Earnings Preview: Altria Group Inc.

Altria Group Inc., parent of the biggest U.S. cigarette maker, Philip Morris USA, is expected to report higher fourth-quarter profit and revenue when it releases its results before the stock market opens Friday.

As Americans buy fewer cigarettes amid increasing health concerns and rising tobacco taxes, Altria’s volumes have fallen markedly, but the company has managed to maintain its profit by raising its prices.

Altria

Altria Group Inc., parent of the biggest U.S. cigarette maker, Philip Morris USA.

WHAT TO WATCH FOR: Whether Marlboro, the top-selling U.S. cigarette brand, can retain its command of the market. Richmond-based Altria said its top-selling Marlboro brand lost almost 1 percentage point of market share in the third quarter to end up with 41.7 percent of the U.S. market. Its Virginia Slims, Parliament and Basic brands also lost retail market share.

Volume declines for Marlboro drove down the total number of cigarettes Altria sold by 9 percent to 33.3 billion cigarettes for the quarter compared with a year earlier, even though volume for its discount cigarette brands increased 9.5 percent.

Altria 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.

But the company still faces pressure in the current economy from less-expensive brands like Pall Mall from Reynolds American Inc. and Maverick from Lorillard Inc. Even so, Altria has raised prices on some brands and maintained its profit per pack. Marlboro sold for an average of $5.74 per pack during the third quarter, compared with an average of $4.22 per pack for the cheapest brand, Altria said.

Marlboro Gold Touch

Marlboro Gold Touch and Marlboro Gold Fine Touch cigarettes

Altria and other tobacco companies also are looking to cigarette alternatives — such as cigars, snuff and chewing tobacco — for growth. 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. It also owns a wine business, which saw gains in the quarter, holds a voting stake in brewer SABMiller, and has a financial services division.

Smokeless tobacco volumes were essentially flat in the third quarter and had 55.2 percent of the market, which is tiny compared with cigarettes. Volume for cigars grew about 4 percent during the period.

Altria, the first of the nation’s largest tobacco companies to report its fourth-quarter and full-year earnings, continues to work on cutting general and manufacturing costs. Last quarter the company announced plans for an additional $400 million in cost savings by the end of 2013 in advance of anticipated cigarette volume declines industrywide. It said the restructuring charges will total 11 cents per share in the fourth quarter.

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. Consumer spending continues to be critical to a strong rebound from the worst economic downturn since the Great Depression.

WHAT’S EXPECTED: Analysts expect Altria to earn 49 cents per share on sales of $4.23 billion, according to FactSet.

LAST YEAR’S QUARTER: Altria reported net income of 44 cents per share on revenue of $4.14 billion. Figures for both periods exclude excise taxes the company passes through to the government.

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