RICHMOND, Va. - Marlboro maker Altria Group Inc. said Thursday that it will cut the number of salaried workers at its cigarette business and related service subsidiaries by 15 per cent as cigarette sales continue to decline industrywide.
The owner of the nation's largest cigarette maker, Philip Morris USA, announced plans to trim $400 million in annualized costs by the end of 2013 as it reported quarterly earnings Thursday, which would include about $300 million in employee separation costs and additional reductions in spending.
Altria, based in Richmond, Va., would not say how many people would be impacted by the layoffs. The company said employees that will lose their jobs will be informed by mid-December and most will leave the company by late February. The reductions announced Thursday do not include hourly manufacturing workers.
Altria has 10,000 employees across the U.S., including about 4,600 in Virginia. Cigarettes make up the bulk of its business.
Cigarette volumes have declined annually by about 3 per cent in recent years and have fallen significantly since a 62-cents-per-pack federal tax increase in 2009. Additional state tax hikes, smoking bans, health concerns and social stigma have made the cigarette business tougher. Consumers also face economic challenges, and unemployment remains high.
"One of the things that you're going to have to do in this business is as volume declines ... you have to take out cigarette-related infrastructure cost, in order to manage the business properly," CEO Michael E. Szymanczyk said in a conference call with investors regarding the company's third-quarter financial results. "You can't carry infrastructure for a business that was originally designed for a bigger business. You have to continue to shrink it as the overall business shrinks."
The number of cigarettes that Altria sold declined 9 per cent in the third quarter to 33.3 billion cigarettes compared with a year ago, and the segment's revenue during the quarter fell 6 per cent to $3.64 billion, excluding excise taxes.
Tobacco companies like Altria have tried to offset declines in cigarette sales by reining in expenses and raising prices.
During the third quarter, Altria said it completed a multiyear cost savings program, exceeding its goal of reducing costs by $1.5 billion between 2007 and 2011. That program included the closure of its Cabarrus manufacturing facility in North Carolina in 2009.
Others in the industry also have made cost-cutting moves, including closing or consolidating factories and sales forces, and offering buyouts to some workers.
Efforts to reduce costs are commonplace for consumer goods companies in recent times, Edward Jones analyst Jack Russo said.
"Especially in developed markets such as the U.S. and Europe, it's been very hard to grow for these consumer companies," Russo said. "And when you can't grow the top line, you've still got to grow profits in line with what Wall Street's expecting, there's only one way to do it, you've got to cut costs and headcount is part of that."
Michael Felberbaum can be reached at http://www.twitter.com/MLFelberbaum .