Altria’s Profit Down by 45%

November 1st, 2012 00:00

Altria Group 3Q profits dropped about 45% to a debt repurchase charge, despite the fact sales increased as the cigarette company announced raised tobacco volumes despite the broader industry decrease.

When excluding the $874 million the pretax charge associated with the Altria’s dept repurchase, which it finished last month, adjusted profits corresponded to Wall Street’s estimates while sales increase was even better than estimated. Shares lifted by 0.6% in the premarket trading.

Altria, the manufacturer of the popular Marlboro and other qualitative cigarette brands, has been winning market share this year as the company has started promotions that decrease the price for some of its smokes.

In the 3Q, Altria’s total cigarette volume climbed 1.3%, surpassing the industry’s 2.8% drop. Marlboro’s shipments lifted 1% while lower-priced cigarettes showed a 15% raise. Altria’s total cigarette market share expanded to 505 from 47.8%.

total cigarette market

Altria’s rivals Reynolds American and Lorillard have stated that promotions have become more destructive in recent weeks, and representatives of the both companies declared that they thought to become more aggressive on cigarette pricing.

Not so long ago, Reynolds American declared a drastic decrease in 3Q volume and Lorillard just slightly outperformed it.

Despite the fact that local cigarette manufacturers have been successful in passing price growth in recent years in order to help compensate volume falls, that pricing power has slowed as Altria’s promotions are forcing both manufacturers to become defensive. Some industry experts are concerned that the given trend could negatively affect profit growth within the coming quarters.

Altria has also promoted brand-building actions, as for instance Marlboro NXT, which has spread into 25 states at the end of the 3Q. Marlboro NXT is an innovative cigarette brand which contains a capsule that allows smokers to switch from non-menthol to menthol version as in Lucky Strike Click&Roll or Kent Convertibles.

Menthol, which is popular among ten smokers, constitutes about 30% of local tobacco volume and though the market was dominated by Lorillard, Altria and Reynolds American have introduced their own menthol cigarette brands.

Altria spent approximately $262 million to buyback 7.7 million shares during this quarter. At present the company owns about $550 million remaining under the program, which it plans to finish by the end of 2013.

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