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Marlboro maker Altria to jump into e-cigarettes

Updated: April 25, 2013 11:02AM



RICHMOND, Va. — The Marlboro Man may soon be hitching his wagon to a new kind of cigarette.

Altria Group Inc., owner of the nation’s biggest cigarette maker, Philip Morris USA, announced Thursday that its NuMark subsidiary plans to introduce an electronic cigarette during the second half of the year, making it the last of the major domestic tobacco companies to enter the growing category.

While it’s a small market compared with traditional tobacco products, “there’s no denying that adult tobacco consumers have shown some interest in it,” Altria CEO Marty Barrington said in a conference call with investors. Details on the product, the market it will enter and whether it will be under the top-selling Marlboro brand name were not revealed.

The move is the latest in an industrywide push to diversify beyond the traditional cigarette business, which has become tougher in the face of tax hikes, smoking bans, health concerns and social stigma.

Reynolds American Inc., owner of the second-biggest U.S. cigarette maker, has begun limited distribution of its first electronic cigarette under the Vuse brand and Lorillard Inc., the nation’s third-biggest tobacco company, acquired e-cigarette maker Blu Ecigs in April 2012.

Electronic cigarettes are battery-powered devices that heat a liquid nicotine solution in a disposable cartridge, creating vapor that users inhale. Some e-cigarettes are made to look like a real cigarette with a tiny light on the tip that glows like the real thing.

Devotees tout them as a way to break addiction to real cigarettes. They insist the devices address both the nicotine addiction and the behavioral aspects of smoking without the more than 4,000 chemicals found in cigarettes.

The Food and Drug Administration plans to assert regulatory authority over e-cigarettes in the near future. Public health officials say the safety of e-cigarettes and their effectiveness in helping people quit regular smokes haven’t been fully studied.

The market for e-cigarettes has grown from the thousands of users in 2006 to several million worldwide. Analysts estimate sales could double this year to $1 billion. Some go as far as saying consumption of e-cigs could surpass consumption of traditional cigarettes in the next decade.

Lorillard CEO Murray Kessler on Wednesday estimated that e-cigarettes drove total industry cigarette volumes down about 600 million cigarettes, or about 1 percent, during the first quarter, excluding Internet sales — a major avenue for e-cig purchases.

Altria said Thursday its cigarette volumes fell about 5 percent to 29.7 billion cigarettes compared with a year ago. Volumes for discount cigarette brands like L&M increased nearly 6 percent, Marlboro volumes fell more than 5 percent and volume for its other premium brands fell by more than 12 percent.

The Richmond, Va., company’s share of the U.S. retail market rose 0.5 percentage points to 50.5 percent. The premium Marlboro brand gained 0.2 percentage points to end up with 43.6 percent of the U.S. market.

Marlboro has been under pressure from competitors and lower-priced cigarette brands as consumers face economic pressure and high unemployment. The company has introduced several new products with the Marlboro brand, often with lower promotional pricing.

Altria’s first-quarter profit rose about 16 percent as it commanded higher prices for its cigarettes and smokeless tobacco and it benefited from adjustments to a longstanding legal settlement.

It earned $1.38 billion, or 69 cents per share, for the period ended March 31, up from $1.19 billion, or 59 cents a share, a year ago. Its adjusted earnings of 54 cents per share beat Wall Street expectations by a penny as it excluded a benefit from credits for disputed payments under the 1998 multistate tobacco settlement.

Revenue, excluding excise taxes, decreased slightly to $3.97 billion. Analysts polled by FactSet expected $4.03 billion.

Altria and others are focusing on cigarette alternatives — such as cigars, snuff and chewing tobacco — for future sales growth because the decline in cigarette smoking is expected to continue.

Volumes of its smokeless tobacco brands such as Copenhagen and Skoal rose about 3 percent during the quarter and the brands had 55 percent of the market, which is tiny compared with cigarettes.

Altria said inventory changes and retail share losses drove volumes for its Black & Mild cigars down nearly 17 percent during the quarter.

The company also owns a wine business, holds a voting stake in brewer SABMiller, and has a financial services division.

During the latest quarter, Altria said it repurchased 1.7 million shares for a total cost of about $57 million, completing its $1.5 billion share buyback program. It said Thursday its board has authorized a new $300 million share repurchase program, which it expects to complete by the end of 2013.



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