Oct. 22--No. 1 cigarette-maker Altria Group Inc. shook off the effect of a nearly 62-cents-a-pack federal tax increase in April to report higher third-quarter profits yesterday.

Continuing cuts in the cost of making its cigarettes, cigars and smokeless tobacco for the quarter helped the Henrico County-based company deal with its quarterly federal excise tax bill more than doubling.

"In a year which can only be characterized as challenging, Altria and its operating companies continued to deliver excellent results in the third quarter," said Michael E. Szymanczyk, Altria's chairman and chief executive officer.

Altria reported its third-quarter profit rose to $882 million from $867 million a year ago, or 43 cents a share from 42 cents.

Revenue rose by $1.06 billion to $6.3 billion -- but that figure included the higher federal taxes that took effect in April. Taking the tax out, revenue actually declined.

Tobacco firms scrambled in the months after the tax increase to figure out how much of it to pass on and how much to absorb, while wholesalers and retailers used up the large inventories they'd stockpiled before the increase.

"I think the dislocation related to the tax increase is behind us," Szymanczyk said in a conference call with analysts.

The result: The company's flagship Marlboro brand has reversed a months-long slide in its market share, adding 0.1 percentage point from last year's level to capture 41.9 percent of the U.S. market.

And while the number of cigarettes the company sold in the July-to-September quarter declined 16.4 percent to 37.5 billion cigarettes compared with the 2008 period, Szymanczyk said, roughly a third reflected the inventory run-down.

Basically, cigarette sales did what they also do when prices rise: They dropped modestly. Economists and industry experts estimate that every 10 percent rise in cigarette prices cuts consumption by about 4 percent.

Szymanczyk said Altria tries to increase Marlboro's share of the U.S. market without biting into its profits. In the third quarter, that translated to a $542 million rise in cigarette sales revenue being more than offset by a $1.02 billion increase in the excise taxes Altria had to pay. That means Altria absorbed some of the cost of the higher taxes.

Cost-cutting, though, eased the impact. Operating income for Altria's cigarette-making unit, Philip Morris USA, slipped only 2.6 percent to $1.33 billion.

Altria's smokeless tobacco sales, handled by new subsidiary U.S. Smokeless Tobacco Co., declined 4.5 percent from last year's level to 158 million cans or packs.

Revenue at the company's John Middleton cigar operation rose 56.1 percent, or by $55 million, to $153 million for the quarter. That was larger than the $40 million increase in excise taxes it paid. Operating income was up 32 percent to $49 million. Sales rose 3.9 percent to 341 million cigars.

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Contact David Ress at (804) 649-6051 or dress @timesdispatch.com.

Contact John Reid Blackwell at (804) 775-8123 or .

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