Earnings Preview: Altria Group Inc.

4/23/2013 12:45 PM
By Associated Press

RICHMOND, Va. (AP) — Altria Group Inc., parent of the biggest U.S. cigarette maker, Philip Morris USA, should give investors a sense of whether its top-selling Marlboro brand can keep its command of the market when it releases its first-quarter financial results before the stock market opens Thursday.

WHAT TO WATCH FOR: The premium Marlboro brand has been under pressure from competitors and lower-priced cigarette brands as consumers face economic pressure and high unemployment.

Those economic challenges are in addition to the tax hikes, smoking bans, health concerns and social stigma that have made the cigarette business tougher.

Meanwhile, the industry continues to raise prices despite falling cigarette volumes.

The Marlboro brand sold for an average of $5.80 per pack during the last quarter, compared with an average of $4.26 per pack for the cheapest brand.

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 to lure smokers away 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 brand.

Marlboro volumes were essentially flat at 29.1 billion cigarettes in the fourth quarter and the brand gained 1 percentage point of market share to end up with 42.6 percent of the U.S. retail market.

The company still faces pressure from less-expensive brands such as Pall Mall from Reynolds American Inc. and Maverick from Lorillard Inc.

On Tuesday, Reynolds American said higher gas prices and payroll taxes lowered consumers' disposable income during the quarter, driving down cigarette volumes from its R.J. Reynolds Tobacco subsidiary by about 9 percent, compared with its estimate of a total industry decline of 6 percent. The company said its volumes also were hurt by two fewer shipping days during the quarter.

Altria and other tobacco companies also are looking for growth from cigarette alternatives such as cigars, snuff and chewing tobacco. So analysts will want to see how Altria's Black & Mild cigars and Copenhagen and Skoal smokeless tobacco products, as well as Marlboro Snus, perform.

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

As the company anticipates volume declines in its core cigarette business, it's also cutting costs. 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.

WHY IT MATTERS: Increased spending on premium brands like Marlboro could signal consumers are adjusting to paying more for cigarettes following federal and state tax increases.

WHAT'S EXPECTED: Analysts expect Altria to earn 53 cents per share on revenue of $4.03 billion, according to FactSet.

LAST YEAR'S QUARTER: Altria reported adjusted net income of 49 cents per share on revenue of $3.99 billion. Figures for both periods exclude excise taxes the company passes through to the government.


Michael Felberbaum can be reached at http://www.twitter.com/MLFelberbaum.

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