Three of the four largest U.S. cigarette makers are no longer a smart investment..

May 2, 2008 - Stocks of cigarette makers were long thought of as recession safe havens. Shares of three have declined more sharply than the S&P 500 index since the start of the year of 2008. While the benchmark index has fallen nearly 6 percent, Altria Group Inc., the largest U.S. cigarette maker, slipped 14 percent, Reynolds American (RA) dropped 18 percent, and Loews Carolina Group fell 23 percent. The financial results for the first quarter were so bad that RA has already reduced their full year forecast. It used to be that smokers were unlikely to cut back on their habit even in an economic slowdown. But analysts point to bans on smoking in restaurants, bars and other public places that have been enacted since the last recession. Standard & Poor's last week said volumes of U.S. cigarette shipments this year should fall 3.5 percent, compared with a prior estimate of 2.7 percent. S&P believes shipment numbers will continue falling as a result of the smoking bans and higher cigarette prices. If Congress hikes the federal excise tax to $1 a pack, shipments could drop even further.

Entry into the smokeless tobacco arena expected to shore up the losses from decreases in cigarette sales have not worked out. Altria thought based on Marlboro brand strength they could roll out a Marlboro Snus and then Marlboro MST (that was suppose to compete with old reliables like Skoal and Copenhagen in the premium moist snuff segment) with immediate success. It hasn't happened for these products and the other smokeless products now being tested by RA and Loews. At one time we thought an acquisition would be needed for Altria to succeed in the smokeless arena. It was rumored that Altria would acquire either UST or Swedish Match but is this enough?? Cigarettes sales (2005) bring in around $82 billion a year while smokeless tobacco per year brings in $3.7 billion. It looks like at least in the USA the tobacco control folks are winning. On the international scene Philip Morris International (PMI) posted better-than-expected results for the first quarter and analysts expect PMI to continue beating expectations. Bar Graph Revenue 2000-2006 Altria - PM USA vs. Altia - PMI. Related News brief: Philip Morris International (PMI) has better prospects than Altria.. References: Market Spotlight: No relief from tobacco stocks, AP Online, 5/1/2008; Altria Headed South? By Colleen Paulson, 4/25/2008.