JANUARY 27, 2011, 1:46 P.M. ET.

Altria Profit Jumps 27%, Helped by Smokeless Unit

By MELISSA KORN

Altria Group Inc.'s fourth quarter earnings rose 27% as margins improved and the company again reported strength at its smokeless tobacco unit.

Though results for the latest quarter were in line with analysts' estimates, the tobacco giant warned 2011 will be a challenging year given stiff competition, possible new state-level excise taxes and pressures on consumer spending.

Altria forecast full-year per-share earnings of between $2.01 and $2.07, with results strengthening as the year progresses. Analysts surveyed by Thomson Reuters expect $2.02 a share.

The maker of Marlboro cigarettes and Skoal and Copenhagen smokeless tobacco has posted better results recently despite steady cigarette volume declines. Richmond, Va.,-based Altria has benefited from new demand for its smokeless-tobacco products and higher cigarette prices.

Still, the outlook for tobacco companies remains uncertain. Cigarette sales volumes are expected to decline by a low single-digit percentage over coming years, though some analysts warn that decline could hasten as the number of U.S. smokers continue to decline.

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..Altria, whose Philip Morris USA held 49.2% of the country's retail cigarette market in the fourth quarter, said volume fell 7% in the period. Marlboro cigarettes, which had a 42.3% U.S. market share, posted volume declines of 5.7%, while other premium brand volume fell 12% and discount-cigarette volume slid 18%.

The rapid growth of smokeless tobacco products amid bans on smoking in public places has offset some of the traditional cigarette sales weakness. After buying UST LLC in early 2009, Altria now controls 54.5% of the retail smokeless tobacco market.

Volume in that segment increased 2.5% in the quarter, though results for Skoal-branded products came up short. Altria is introducing 10 new Skoal products this quarter as it works on "brand-building initiatives," Chief Executive Michael Szymanczyk said on a conference call.

Altria reported a profit of $919 million, or 44 cents a share, up from $725 million, or 35 cents, a year earlier. Excluding items such as asset-impairments and integration costs, earnings rose to 44 cents a share from 39 cents.

Revenue declined 1.4% to $5.93 billion and rose 1% excluding excise taxes.

Analysts polled by Thomson Reuters had most recently forecast earnings of 44 cents a share on $4.27 billion in revenue.

Gross margin rose to 38% from 34.1% amid a multi-year restructuring and the integration of UST.

Revenue from cigarettes fell 3.4%, though profit climbed 7.4%. Smokeless products revenue jumped 14%, and profit nearly tripled to $217 million.

Meanwhile, the company announced a $1 billion, one-year stock repurchase plan. Based on Wednesday's close, Altria could repurchase nearly 2% of current shares outstanding. Altria suspended its prior buyback program in September 2009.

The company declined to provide details on how it will fund the share repurchase program. "We have numerous sources of liquidity," Chief Financial Officer Howard Willard said.

Altria last year issued $1 billion in five-year bonds, and the company had $2.3 billion in cash and equivalents as of Dec. 31.

Altria's shares were off 1.4% to $23.92 in recent trading. The stock has risen 21% the past year.

Write to Melissa Korn at melissa.korn@dowjones.com

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