Altria reports 21 pct drop in 1Q profit

Altria Group Inc., owner of the Philip Morris cigarette companies, said Thursday that first-quarter income fell by 21 percent as domestic cigarette sales dropped off more severely than expected.

Chief Financial Officer Dinyar S. Devitre also said Philip Morris International was ready to be spun off, if the board decided to do so. Analysts are predicting that Altria will split its domestic and international units later this year.

The company also raised its full-year earnings prediction.

Net income dropped to $2.75 billion, or $1.30 per share, from $3.48 billion, or $1.65 per share, in the same period last year.

Excluding costs from a spin off of Kraft Foods and other one-time items, Altria said earnings per share were up 5.1 percent to $1.03. On that basis, analysts polled by Thomson Financial expected Altria to report a profit of $1.05 per share for the quarter.

Revenue for the quarter grew to $17.56 billion, up 8.2 percent from $16.23 billion a year ago.

Altria also raised its full-year earnings per share guidance to a range of $4.20 to $4.25 from a previous prediction of $4.15 to $4.20 per share, largely because of a better outlook for Philip Morris International including a favorable currency comparison. The Thomson full year estimate was $4.26.

Chief Executive Louis Camilleri said Philip Morris USA had a "relatively weak quarter," while the company's international unit did better, reporting operating income growth of 9.5 percent to $2.2 billion based on higher pricing and volume growth by buying companies overseas. Organic growth was flat.

"We now are focused on growing our tobacco businesses, while continuing to take measures to further enhance shareholder value," Camilleri said in a statement.

New York-based Altria completed a spin off of a majority 88.9 percent stake in Kraft Foods Inc. on March 30. The share price, adjusted for the spin off, has risen about 5.8 percent since the end of the first quarter.

Analysts have also predicted that Altria will split its domestic and international cigarette divisions, possibly later this year, as part of an overall restructuring plan first announced in 2004.

"PMI is organizationally ready to stand independently (as of today) if that's what the board decides," Chief Financial Officer Dinyar S. Devitre told investors, but also said that Altria would "examine a spin off of Philip Morris International and other value-enhancing options to decide the optimal long-term stretegic course."

"Once a decision has been made, we will promptly communicate it," he said.

Philip Morris USA is the biggest cigarette maker in the nation and holds nearly half of the total market, selling the Marlboro, Virginia Slims, Parliament and Basic brands. Altria also owns Philip Morris International.

Domestic cigarette sales volume shipments declined 6.2 percent to $1.1 billion, keeping operating income growth to just 1.3 percent. Devitre said the decline was expected to moderate throughout the rest of the year, with industry-wide volumes falling by about 3 percent to 4 percent.

But that is still slightly worse than what the company had been expecting. Executives have said in the past that domestic cigarette sales have been steadily declining by 1 percent to 2 percent a year.

Morgan Stanley analyst David Adelman said PM USA had a steeper than expected drop in the first quarter.

"We misjudged the magnitude of these dynamics, particularly the weakness in U.S. tobacco industry first-quarter shipments and at PM USA," he wrote in a note to investors.

Altria shares fell $1.33 to $68.75 in morning trading on the New York Stock Exchange.