Buying Cigarettes
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Marlboro sales, market share eyed as cigarette maker Altria reports 3Q results Thursday

Altria Group Inc., parent of the biggest U.S. cigarette maker, Philip Morris USA, should give investors a sense of whether its top-selling Marlboro brand can keep its command of the market when it releases third-quarter financial results before the stock market opens Thursday.

WHAT TO WATCH FOR: In the third quarter last year, Altria's Philip Morris USA experienced one of the biggest U.S. market-share declines of its premium Marlboro brand in at least four years as the brand lost 0.9 points of market share to end up with 41.7 percent of the market.

But the Richmond, Va.-based company has introduced several new products with the Marlboro brand - often with lower promotional pricing - to try to keep the brand growing and steal smokers from its competitors, who also have fought cigarette sales declines with promotional prices. The products include "special blends" of both menthol and non-menthol cigarettes.

Americans are buying fewer cigarettes as they face rising taxes and greater smoking bans, health concerns and social stigma. Tobacco companies have compensated for volume declines by raising prices.

The cigarette maker faces also 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 $5.71 per pack during the second quarter, compared with an average of $4.20 per pack for the cheapest brand.

In the second quarter, the Marlboro brand gained 0.3 point of market share to end up with 42.9 percent of the U.S. market despite a less than 1 percent decline in the number of Marlboro-branded cigarettes sold. Altria's overall cigarette volumes were flat at 36.2 billion cigarettes as an increase of 24 percent in its discount cigarette brands offset declines in its premium brands.

Altria and other tobacco companies also are looking for growth from cigarette alternatives such as cigars, snuff and chewing tobacco. So analysts will want to see how Altria's Black & Mild cigars and Copenhagen and Skoal smokeless tobacco products, as well as Marlboro Snus, perform. Smokeless tobacco volumes rose nearly 8 percent in the second quarter and cigar volumes grew less than 1 percent.

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

As the company anticipates volume declines in its core cigarette business, it's also cutting costs. After completing a $1.5 billion multi-year cost savings program last year, Altria rolled out a plan to cut $400 million in "cigarette-related infrastructure costs" by the end of 2013.

WHY IT MATTERS: Increased spending on premium brands like Marlboro could signal consumers are adjusting to paying more for cigarettes following federal and state tax increases.

WHAT'S EXPECTED: Analysts expect Altria to earn 58 cents per share on revenue of $4.36 billion, according to FactSet.

LAST YEAR'S QUARTER: Altria reported adjusted net income of 56 cents per share on revenue of $4.33 billion. Figures for both periods exclude excise taxes the company passes through to the government.

Published: Tuesday, October 23, 2012

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