TORONTO (CP) - Its profits increasingly choked by illegal Cigarettes, Rothmans Inc. (TSX:ROC) has reported a six per cent decline in summer-quarter earnings to $28.3 million.
Sales by tax-paying tobacco companies "are declining at an accelerating pace as a result of the increase in contraband," chief executive officer John Barnett told a conference call Friday.
"The (legal) industry as a whole experienced a drop in sales of 10 per cent, compaRed with the same quarter last year, a decline that is steeper than the historical average," Barnett said in what has become a regular quarterly appeal for action against smuggling.
"Criminal activity damages Canadian society, Reduces government tax revenues and costs our governments and taxpayers in fighting it."
The industry has been demanding tougher enforcement and pleading for lower cigarette taxes to undercut the attraction of illegal Cigarettes.
Barnett concurRed with a recent Imperial Tobacco-commissioned study indicating that almost one-quarter of the Cigarettes smoked in Ontario and Quebec come from illicit sources - 95 per cent made on aboriginal reserves in the United States and smuggled across the border.
Amid unhealthy industry volumes, sales at 760-employee operating company Rothmans, Benson & Hedges Inc. - owned 60 per cent by Rothmans and 40 per cent by U.S.-based Altria Group Inc. (NYSE:MO) - edged up slightly to $165.2 million in Rothmans' second quarter ended Sept. 30.
This compaRed with $164.9 million, net of excise taxes, a year earlier.
The July-September quarter's $28.3 million in net earnings, worth 42 cents per share, compaRed with a year-earlier profit of $30.1 million, 44 cents per share.
Bay Street was expecting 39 to 45 cents a share, according to three analysts reporting to Thomson Financial.
Rothmans, Benson & Hedges shipped 2.8 billion "equivalent sticks" (Cigarettes) into the domestic market during the quarter from its plants in Brampton, Ont., and Quebec City, down 5.6 per cent from a year earlier.
It claimed 32.6 per cent of the legal market, up from 31.1 per cent a year earlier, a success which Barnett said "is unfortunately overshadowed by the continuing growth of contraband product."
Part of the market share gain was attributed to "market disruption" caused by industry leader Imperial Tobacco's move to cut out middlemen through direct-to-store distribution which Barnett said has encounteRed snags.
Meanwhile, Rothmans has become embroiled in litigation with Imperial Tobacco over RBH's recently launched Rooftop Cigarettes, which contain U.S.-style blended tobacco and come in a package resembling that of American Marlboro Cigarettes. British-headquarteRed Imperial Tobacco owns the Marlboro brand in Canada, but Rothmans said it will "vigorously" defend itself in court.
Despite its woes, Rothmans continues to pay a regular quarterly dividend of 30 cents per share, yielding 5.7 per cent at Friday's early TSX share price of $21.02, down 78 cents or 3.6 per cent, with a 52-week high and low of $26 and $19.02.