Altria Sees '08 US Industry Cigarette Volumes Down 3%-3.5%
Dow Jones

Altria Group Inc. (MO) lowered its outlook on U.S. industrywide cigarette volumes for both this year and in the longer term, citing economic conditions, activity to boost cigarette excise taxes and retailer inventories.

During a conference call Thursday, Executive Vice President and Chief Financial Officer David Beran said Philip Morris USA Inc. estimates a long-term annual U.S. industry volume declines of 3% to 3.5%, compared with a March view of annual declines of 2.5% to 3%.

Over the last five years, the maker of Marlboro, Virginia Slims and other brand-name cigarettes has seen shipment volume decline by an average of 1.8% a year, less than the overall industry.

"Retailers appear to be carrying lower inventories of cigarettes," perhaps due to the fuel-driven, higher carrying costs, Beran said. While only five states have raised cigarette excise taxes this year, about as expected, several states are targeting higher taxes on other categories, such as roll-your-own cigarettes and small cigars. "That also affected our thinking down the road," he said.

For this year, PM USA estimates a total cigarette industry volume decline of 3% to 3.5%, compared with an April view of a 3% decline.

Beran noted that even though second-quarter industry volumes were down slightly more than expected, Altria has delivered 10.8% per-share earnings growth for the first half of the year and is not backing off its long-term outlook for annual total shareholder return of 12% "or better."

Moving more aggressively into adjacent products, such as spit-free smokeless tobacco pouch products, called snus, and smokeless tobacco, is one of the levers PM USA expects it can use to offset declining cigarette consumption, he said.

Altria shares recently fell 86 cents, or 4%, to $20.83.

-By Mary Ellen Lloyd, Dow Jones Newswires; 704-948-9145; maryellen.lloyd@ dowjones.com

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  07-31-08 1025ET
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