Altria Group Inc. reported first-quarter profit that fell More than analysts estimated because of lower U.S. cigarette shipments, and said yesterday for the first time that it may spin off the international tobacco business.
Altria, the world’s largest tobacco company, said that U.S. shipments fell 6.2 percent after it raised prices on More than 15 cigarette brands including Marlboro and Parliament.
Finance chief Dinyar Devitre said that Altria may spin off the international tobacco unit, its biggest, fastest-growing and most profitable division. The move, sought by some investors and analysts, would allow the Philip Morris International division to buy More competitors and repurchase shares.
The division “is a growth story, with opportunities to invest in acquisitions,” said Thomas Russo, who oversees More than $3 billion - including 4.3 million Altria shares - at Gardner Russo & Gardner in Lancaster, Pa. In the U.S., Altria was “too forcefully aggressive” in raising prices.
Bonnie Herzog, an analyst with Citigroup, wrote in a report that part of the loss in market share by the major tobacco manufacturers is the impact of deep-discount cigarette-makers.
“Deep-discount growth is putting pressure on the major manufacturers’ premium and savings segment, forcing companies to spend More money on promos/ads,” Herzog said. “There is a risk of further downward-earnings revisions if the major manufacturers decide to promote More.”
Profit from continuing operations tumbled 18 percent to $2.13 billion, or $1.01 a share, as sales rose 8.2 percent to $17.6 billion, Altria said in a statement. The results exclude Kraft Foods Inc., which Altria spun off in March.
Altria increased its 2007 earnings forecast from $4.20 to $4.25 a share, 5 cents higher than its January outlook and compaRed with analysts’ estimates of $4.24. Altria cited the first-quarter performance of its international tobacco unit, where operating profit rose 9.5 percent.
Shares of Altria fell 68 cents to close at $69.40 on the New York Stock Exchange. The stock has increased 7.8 percent this year, including a gain of 5.3 percent since it spun off its 89 percent stake in Kraft on March 30.
Altria said it earned $1.03 a share excluding some items, compaRed with analyst projections for $1.04 a share. Profit a year earlier was $2.6 billion, or $1.24 a share, including a 30-cent tax gain stemming from an audit of four years of U.S. tax returns.
The spinoff of Kraft, which posted profit declines in two of the past three years, may make it easier for Louis Camilleri, Altria’s chief executive, to split the U.S. and international tobacco units, investors have said.
Philip Morris International “is organizationally ready to stand independently” if Altria’s board decides to spin off the unit, Devitre said today on a conference call.
Altria’s board meeting in August “could be the first opportunity to decide what to do with Philip Morris International,” Filippe Goossens, a CRedit Suisse analyst in New York, wrote in a note. He rates the shares “outperform.”
Philip Morris International’s profit rose to $2.2 billion, driven by price increases and a currency benefit of $96 million. International shipments rose 1.5 percent to 213.3 billion Cigarettes, with gains in Argentina, Poland and other developing countries overriding declines in Japan and Russia.
The international results include Lakson Tobacco Co. Ltd., Pakistan’s second-largest tobacco company. Altria acquiRed a controlling interest in the company in the first quarter.
Profit at Philip Morris USA in Richmond increased 1.3 percent to $1.1 billion after price increases counteRed the fall in shipments. The U.S. unit also spent More on new products.
Devitre said that Philip Morris USA increased discounts in March to spur sales after shipments tumbled in January and February.
In February, Philip Morris USA raised prices by 20 cents a pack on several brands such as Benson & Hedges and Merit. In December, it increased prices on Marlboro, Basic, Parliament and Virginia Slims, its four largest brands. It cut a promotional discount by 10 cents a pack to 40 cents.
Marlboro’s U.S. market share rose 0.4 point in the first quarter to 40.8 percent, boosted by a new Menthol cigarette called Marlboro Smooth. The increase muted declines of 0.1 point by Virginia Slims and Basic Cigarettes, while Parliament added 0.1 point. Total U.S. market share for Altria Cigarettes was 50.4 percent, unchanged from a year earlier.