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Altria Reports Increase in Q2 Profits

RICHMOND, Va. -- Altria Group Inc., the nation’s largest cigarette producer, saw its profits rise 9 percent in the second quarter as it cut costs and integrated the recently acquired U.S. Smokeless Tobacco into its sales and distribution force.

CSNews Online was first to provide details of Altria’s restructuring that created a new organization—Altria Sales & Distribution—to serve as the sales force for its three tobacco companies—Philip Morris USA, U.S. Smokeless, and John Middleton.

For the period ended June 30, Altria earned $1.01 billion, compared with $930 million in the same quarter a year ago. After beating analyst forecasts, the company raised its full-year earnings projections, according to Reuters and Associated Press reports.

Revenue in the quarter advanced 33 percent to $6.72 billion from $5.05 billion. The company attributed the sales gain largely to higher prices that included the 62-cent per-pack federal excise tax increase that went into effect April 1, as well as its January acquisition of smokeless tobacco company U.S. Smokeless, which makes Copenhagen and Skoal.

The company's revenue topped Wall Street's estimate of $5.35 billion, according to reports. In a conference call with investors, CEO Michael E. Szymanczyk said: "Our tobacco businesses continued performing well in what I describe as a challenging environment."

However, 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. The AP reported 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., a market research firm.

Sales volumes declined industrywide during the first quarter as retailers and wholesalers reduced inventories ahead of a one-time federal "floor tax" on cigarettes. Retailers rebuilt their inventories during the second quarter but not back to previous levels, according to Altria.

Cigar sales decreased 12.9 percent to $74 million in the second quarter compared with a year earlier, excluding excise taxes.

Overall, domestic cigarette consumption continues to fall 3 percent to 4 percent per year, according to government data. Although Altria reported a 3.4 percent decline in its smokeless tobacco volume, it expects long-term growth in the segment of 6 percent or more, according to the AP report.

Cost cuts contributed roughly $25 million to Altria’s bottom line in the second quarter and the company expects to save about $695 million more by 2011. In an exclusive interview with CSNews earlier this month (CSNews, cover story, "Blazing a New Tobacco Road," July 13, 2009), Pete Paoli, the senior vice president and general manager for the newly created Altria Sales & Distribution, said the new structure "would more efficiently and effectively focus the departments on what they were responsible for."

Under the new business model, the single Client Services group is responsible for human resources, investor relations and other corporate functions for the tobacco company. The Sales & Distribution company handles everything relative to its trade customers, including wholesale and retail programs, and category management, while the three tobacco companies will solely be responsible for brand management and manufacturing. The consolidated sales force is composed mostly of PM USA representatives with only a few USSTC employees.

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.

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