Altria Group Inc., the largest U.S. tobacco company, posted a higher-than-expected quarterly profit on Wednesday thanks to price increases and cost cuts, which offset falling U.S. cigarette volume, Reuters reported.
The parent of Marlboro cigarette maker Philip Morris USA and Copenhagen tobacco maker U.S. Smokeless Tobacco Co. also raised its full-year earnings forecast.
The market share for its top selling Marlboro cigarettes, however, slipped from 41.8% a year earlier to 41.2% in light of promotions by lower-priced competitors that widened the price gap. To combat lower-priced competitors, Philip Morris adjusted its own promotional strategy in June to regain sales margins.
Altria said profit totaled $1.01 billion, or 49 cents a share, in the second quarter, compared with $930 million, or 45 cents a share, a year earlier. And because of higher prices caused by a tax increase, revenue grew 32.9 % to $6.72 billion.
The company, along with most U.S. cigarette manufacturers, raised its prices at the start of the year in anticipation of a high federal tax increase. Higher prices and weak economy may have impacted its reduced cigarette sales.
Philip Morris USA shipped 40.6 billion cigarettes in the second quarter, down 6.8% from a year earlier. When adjusted for changes in customer purchasing patterns due to the tax increase, second-quarter cigarette volume would have been down 12%, compared with an 8% estimated decline for the industry, Altria told Reuters.
In the first quarter, retailers reduced inventories that would have been subject to the higher excise tax if they held them past April 1. Those customers then ordered more cigarettes after April 1 to rebuild inventories.
“The cigarette business performed pretty much exactly how we expected,” Morningstar analyst Phil Gorham told Reuters. “The volume decline is what you would expect given what you have seen in the past in regard to price cuts.”
U.S. Smokeless shipments fell 3.4 % to 166.1 million cans, because retailers reduced inventory levels as the company switched to a strategy of “every day low pricing” rather than offering deals on multiple-can packages, Altria said.
For 2009, Altria now anticipates earnings of $1.72 to $1.77 a share, up 2 cents a share from its previous forecast of $1.70 to $1.75 a share. Analysts on average were expecting $1.71 a share, according to Reuters Estimates.