MO Altria Group Inc

By Anne Steele and Jennifer Maloney 

Altria Group Inc.'s stake in beer behemoth Anheuser-Busch InBev NV proved a boon in the final quarter of the year as cigarette volumes continued to wane and market share in the company's lead segment remained flat.

Cigarette-shipment volume fell 4.8% amid an overall industry decline and one fewer shipping day. For the year, the company's cigarette shipments fell 2.5%, in step with the industry, Altria executives estimated.

On a conference call Wednesday, Chief Executive Marty Barrington said cigarette volumes declined faster in the second half of 2016 than earlier in the year. He expects that to continue this year, but the company plans to offset the declines with price increases, which have averaged 4% to 5% in recent years.

One development that may weigh on results this year is California voters' approval in November of a new cigarette tax, which will raise taxes by $2 to $2.87 a pack starting in April. Mr. Barrington called California a high-volume state and noted "there are already proposals in several states to raise excise taxes further."

Altria, the U.S.'s largest tobacco company, faces strong competition from No. 2 player Reynolds American Inc. In the latest quarter, Altria's cigarette market share remained flat from a year ago at 51.4%, as Marlboro remained flat while a 0.1% increase in discount brands retail share was offset by and a 0.1% decrease in other premium cigarette sales. For cigars, Altria's market share slipped to 26.6% from 27.4%.

But during the quarter, Altria received a share of the newly enlarged Anheuser-Busch InBev following the Belgian brewer's just-completed roughly $100 billion takeover of rival SABMiller PLC.

The U.S. tobacco company received $5.3 billion in cash and a 9.6% share of AB InBev in exchange for its 27% stake in SABMiller. Altria said it would have two seats on AB InBev's board of directors, allowing it to continue using equity accounting practices to report its share of the brewer's profit as earnings.

Mr. Barrington declined to offer details on Altria's plans to introduce Philip Morris International's heat-not-burn device, iQOS, to the U.S. market. Philip Morris plans to submit an application this quarter to the Food and Drug Administration for approval to sell the device in the U.S.

Unlike e-cigarettes, which contain nicotine-laced liquid, heat-not-burn devices heat tobacco to a high temperature, vaporizing it. As of December, the device had been introduced in 20 overseas markets. Mr. Barrington said Altria was studying those markets in anticipation of a U.S. rollout.

"What we're going to try to do, of course, is to introduce adult smokers to the product, try to explain what it is and its attributes, and then give them an opportunity to see if it is for them," he said.

In all for the December period, Altria's earnings rose to $10.28 billion, or $5.27 a share, from $1.25 billion, or 64 cents a share, a year prior. Earnings were lifted largely by the AB InBev/SABMiller transaction gain. Excluding items, per-share earnings rose to 68 cents. Analysts polled by Thomson Reuters had forecast earnings of 67 cents.

Net revenue after excise taxes grew 0.1% to $4.7 billion, just short of analyst estimates for $4.8 billion.

Altria forecast 2017 adjusted earnings in a range of $3.26 to $3.32 a share. That is just below the $3.33 a share analysts have predicted.

Write to Anne Steele at Anne.Steele@wsj.com and Jennifer Maloney at jennifer.maloney@wsj.com

(END) Dow Jones Newswires

February 01, 2017 11:54 ET (16:54 GMT)

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