Altria looks to capture different tobacco consumers with new products

Currently many cigarette smokers are getting more interested in trying various tobacco products besides cigarettes, than previous generations of smokers, and Altria Group Inc, parent company of the largest cigarette maker, Philip Morris USA, is looking on their recently-launched products to lure customers who are open to new products, according to the company.

The corporation, best-known for marketing the iconic Marlboro cigarettes, as well supported its profit forecast, published in January.

Altria, which also markets Copehnagen and Scoal smoke-free tobacco products and Black & Mild cigars, has witnessed a change in tobacco consumption patterns in the USA. Whereas the rate of cigar and cigarette smokers has been virtually unchanged, the consumption of smokeless tobacco has been growing.
Nevertheless, Marlboro – with roughly 42 percent share of the U.S. cigarette market – remains the leading brand in the group’s portfolio.

At the same time, many smokers have admitted to be trying new “reduced-risk” tobacco products, like snus and other smoke-free tobacco, due to health growing concerns and social stigma.

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Experts forecast Marlboro, Philip Morris USA Q4 Performance

On the threshold of the annual financial report, presented by Altria Group, owner of Philip Morris USA, leading industry analysts forecast its performance during the fourth quarter of the year, basing on its Q3 results.

Since adult Americans reduce their expenses on tobacco products, due to growing taxes, and increasing social stigma on smoking, the largest cigarette maker in the United States reported drop in shipping volumes, but confirmed it still managed to obtain revenue growth through increase of organic cigarette prices during its earning conference pre-call.

Industry experts predicted that the company’s leading brand, Marlboro could retain its market share, thanks to the recently introduced Marlboro Leadership Price, though the brand has lost 1% of market share in the previous quarter, totaling 41.7% of the US cigarette market. In addition, the market share of its other key brands, including Parliament and Virginia Slims, went down as well.

The drops in Marlboro market share affected the overall number of cigarettes sold by the company during the quarter, which dropped by 9% to equal 33.3 billion cigarettes versus the same period a year before. Yet, Philip Morris USA’s discount cigarette brands, including L&M were up by 9.5%.

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Lorillard Inc.’s Second-quarter Net profit Increases

Cigarette manufacturer Lorillard Inc.’s second-quarter net profit increased more than 10% as it sold Newport and Maverick cigarette brands at higher prices.

The third largest tobacco company cautioned that its third-quarter cigarette volumes will be affected because wholesalers stocked more than usual last year, and that could damage its earnings.

Lorillard gives significant attention to promotion of its brands, most of all on it currently launched non-menthol version of Newport.

The manufacturer didn’t give any guidance for this particular quarter.

Its shares dropped $5, or 4.4 %, ending trading at $107.29.

Investment analyst Vivien Azer declared that the company’s shares were under considerable pressure due to concerns about increase slowing down in the second half of the year, but the sell-out is “overdone.”

Lorillard spokesman stated that company’s net profit increased to $291 million, or $2.05 per share, for the period till June 30, up from $263 million, or $1.73 per share, a year earlier. The per-share figure was lifted due to lower number of outstanding shares.

The volume of cigarettes Lorillard sold increased about 10% to approximately 10.8 billion cigarettes on profits of 9.6 % from its Newport brand and nearly 21 % for its lower-priced Maverick brand, while it expected a 1.3 % decrease for the whole industry.

According to the company’s representative their non-menthol Newport cigarettes, launched in November, presented the bulk of the increase in Newport shipments during the quarter, but it also underlined that the price of promoting it affected its profit.

Competitors Reynolds American Inc. and Altria Group Inc. both declared selling fewer tobacco products in the same quarter.

Increased unemployment and growing cigarette prices and taxes have led many smokers to switch to lower-priced brands during the recession trying to save money. Lorillard’s Maverick and Reynolds American’s Pall Mall have been among the beneficiaries.

The majority of tobacco enterprises have been increasing prices and dropping costs in order to maintain profits up, as the recession and reducing demand affected cigarette sales. Tax increases and smoking bans have made cigarettes industry stricter.

Lorillard’s retail market share raised 1.4 points within the quarter to 14.2 % of the U.S. market. Newport’s share of the menthol cigarettes was firm at 36.6 %, while its main competitors have increased efforts to confer some of the raising menthol market.

The company’s gross revenue dropped to 35.4 % due to promotional costs for Newport non-menthol.

Lorillard it is the last one of the country’s largest tobacco companies to present second-quarter results.

The first was Altria Group, holding company of Marlboro producer Philip Morris, which declared that, while cigarette sales dropped, the prices were increasing. The top-brand Marlboro also lost its market share.

Philip Morris International acquires patent for an innovative nicotine-delivery system

The leading privately-owned cigarette maker said last week it has purchased the rights for an aerosol nicotine-delivery technology created by Jed Rose, head of the Duke University Center for Nicotine and Smoking Cessation. The school was not part of the agreement with tobacco Company and won’t get any payment. Terms of agreement are not revealed.

