Better economy has smokers buying more Marlboros
New York — A better economy is helping sell more Marlboros and Camels, even as prices climb. That brought higher profits for their makers in the second quarter.
Marlboro maker Altria Inc. has now seen two straight quarters of upticks in cigarettes sold. That is unusual at a time when tobacco companies have routinely seen declines, as people smoke less because of tax increases, smoking bans, health concerns and increasing social stigma.
Camel cigarette maker Reynolds American said a day earlier that it also sold more cigarettes in the quarter. Altria said it estimate total industry sales of cigarettes held even with last year.
Altria said part of the 3.1 percent increase resulted from retailers’ inventory movements, which often come when they stock up ahead of a price increase. But the company said volume rose 1 percent in the quarter even adjusting for that factor.
An improving economy is helping cigarette sales, analyst Christopher Growe of Stifel Nicolaus said in a note to clients this week.
One component that’s likely playing a role is the job market. Employers have steadily added jobs since the beginning of 2014, creating an average of 242,556 jobs each month and the unemployment rate has fallen to 5.3 percent from 6.7 percent during that time.
In addition, while gasoline prices may have mostly inched upward in recent months, they are still well below last year’s, leaving more money in smokers’ pockets.
Altria Chairman and CEO Martin Barrington said during a conference call that the company knows that smokers started to feel better financially during the second half of 2014, when gasoline prices began to drop sharply.
It’s not clear yet if more people are smoking or if smokers are simply buying a few more cigarettes, but Altria and Reynolds’ increased sales are raising some concerns about the health impact.
Dr. Kurt Ribisl, a professor at the UNC Gillings School of Global Public Health, said that he wouldn’t be surprised if there’s a small increase in cigarette smoking because few states have raised excise taxes recently or passed comprehensive smoke-free air laws.
Vince Willmore, spokesman for the Campaign for Tobacco-Free Kids, said that the group will need to carefully monitor to see if it’s a quarterly blip or a longer-term trend.
“The quarterly increase in cigarette sales is a warning to elected officials at all levels that they need to do more to reduce smoking,” he said.
The Centers for Disease Control and Prevention’s most recent data indicates that 17.8 percent of adults in the U.S. were current cigarette smokers in 2013. The center said that 9.2 percent of high school students and 2.5 percent of middle school students were current cigarette smokers in 2014.
Matthew Farrelly, chief scientist at RTI International, said during a phone interview that he believes the rise in cigarette sales being reported by Altria and Reynolds American could be a small upward blip in an otherwise overall downward market trend.
“It takes a while to get more of a fuller picture of what’s happening nationwide,” he explained.
Altria reported that Marlboro shipment volume rose 3 percent in the second quarter, while discount cigarette shipment volume increased 8.9 percent.
Altria also raised the price of a pack of Marlboros. The net price per pack was $6.08 in the second quarter. That’s 13 cents higher than a year earlier.
For the period ended June 30, Altria Group Inc. earned $1.45 billion, or 74 cents per share. A year earlier it earned $1.26 billion, or 64 cents per share.
The results exceeded Wall Street expectations. The average estimate of six analysts surveyed by Zacks Investment Research was for earnings of 72 cents per share.
Revenue, excluding excise taxes, totaled $4.88 billion.
Altria, which also owns a wine business and has a voting stake in brewer SABMiller, boosted its full-year adjusted profit outlook to a range of $2.76 to $2.81 per share. Its prior guidance was for $2.75 to $2.80 per share.
The Richmond, Virginia-based company also said Wednesday that it plans to buy back $1 billion shares of its common stock by the end of next year.
Its stock shed 71 cents to $54.54 in morning trading. Its shares have risen almost 32 percent over the past year.
Elements of this story were generated by Automated Insights (http://automatedinsights.com/ap) using data from Zacks Investment Research. Access a Zacks stock report on MO at http://www.zacks.com/ap/MO