07/23/2013 07:26 EDT | Updated 09/22/2013 05:12 EDT

Marlboro maker Altria Group's 2Q profit up 3 per cent on higher prices, lower legal costs

RICHMOND, Va. - Marlboro maker Altria Group Inc. said Tuesday its second-quarter profit rose about 3 per cent as higher prices and lower expenses from a longstanding legal settlement offset a decline in cigarette sales.

The owner of the nation's biggest cigarette maker, Philip Morris USA, also raised the lower end its full-year earnings guidance.

The Richmond, Va.-based company earned $1.27 billion, or 63 cents per share, for the April-June period, up from $1.22 billion, or 60 cents a share, a year ago.

Excluding one-time items, earnings were 62 cents per share, missing Wall Street expectations by a penny.

Revenue, excluding excise taxes, decreased 2.5 per cent to $4.5 billion. Analysts polled by FactSet expected $4.62 billion.

Its shares fell 89 cents, or 2.4 per cent, to close at $35.99 Tuesday.

Cigarette volumes fell nearly 7 per cent to 33.8 billion cigarettes compared with a year ago. Adjusting for trade inventory changes, Altria says its cigarette volumes were down 3.5 per cent during the quarter, compared with a total industry decline of 4 per cent.

Marlboro volumes fell more than 7 per cent, volume for its other premium brands fell by nearly 11 per cent, and volumes for discount cigarette brands like L&M increased nearly 4 per cent.

Its share of the U.S. retail market rose 0.3 percentage points to 50.7 per cent. Marlboro's share of the U.S. market was flat at 43.7 per cent.

The premium Marlboro brand has been under pressure from competitors and lower-priced cigarette brands as consumers face economic pressure and high unemployment.

Those economic challenges are in addition to the tax hikes, smoking bans, health concerns and social stigma that have made the cigarette business tougher.

The Marlboro brand sold for an average of $5.78 per pack during the second quarter, compared with an average of $4.30 per pack for the cheapest brand.

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 to lure smokers away from its competitors. It has said it has a pipeline of innovative products to supplement the Marlboro brand in the future.

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.

Volumes of Altria's smokeless tobacco brands such as Copenhagen and Skoal rose more than 4 per cent from a year ago. For the quarter, the company's smokeless tobacco brands had 55 per cent of the market, though smokeless tobacco is a tiny market compared with cigarettes.

Altria said inventory changes and retail share losses drove volumes for its Black & Mild cigars down 8 per cent during the quarter.

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

The company on Tuesday also raised the lower end of its full-year adjusted earnings guidance by a penny to a range of $2.36 and $2.41.

During the latest quarter, Altria said it repurchased 3.7 million shares for a total cost of about $135 million as part of a previously announced $300 million share repurchase program, which it expects to complete by the end of 2013.


Michael Felberbaum can be reached at