The Marlboro Man's lower-priced competitors are gaining ground.
Altria Group Inc.'s largest brand is still firmly planted in the saddle but saw its U.S. market share for the top-selling cigarette brand fall in the first quarter for the first time in nearly two years.
Still, the Richmond, Va.-based owner of Philip Morris USA said Wednesday its first-quarter net income increased 15 percent in on lower costs and higher prices, even though it sold fewer cigarettes.
It earned $937 million, or 45 cents per share, for the period ended March 31, up from $813 million, or 39 cents per share, last year. Excluding one-time items, earnings were 44 cents per share, matching analyst estimates.
Net revenue excluding excise taxes fell less than 1 percent to $3.94 billion. Analysts polled by FactSet expected $3.9 billion.
Altria also reaffirmed its full-year forecast for earnings between $2 and $2.06 per share.
Its shares fell 27 cents, or about 1 percent, to $26.11 in morning trading Wednesday.
The company's Marlboro brand lost 0.5 points of market share to end up with 42.2 percent of the U.S. market. The brand sold 5.7 percent fewer cigarettes. It was the first year-over-year market share decline for the brand in nearly two years.
But Altria cautioned that comparisons to last year are difficult because of the timing of new product launches in the year-ago period that increased volume and market share.
Business also remains challenging because consumers remain under economic pressure and unemployment continues to be high, it said.
CEO Michael E. Szymanczyk also noted the competition in the industry remains "intense" as it faces pressure from other companies' less-expensive brands such as like Pall Mall from Reynolds American Inc. and Maverick from Lorillard Inc.
However, Marlboro, which sold for an average of $5.70 per pack in the quarter, is in "pretty good shape" and continues to show strength, Szymanczyk said. That compares with an average of $4.21 per pack for the cheapest brand, Altria said.
Altria has introduced several new Marlboro products, often with lower promotional pricing. They include special blends of both menthol and nonmenthol cigarettes to help keep the brand growing and attract its competitor's smokers.
The company said cigarettes sold fell 6.4 percent to 31.9 billion compared with last year's first quarter. Adjusted for seasonal variations, volume declined 5 percent, higher than Altria's industry estimate of a 4 percent decline. Its other brands, including Virginia Slims, Parliament and Basic, also lost ground.
Like other tobacco companies, Altria is focusing on cigarette alternatives such as cigars, snuff, chewing tobacco and other smokeless products for future sales growth because of expected continuing declines in cigarette smoking.
The company also owns a wine business and holds a voting stake in brewer SABMiller.
Altria sold 1.3 percent less of its smokeless tobacco brands such as Copenhagen and Skoal, and Marlboro Snus — small pouches like teabags that users stick between the cheek and gum. Excluding excise taxes, revenue from its smokeless tobacco business fell slightly to $353 million.
For the quarter, Altria's smokeless tobacco brands had 54.7 percent of the market, which is tiny compared with cigarettes.
Its Black & Mild cigars saw volumes increase nearly 2 percent during the period, and its revenue excluding excise taxes fell about 24 percent to $66 million because it spent more money promoting the brand.
The company's performance also was boosted by cost savings.
Altria has been reining in expenses as tax increases, smoking bans, health concerns and social stigma make the cigarette business tougher. It said it cut costs about $35 million in the first quarter and expects to save about $110 million more by the end of 2011.
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