• Job Cuts At Altria To Affect Richmond
  • A decline in U.S. cigarette consumption will lead to job cuts in the Richmond area's cigarettes industry.

    Altria Group Inc., the parent company of top U.S. cigarette maker Philip Morris USA, said Thursday that it will cut 15 percent of salaried employees supporting its cigarette business, with most job reductions coming by late February.

    The Henrico County-based company, one of the Richmond area's largest private employers, said the cuts are part of a plan to reduce annualized costs by $400 million by 2013.

    The company is making the cuts, even though third-quarter profits rose nearly 4 percent, because it anticipates a long-term decline in cigarette consumption.

    "As we've said all along, one of the things that you're going to have to do in this business is, as volume declines … you have to take out cigarette-related infrastructure costs, in order to manage the business properly," Michael E. Szymanczyk, Altria's chairman and chief executive officer, said in a conference call with industry analysts Thursday.

    The cuts will affect salaried workers in the cigarette operations and in the company's subsidiaries that support that business. Altria did not disclose precisely how many employees would lose their jobs, nor did it disclose how many salaried employees work in the cigarette operations.

    Altria has about 10,000 employees across the U.S., including about 4,600 in Virginia with most in the Richmond area. It has several other subsidiaries besides Philip Morris USA, including smokeless tobacco, cigar and wine companies.

    While the cuts will affect employees across the nation, a spokesman for the company said many job reductions will be in the Richmond area.

    The cuts announced Thursday do not affect hourly, production employees, the company said. Philip Morris USA's only cigarette factory is in Richmond.

    "The cost structure on that side has actually kept pretty much in line with cigarette volume decline," Szymanczyk said in the conference call.

    Altria said it would take an estimated charge of $375 million, mostly in the fourth quarter, for the cost-cutting program. About $300 million of that is for employee separation costs.

    The affected employees will be notified by mid-December, and most of the jobs will be eliminated by late February.

    The company is planning to offer enhanced severance benefits, including continuation of salary and benefits for a minimum of 25 weeks and up to 18 months, depending on an employee's length of service, said Bill Phelps, an Altria spokesman.

    In addition, pension enhancements will be available for employees ages 50 to 54 who have at least five years of service with the company as of Dec. 31 but who would otherwise not qualify for retirement benefits.

    The announcement comes as U.S. cigarette consumption continues to decline amid the slow economic recovery and tougher public smoking cigarettes laws. The erosion has been happening for years, but Altria said a 62-cents-a-pack increase in the federal cigarette excise tax in 2009 led to a "substantial" decline in cigarette shipments.

    That decline has prompted the entire industry to cut back on cigarette-related infrastructure and employment while diversifying into other products such as smokeless tobacco. Altria recently completed a four-year cost-reduction program that exceeded its $1.5 billion goal. In 2009, Philip Morris USA closed its cigarette plant in Cabarrus County, N.C., and consolidated production at its Richmond plant.

    The company said its domestic cigarette shipment volume declined 9 percent in the third quarter, primarily because of trade inventory dynamics and retail share losses. Its leading brand, Marlboro, lost 0.9 points of market share to end up with 41.7 percent of the U.S. market.

    The volume decline was more than analysts had expected, said Jack Russo, a senior analyst with Edward Jones in St. Louis, who noted that the No. 2 U.S. cigarette maker, Reynolds-American Inc., also reported cigarette volume declines in the third quarter.

    "When you are in an industry like that, you have got to find a way to cut costs," Russo said.

    Still, investors continue to favor Altria, in part because of its high dividend yield, Russo said.

    During the third quarter, the company completed a $1 billion share buyback program in which it repurchased 37.6 million shares. It plans to buy back another $1 billion worth of shares by the end of 2012.

    Altria's profit rose in the third quarter, though its cigarette revenue excluding excise taxes fell 6 percent to $3.64 billion despite higher prices.

    The company reported profit of $1.17 billion, or 57 cents per share, for the three-month period that ended Sept. 30, up from $1.13 billion, or 54 cents a share, in the same period last year. Revenue excluding excise taxes fell 3 percent to $4.33 billion.