Altria to Cut Cigarette Workforce

Citing volume declines, company plans $400-million cost reduction

RICHMOND, Va. -- In a move attributed to cigarette volume declines following the 158% increase in federal excise taxes in April 2009, Altria Group Inc. announced yesterday that it will be cutting its cigarette-related salaried workforce.

During a third-quarter earnings call Thursday morning, Mike Szymanczyk, chairman and CEO, said the company plans a $400-million cost-reduction program in its cigarette infrastructure.

He declined to provide further details on the effect on employees or at what level layoffs would be made. He did say, “A substantial portion of the charges were resolved in cash expenditures related primarily to employee separation costs of approximately $300 million.” He added, “The charges also reflect other associated costs, including lease termination and asset impairment.”

The cuts will amount to the company’s cigarette-related salaried workforce being cut by about 15%, according to the Wall Street Journal.

“Employees whose jobs are eliminated would be informed by mid-December and would mostly leave the company by late February. The reduction, which doesn't include hourly employees, would affect employees across the U.S., mainly in the Richmond, Va., area,” according to the paper, which also said employees would receive benefits, including continuation of salary and benefits for a minimum of 25 weeks and up to 18 months, depending on length of service.

Meanwhile, despite total cigarette volume declines of 9%, Altria reported a 3.7% net revenue increase in its profits from a year earlier to $1.17 billion, due to expanding margins and smokeless revenue.

Other highlights from the call:

  • Marlboro volume fell 10%, while its market share lost 0.9 points to end up at 41.7% of the U.S. market. Szymanczyk said the share was negatively impacted by relative changes in manufacturers’ promotional activities. “Following PM USA’s July 2011 list-price increase, Marlboro’s retail price increased more than major competitive premium and discount brands as PM USA focused on growing its adjusted operating companies’ income margins.”
  • After adjusting for trade inventories, USSTC and PM USA's combined smokeless segment volume was estimated to be up approximately 5% for the third quarter.
  • Black & Mild's retail share declined half a share point to 29.2% for the third quarter, but was up four-tenths of a share point for the first nine months of this year and sequentially vs. the second quarter of 2011. The brand's retail share performance has benefited from brand-building initiatives and new-product introductions. In the fourth quarter, Middleton plans to nationally introduce an untipped version of Black & Mild Wine, which will be available in a new Aroma Wrap foil pouch.

Altria directly or indirectly owns 100% of each of Philip Morris USA, U.S. Smokeless Tobacco Co., John Middleton Co., Ste. Michelle Wine Estates and Philip Morris Capital Corp.

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