RICHMOND, Va. (AP) ? The Marlboro Man had a more difficult time roping in cigarette smokers in the third quarter, marking one of the biggest U.S. market share declines for Altria Group Inc.’s top-selling premium brand in at least four years.
But the owner of the nation’s largest cigarette maker, Philip Morris USA, said Thursday higher prices and gains from its smokeless tobacco and cigar brands helped keep it in the saddle with a nearly 4 percent increase in its quarterly profit, even as it sold less cigarettes. It also plans an additional $400 million in cost savings by the end of 2013 in advance of anticipated cigarette volume declines industrywide.
Altria, based in Richmond, Va., said Marlboro lost 0.9 points of market share to end up with 41.7 percent of the U.S. market.
Volume declines of 10 percent for the brand drove the number of cigarettes it sold down 9 percent to 33.3 billion cigarettes compared with a year ago, while volume for its discount cigarette brands increased 9.5 percent. Its other brands, including Virginia Slims, Parliament and Basic, also lost market share.
“Investors will no doubt question this performance, but as the company noted, it is managing its business for profitability and not sheer market share growth,” Stifel Nicolaus analyst Chris Growe wrote in a client note.
The company had cautioned last quarter that third-quarter cigarette volume and profitability would be hurt because wholesalers stocked up more than usual in the first half of the year. Adjusted for seasonal variations, the company said volumes declined 5 percent, worse than Altria’s industry estimate of a 3.5 percent decline.
Altria has introduced several new products with the Marlboro brand, often with lower promotional pricing. They include special blends of both menthol and non-menthol cigarettes to try to keep the brand growing and steal smokers from its competitors.
And the company still faces pressure in the current economy from less-expensive brands like Pall Mall from Reynolds American Inc. and Maverick from Lorillard Inc. Marlboro sold for an average of $5.74 per pack during the third quarter, compared with an average of $4.22 per pack for the cheapest brand.
But CEO Michael E. Szymanczyk said Marlboro has maintained its brand loyalty, even during tough economic times.
“We remain confident in Marlboro’s brand strength as its equity, loyalty rates and adult demographics remain strong,” Szymanczyk said in a conference call with investors regarding its third-quarter financial results.
The company reported net income of $1.17 billion, or 57 cents per share, for the period ended Sept. 30, up from $1.13 billion, or 54 cents a share, last year. Adjusted earnings were 56 cents per share, matching analyst estimates.
Revenue, excluding excise taxes, fell 3 percent to $4.33 billion. Analysts polled by FactSet were expecting $4.44 billion.
Altria also reaffirmed its full-year forecast for adjusted earnings and announced a new $1 billion share buyback.
Its shares rose 21 cents to $27.48 in midday trading.
Like other tobacco companies, Altria is focusing on cigarette alternatives ? such as cigars, snuff and chewing tobacco ? for future sales growth because the decline in cigarette smoking is expected to continue.
The company saw revenue, excluding excise taxes, from its smokeless tobacco brands such as Copenhagen and Skoal and its Black and Mild cigars grow 9 percent and 21 percent, respectively.
Smokeless tobacco volumes were essentially flat in the quarter and had 55.2 percent of the market, which is tiny compared with cigarettes. Volume for cigars grew about 4 percent during the period. The company also said it plans to introduce new Black & Mild varieties to build on its 29.5 percent share of the U.S. retail market for large, machine-made cigars.
It also owns a wine business, which saw gains in the quarter, holds a voting stake in brewer SABMiller, and has a financial services division.
Altria has been forced to cut costs as tax hikes, smoking bans, health concerns and social stigma make the cigarette business tougher. During the third quarter, the company said it completed a multiyear cost savings program, exceeding its goal of reducing costs by $1.5 billion between 2007 and 2011 compared with 2006.
On Thursday, Altria rolled out a plan to cut $400 million in costs that will total 11 cents per share in restructuring charges in the fourth quarter. The plan includes employee separation costs, but the company did not provide any specifics.
During the quarter, the company also completed a $1 billion share buyback program in which it repurchased 37.6 million shares. It intends to buy back another $1 billion worth of shares by the end of 2012.
Altria reaffirmed its full-year forecast for adjusted earnings between $2.01 and $2.07 per share.
It is the last of the largest U.S. tobacco companies to report its third-quarter results.
Rival Reynolds American, the nation’s No. 2 tobacco company, said Tuesday its profit excluding charges related to legal cases and other costs rose nearly 4 percent. The maker of Camel, Pall Mall and Natural American Spirit brand cigarettes said higher prices, productivity gains and selling more of its smokeless tobacco brands that include Grizzly and Kodiak offset cigarette volume declines of 6.8 percent.
Lorillard, the nation’s No. 3 cigarette maker, said Monday its net income fell nearly 3 percent as higher costs offset selling more cigarettes at higher prices. It sold about 3 percent more cigarettes on gains on its Newport and its low-priced Maverick brand.
Michael Felberbaum can be reached at http://www.twitter.com/MLFelberbaum.