobacco sales could spark concerns that UST's Skoal and Copenhagen brands will lose share to lower-priced brands, like those offered by Reynolds American Inc (RAI.N).

"We think today's results might cause investor concern that the weaker consumer environment, heightened competitive activity in the category and higher gas prices could negatively affect UST performance over the next several quarters," Judy Hong, analyst at Goldman Sachs, said in a research note.

Net income fell to $139.7 million in the second quarter from $140 million a year earlier.

Earnings per share rose to 94 cents from 87 cents due to a decline in shares outstanding.

Excluding litigation and restructuring charges, earnings were 95 cents a share, matching the average estimate of analysts polled by Reuters Estimates.

Sales rose 3 percent to $506.2 million.

Smokeless tobacco sales fell 1.3 percent to $393.7 million as volume in premium brands fell 0.3 percent to 143.2 million cans, hurt by a decline in one region of the country, the company said. It did not identify the region.

"We attribute this to increased competitive activity, our own promotional timing and higher gasoline prices," Daniel Butler, president of UST's U.S. Smokeless Tobacco unit, said in a news release.

The company said it plans to increase promotional spending in the second half of the year to shore up volume in the premium segment.

UST said the weakness in the southeast was not in Atlanta, where Altria Group Inc's (MO.N) Philip Morris USA unit and Reynolds American are both test-marketing new smokeless tobacco products.

As to test markets, UST also said on Thursday that it was pulling its Skoal Dry smokeless tobacco from test markets and will test-market Skoal snus instead. Snus is a type of smokeless tobacco in a pouch that is also being tested by UST's competitors.

UST's wine sales rose 24.7 percent to $99.1 million and profit rose 29.5 percent in that business.

For the year, UST stood by its earnings forecast of $3.60 to $3.70 a share excluding one-time items, with a target of $3.65. Analysts' average forecast is $3.67, according to Reuters Estimates.

UST shares fell $2.21. or 4.1 percent, to $51.19 on Thursday morning on the New York Stock Exchange. The shares have traded in a 52-week range of $59.81 to $47.40. (Editing by John Wallace, Phil Berlowitz)