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RICHMOND, Va. -- Gains in Altria Group Inc.'s operating companies income (OCI) from cigarettes, smokeless products and wine helped push the company's earnings per share up 39.3 percent over the prior year period.
Altria's net revenues increased 27.3 percent to $5.8 billion, due primarily to higher pricing related to last year's federal excise tax (FET) increase on tobacco products. Removing the FET, revenues increased 3.6 percent to $4.0 billion.
Operating income increased 20.1 percent vs. the prior-year period to $1.4 billion, primarily from higher operating companies income (OCI) from cigarettes and smokeless products, and 2009 UST acquisition-related costs.
"We continue to be pleased with the performance of our tobacco companies' brands, particularly Marlboro and Copenhagen. Marlboro achieved record retail share results in the first quarter, and Copenhagen regained its position as the largest smokeless tobacco brand, as measured by retail share," Michael E. Szymanczyk, chairman and CEO of Altria, said in a statement.
Financial and volume comparisons for the first quarter of 2010 vs. 2009 were impacted by the 2009 FET increase on tobacco products. Net revenues for the cigarettes segment increased 31.5 percent to $5.1 billion, due to higher pricing related to the FET increase. Outside of the FET increase, revenues increased 5.5 percent over the prior-year period, due to higher list prices.
OCI for the cigarettes segment increased 7.6 percent compared to the same period a year ago, to $1.2 billion, on higher list prices, and lower implementation and exit costs. These gains were partially offset by FDA user fees and lower volume.
PM USA has adjusted its volume and retail share reporting as of the first quarter 2010. Volume and retail share performance will be reported as follows: Marlboro; Other Premium brands, such as Virginia Slims, Parliament and Benson & Hedges; and Discount brands, including Basic, L&M and other discount brands.
Domestic cigarette shipment volume for the first quarter 2010 was 0.7 percent lower than the prior-year period, due to a shift in inventory dynamics during the first quarter of this year compared to a year ago, when shipment volume was negatively impacted as wholesalers and retailers depleted inventories in anticipation of the April 1, 2009, FET increase.
After adjusting for these changes, PM USA's 2010 first-quarter domestic shipment cigarette volume was estimated to be down approximately 11 percent vs. the prior-year period. Comparatively, total cigarette category volume was down an estimated 10 percent in the first quarter of 2010 over the first quarter 2009, when adjusted for changes in trade inventories
The company's Marlboro brand achieved record retail share results in the first quarter of 2010, reaching 42.7 percent, an increase of 0.3 percent, which was driven by Marlboro Menthol and the introduction of Marlboro Special Blend products. Total cigarette retail share was down 0.7 percent to 50.2 percent during the first quarter 2010.
Altria noted its smokeless products segment financial and volume comparisons for the first quarter 2010 to a year ago were impacted by last year's FET increase. Net revenues for the smokeless segment increased 27.9 percent, to $381 million, compared to the prior-year period, due to higher volume.
OCI for the smokeless products segment reached $178 million, an $180 million increase compared to the prior-year period, due to lower exit, integration and UST acquisition-related costs, higher volume and cost savings. Excluding these factors, adjusted OCI increased 49.2 percent to $188 million.
Domestic smokeless products shipment volume for USSTC and PM USA was 21.9 percent higher than the prior-year period, due to product initiatives in the just-ended quarter -- the launch of Copenhagen Long Cut Straight and Extra Long Cut Natural, the national expansion of Marlboro Snus and expanded distribution of the Skoal Slim Can pouch -- along with trade inventory changes in the prior-year period related to the FET increase.
After adjusting for these factors combined domestic smokeless products shipment volume for the first quarter of 2010 was estimated to be up approximately 5 percent. Copenhagen and Skoal's combined first-quarter adjusted shipment volume increased an estimated 11 percent. USSTC estimated the smokeless category's volume grew at a rate of approximately 7 percent in the first quarter of 2010.
Combined retail share for USSTC and PM USA's smokeless products decreased 0.8 share points vs. the prior-year period, while increasing 0.8 share points when compared to the fourth-quarter 2009. Copenhagen's retail share grew 1.9 share points vs. the prior-year period to 25.6 percent, as the brand benefited from the launch of Copenhagen Long Cut Wintergreen in the fourth quarter 2009. Meanwhile, Skoal's retail share declined 0.9 share points compared to the prior-year period to 23.1 percent.
Like Altria's other tobacco businesses, its cigars segment financial and volume comparisons for the first quarter 2010 were impacted by the FET increase in 2009.
Net revenues for the cigars segment increased 17.4 percent vs. the prior-year period to $135 million, reflecting higher pricing as a result of the FET increase. Excluding this factor, net revenue decreased 12.1 percent to $87 million, due to lower volume.
Reported OCI for the cigars segment in the first quarter of 2010 decreased 13.0 percent compared to the prior-year period, falling to $47 million, due primarily to lower volume, partially offset by higher pricing.
Middleton's reported cigar volume decreased 18.3 percent to 282 million units during the first quarter 2010 compared to the first quarter 2009. The company attributed the decrease to wholesalers that accumulated cigar inventory in advance of the FET increase, as there was no floor tax in the 2009 FET increase for machine-made large cigars. Later, wholesalers reduced inventory levels on Middleton's products from the beginning to the end of the first quarter of 2010, according to the company. In addition, Middleton also shipped new product pipeline volume for Black & Mild Wood Tip in the first quarter of 2009.
After adjusting for these factors, Middleton's shipment volume -- as well as the volume for the entire machine-made large cigar segment -- was estimated to be flat compared to a year ago.
Middleton's retail share increased 0.1 share point over the prior-year period to 28.6 percent. During the quarter, Black & Mild's retail share increased 0.3 share points compared to the year-ago period, to 28.2 percent, as it benefited from the 2009 introductions of Black & Mild Wood Tip and Black & Mild Wood Tip Wine.
Altria also achieved $43 million in cost savings during the first quarter of 2010, and expects to achieve approximately $419 million in additional cost savings by the end of 2011. The majority of the cost savings were provided by PM USA's Manufacturing Optimization Program, which contributed $37 million in cost savings in the first quarter of 2010.
Altria also expects to generate an estimated $300 million in UST integration cost savings by the end of 2011. These savings are included primarily in the general corporate expense and SG&A line item beginning in 2009.
Altria completed the acquisition of UST LLC (UST) and its subsidiaries in January 2009. During the first quarter 2010, Altria incurred pre-tax charges of $15 million for acquisition-related charges as well as restructuring and integration costs. The company expects to incur charges of approximately $35 million later this year related to this initiative, but anticipates the acquisition to be accretive to its adjusted diluted earnings per share in 2010.
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