Earnings Preview: Altria Group Inc.

RICHMOND, Va. — Altria Group Inc. reports its second-quarter results on Wednesday. The following is a summary of key developments and analyst opinion related to the period.

OVERVIEW: The Richmond-based seller of Marlboro cigarettes and Black & Mild cigars, has said it has realized $50 million in savings from its January acquisition of smokeless tobacco maker UST Inc., which makes Copenhagen and Skoal.

Owner of the biggest U.S. cigarette maker, Philip Morris USA, Altria has said it expects savings of about $300 million by 2011. The company also consolidated its sales force.

The company reported that its first-quarter profit slid 76 percent, to $589 million. During the quarter that ended March 31, cigarette volumes dropped industrywide as retailers and wholesalers cut their orders ahead of a one-time federal tax on their inventory. As a 62-cent-per-pack retail sales tax went into effect April 1, tobacco sellers had to pay a “floor” tax of 62 cents per pack on whatever they had on hand that day. Tobacco makers have until July 31 to make those payments on product that was ready for distribution.

During the second quarter a year ago, Altria said it earned $930 million on revenue of $5.05 billion.

BY THE NUMBERS: Analysts surveyed by Thomson Financial on average expect Altria to post a profit of 47 cents per share for the second quarter on revenue of $5.3 billion. Analyst estimates generally exclude one-time charges and benefits.

The company predicted in April that it would earn between $1.70 and $1.75 per share for the year from continuing operations, excluding one-time charges, but it didn’t issue a second-quarter forecast.

ANALYST TAKE: Analysts expect to see a short-term impact on earnings for the first half of the year from the federal tax increase.

Goldman Sachs analyst Judy Hong told investors in a research note on July 5 that cigarette volume declines have eased since April 1, suggesting retailers have gone back to ordering cigarettes and consumers have adjusted to the higher prices that include the new tax. Yet smokeless tobacco trends appear to have softened, Hong wrote.

Stifel Nicolaus & Co. analyst Christopher Growe wrote in a note to investors on June 30 that U.S. tobacco profits are improving in the short term but could be challenged by additional state excise tax increases, Food and Drug Administration regulation and smoking bans.

WHAT’S AHEAD: The entire industry continues to see the impact of the FDA’s new authority to regulate tobacco. It is believed the regulation will hurt Philip Morris USA least because the tighter regulations on marketing and new product introductions could cement its position as market leader.

Wall Street will be looking at how further smoking bans, tax increases and regulation could affect cigarette volumes and profitability.

STOCK PERFORMANCE: During the quarter ended June 30, shares of Altria rose less than one percent to end the period at $16.39. Over the last 52 weeks, the stock has traded between $14.34 and $21.86.