Tobacco Companies Post Mixed 3Q Earnings

Posted 26 October 2006 @ 12:05 pm EET     Print     Reprint     E-Mail     Comments

NEW YORK (AP) - Profit slipped in the third quarter for the parent of the nation's biggest tobacco company while earnings climbed 45 percent for its biggest rival. But revenue rose for both companies and so did their shares.

Altria Group Inc., the industry leader and maker of top-selling Marlboros, also announced Wednesday its board would meet in January to nail down plans for a long-awaited divestiture of its majority stake in Kraft Foods Inc., which makes Nabisco and Oscar Mayer products.

Altria's profit slipped less than a percentage point in the third quarter and said results were hurt by sales in Spain and Japan, but the company raised its earnings guidance for the full year.

Meanwhile, Reynolds American Inc. said its profit jumped 45 percent in the July-September period, helped by increased market share of its signature brands, such as Camel and Kool.

Altria's shares rose $2.28, or 2.9 percent, to close at $82.10 on the New York Stock Exchange, while Reynolds shares rose $1, or 1.6 percent, to close at $65.40.

The earnings results were generally positive, although Altria had some problem spots internationally while Reynolds spent heavily to fight excise tax campaigns in several domestic states.

Altria, which also makes Virginia Slims, reported net income of $2.87 billion, or $1.36 per share, in the July-September period compared with $2.88 billion, or $1.38 per share, a year ago. Excluding certain restructuring and other costs, the company reported earnings per share of $1.39 compared to $1.37 last year.

Wall Street analysts had expected earnings of $1.41 per share.

Revenue rose 3.7 percent to $25.88 billion from $24.96 billion last year.

The company increased its guidance for full-year earnings per share to a range of $5.48 to $5.53, up from a previously discussed range of $5.40 to $5.50.

For the first nine months of the year, Altria reported net income of $9.06 billion, or $4.31 a share, up from $8.15 billion, or $3.90 a share, a year ago. Revenue rose to $76 billion from $73.36 billion.

The earnings news was overshadowed, though, by an announcement from the Altria board that said it would "finalize its decision" on a Kraft divestiture at its Jan. 31 board meeting.

Altria cited greater certainty in the litigation environment as the reason to move forward with the Kraft divestiture plans.

An appeals court on Tuesday granted a temporary stay in a "light" cigarettes case accusing Altria, Reynolds American and other defendants of deliberately misleading smokers into believing light cigarettes are safer than regular ones.

A three-judge panel will review the case, which was certified as a class action by U.S. District Judge Jack Weinstein on Sept. 25, exposing the industry to potential damages estimated at $200 billion.

"I think today's announcement clearly shows to the world that the board is comfortable with the entire litigation environment, and is therefore prepared to move forward," Chief Executive Louis Camilleri said on a conference call.

He said the board was waiting to make a formal announcement until January to allow the board to act "in an orderly and deliberate manner" and to coincide with plans by Kraft Chief Executive Irene Rosenfeld.

"This is not without risk but we are prepared for that," Camilleri said.

Altria said the board plans a January announcement on the "precise timing" of when the company will distribute its Kraft shares, worth 88.6 percent of the foods company, to Altria shareholders. The spin-off is part of a wider restructuring plan that has generated intense interest among investors looking for an increase in value.

"We believe this is very positive news since it is clear the board's priority is to break-up the company and now the uncertainty surrounding the timing of the break-up has finally diminished," Citigroup Analyst Bonnie Herzog wrote in a research note on Wednesday.

Camilleri said, "The board has considered all scenarios in considerable detail, and they will be ready to go on January 31st."

The restructuring plan ultimately may also include a separation of Philip Morris International from the domestic tobacco business.

The Winston-Salem, N.C.-based Reynolds earned $309 million, or $1.05 per share, in the July-September period, up from $2.13 million, or 72 cents per share, a year ago. Revenue edged up to $2.19 billion from $2.15 billion last year.

The results topped Wall Street estimates for earnings of $1.02 per share on $2.16 billion of sales, according to analysts polled by Thomson Financial.

"Reynolds American delivered ahead of consensus in spite of incremental challenges," UBS analyst Nik Modi wrote in a research note. Modi maintained a "neutral" rating on the stock.

Profits were boosted by market share improvements at R.J. Reynolds and continued strong growth momentum of Conwood, the smokeless tobacco business the company acquired in May.

For the first nine months of the year, Reynolds American reported earnings of $6.44 billion, or $3.49 per share, compared with $6.21 billion, or $2.52 per share, in 2005.