Altria Group, the world's largest tobacco firm, said fourth quarter profit rose 17.6 per cent as a strong performance in the tobacco business helped offset weaker results at its Kraft Foods subsidiary.
But the company offered a cautious outlook and lower-than-expected 2006 guidance. Its shares fell 0.88 per cent to $73.26 in midday trade.
"Circumstances affecting some of Philip Morris International's key markets, most notably Spain, dictate a cautious earnings outlook this early in the year," said Louis Camilleri, Altria's chairman and chief executive.
This month Spain's government raised excise taxes on cigarette manufacturers in response to the proliferation of cheap cigarette brands, which it believes has led to increased consumption. PMI, Altria's overseas tobacco arm, responded by reducing the prices of its cigarettes, including Marlboro.
Mr Camilleri said the move was necessary to "restore the competitiveness" of its brands in a market where the deep-discount segment is growing. Spain is one of PMI's most profitable markets and the move "comes at a huge price", he added.
Dinyar Devitre, chief financial officer, said the "painful but necessary action" would "severely impact" income levels in Spain this year.
Altria forecast 2006 earnings from continuing operations of $4.85-$4.95 a share, with profit reduced by costs of 69 cents, including a charge of 36 cents a share for restructuring Kraft. A stronger US dollar will cut profit by 14 cents while lower income from Spain will slice off about 10 cents a share.
Net income rose to $2.29bn or $1.09 a share from $1.95bn or 94 cents a year earlier. Revenue increased 9.4 per cent to $24.5bn.
Altria is preparing to restructure the company and spin off Kraft. Mr Camilleri said the legal environment was improving and Altria remained "committed to the corporate restructuring we have talked about for some years".
