New products key for tobacco company, CEO says

The nation’s top cigarette maker is moving quickly to strengthen its business in tobacco products such as snuff and cigars as cigarette volumes erode, the top executive for Altria Group Inc. told shareholders yesterday.

“Since the shareholder meeting in May of last year, Altria has continued to transform itself as adult tobacco consumer preferences have evolved,” said Michael E. Szymanczyk, the company’s chairman and chief executive officer.

Altria, the parent company of cigarette maker Philip Morris USA, wants to “efficiently and moderately” grow its income and market share in cigarettes, focusing on its top brand, Marlboro, while also propelling its new business in smokeless tobacco, Szymanczyk said.

About 175 shareholders attended Altria’s annual meeting at the Greater Richmond Convention Center. Shareholders re-elected nine directors to the company’s board and rejected six stockholder proposals that the company’s leadership opposed, including one on executive pay and another on removing nicotine from tobacco products.

In January, Altria added smokeless tobacco to its portfolio by acquiring UST Inc., the top U.S. maker of moist snuff, for $10.4 billion.

The deal gives Altria “immediate scale” in the moist smokeless category, which has seen volume growth of about 7 percent per year, Szymanczyk said. In contrast, Philip Morris’ cigarette volumes declined about 3.2 percent in 2008, even as Marlboro gained market share and Philip Morris saw its revenue rise 1.5 percent to $18.8 billion.

The cost of smoking rose again in the spring, as cigarette companies bumped prices in advance of an April 1 increase in the federal excise tax on cigarettes from 39 cents to $1.01 per pack. In the smokeless category, however, Altria has reduced prices in an effort to build market share.

As cigarette volume declines, the company is consolidating its cigarette-related operations, and it is combining sales forces and administrative functions for its cigar, smokeless tobacco and cigarette businesses to save about $1.5 billion by 2011. “Because of these efforts, a number of employees have separated from our companies over the last year,” Szymanczyk said, without specifying the number. “I want to thank them for their service to Altria and their commitment to the company’s success.”

Szymanczyk said the company continues to support legislation in Congress to allow the U.S. Food and Drug Administration to regulate tobacco products, but he faced criticism from several anti-tobacco activists at the meeting. They proposed four resolutions for a shareholders vote, including one to have the company make any future products “non-addictive” by reducing nicotine content.

“This company refuses to make non-addictive products because then kids and adults would quit smoking,” said Anne Morrow Donley, a tobacco-control activist from Richmond who spoke in favor of the proposal during the meeting. She said the FDA legislation before Congress would not permit the agency to mandate the removal of nicotine from cigarettes online buy.

The proposal failed, with 96 percent of the votes cast opposing it. The five other stockholder proposals also failed, including one to give shareholders more say on executive pay by allowing them to vote at each annual meeting on an advisory resolution on the compensation of top executives. That one was narrowly defeated, with about 53 percent of votes cast opposed.

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