Earnings Preview: Philip Morris Int'l

Source from:  AP 07/20/2011

RICHMOND, Va. (AP) - Cigarette maker Philip Morris International Inc., which sells Marlboro and other U.S. brands abroad, is expected to show higher profit when it reports its second-quarter results before the market opens Thursday. Philip Morris International has compensated for consumers buying fewer, or cheaper, cigarettes - and for the weak economy - by cutting costs and raising prices. WHAT TO WATCH FOR: Whether fewer cigarettes sold in the wake of tax hikes and growing tobacco control efforts. Smokers face new tax hikes, bans, health concerns and social stigma worldwide, but the impacts are starker in the U.S. than in many other countries. Philip Morris International's cigarette shipments grew 1.6 percent to 207.9 billion cigarettes last quarter, and its market share increased or remained stable in many key areas. Especially important were large gains in cigarettes sold Asia, including Indonesia, Korea and Thailand, and the favorable impact of acquiring Fortune Tobacco Co. in the Philippines. Shipments fell 7.3 percent in the European Union, 5.5 percent in Latin America and Canada, and nearly 1 percent in Eastern Europe, the Middle East and Africa. Total Marlboro shipments fell 2.9 percent to 68.6 billion cigarettes in the quarter, mainly because of declines in the European Union. Also being watched is the impact from March's earthquake and tsunami in Japan. The tragedy offered Philip Morris International a sales opportunity because supply disruptions led Japan Tobacco Inc., the world's No. 3 tobacco maker, to stop shipping cigarettes within Japan. Philip Morris International was able to minimize supply disruptions because all of its cigarettes for sale in Japan are produced outside the country and shipments at ports were being unloaded normally. That allowed it to sell brands like Marlboro to customers in Japan who normally bought other brands. Analysts also expect the company's earnings to be affected by foreign exchange rates compared with the U.S. dollar. When the dollar is rising, companies that sell goods internationally and must convert revenue from foreign currencies usually take a hit in the dollar value of that revenue, and vice versa. That effect is particularly strong for Philip Morris International, because it does all its business overseas. WHY IT MATTERS: Philip Morris International, with offices in New York and in Lausanne, Switzerland, is the world's second-biggest cigarette company after state-controlled China National Tobacco Corp. Altria Group Inc. in Richmond, Va., owner of Philip Morris USA, spun off Philip Morris International in 2008. Altria is the largest U.S. cigarette seller. WHAT'S EXPECTED: Analysts on average expect Philip Morris International to report adjusted earnings of $1.21 per share on revenue of $7.82 billion, according to FactSet. Analysts typically exclude one-time items. LAST YEAR'S QUARTER: Philip Morris International reported net income of $1.07 per share on revenue of $7.06 billion, excluding excise taxes. Enditem