Illustration for a new pack of cigarettes Maxim

R.J. Reynolds’ cigarette shipment volume

For the second quarter and the first half, higher pricing, lower promotional expense and additional productivity gains, including those from last year’s restructuring at R.J. Reynolds, more than offset the impact of lower cigarette volume, higher pension and legal expense, and MSA costs.
“R.J. Reynolds’ cigarette shipment volume fell 6.0 percent in the second quarter compared with an industry decline of 4.1 percent. That performance was significantly better than the first quarter, largely due to strong Pall Mall volume, as well as trade inventories returning to more normal levels after the federal tax increase,” said Daniel M. Delen, the company’s chairman, president and chief executive.
The company’s first-half cigarette volume decline of 8.1 percent was slightly higher than the industry decline of 7.1 percent.
R.J. Reynolds’ growth brands, Camel and Pall Mall, delivered a strong second-quarter cigarette market share gain of 2.6 percentage points, bringing their combined share to 12.7 percent. That drove the company’s total cigarette market share to 28.7 percent, up 0.4 percentage points.
Camel, the company’s flagship brand, continued to perform well, with a second-quarter total-tobacco market share of 7.8 percent, up 0.3 percentage points over the prior-year quarter.
Camel Crush, which uses R.J. Reynolds’ innovative capsule technology to offer smokers the choice of regular or menthol with each cigarette, posted market share of 0.6 percent in the second quarter even though it has received relatively low promotional support since its national introduction in the third quarter of 2008.
Camel Snus was expanded nationally in the first quarter and continues to gain awareness and trial. The company is also moving forward with its innovative line of dissolvable tobacco products. Camel Orbs went into three lead markets in the first quarter and will be joined by Camel Sticks and Camel Strips this summer.
Pall Mall, R.J. Reynolds’ other growth brand, performed extremely well in the second quarter, with continued high levels of trial and conversion. Its second-quarter market share rose 2.6 percentage points from the prior-year period, to 5.2 percent.
“Pall Mall is a high-quality, longer-lasting cigarette at an attractive price, so it’s particularly appealing in today’s economic environment,” Delen said. “The brand’s most recent promotional period, which coincided with the federal excise tax increase, was widely welcomed by adult smokers as they reevaluated brand choices in light of higher prices. The promotion ended in late May and many of the adult smokers who tried the brand are sticking with Pall Mall.”

Altria Group 1Q profit drops but beats forecast

Cigarette sales dropped 8 percent and profit slipped at the nation's largest tobacco maker, Altria Group Inc., as retailers and wholesalers cut their orders ahead of a one-time federal tax on their inventory, but the company's overall revenue rose in the first quarter.

Tobacco sellers had to pay a "floor" tax of 62 cents per pack on whatever they had on hand before a 62-cent-per-pack retail sales tax went into effect April 1.

The company reported Wednesday that, including interest expenses, charges related to acquiring smokeless tobacco maker UST Inc. and the effects of spinning off Altria's international tobacco business as Philip Morris International, its first-quarter profit slid 76 percent, to $589 million, or 28 cents per share, for the quarter that ended March 31. A year earlier, it earned $2.45 billion, or $1.16 per share.

Excluding those one-time expenses, Altria's earnings rose 5.4 percent to 39 cents per share, meeting the average estimate of Wall Street analysts surveyed by Thomson Reuters.

Revenue rose 2.6 percent from a year earlier to $4.52 billion. Analysts forecast revenue of $3.99 billion for the quarter.

Sales of cigars — which weren't covered by the floor tax, and rose in the quarter — helped offset the cigarette sales decline, as did higher prices across the product lineup of the Richmond-based maker of Marlboro, Parliament and Virginia Slims.

Executives hope cigar and smokeless tobacco sales also will help offset the decline in cigarette sales to consumers, who are continuing to cut back due to smoking bans, health concerns and higher prices.

Altria's shares rose 12 cents, less than 1 percent, to $16.85 in afternoon trading.

"It's fair to categorize our first-quarter performance as 'so far, so good,'" Chief Executive Michael E. Szymanczyk said in a conference call with investors.

Much of the revenue increase came from strong sales of Altria's Black & Mild cigars and from UST, the maker of Copenhagen and Skoal. Sales of cigars jumped 26 percent due to higher prices and higher volume.

Revenue in the company's financial services division also rose substantially.

And the 8 percent slip in cigarette sales to $3.9 billion was partially offset by higher prices and lower promotional allowance rates.

In a note to investors, Deutsche Bank North America analyst Marc Greenberg said Altria "has overcome what is likely to be its biggest hurdle" for the year in regard to the inventory rundown.

By volume, Philip Morris USA reported declines among all cigarette brands, including Marlboro, Parliament, Virginia Slims and Basic. Its Marlboro brand, the best-selling cigarette in the U.S., gained 0.5 points of market share to end up with 42.4 percent of the U.S. market, according to data from Information Resources Inc.

"We continue to believe (Philip Morris) USA will produce profit growth for the year; however, the reaction to the pricing will be key in determining the reality of this goal," Stifel Nicolaus & Co. analyst Christopher Growe said in a note to investors.

He called Marlboro's performance "impressive."

Altria said the net price for a pack of Marlboros in the quarter was $4.50 compared with the lowest-priced pack of cigarettes, which was $3.14. But the company said the gap narrowed toward the end of the quarter as retail prices continued to adjust in advance of the federal tax increase.

