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RICHMOND, Va.-- Altria Group Inc., parent company of the largest U.S. cigarette maker Philip Morris USA (PM USA), saw operating income decrease 1.8 percent to $1.2 billion for the first quarter 2009. The decrease was primarily due to a gain on the sale of the corporate headquarters and higher expenses related to the UST acquisition, which were partially offset by higher operating income and lower general corporate expenses in 2009.
Net revenues increased 2.6 percent to $4.5 billion due primarily to the acquisition of UST, the company stated. Earnings from continuing operations decreased 4.1 percent to $589 million, due to higher interest expense related to the UST acquisition and lower SABMiller equity earnings.
"Altria delivered solid business results in the first quarter in a challenging economic environment," Michael E. Szymanczyk, chairman and CEO of Altria, said in a statement. "Our cigarette business performed particularly well in the quarter, with strong adjusted operating companies income growth and Marlboro retail share gains."
In its cigarettes business, net revenues decreased 8 percent to $3.9 billion, driven primarily by lower volume, and partially offset by list price increases and lower promotional allowance rates, the company stated. However, operating income for the cigarettes segment increased 9.9 percent to $1.1 billion in the first quarter compared to the year-ago period.
PM USA’s domestic cigarette shipment volume of 34.4 billion units was 14.2 percent lower than the prior-year period, and when adjusted for changes in trade inventories and calendar differences, was estimated to be down 5.7 percent, the company stated. The company noted PM USA's shipment volume was negatively impacted in March, as wholesalers and retailers depleted inventories in anticipation of the April 1, 2009, federal excise tax (FET) increase.
Marlboro achieved strong quarterly share results, gaining 0.5 share points to 42.4 percent in the first quarter compared to the first quarter of 2008. However, PM USA’s total cigarette retail share declined 0.3 share points during the first quarter vs. the prior-year period.
In Altria's smokeless products segment, net revenues were $298 million, while operating companies loss totaled $2 million, due to charges related to the acquisition of UST, price promotion and costs associated with Marlboro smokeless products, according to the company.
Regarding the company's acquisition and integration of UST, Szymanczyk said, "USSTC has already taken a number of important steps to enhance the value equation on its leading premium brands. In the southeast region, USSTC’s premium retail share has responded well to our investment spending and has stabilized.”
The UST integration is on schedule and within budget, according to the company, and Altria expects to absorb all the costs related to the acquisition in 2009. The company expected additional charges of approximately $160 million in 2009, and $40 million in 2010 related to the transaction and restructuring.
In the company's cigars business segment, net revenues increased 26.4 percent to $115 million, due to higher pricing and volume. Operating income for the segment increased 31.7 percent to $54 million, compared to the prior-year period, due to higher pricing and higher volume, and was partially offset by increased costs for new retail and wholesale trade programs, the company stated.
In the first quarter 2009, Middleton’s machine-made large cigars shipment volume grew 10.4 percent over the comparable quarter, to 345 million units. Cigar volume growth reflects wholesale inventory accumulation in advance of the FET increase, and new product pipeline volume for Black & Mild Wood Tip, the company stated.
Considering market share, Middleton achieved a 0.8 share point gain to 28.5 percent retail share of the machine-made large cigars segment during the quarter. First-quarter retail share for Black & Mild increased 0.9 share points compared to the prior-year period to 27.9 percent of the segment, according to the company.
The company also noted in its quarterly results it has achieved $140 million in cost savings during the first quarter 2009, and expects to reach approximately $720 million in additional cost savings by 2011, for total cost reductions of $1.5 billion compared to 2006. In addition, Altria expects to generate an estimated $300 million in UST integration cost savings by 2011.
Altria also noted in its earnings that PM USA will cease production at its Cabarrus cigarette manufacturing facility, and consolidate its manufacturing capacity into the Richmond facility by the end of July 2009. The closure was first announced in 2007, and was attributed to addressing manufacturing overcapacity from continuing declines in U.S. cigarette volume, the company stated.
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