BUSINESS

Marlboro maker Altria's 3Q profit more than doubles on lower legal costs, year-ago comparison

10/24/2013 07:52 EDT | Updated 12/24/2013 05:12 EST
RICHMOND, Va. - Altria Group's third-quarter profit more than doubled as the Marlboro maker paid out less in legal settlements and freed itself from charges related to paying off debt early last year.

Higher prices and volumes for both cigarettes and smokeless tobacco bolstered its underlying results, which topped Wall Street expectations.

The owner of the nation's biggest cigarette maker, Philip Morris USA, posted earnings Thursday of $1.39 billion, or 70 cents per share. That's up from $657 million, or 32 cents a share, in the year-ago period, which included a $874 million charge for a loss on early extinguishment of debt.

Excluding one-time items, earnings were 65 cents per share, beating analyst estimates by a penny. That excludes a $145 million benefit from credits for disputed payments under the 1998 Master Settlement Agreement in which some cigarette makers are paying states for smoking-related health care costs.

Revenue for the Richmond, Va., company, excluding excise taxes, increased 6.6 per cent to $4.8 billion. Analysts expected $4.53 billion, according to FactSet.

Its shares fell 13 cents to $36.25 in early morning trading Thursday.

Volumes increased more than one per cent to 34.1 billion cigarettes compared with a year ago. Adjusting for trade inventory changes, cigarette volumes fell 3 per cent during the quarter, compared with a total industry decline of 3.5 per cent.

Marlboro volumes grew 1.5 per cent, while volume for its other premium brands fell by more than 7 per cent, and volumes for discount cigarette brands like L&M increased 5 per cent.

Its share of the U.S. retail market rose 0.2 percentage points to 50.7 per cent. Marlboro's share of the U.S. market was flat at 43.7 per cent.

The Marlboro brand has been under pressure from competitors and lower-priced cigarette brands amide economic uncertainty and high unemployment.

That's on top of the tax hikes, smoking bans and a social stigma that have made the cigarette business tougher.

The Marlboro brand sold for an average of $5.86 per pack during the third quarter, compared with an average of $4.36 per pack for the cheapest brand.

The company has introduced several new products with the Marlboro brand, often with lower promotional pricing, to try to keep the brand growing and to lure smokers away from its competitors.

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

After launching its first electronic cigarette under the MarkTen brand in Indiana in August, Altria said Thursday that its NuMark subsidiary plans to expand into Arizona in December.

Volumes of Altria's smokeless tobacco brands such as Copenhagen and Skoal rose 9.5 per cent from a year ago. Adjusting for an extra shipping day and trade inventory changes, Altria says its smokeless volumes grew about 4 per cent. For the quarter, the company's smokeless tobacco brands had about 55 per cent of the market, though smokeless tobacco is a tiny market compared with cigarettes.

Volumes for its Black & Mild cigars rose 6 per cent during the quarter.

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

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