Cigarette manufacturer and marketer Philip Morris International Inc. (PM) reported second quarter 2011 earnings per share, excluding special items, of $1.34, surpassing the Zacks Consensus Estimate of $1.21.
Furthermore, compared to the prior-year period, Philip Morris’ earnings per share were up 34.0%, attributable to price increases and strong volume growth in Asia.
Revenue, Volumes & Margins
During the quarter, Philip Morris’ net revenues grew 17.2% year over year to $8.3 billion, including favorable currency of $494 million. Excluding currency, net revenues increased by 10.2%, primarily driven by favorable pricing of $617 million, primarily in Asia, and favorable volume of $98 million.
Cigarette shipment volume in the quarter increased slightly by 0.1% year over year to 241.2 billion units, primarily due to increase in the shipment volume in Asia by 7.5% driven by double-digit growth in Indonesia, Japan and Korea. However, volume in EEMA (Eastern Europe, Middle East & Africa), European Union and Latin America and Canada decreased 3.3%, 3.1% and 4.8% respectively.
In the European Union, cigarette shipment volume dropped on a year over year basis, predominantly due to lower total markets (mainly in Spain), lower market share (mainly in Poland) and unfavorable distributor inventory movements, partly offset by total market growth in Germany. In Latin America & Canada, the shipment volume was impacted due to lower market share in Mexico and Brazil, partly offset by growth in Argentina.
In addition, the shipment volume in EEMA declined due to a lower total market in Russia and a lower total market and share in Ukraine; the suspension of the business activities following the imposition of sanctions in Libya; and an unfavorable comparison with the second quarter of 2010 in Ukraine, impacted by trade inventory movements; partly offset by growth in Algeria and Turkey.
During the quarter, shipments of Marlboro rose 0.2% as a result of growth in the EEMA market. Shipments of L&M were also up 3.1% in the second quarter of 2011, driven by the growth in EU. Parliament and Lark brands recorded increased volumes by 4.9% and 10.2%, respectively, while Chesterfield and Bond Street witnessed declines of 4.9% and 2.3%, respectively, in the quarter.
Philip Morris’ quarterly gross profit expanded 20.4% year over year to $5.4 billion, while operating income increased 19.5% to $6.7 billion in the second quarter of 2011.
Financial Analysis
As of June 30, 2011, Philip Morris had cash and cash equivalents of $2.2 billion and long-term debt (including current portion) of $16.3 billion.
Share Buyback
During the reported quarter, the company repurchased 22.7 million shares for $1.5 billion.
Guidance
Concurrent with the earnings release, the company raised its outlook for fiscal 2011. Phillip Morris now expects earnings between $4.70 and $4.80 for fiscal 2011. The guidance is up by approximately 20% to 22.5% versus $3.92 in 2010.
Phillip Morris stated that approximately 10 cents of the increased guidance are attributable to an improved business outlook, driven largely by Japan, and approximately 5 cents reflect favorable currency at prevailing rates.
Excluding a total favorable currency impact of approximately 25 cents a share for the full-year 2011, reported earnings per share are projected to increase by approximately 13.5% to 16.0%.
The company’s major competitors Altria Group Inc. (MO) reported in-line results on July 20. Another competitor Reynolds American Inc. (RAI) will report its second quarter earnings on July 22. Phillip Morris currently has a Zacks #3 Rank which implies short term ‘Hold’ rating on the stock. On a long term basis we remain ‘Neutral’ on the stock.
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