Altria Group Inc.'s profit fell about 57 percent in the second quarter on charges related to lease transactions, the Marlboro maker said Wednesday, but while cigarette sales fell slightly, it was able to command higher prices.
The owner of the nation's biggest cigarette maker, Philip Morris USA, reported net income of $444 million, or 21 cents per share, for the period ended June 30, down from $1.04 billion, or 50 cents per share, last year.
Excluding one-time items, earnings grew 6 percent to 53 cents per share, matching analyst estimates.
But revenue, excluding excise taxes, tumbled nearly 8 percent to $4 billion. Analysts polled by FactSet expected revenue of $4.36 billion.
Revenues were impacted by a previously announced one-time charge of $627 million tied to the tax treatment of some leveraged lease transactions entered into by its subsidiary, Philip Morris Capital Corp.
Altria reaffirmed its full-year forecast for adjusted earnings between $2.01 and $2.07 per share. Still the company said business is likely to remain challenging, as consumers remain under economic pressure and unemployment remains high.
"Our premium tobacco brands performed well in a highly competitive environment marked by continuing economic pressure on adult consumers," CEO Michael E. Szymanczyk said in a conference call with investors.
Altria said its top-selling Marlboro brand lost 0.2 points of market share to end up with 42.6 percent of the U.S. market, but it sold about 1 percent more of the brand. Its other brands, including Virginia Slims, Parliament and Basic, also lost ground.
The company introduced several new products with the Marlboro brand, often at lower prices. They include special blends of both menthol and non-menthol cigarettes to help keep the brand growing and steal smokers from its competitors.
But it is still under pressure in the current economy from less-expensive brands such as like Pall Mall from Reynolds American Inc. and Maverick from Lorillard Inc.
During the quarter, Marlboro sold for an average of $5.63 per pack in the quarter, compared with an average of $4.20 per pack for the cheapest brand, Altria said.
The company based in Richmond, Va., said cigarettes sold fell less than one percent to 36.2 billion compared with last year's second quarter. Adjusted for seasonal variations, volume declined 4.5 percent, higher than Altria's industry estimate of a 3.5 percent decline.
Cigarette revenue excluding excise taxes grew about 3.6 percent to $3.88 billion during the second quarter on higher prices.
Altria also said cigarette inventory build-ups in the first half of the year is expected to negatively impact third-quarter cigarette volumes and income.
Like other tobacco companies, Altria is focusing on cigarette alternatives _ such as cigars, snuff and chewing tobacco _ for future sales growth because of expected continuing declines in cigarette smoking.
Altria sold 2 percent less of its smokeless tobacco brands such as Copenhagen and Skoal. Excluding excise taxes, revenue from its smokeless tobacco business grew nearly 4 percent to $377 million.
For the quarter, the company's smokeless tobacco brands had 55.1 percent of the market, which is tiny compared with cigarettes.
Its Black & Mild cigars saw volumes fall slightly during the period, and its revenue excluding excise taxes fell about 5 percent to $95 million because it spent more money promoting the brand.
The company also owns a wine business and holds a voting stake in brewer SABMiller.
Altria has been reining in expenses as tax hikes, smoking bans, health concerns and social stigma make the cigarette business tougher. Altria said it cut costs about $80 million in the second quarter and expects to save about $30 million more by the end of 2011.
Shares of Altria Group fell 65 cents, or 2.4 percent, to close at $26.37 Wednesday.
Michael Felberbaum can be reached at http://www.twitter.com/MLFelberbaum.