By MICHAEL FELBERBAUM, Associated Press
RICHMOND, Va. (AP) — Marlboro maker Altria Group Inc. said Tuesday that its net income nearly tripled in second-quarter as higher prices helped offset flat cigarette volumes compared with a year ago when its results were depressed by a big charge.
The owner of the nation's biggest cigarette maker, Philip Morris USA, reported net income of $1.23 billion, or 60 cents per share, for the three-month period ended June 30, compared with $444 million, or 21 cents a share, a year earlier when the company also recorded charges related to lease transactions.
Adjusted earnings were 59 cents per share, topping Wall Street expectations of 57 cents per share.
Its shares rose 8 cents to close at $35.57 Tuesday, near their 52-week high of $36.05 set last Friday.
Earnings were impacted by previously announced settlement between the Richmond, Va.-based company and the government over the taxes on lease transactions handled by its subsidiary Philip Morris Capital Corp. Altria took a $627 million charge last year in anticipation of the settlement with the IRS and recorded a one-time benefit of 3 cents per share in the second quarter this year to adjust for the difference between the assumed and actual settlement amount.
Altria said revenue, excluding excise taxes, rose about 14 percent to $4.6 billion in the second quarter as higher prices were partially offset by costs related to supporting its premium Marlboro brand. The company also saw gains from its financial services and wine businesses. Analysts polled by FactSet expected revenue of $4.48 billion.
Cigarette volumes were flat at 36.2 billion cigarettes compared with a year ago as an increase of 24 percent in its discount cigarette brands offset declines in its premium brands like Marlboro. Adjusted for changes in wholesale inventory levels, the company said its volumes fell 1.5 percent, compared an estimated total industry volume decline of 3 percent.
Its top-selling Marlboro brand gained 0.3 points of market share to end up with 42.9 percent of the U.S. market. Marlboro volumes declined less than 1 percent.
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 steal smokers from its competitors.
Altria still faces pressure in the current economy from less-expensive brands such as Pall Mall from Reynolds American Inc. and Maverick from Lorillard Inc. But its discount L&M cigarette brand also has seen gains.
"We're in the middle of a really anemic recovery from the greatest recession in decades and consumers are under pressure," CEO Marty Barrington said in a conference call with investors. "Pricing for most consumer packaged goods — and this category is no exception — have been more restrained than in previous periods of economic health."
Like other tobacco companies, Altria also is focusing on cigarette alternatives — such as cigars, snuff and chewing tobacco — for future sales growth because the decline in cigarette smoking is expected to continue.
Volumes of its smokeless tobacco brands such as Copenhagen and Skoal rose nearly 8 percent compared with the year-ago period. For the quarter, the company's smokeless tobacco brands had 55.2 percent of the market, which is tiny compared with cigarettes.
Volume for its Black & Mild cigars grew less than 1 percent during the period and its share of the U.S. retail market grew 1 percentage point to 29.8 percent.
Altria has been forced to cut costs as tax hikes, smoking bans, health concerns and social stigma make the cigarette business tougher.
After completing a $1.5 billion multi-year cost savings program last year, the company rolled out a plan to cut $400 million in "cigarette-related infrastructure costs" by the end of 2013 in advance of anticipated cigarette volume declines.
During the quarter the company also said it repurchased 2 million shares for a total cost of about $66 million as part of its previously announced $1 billion share buyback program. It has $312 million remaining in the program and intends to complete it by the end of the year.
On Tuesday, the company, which also holds a voting stake in brewer SABMiller, narrowed its full-year adjusted guidance to a range of $2.19 to $2.23 per share. Analysts expected full-year earnings of $2.21 per share.
Michael Felberbaum can be reached at http://www.twitter.com/MLFelberbaum .
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