Like other U.S. tobacco companies, Altria is focusing on cigarette alternatives — such as cigars, snuff and chewing tobacco — for future sales growth because domestic cigarette consumption is falling 3 percent to 4 percent a year.

The company said it believes volume in the smokeless tobacco industry as a whole grew 6 percent to 7 percent in the quarter compared with the same period a year earlier, and machine-made large-cigar volume grew 4 percent compared with a year earlier.

Altria also offered full-year profit guidance of between $1.70 and $1.75 per share for continuing operations excluding one-time charges. That's up from $1.65 per share on that basis in 2008. Analysts, whose estimates typically exclude special items and discontinued operations, predict profit of $1.73 per share.

Big boost in tobacco tax

The fast-growing group of big names endorsing a big increase in the state tax on online cigarettes sale tobacco products can add the founder of the Huntsman Cancer Institute.
Jon Huntsman Sr., the philanthropist and businessman who has donated more than $350 million of his wealth to underwrite research, treatment and prevention of cancers, said Friday the tax is another tool in the fight against what he called "this horrifying disease."
Speaking in the top-floor auditorium of the newest addition to the cancer research center that bears his name and employs 1,600 researchers and staff, Huntsman said institute research has helped make some remarkable advances in the nature and course of cancers.
With each revelation comes more evidence that tobacco use, particularly smoking, is a leading environmental cause of several cancers.
"It's not just lung cancer," Huntsman said, noting that his own father's death was no doubt hastened by smoking. "There are multiple hazards serious enough that you have at best a 50-50 chance of not only getting sick but dying from smoking-related complications."
Huntsman, who has had pancreatic cancer, said life in general is pretty risky and no one gets through it without some kind serious health problem.

Tobacco Information – Summary

Commercially available in cured, dried and natural forms, it is often smoked in the form of a cigarettes , cigar or in a stem pipe, water pipe, and hookah.

Tobaccois an product processed from the leaves of plants in the genus Nicotiana. Tobacco had already been used in the Americas when European settlers arrived and introduced the practice to Europe, where it became hugely popular. With the arrival of Europeans, tobacco became one of the primary products fueling the colonization of the future American South, long before the creation of the United States. The initial colonial expansion, fueled by the desire to increase tobacco production, was one cause of the first colonial conflicts with Native Americans and became a driving factor for the use of African slave labor.

Many countries set a minimum smoking age, regulating the purchase and use of cigarettes . All methods of tobacco consumption result in varying quantities of nicotine being absorbed into the user's bloodstream. Over time, tolerance and dependence develop. Absorption quantity, frequency, and speed seem to have a direct relationship with how strong a dependence and tolerance, if any, might be created.

The tobacco industry comprises those persons and companies engaged in the growth, preparation for sale, shipment, advertisement, and distribution of cigarettes -related products. It is a global industry; tobacco can grow in any warm, moist environment, which means it is farmed on all continents. Tobacco is a commodity product similar in economic terms to foodstuffs in that the price is set by the fact that crop yields vary depending on local weather conditions. The price varies by specific species grown, the total quantity on the market ready for sale, the area where it was grown, the health of the plants, and other characteristics individual to product quality. Laws around the world now often have some restrictions on smoking but, still 5.5 trillion cigarettes are smoked each year. Taxes are often imposed heavily on tobacco.

The tobacco industry is heavily dominated by giant firms. Due to historical growing areas, many of these companies are concentrated in the southern United States, particularly Raleigh-Durham, North Carolina; Winston-Salem, North Carolina; and Richmond, Virginia. Other companies are based around the world. Tobacco advertising is becoming increasingly restricted around the world.

New York smokers buying cigarettes in Pennsylvania

PENNSYLVANIA -- New York smokers are buying lots of cigarettes in Pennsylvania.
"I actually make trips down here once a week or so," said Savona resident Tim Soporowski.
"I always buy my cigarettes in Pennsylvania. Simply because it is a little cheaper," said Big Flats resident Dave Kenyon.
Now it's a lot cheaper, since a new tax raised the price of a pack in New York by $1.25 to some $5, $6 and even $7 a pack.
"It's crazy," Soporowski said.
"We don't like it," said Phyllis Gurnsey, a Campbell resident.
"Taxes on gas and cigarettes are already to the point where they're really affecting the economy. It's too much," Kenyon said.
Cigarettes typically are cheaper in Pennsylvania than in New York. But the new additional tax has more people leaving stores in New York and going into ones in Pennsylvania.
"I am buying mine strictly in Pennsylvania because New York's prices are outrageous," Elkland resident Holly Allen said.
New York State health officials expect the tax will get some smokers to quit. People on the border have other plans.
"Everything is going to kill you someday or another. The air can kill you. People do what they want to do," Soporowski said.
One smoker says the tax actually may deter him from lighting up.
"No, it'll probably force me to quit," said Elmira resident Charles White.
White said the drive to Pennsylvania saps the savings.
It's not worth it with the gas and all. It'll be inefficient," White said.
Others disagree.
"We enjoy the ride down to Pennsylvania. It's nice down here," Gurnsey said.

And at least for now, it's cheaper, too.

One gas station owner in Pennsylvania says more customers have been coming in over the past couple of days. A New York gas station owner says business is down and he expects it'll stay that way.