Altria Group Inc. said Wednesday its profit fell 8.4 percent in the third quarter but that operating income rose 18.9 percent and reaffirmed its plans to split its international and domestic cigarette businesses.
The company behind top-selling Marlboro cigarettes also raised its full-year earnings guidance.
The company's chief financial officer, Dinyar S. Devitre, said the company would work with regulators over the next few months on its plans to spin off Philip Morris International. The board expects to announce the exact timing of the spin-off at its Jan. 30 board meeting.
Net profit for the July-September quarter fell to $2.63 billion, or $1.24 a share, compared to $2.88 billion, or $1.36 per share, in the same period last year.
Excluding one-time costs, Altria said earnings per share were up 13.1 percent to $1.21 compared to $1.07 last year and beat a consensus prediction of $1.14 per share from analysts polled by Thomson Financial. Those estimates usually exclude one-time charges. In the third quarter, one-time items included 5 cents per share for a favorable tax benefit and a 2 cents per share charge, mainly for the closure of a factory in North Carolina.
The North Carolina plant is being closed to consolidate U.S. cigarette production in Richmond, Va., and move international manufacturing operations to overseas plants yet to be named.
Revenue for the quarter grew to $19.21 billion, up 8.9 percent from $17.64 billion a year ago.
Goldman Sachs analyst Judy Hong said the results were encouraging, thanks to better-than-expected operating income, especially at Philip Morris International.
The company raised its full-year earnings forecast to a range of $4.20 to $4.25 a share from a previous prediction of $4.05 to $4.10 a share. The increase was based on a lower tax rate, a weak dollar and good results from the international unit.
Its shares rose 24 cents to close at $70.98 Wednesday after rising as high as $71.50 earlier in the session.
Besides the Philip Morris units, New York-based Altria owns a 29 percent stake in London-based SABMiller PLC, which brews Miller Lite beer.
The spin off of Philip Morris International is the next step in a company-wide restructuring that started with the spin-off of its majority stake in Kraft Foods Inc. in March. The international unit's separation is seen as a chance to unlock its growth potential and free it from the legal and regulatory obstacles the domestic unit faces.
Altria, the parent company now based in New York, will move its headquarters to Richmond, Va., where Philip Morris USA is located, and cut 400 jobs. The company is also opening a research center in Richmond to develop new products and look for alternatives to cigarettes. One product that is already in test phase are moist tobacco packs, called snus, which are being sold in the Dallas-Fort Worth area and Atlanta.
In the third quarter, Philip Morris International reported operating company income grew 18.8 percent to $2.5 billion. Cigarette sales volume rose 0.6 percent to 217.2 billion units.
Meanwhile, domestic cigarette volume, when adjusted for trade inventories and calendar changes, was down between 3 percent and 4 percent, consistent with the predicted decline for the full year. In a declining market, the U.S. tobacco business captured record retail market share of 50.6 percent and another record for the Marlboro brand, achieving a 41.1 percent share. Operating income was up 2 percent to $1.3 billion. Philip Morris USA also faces a possible increase in the federal excise tax next year.
For the first nine months of the year, Altria earned $7.6 billion, or $3.59 a share, down from $9.06 billion, or $4.31 a share, a year ago. Nine-month revenue rose to $55.57 billion from $51.20 billion.
After the board announces the timing of the spin off, Devitre said it would give details of stock buybacks planned for both Altria and Philip Morris International. The buybacks would not happen until after the spin-off, he said.