Altria - highlights q3 2010 earnings report..

October 21, 2010 - "The Altria family of companies delivered excellent financial results in the third quarter of 2010, as adjusted diluted earnings per share in the quarter grew by 12.5% versus the comparable year-ago period," said Michael E. Szymanczyk, Chairman and Chief Executive Officer of Altria.

Altria's reporting segments are Cigarettes, manufactured by PM USA, Smokeless Products, manufactured by USSTC and PM USA, Cigars, manufactured by John Middleton Co.; Wine, produced and distributed by Ste. Michelle, and Financial Services, provided by Philip Morris Capital Corporation (PMCC).

Like other tobacco companies, Altria Group Inc. is focusing on cigarette alternatives such as cigars, snuff and chewing tobacco for sales growth as tax increases, smoking bans, health concerns and social stigma make the cigarette business tougher.

Altria’s sales and distribution is now implementing a new retail platform to support plan future smokeless products initiatives. We believe that the smokeless tobacco category historically has not received the necessary space and merchandizing attention in retail stores, particularly in light of the strong category growth of the recent past. By offering fixtures to thousands of smokeless tobacco stores, retailers can improve category, merchandizing, reduce out-of-stocks, improve product freshness and help achieve the non-self service retail merchandizing objective of our tobacco companies.

In many cases, this new retail platform is also expected to benefit the machine-made large cigar category and help support continued growth in Middleton cigar businesses.

Cigarettes, manufactured by PM USA

Philip Morris USA’s reported domestic cigarette volume shipments during the three months to the end of September, at 36.6 billion, were down by 2.4 per cent on those of 2009’s third quarter. Meanwhile, PM USA’s cigarette shipments for the first nine months of 2010, at 107.2 billion, were down by 4.7 per cent on those of the first nine months of 2009. PM USA’s overall retail share was 49.6% in the third quarter, down one-tenth of a share point from the comparable year-ago period as Marlboro share gains were offset by share losses among PM USA’s non-support brands.

Marlboro shipments, at 31.8 billion, were down by 0.3 per cent, while shipments of the company’s other premium brands, at 2.8 billion, were down by 9.3 per cent. Shipments of discount brands, at 2.0 billion, were down by 21.0 per cent. Marlboro continue to perform very well as it grew its retail share for the three and nine-month periods by a strong seven-tenths and eight-tenths of a share point respectively versus the comparable year-ago periods.

Marlboro’s share of the retail market during the nine months to the end of September, at 42.7 per cent, was up by 0.8 of a percentage point on that of its share during the three months to the end of September 2009. The share of the company’s other premium brands dropped by 0.5 of a percentage point to 3.9 per cent, the share of its discount brands dropped by 0.4 of a percentage point to 3.4 per cent, and, overall, its share dropped by 0.1 of a percentage point to 50.0 per cent.

PM USA launched Marlboro Skyline Menthol earlier this month to continue building its position in the menthol segment.


Smokeless Products, manufactured by USSTC and PM USA

USSTC (acquired by Altria on January 6, 2009) and PM USA's combined reported domestic smokeless products shipment volume for the three months to the end of September, at 183.9 million cans and packs, was up by 16.4 per cent on that of the three months to the end of September 2009.

The smokeless tobacco category is growing at about 7 per cent a year, but still remains small compared with cigarettes. Altria said that volumes for its smokeless tobacco segment, which includes Copenhagen and Skoal, as well as Marlboro Snus, grew 16.4 percent in the third quarter and revenues excluding excise taxes increased about 11 percent to $363 million.

Shipments of Copenhagen were up by 19.3 per cent to 80.9 million, shipments of Skoal were up by 4.3 per cent to 69.8 million, and shipments of other brands were up by 42.8 per cent to 33.2 million.

USSTC and PM USA’s combined retailed share of the smokeless products category for the three and nine-month periods increased by 1.9 and 0.9 share points respectively. Copenhagen and Skoal’s combined third quarter retail share growth of 1.4 share points versus the year-ago period and retail share gains resulting from the national launch of Marlboro Snus drove the strong retail share results. Copenhagen grew its third quarter retail share by 2.3 share points versus the year-ago period to 25.5% behind continuing momentum from its new products of Long Cut Wintergreen Straight and Extra Long Cut Natural and other brand building programs. Skoal’s third quarter retail share was essentially the same as the second quarter of 2010, behind brand building initiatives launched earlier this year.

Marlboro Snus also strengthened its position in the marketplace after its national expansion earlier this year. PM USA continues to build awareness and trial for these new products and we are seeing increased interest among adult tobacco consumers. We are optimistic about the long-term prospects for these kinds of tobacco products. (In QandA session - no mention of Marlboro Snus.)

Meanwhile, smokeless shipments during the nine months to the end of September were up by 15.6 per cent to 551.9 million, with shipments of Copenhagen up 20.8 per cent to 244.9 million, shipments of Skoal up 5.0 per cent to 208.7 million, and shipments of other brands up 29.6 per cent to 98.3 million.

USSTC and PM USA's combined share of the domestic retail market during the nine months to the end of September, at 55.6 per cent, was up by 0.9 of a percentage point on that of their share during the first nine months of 2009.

Copenhagen’s share rose by 2.3 percentage points to 25.6 per cent, Skoal’s share fell by 1.1 percentage points to 22.7 per cent, and the share of the companies’ other brands fell by 0.3 of a percentage point to 7.3 per cent.

Cigars, manufactured by John Middleton Co.

Middleton's reported domestic cigar volume shipments for the three months to the end of September, at 338 million, were down by 0.8 per cent on those of the three months to the end of September 2009. Within this total, shipments of Black & Mild fell by 0.2 per cent to 332 million. During the nine months to the end of September, cigar shipments, at 943 million, were down by 1.4 per cent, with shipments of Black & Mild down 0.8 per cent to 924 million.

After adjusting for changes in trade inventories, Middleton's shipment volumes for the three- and nine-months periods were estimated to be down four per cent and three per cent respectively. Middleton estimates that, overall, the US machine-made large cigars category's volume grew by about two per cent during the third quarter of 2010.

Middleton’s share of the retail market during the nine months to the end of September, at 28.7 per cent, was down by 1.5 percentage points, while Black & Mild’s share fell by 1.3 percentage points to 28.3 per cent.

We remain confident about Middleton’s long-term growth prospects, although the company’s third quarter adjusted operating companies’ income declined 12.2% versus the year-ago period. Middleton defended its position in a very competitive environment with brand building initiatives on Black & Mild. These initiatives successfully strengthen the brand’s position in the marketplace as it grew sequential retail share of the machine-made large cigar category from the second to the third quarter of 2010.

References:
Altria Group CEO Discusses Q3 2010 Results - Earnings Call Transcript; Q&A: Altria Group CEO Discusses Q3 2010 Results - Earnings Call Transcript