 Plus: SCHIP goes nowhere as Congress takes its Thanksgiving recess
Los Angeles, November 19 – “Confirmation of recovery in the US” was one of the captions to the performance of the Cigar Division of Altadis, S.A., which reported its third quarter performance to the financial community on Friday.
The performance of Altadis U.S.A., normally a dependable cash cow for the company, was down significantly in the first quarter of the year, but has turned around and regained momentum going into the fourth quarter. Company-wide cigar sales (converted into Euro) were down more than 14 percent during the first quarter of 2007 as against the first quarter of 2006 figures and Altadis sales were down again as against 2006 in the second quarter, but by only 5.5 percent.
But the situation turned around in the third quarter, as Altadis posted sales of 215.7 million Euro (about $316.2 U.S.), up one percent over 2006. But the unfavorable exchange rate against the shrinking dollar masks the three-quarters report showing that Altadis U.S.A.’s sales for the year in dollars so far were actually ahead of 2006 by a small margin of 0.3 percent. More highlights:
• Altadis sold, worldwide, about 2.35 billion cigars in the first nine months of the year and actually surpassed the 2006 financial performance at constant dollar rates. The profit margins fell a little, from 32.1 percent to 31.6 percent, still quite healthy.
• In the U.S., Altadis U.S.A.’s premium division – which includes machine-made cigars with natural leaf wrappers such as Dutch Masters – increased its sales volume for the first nine months of the year from 634 million cigars in 2006 to 677 million this year. Performance in the machine-made and little cigar segment wasn’t as good, dropping from 1.076 billion last year to 931 million this year, a drop of 13.4 percent.
In dollar terms, sales of premium cigars were up 7.8 percent for the first nine months, from $295 million to $318 million. But machine-made and little cigar sales for the nine months fell 13.3 percent from $164 million to $142 million.
The report noted that the first-quarter decline in the U.S. showed that “consumers moving toward smaller-sized products in both natural and sheet wrapper.” The reaction was quick and Altadis U.S.A. “managed to successfully change the trend and returned to organic growth driven by the Natural & Premium segment. New Altadis products were launched, enlarging the range of some of our key brands (Dutch Masters, Backwoods and Phillies) focusing on the cigarillo category, new flavours (as far instance, grape, brandy, coffee and vanilla) and product presentation innovation (product in tubes).”
• J-R Cigars, a majority-owned subsidiary, had sales of 38 million Euro (about $55.7 million U.S.) for the first nine months of the year. Altadis has an option to buy the remaining shares of the nation’s leading cigar retailer at the end of 2008.
• Havana cigar sales continued to grow steadily, with sales in dollars climbing by 3.4 percent over 2006, but the net to Altadis actually dropped 4.3 percent because of the exchange rate. Sales were reportedly strong in Italy, Germany and Spain and rising in new markets such as Morocco and in Eastern Europe and Latin America. There was a slowdown in sales reported in the third quarter.
Overall, Altadis is a quite healthy company, as both its cigarette sales and logistics business have blossomed this year. In cigarettes – the key prize for Imperial – Altadis sold 89.6 billion cigarettes in the first nine months, up 4.5 percent from the same period in 2006. Those sales, of brands such as Gauloises, Fortuna, Gitanes, Balkan Star and others, yielded $1.92 billion U.S. (converted from Euro) in revenues and a profit of $702.5 million, up almost 22 percent from last year. That’s a lot of cigarettes!
A special shareholders meeting has been called for December 18 at which time the Imperial acquisition is expected to be approved.
SCHIP stalled as Congress goes to recess:
Chris McCalla, legislative director of the International Premium Cigar and Pipe Retailers Association (IPCPR) sent a note to the trade at the close of last week’s Congressional calendar:
“The House recessed Thursday night and the Senate will leave Friday until December 4, with no further progress on federal State Children's Health Insurance Program (SCHIP). Legislators continue to wrangle over how much of an expansion should be included in the program's renewal. The currently proposed legislation calls for increased federal tobacco excise taxes, including a new excise rate on cigars of 53.19% of the manufacturer's price, with no one cigar being taxed more than $3.
“The bill, H.R. 3963, has passed both the House and Senate, but not by margins that make the bill veto-proof. President Bush remains adamant on his veto stance.
“Congress leaves SCHIP hanging, and according to reports the ‘final offer’ tendered by House Republican negotiators was deemed a disaster by Democrats, who said it would fall well short of covering the required 10 million children.
“They'll try again in December, but Sen. Orrin Hatch (R-Utah) said the chances for reaching a deal before the end of the year are substantially less following the failure of the pre-Thanksgiving push.
“The more likely outcome is an extension of current law benefits, and perhaps through September 2008. “
No agreement between Republicans and Democrats is good news for the cigar trade and for smokers. McCalla noted further that the lobbying efforts of the trade have made an impact and that legislators recognize the damage that will be done to the cigar industry if the cigar tax package as proposed does, in fact, ever become law.
That’s something to be thankful for at the start of the week.
~ Rich Perelman
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