As Warren Buffett would tell us, declining industries are usually the last place investors want to cast their bets. But, while the government inhales more tobacco industry (and smoker) resources, Altria
Well, Altria has been planning for this situation for years now and is well into its aggressive cost-cutting plan. For its fourth quarter, Altria reported a $157 million cost reduction as the company stays on track for a total reduction of $1.5 billion by 2011, compared with 2006. About two-thirds of that goal has been achieved. Reported EPS from continuing operations increased by 6.1% for the quarter.
Not bad, considering that Altria's adjusted cigarette revenue (excluding excise taxes) dropped by 2.3%. The company's overall cigarette volume dropped by 11.4% for the quarter and it lost market share of 1.5 points, including a 0.4 drop in share for flagship brand Marlboro. Smokeless tobacco products volume increased by 3.6%, led by a 15.1% increase in Copenhagen.
British American Tobacco
In the next few weeks, Reynolds American
In its 2010 guidance statement, Altria concedes that the year will continue to be tough with the uncertain economy, potential competitive pricing programs, and excise tax increases from budget-strapped states. In spite of this, Altria still expects to grow adjusted diluted EPS by 6% to 8% for the year and plans to increase its dividend payout ratio target to 80%, from 75%. Personally, I don't like the $12 billion in debt that Altria is carrying right now, but the company is doing the right things with its cost reduction plans and growth in new areas including smokeless tobacco, giving investors hope that it can succeed in spite of a declining industry.
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