Tobacco and food company Altria Group Inc. on Wednesday posted higher quarterly profit as strong international sales of Marlboro and other cigarettes offset weakness at its Kraft Foods Inc. business.
Price increases — the result of a reduction in promotional allowances — helped boost profits in its U.S. tobacco business, which also saw market share climb above 50 percent.
The company also said it expected 2005 earnings to be at the high end of its previous forecast, despite Kraft's report on Tuesday of a decline in profits and reduction of full-year estimates.
"While Kraft Foods exhibited such weakness in its operating profits last night, the tobacco operations more than made up for this shortfall," Christopher Growe, analyst at A.G. Edwards & Sons, said in a research report. He rates Altria shares "buy."
Altria management has said it is preparing to break up the company, separating Kraft from the tobacco businesses, once certain large tobacco lawsuits in the United States are resolved.
The parent of the Phillip Morris tobacco companies and Kraft said profit was $2.88 billion, or $1.38 a share, compared with $2.65 billion, or $1.29 a share, a year earlier.
Excluding one-time items, earnings were $1.37 a share, according to Reuters Estimates, though different analysts factor in different one-time items. Analysts on average forecast $1.33 a share.
Among several one-time items was a 10-cent tax benefit from the company's decision to move profits from overseas units to the United States under a recent law that allows such repatriation.
Revenue rose 10.4 percent to $24.96 billion from $22.62 billion a year earlier.
Excluding excise taxes, revenue was $17.31 billion. On that basis, analysts forecast $16.81 billion, according to Reuters Estimates.
The company's Philip Morris USA unit shipped 47.9 billion cigarettes in the quarter, down 0.9 percent from a year earlier. But market share for its top-selling Marlboro brand rose to 40.1 percent from 39.6 percent.
Profit for the unit rose 4.8 percent to $1.2 billion, helped by the lower spending on promotional allowances.
Philip Morris International shipped 217 billion cigarettes, up 9 percent. Profit in that unit rose 19.7 percent to $2.2 billion.
Exposure to the struggling airline industry led to a $121 million loss at the company's financing unit, which took a $200 million provision for losses in that industry.
The company also said it now expects 2005 earnings per share from continuing operations to be $5.05 to $5.10, compared with its earlier forecast of $5.00 to $5.10.
Some analysts expect full-year earnings to beat the company's latest forecast.
"We are taking our full-year number up to $5.13 from $5.06 and confirming our overweight investment rating," Rob Campignino, analyst at Prudential Securities, said in a research note.
Altria stock gained 14 percent in the third quarter and has extended its all-time high since, boosted by a legal victory for the tobacco industry and expectations that Altria management's plan to split the business into two or three separate companies could be realized as early as next year.
The Dow Jones Industrial Average, of which Altria is a component, was up less than 3 percent in the quarter.
But despite the rally, Altria shares still traded at only about 13.1 times next year's estimated earnings at Tuesday's close, below the 15.2 percent for the Dow Jones Industrials as a whole.
Analysts have said the shares could be worth in the mid-$80 range or more once Kraft is split from the tobacco units, Phillip Morris USA and Philip Morris International.