Altria - RAI - q3 2010 - increased earnings..

October 22, 2010 - More to come on the q3 2010 business results for Altria and Reynolds American Inc. (RAI) - look for a news brief on each..

Despite lower cigarette volumes, both Altria Group Inc. and Reynolds American Inc. (RAI) reported increased third-quarter earnings. Altria's net earnings increased 28.2% versus the prior-year period to $1.1 billion, due primarily to higher operating income, and higher earnings from Altria's equity investment in brewer SABMiller.

According to Thilo Wrede, research analyst for Credit Suisse, Richmond, Va.-based Altria's domestic cigarette business, Philip Morris USA, recorded the best adjusted profit growth since first-quarter 2009, with a 9% gain year on year--despite cigarette volumes being down 2.4%. "The company's focus on Marlboro continues to pay off as the brand's 70 [basis point] share gain almost offset the 80 [basis point; (1% change = 100 basis points - TW)] loss for other brands," Wrede said in a report.

Smokeless tobacco was also a driver in earnings, with Altria's smokeless business, U.S. Smokeless Tobacco Co., growing an adjusted operating companies income (OCI) of 36.5%, as Copenhagen volume increased 19.3%. Wrede said that growth was likely due to the continued benefit from line extensions. "Pricing for the business declined 5% year on year, comparable to the 2Q10 price decline as the discounted price for the line extensions continues to have an impact."

Winston-Salem, N.C.-based RAI beat analysts' expectations, according to a Reuters report, and raised the low end of its full-year earnings forecast. RAI, which makes Camel cigarettes and Grizzly smokeless tobacco, said profit was $381 million, compared with $362 million a year earlier, according to the report.

While RAI's cigarette market share increased 0.2 share points to 27.9%, volume fell 2.5%, according to a MarketWatch report. Wrede said the company continues to reduce its private-label brands, which accounted for only 0.3% market share at the end of the quarter, compared to 0.6% at the end of the second quarter. "Assuming that the remaining private-label products will have been stopped by the end of the year, we think it is feasible for RAI to maintain its market share for the full year and grow it when excluding the SKU reductions."

He said RAI delivered the second highest adjusted earnings before interest and taxes margin since at least the first quarter of 2006, with the 30.4% being driven by moderate cigarette pricing and strong moist smokeless tobacco pricing.

RAI's smokeless tobacco volumes grew only 1.2%, pressured by aggressive pricing from U.S. Smokeless Tobacco Co. "[RAI's] American Snuff had the upper hand in pricing compared to USSTC, but the pressure from the competition will most likely continue to impact the volume," Wrede reported.

Reference: Altria, Reynolds Rise Smokeless contributes to earnings for third quarter, CSP Daily News, 10/22/2010.