Smokeless Tobacco: UST

The World UST Update

UPDATE 3-UST Q4 profit up, but smokeless market share hit

Jan 24, 2008
UST Inc (UST.N: Quote, Profile, Research) said on Thursday quarterly profit rose 1.4 percent, helped by strong sales of its wine and an extra shipping day for its smokeless tobacco products.

But the company’s stock fell more than 4 percent as it saw a decline in market share for its core smokeless tobacco business and analysts also noted the promotional costs the company is paying as it tries to keep its customers.

UST, which makes Skoal and Copenhagen tobaccos, is facing increasing competition from Reynolds American Inc (RAI.N: Quote, Profile, Research) and Altria Group Inc’s (MO.N: Quote, Profile, Research) Philip Morris USA unit. Reynolds bought the Conwood smokeless tobacco business in 2006 and Philip Morris has been test-marketing a smokeless tobacco under the Marlboro brand.

UST’s business is also more prevalent in the higher-priced end of the smokeless tobacco scale, which can make it vulnerable to consumers trading down when the economy worsens.

The company said net income for the fourth quarter rose to $139.2 million, or 89 cents a share, from $137.2 million, or 85 cents a share, a year earlier.

Excluding restructuring and antitrust litigation settlement charges, UST said it earned 95 cents per share, topping analysts’ average estimate by a penny, according to Reuters Estimates.

UST, which also owns Chateau Ste. Michelle wine, cited volume growth in its smokeless tobacco segment, which benefited from an extra billing day versus the year-ago period; strong results in its wine segment; cost savings; and a reduction in the number of shares outstanding as a result of share buybacks.

Quarterly net sales rose 9.7 percent to $532.9 million, driven by a 30.5 percent increase in its wine segment and a 4.2 percent increase in tobacco.

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