Cigarette Demand Falling, But Profits Solid

MICHAEL FELBERBAUM

RICHMOND, Va. (AP) — The weak economy and higher prices are snuffing out cigarette demand around the world — most vigorously in the U.S., where a federal tax hike, smoking bans, health concerns and social stigma have cut demand at least 10 percent.

Two of the world's biggest cigarette makers reported Thursday that they emerged from the third quarter in better shape than analysts expected and raised their 2009 profit estimates.

Both Philip Morris International — which makes Marlboro and other top brands for sale abroad — and Reynolds American Inc. — the second-biggest cigarette seller in the U.S., with brands such as Camel and Pall Mall — raised prices even as consumers bought fewer cigarettes. And Reynolds is looking to smokeless alternatives for future growth.

Analysts are closely watching the U.S. industry's third quarter for the first clear sense of cigarette volumes after a 62-cent-per-pack federal tax increase took effect. Cigarette sales fell during the first half of the year before and after the April 1 change.

Reynolds American recorded 72 percent higher profit than in last year's third quarter, when restructuring costs and the falling value of its trademarks dampened its earnings. Based in Winston-Salem, N.C., it earned $362 million for the period that ended Sept. 30, up from $211 million a year earlier.