Altria Group Inc., owner of Philip Morris USA, the leading tobacco company in the US is scheduled to announce its revenues and profits for the first quarter of the year later this week.
As American smokers are purchasing fewer cigarettes, Altria saw profits going down significantly, yet the company retained profits by increasing prices.
MAIN QUESTION: Whether Marlboro, the best-selling cigarette on US market, is able to maintain its leadership. Altria confirmed that its flagship brand’s share was down by 0.7 percent, totaling 41.6 percent of the nationwide cigarette market. Marlboro also lost 1 percent in volumes during the last quarter.
Philip Morris USA has launched several new additions to Marlboro brand family, mostly with reduced promotional price, offering special blends and flavors, in an attempt to interest customers and maintain the brand’s market share.
The company is still under pressure in the economic downturn from mid-value brands, led by Pall Mall from Reynolds American. Marlboro was selling for $5.73 per pack on the average, versus $4.24 per pack of low-cost brands.
The company’s Cigarettes volumes were unchanged in the previous quarter with 33.7 billion cigarettes, in comparison to the last year, since the almost 20-percent/increase in sales of lower-cost brands offset losses in its premium offerings like Marlboro and Parliament.
Altria as well as its main rivals are also increasingly marketing other tobacco products – as alternatives to cigarette smoking – including snuff, snus, chewing tobacco and cigars. Therefore, industry experts are willing to see the performance of Black & Mild cigars, Copenhagen and Scoal snuff and Marlroro snus. In addition, the company also owns financial service, wine business and share at SABMiller.
Altria’s smokeless tobacco volumes added nearly 10 percent last quarter, totaling 55.5 percent of the market, which is still very small in comparison to cigarettes. Black & Mild cigars volumes lost nearly 6 percent during the quarter.
Altria as well continues to reduce general and manufacturing expenses. In the second half of 2011 the company finished a multi-year cost reduction program, exceeding its objective of cutting costs by $1.5 billion during 2007 - 2011 versus 2006. In addition, it introduced a strategy to cut $400 million in “cigarette-related costs” by 2014 in advance of forecasted cigarette volume declines.
WHY IT IS IMPORTANT: Higher expenses on premium brands including Marlboro could mean customers are adjusting to paying more for tobacco after state and federal tax hikes. Consumer spending is still vital to a strong rebound from the most grievous economic crisis since the Great Depression.
1st QUARTER OF 2011: Altria reported adjusted net income of 44 cents per share on revenue of $3.94 billion. Report for both quarters exclude excise taxes the group pays to the government.