Altria to Move Cigarette Production For Foreign Markets to Europe
By MIKE BARRIS
June 26, 2007 9:31 a.m.
Altria Group Inc., hit by declining U.S. cigarette sales, is moving cigarette production for foreign markets to Europe from the U.S.
In a move to save $335 million a year, before taxes, by 2011, Altria's Philip Morris USA unit will close a cigarette factory in Cabarrus, N.C., by the end of 2010 and consolidate manufacturing for the U.S. market at its Richmond, Va., manufacturing center. The Cabarrus plant employs about 2,500 people.
Costs associated with the move will lower second-quarter earnings at Altria's Philip Morris USA unit by about $325 million, or 10 cents a share, Altria said. Additional charges in 2007 will come to about $50 million.
Philip Morris International is expected to shift the manufacture of about 57 billion cigarettes from Cabarrus to Europe by the third quarter of 2008. Philip Morris USA and Philip Morris International are "significant purchasers of U.S. leaf tobacco and will continue to purchase U.S. tobacco for future production," Altria said.
Philip Morris USA Chairman and Chief Executive Mike Szymanczyk said: "PM USA recognizes the profound impact the closing of the Cabarrus cigarette manufacturing facility has on employees and their families. As the company works to reduce manufacturing overcapacity, it will address the adverse impact on employees by relocating as many as possible to jobs in Richmond and offering separation benefits to those it cannot relocate."
Philip Morris USA said it expects to be able to offer positions in Richmond to most North Carolina-based hourly employees and many salaried employees.
Altria has shown strong growth abroad. For the first quarter, U.S. tobacco net revenue fell 1.8% from a year ago to $4.25 billion, while international tobacco net revenue jumped 12% to $13.27 billion. Operating income at Philip Morris International climbed 9.5% to $2.2 billion, amid higher prices and the weak dollar.
The latest move comes as Altria ponders the next phase of its restructuring, which could see it separate its U.S. tobacco operations from its international business. Altria has been mulling a two-stage breakup for several years.
The company spun off its Kraft Foods Inc.'s unit in March, becoming primarily a tobacco business. Since then investors have been hoping for some further restructuring, including the breakup of its domestic and international tobacco operations. Chief Financial Officer Chief Financial Officer Dinyar Devitre has said that Philip Morris International "is organizationally ready to stand independently." |
