U.S. Sales Still Sliding at Altria - TheStreet

Updated from 10:50 a.m. EDT

Altria

(MO) - Get Report

said third-quarter earnings dropped 43% from a year ago, when it benefited from the sale of Miller Brewing.

Weak U.S. tobacco sales continued to be a problem for the company in the third quarter. But the cigarette giant said it began to see volume stabilization and retail share improvement.

Altria earned $2.49 billion, or $1.22 a share, compared with $4.36 billion, or $2.06 a share, a year ago. Last year's results included a gain of $1.7 billion, or 81 cents a share, from the Miller Brewing sale. Altria's third-quarter earnings were a penny better than estimates, according to Thomson First Call.

The stock was little changed in afternoon trading, losing 35 cents, or 0.8%, to $44.80.

Overall revenue in the third quarter increased 4.7% to $20.9 billion, due largely to a favorable currency benefit of $940 million. The sales improvement was offset by weakness in domestic tobacco. Revenue from Philip Morris USA fell 12% to $4.44 billion.

Nevertheless, Philip Morris USA's retail share increased in the quarter, driven by gains in Marlboro and Parliament brands. On a postearnings conference call, executives also noted that retail share for deep discount cigarettes -- which have hurt sales of Philip Morris' higher-priced products -- decreased.

Revenue from Philip Morris' international tobacco business rose 17% to $8.91 billion. But volume in Western Europe declined 7.5%, the result of lower volume in Germany, Italy and France. Volume dropped 7.3% in Germany, as consumers switched to cheaper brands.

The company affirmed guidance of $4.50 to $4.60 a share for the year. That includes a charge of 8 cents a share for a settlement with tobacco growers and for moving Philip Morris headquarters.

Looking ahead, some worry Altria's international business could continue to deteriorate as its U.S. operations are just starting to rebound. "Pressure on volume and profit for the European tobacco companies in some markets

Germany, Italy, and France is increasing and likely to become even more difficult in 2004," said Michael Smith, an analyst at J.P. Morgan, in a research note.

Altria has lobbied to have other tobacco companies in Europe taxed at higher rates, removing their price advantages. The company is also hoping for more favorable tax treatment in Italy. But "in overview, the outlook for the European industry looks to be getting more difficult," Smith said.