Altria Group 2Q profit up, co. boosts forecast

RICHMOND, Va. - Even though Americans bought fewer cigarettes in the second quarter, profit rose 9 percent at Altria Group Inc., owner of the nation's biggest cigarette maker, Philip Morris USA, as the company cut costs and integrated a recently acquired smokeless tobacco maker.

The Richmond, Va.-based seller of Marlboro cigarettes and Black & Mild cigars raised its full-year forecast as it reported its earnings Wednesday.

Altria earned $1.01 billion, or 49 cents per share, for the period that ended June 30, compared with $930 million, or 45 cents per share, in the same quarter a year ago. Excluding exit costs related to plant closings and other items, adjusted earnings were 50 cents per share.

Analysts polled by Thomson Reuters, whose estimates normally exclude one-time items, forecast profit of 47 cents per share.

Revenue grew 33 percent to $6.72 billion from $5.05 billion largely on higher prices that included the 62-cent-per-pack federal excise tax increase that went into effect April 1. Altria also credited its January acquisition of smokeless tobacco company UST Inc., which makes Copenhagen and Skoal.

The company's revenue topped Wall Street's estimate of $5.35 billion. Its shares lost 3 cents to close at $17.30 Wednesday.

"Our tobacco businesses continued performing well in what I describe as a challenging environment," Chief Executive Michael E. Szymanczyk said in a conference call with investors.

Excluding excise taxes, cigarette sales decreased 2.1 percent to $4 billion on lower volume on all Philip Morris USA brands, including Marlboro, Parliament, Virginia Slims and Basic. Marlboro, the best-selling brand in the U.S., lost 0.6 points of market share to end up with 41.2 percent of the U.S. market, according to data from Information Resources Inc.

Volumes had dropped industrywide during the first quarter as retailers and wholesalers cut their orders ahead of a one-time federal "floor" tax on their inventory. Altria said retailers rebuilt their inventories during the second quarter but not back to previous levels.

Sales of cigars — which weren't covered by the floor tax and rose last quarter — decreased 12.9 percent to $74 million in the second quarter compared with a year earlier, excluding excise taxes.

Like other U.S. tobacco companies, Altria is focusing on cigarette alternatives for sales growth because domestic cigarette consumption is falling 3 percent to 4 percent a year. The company's smokeless tobacco volume declined 3.4 percent during the quarter, but it expects long-term growth in segment of 6 percent or more.

Altria said it cut costs about $25 million in the second quarter and expects to save about $695 million more by 2011.

The company also said its previously announced plan to cease production at its Cabarrus County, N.C., cigarette factory by the end of this month will deliver annual cost savings of $188 million by 2011 and help bring its manufacturing capacity in line with declines in U.S. cigarette volume.

The company lifted its full-year outlook for adjusted earnings from continuing operations to a range of $1.72 to $1.77 per share. Previously, the company predicted earnings of $1.70 to $1.75 per share. It expects to incur pretax charges of about $175 million in the second half of 2009 primarily related to closing the Cabarrus County plant.

Analysts expect full-year profit of $1.71 per share.

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AP Business Writer Michelle Chapman contributed to this story from New York.

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