MO - Altria Group - Page 2
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stock moving news ???FDA panel to examine menthol cigarettes' impact
March 29, 2010 4:10 PM ET
All Associated Press newsRICHMOND, Va. (AP) - Menthol-flavored cigarettes are going under the microscope of a new government panel, which will recommend how the U.S. Food and Drug Administration should regulate them.
Smokes with the minty flavoring are a key area for growth for tobacco companies in a shrinking cigarette market, so the industry will keep a close eye on the committee's work.
When it meets Tuesday and Wednesday, the committee will discuss the scientific research on the public health effects of cigarettes, including among children and certain ethnic groups. The panel is to make recommendations by next March.
The FDA won the authority in June to regulate tobacco, including banning certain products, limiting nicotine and blocking labels such "low tar" and "light" that could wrongly imply certain products are less harmful. The agency can't ban nicotine or tobacco entirely.
Most industry observers think a menthol ban is unlikely. A ban on cigarettes with flavors such as clove, chocolate or fruit took effect in September, because they are believed to appeal to youth. The law stopped short of banning the more-popular menthol but directed the FDA to examine its effects.
The FDA has the power to ban the flavoring or order a reduction of menthol levels, bigger or more descriptive warning labels or higher mandated prices for menthol cigarettes. The agency doesn't have to follow its scientific panel's recommendation, but it often does.
Matthew Myers, president of the Campaign for Tobacco-Free Kids, said the overriding goal must be reducing the number of people who die from tobacco use.
"This is the first time that all of the science will be brought together looking at whether menthol increases the number of users, makes it hard to quit, has a disproportionate harmful effect on certain people, and, if the answer to any of those questions is yes, what is the best thing to do about menthol to reduce the number of people who are harmed?" Myers said.
The committee of 12, including three nonvoting members representing the tobacco industry, is to advise FDA on a range of issues. Committee members also are later tasked with studying dissolvable tobacco products as well as product changes and standards. It's chaired by Dr. Jonathan Samet, director of the University of Southern California's Institute for Global Health and former director of the Institute for Global Tobacco Control at Johns Hopkins University.
The relative strength of the menthol market has cigarette makers introducing new menthol products and innovations.
The two largest cigarette makers — No. 1 Philip Morris USA, owned by Richmond, Va.'s Altria Group Inc., and No. 2 Reynolds American Inc., based in Winston-Salem, N.C. — are ramping up efforts to grab some of the menthol market away from Greensboro, N.C.-based Lorillard Inc., the nation's third-largest cigarette company. Lorillard holds about 35 percent of the U.S menthol market with its top-selling Newport brand.
The share of smokers using menthol cigarettes increased from 31 percent in 2004 to 33.9 percent in 2008, with more pronounced increases among young smokers, according to a study released by the Substance Abuse and Mental Health Services Administration in November.
It also showed that among black smokers, 82.6 percent used menthol cigarettes, compared with 32.3 percent for Hispanic smokers and 23.8 percent for white smokers.
"Tobacco researchers still do not see conclusive evidence in existing literature that would warrant a ban of menthol and we think the tax, job and illicit trade implications would be too serious for the FDA to take this drastic step," Credit Suisse analyst Thilo Wrede wrote in a note to investors.
Those in the industry agree a ban is improbable.
"The weight of the scientific evidence does not support a conclusion that menthol cigarettes convert greater health risk than non-menthol cigarettes," Lorillard CEO Martin Orlowsky said in a conference call last month. Orlowsky also warned that a ban could lead to a black market.
Studies vary on menthol's health impacts and whether it plays a large role in enticing people to start smoking, said Dr. David Burns of the University of California-San Diego, scientific editor of several surgeon general reports on tobacco.
"There's not a lot of compelling evidence that menthol makes a huge problem relative to the magnitude of the problem of tobacco," Burns said.
The owner of the nation's biggest cigarette maker, Philip Morris USA, also announced that CEO Michael E. Szymanczyk will retire in May following the company's annual shareholder meeting. Altria's board has selected Martin J. Barrington to replace him as CEO and chairman, and David R. Beran will serve as president and chief operating officer.