“By removing the process of burning, developing a way of delivering nicotine through inhalation but without the hazardous chemicals, we might decrease the health complications and deaths related to smoking,” admitted Rose, who headed the initial tests in the 1980s which allowed to paving the way for development and commercial usage of nicotine patches as smoking cessation therapy.

“We hope that we created a technology that will help to leave tobacco burning in the past.”

Rose added that Philip Morris International, based in New York and Switzerland, will now focus on developing commercial products applying this technology. The nicotine-delivery system developed by Rose is different from the medical nicotine inhalers selling currently as cessation treatments since it delivers nicotine faster imitating nicotine delivery given by cigarettes.

“The other systems of nicotine delivery are not able to the satisfaction smokers they need,” Rose noted.

The agreement is an essential “step in the efforts to develop nicotine-delivery products that can potentially decrease the risk of smoking-related health complications,” Peter Nixon, Philip Morris International’s spokesman declared.

Nixon added that it might take up to five years to create a commercial nicotine product which could be used as an alternative to cigarette smoking.

The company’s shares gained more than 1 percent, totaling $70.42 after the agreement was revealed.

PMI move is the latest in the recent series of decisions by major tobacco groups to enter the market of smokeless tobacco products and innovative nicotine-delivery products while tax hikes, anti-smoking policies and social stigma contribute to falling demand for cigarettes.

In April, PMI’s main rival, British American Tobacco established a division named Nicoventures which will concentrate on alternative nicotine products. In 2009, Reynolds American, second-biggest tobacco group in the U.S. acquired purchased Sweden-based company Niconovum that manufactures nicotine pouches, gums and sprays helping smokers to quit.

“It’s a fact that people smoke to get nicotine fix and die from tobacco smoke,” states David Sweanor, a Canadian law professor who works with tobacco industry. The major question is, “Could you offer them nicotine without the tobacco smoke in a way that could be consumer acceptable.”

The U.S. Food and Drug Administration is working to make up recommendations for companies interested in creating what the organization names modified-risk nicotine products.

“Changing regulations are contributing to an environment where competition would move this market category considerably,” the scientist added.

Philip Morris International, the leading private tobacco company in the world, yielding only to China National Tobacco Corporation, controlled by the government, spun off from Altria Group, owner of Philip Morris USA, which markets Marlboro, Parliament and other brands.

Philip Morris set grow market share in Armenia tobacco market .

Last year Armenian government approved several regulations to control local tobacco market and major tobacco companies. Regional senior manager of Philip Morris International, the leading tobacco group in Armenia, Sargis Tsaghikyan stated that the tobacco giant is set to show another great performance capturing more market share in 2011.

Mr. Tsaghikyan said that Philip Morris Armenia offers solid and balanced brand portfolio in the local market, and is presented in all price categories, keeping in touch with all adult costumers’ needs. This makes the company believe that its business performance will be successful and the market share will continue to grow.

According to PMI Armenia is an emerging and very competitive market. And the Marlboro-maker has a 19.5 percent share of that market, the biggest among its major rivals.

In 2010 Philip Morris International offered the following brands to the Armenian smokers: Marlboro, L&M, Parliament, Chesterfield, Virginia Slims, Bond Street, Muratti Ambassador, Red&White and Assos Slims. L&M is the best-selling brand among PMI brands.

Last October, Armenian president signed into law amended Excise Tax Law and Tobacco Products Tax Law under which the tax rate difference among imported and locally manufactured tobacco products will be gradually reduced starting from Jan 1st 2011, therefore introducing equal approach to local and imported cigarettes. Philip Morris International welcomed these tax code amendments, as they are implemented in established time and prompt Armenian Tobacco Products Taxation equaling with World Trade Organization requirements.

Armenia adopted a universal and thorough legislative base to regulate tobacco industry and according to Philip Morris Armenia senior manager, the company is willing to cooperate with the government and public health authorities to establish norms and regulations for the domestic tobacco industry. The company believes it is vital that regulatory base is comprehensive, justified by evidence and covering all tobacco companies and products and that enforcement is adequate and even. These regulations could allow the authorities reach the public health objectives.

Philip Morris International is the largest international tobacco group in the world, selling its products in more than 160 markets. In 2009 the company had an approximately 15.4 percent share of global cigarette market excluding the United States, or 26 percent, excluding China and the USA.

On its official website, PMI states that smoking can cause addiction and severe health complications and recognizes that there is no safe form of tobacco consumption. The company supports strict and effective measure to regulate tobacco, and agrees that cessation should be the major aim of public health policies. At the same time Philip Morris International doesn’t target non-smokers and minors, and their marketing strategies are intended to adult smokers and set to encourage them top prefer PMI’s brands in favor of competitors’ products.