Altria Group ( MO) disclosed plans to shutter its Cabarrus, N.C., cigarette plant and transfer production for Philip Morris International to facilities in Europe. The cost savings will be felt starting next year. By 2011, estimated annual savings should be around $335 million. Cumulative expenses are expected to be about $670 million, with roughly $353 million going toward employee separation. Philip Morris USA will take a pretax charge of $325 million, or 10 cents a share, in the second quarter. The Cabarrus plant has about 2,500 employees, and as many as possible will be moved to another Philip Morris location in Richmond, Va. Workers who don't transfer will be offered severance packages. The Cabarrus plant is expected to be closed by the end of 2010. Currently, Cabarrus produces about 57 billion cigarettes for Philip Morris International, and that output will shift to Europe by the third quarter of 2008. Richmond will be responsible for making cigarettes sold in the U.S. "
We have a number of facilities in Europe and haven't determined where yet the production will go," said Tim Kellogg of Altria's investor relations. "Once the transfer is completed, all of PMI's production will come from Europe." While the regulatory environment for tobacco companies seems to have stabilized, U.S. cigarette sales have been declining. Altria cited the drop-off as a factor in its decision to consolidate its facilities.
Altria told investors at the annual meeting in April that it was examining the benefits of spinning off Philip Morris International, and the move to realign production in the same geographic region further suggests that that could someday become a reality. Altria approached the spinoff of Kraft ( KFT) in a slow and methodical manner, completing the separation in March after years of preparation. Louis Camilleri, chairman and CEO of Altria, said at the annual meeting that the company would "carefully and diligently examine the benefits of a spin-off to Philip Morris International and other possible value-enhancing options to decide the optimal long-term strategic course to follow." The stock was trading up 1.8% to $69.95 around midday Tuesday.