The company also disclosed that it has entered into an agreement with an affiliate of Fertin Pharma A/S to develop non-combustible nicotine-containing products. Several other tobacco companies have announced similar initiatives to seek cigarette alternatives as demand declines.
"Altria continues to focus on lower-risk products that appeal to adult tobacco consumers," Szymanczyk said in a conference call with investors.
Richmond, Va.-based Altria reported net income of $836 million, or 41 cents per share, for the three-month period ended Dec. 31, down from $919 million, or 44 cents a share, last year. On an adjusted basis, the company earned 50 cents per share, a penny above Wall Street expectations.
Revenue, excluding excise taxes, increased 5 percent to $4.34 billion. Analysts polled by FactSet were expecting $4.23 billion.
Its shares fell 52 cents to close at $28.14 Friday. Its shares have recovered from a 52-week low of $23.20 in early August and are 7.4 percent below their high for the past year of $30.40 set in mid-December.
Cigarettes volumes were flat at 33.7 billion cigarettes compared with a year ago as an increase of nearly 20 percent in its discount cigarette brands offset declines in its premium brands like Marlboro. Cigarette revenue excluding excise taxes rose 4 percent to $3.63 billion during the quarter on higher prices.
Altria said its top-selling Marlboro brand lost 0.7 points of market share to end up with 41.6 percent of the U.S. market. Marlboro volumes declined less than 1 percent. Its other brands, including Virginia Slims, Parliament and Basic, also lost market share.
The company 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.
Altria still faces pressure in the current economy from less-expensive brands such as like Pall Mall from Reynolds American Inc. and Maverick from Lorillard Inc. Marlboro sold for an average of $5.73 per pack during the fourth quarter, compared with an average of $4.24 per pack for the cheapest brand.
Despite changes in market share driven by short-term increases in promotional activity, "Marlboro's underlying brand equity remains strong," Szymanczyk said.
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.
Volumes of its smokeless tobacco brands such as Copenhagen and Skoal increased about 10 percent. Excluding excise taxes, revenue from its smokeless tobacco business grew nearly 7 percent to $391 million on higher prices.
For the quarter, the company's smokeless tobacco brands had 55.5 percent of the market, which is tiny compared with cigarettes.
Volume for its Black & Mild cigars fell about 6 percent during the period. But revenue excluding excise taxes rose 26 percent to $90 million as it raised prices and spent less money promoting the brand.
Altria also owns a wine business and holds a voting stake in brewer SABMiller.
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 multi-year cost savings program, exceeding its goal of reducing costs by $1.5 billion between 2007 and 2011 compared with 2006.
Last quarter the company rolled out a plan to cut $400 million in "cigarette-related infrastructure costs" by the end of 2013 in advance of anticipated cigarette volume declines. Altria said the restructuring charges in connection with the program totaled 7 cents per share in the fourth quarter.
For the full year, the company said it earned $3.39 billion, or $1.64 per share, in 2011 compared with $3.9 billion, or $1.87 per share, in the previous year. It said its adjusted earnings for the year were $2.05 per share.
Cigarette volumes for the year fell about 4 percent to 135.1 billion cigarettes, largely on declines from Altria's premium brands. Marlboro ended the year with a 42 percent share of the U.S. retail market, down 0.6 points from a year ago. Overall the company lost 0.8 points of market share to end up with 49 percent of the retail market.
Full-year smokeless tobacco volumes increased more than 1 percent to 734.6 million cans or packs, and cigar volumes were stable at 1.25 billion units.
Altria also said it forecast 2012 full-year adjusted earnings between $2.17 and $2.23 per share.
I made an Altria thread last night not realizing this one existed... it looks like that post was deleted so I'll try to re hash what I wrote.
With a declining US smoking rate, does anyone see large scale growth potential in MO? I am considering picking some up as a dividend play, but if PM would offer both dividends and growth potential I would lean more towards it. I realize MO has been a cash cow for years, does anyone see this coming to an end soon?
I like this company. Make a cigarette for a penny and sell it for a dollar. Selling addicting products, making tons of cash flow and repaying them back to the shareholders via dividends. I should have got on this sooner.
People will always be smoking, no matter how much regulation. Fairly confident even 200 years from now, people will be smoking