BUSINESS

Marlboro maker Altria's 4Q net income falls 9 per cent on charges, CEO to retire in May

01/27/2012 07:42 EST | Updated 03/28/2012 05:12 EDT
RICHMOND, Va. - Marlboro maker Altria Group Inc. said Friday that its fourth-quarter profit fell about 9 per cent on lease, legal and restructuring charges even as higher prices and gains from its smokeless tobacco products helped bolster its sales.

The owner of the nation's biggest cigarette maker, Philip Morris USA, also announced that CEO Michael E. Szymanczyk will retire in May following the company's annual shareholder meeting. Altria's board has selected Martin J. Barrington to replace him as CEO and chairman, and David R. Beran will serve as president and chief operating officer.

The company also disclosed that it has entered into an agreement with an affiliate of Fertin Pharma A/S to develop non-combustible nicotine-containing products. Several other tobacco companies have announced similar initiatives to seek cigarette alternatives as demand declines.

"Altria continues to focus on lower-risk products that appeal to adult tobacco consumers," Szymanczyk said in a conference call with investors.

Richmond, Va.-based Altria reported net income of $836 million, or 41 cents per share, for the three-month period ended Dec. 31, down from $919 million, or 44 cents a share, last year. On an adjusted basis, the company earned 50 cents per share, a penny above Wall Street expectations.

Revenue, excluding excise taxes, increased 5 per cent to $4.34 billion. Analysts polled by FactSet were expecting $4.23 billion.

Its shares fell 52 cents to close at $28.14 Friday. Its shares have recovered from a 52-week low of $23.20 in early August and are 7.4 per cent below their high for the past year of $30.40 set in mid-December.

Cigarettes volumes were flat at 33.7 billion cigarettes compared with a year ago as an increase of nearly 20 per cent in its discount cigarette brands offset declines in its premium brands like Marlboro. Cigarette revenue excluding excise taxes rose 4 per cent to $3.63 billion during the quarter on higher prices.

Altria said its top-selling Marlboro brand lost 0.7 points of market share to end up with 41.6 per cent of the U.S. market. Marlboro volumes declined less than 1 per cent. Its other brands, including Virginia Slims, Parliament and Basic, also lost market share.

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 steal smokers from its competitors.

Altria still faces pressure in the current economy from less-expensive brands such as like Pall Mall from Reynolds American Inc. and Maverick from Lorillard Inc. Marlboro sold for an average of $5.73 per pack during the fourth quarter, compared with an average of $4.24 per pack for the cheapest brand.

Despite changes in market share driven by short-term increases in promotional activity, "Marlboro's underlying brand equity remains strong," Szymanczyk said.

Like other tobacco companies, Altria is focusing on cigarette alternatives — such as cigars, snuff and chewing tobacco — for future sales growth because the decline in cigarette smoking is expected to continue.

Volumes of its smokeless tobacco brands such as Copenhagen and Skoal increased about 10 per cent. Excluding excise taxes, revenue from its smokeless tobacco business grew nearly 7 per cent to $391 million on higher prices.

For the quarter, the company's smokeless tobacco brands had 55.5 per cent of the market, which is tiny compared with cigarettes.

Volume for its Black & Mild cigars fell about 6 per cent during the period. But revenue excluding excise taxes rose 26 per cent to $90 million as it raised prices and spent less money promoting the brand.

Altria also owns a wine business and holds a voting stake in brewer SABMiller.

Altria has been forced to cut costs as tax hikes, smoking bans, health concerns and social stigma make the cigarette business tougher. During the third quarter, the company said it completed a multi-year cost savings program, exceeding its goal of reducing costs by $1.5 billion between 2007 and 2011 compared with 2006.

Last quarter 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. Altria said the restructuring charges in connection with the program totalled 7 cents per share in the fourth quarter.

For the full year, the company said it earned $3.39 billion, or $1.64 per share, in 2011 compared with $3.9 billion, or $1.87 per share, in the previous year. It said its adjusted earnings for the year were $2.05 per share.

Cigarette volumes for the year fell about 4 per cent to 135.1 billion cigarettes, largely on declines from Altria's premium brands. Marlboro ended the year with a 42 per cent share of the U.S. retail market, down 0.6 points from a year ago. Overall the company lost 0.8 points of market share to end up with 49 per cent of the retail market.

Full-year smokeless tobacco volumes increased more than 1 per cent to 734.6 million cans or packs, and cigar volumes were stable at 1.25 billion units.

Altria also said it forecast 2012 full-year adjusted earnings between $2.17 and $2.23 per share.

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