Altria Group Inc. Wednesday posted an 18 percent increase in quarterly profit, as cigarette prices increased and it gained market share as the improving economy helped it fight off cheaper competition.
Strength in the U.S. tobacco market, including market share gains by its Marlboro brand, helped offset weakness at the company’s Philip Morris International unit, where tax increases on cigarettes in Germany weighed on sales.
“PM USA put in a solid performance, but PMI volume has to be seen as disappointing, particularly in light of the fact that we believe investors are looking to PMI as a “valuation kicker” (garnering a higher multiple) in the event of a corporate restructuring,” Prudential Equity Group analyst Robert Campagnino said in a research report. He rates the stock “overweight.”
Altria has said it is preparing to split up its business to gain fuller market value for its operations, but only after U.S. tobacco litigation hurdles are cleared.
Altria stock climbed Wednesday after a U.S. court refused to rehear a case that bars the federal government from seeking $280 billion from cigarette makers in lawsuit that charges cigarette makers lied about the dangers of smoking.
Altria, which is also the majority owner of Kraft Foods Inc., reported first-quarter profit of $2.60 billion, or $1.25 a share, compared with $2.19 billion, or $1.07 a share, a year earlier.
Earnings from continuing operations were $1.24 a share, a penny better than the average analyst estimate posted by Reuters Estimates.
Revenue rose 8.7 percent, to $23.62 billion, with the effect of the weaker dollar adding $741 million.
Excluding excise taxes, revenue was $16.46 billion. On that basis, analysts on average forecast $15.79 billion, according to Reuters Estimates.
The Philip Morris USA unit shipped 42.8 billion cigarettes in the quarter, down 0.7 percent. Altria said U.S. shipments were essentially flat when adjusted for an extra day in the 2004 first quarter and the timing of promotional shipments.
Philip Morris USA, which had been under pressure from lower-priced competitors, has been able to raise prices and still gain some market share. The company raised prices on some brands by $1 per carton, either through direct price increases or lower promotional allowances, depending on brand.
Total market share rose to 50 percent from 49.6 percent in the United States, led by an increase in market for its Marlboro brand.
“It reflects the recovering economy,” Tim Ghriskey, chief investment officer at Solaris Asset Management. “Philip Morris, with its predominance of premium-priced brands, does well when the economy improves.” Solaris and Ghriskey both own Altria shares.
Philip Morris International shipped 200.9 billion cigarettes, up 2.1 percent, helped by a one-time inventory sale to a new distributor in Italy and gains in France, Central Europe, Eastern Europe and Asia. Those gains helped offset declines in Germany, the company said.
Altria also affirmed its full-year forecast of $4.95 to $5.05 a share in earnings from continuing operations, including 12 cents a share in restructuring charges at Kraft.
