Earnings Preview: Philip Morris Int'l to report 1Q

Cigarettes sold, market share and prices eyed as Philip Morris Int'l posts 1Q results Thursday

Associated Press

RICHMOND, Va. (AP) -- Cigarette maker Philip Morris International Inc., which sells Marlboro and other brands abroad, is expected to report higher profit and revenue when it releases its first-quarter results before the market opens on Thursday.

WHAT TO WATCH FOR: Whether cutting costs and raising prices continued to help Philip Morris International compensate for consumers buying fewer, or cheaper, cigarettes.

Smokers face new tax increases, bans and other tobacco control efforts, as well as health concerns and social stigma worldwide, but the impacts are starker in the U.S. than in many other countries.

Cigarette shipments rose about 3 percent to 233.1 billion in the fourth quarter that ended in December, and it market share rose in a number of key markets.

Shipments grew 7 percent in the company's region that encompasses Eastern Europe, the Middle East and Africa, but fell about 6 percent in the European Union as the region continues to be under pressure due to high unemployment and the continent's government debt crisis. Shipments also fell about 1 percent in Latin America and Canada.

In Asia, one of its largest growth areas, shipments grew nearly 6 percent. The company benefited from increases in Japan following the March 2011 earthquake and tsunami.

The events offered the company 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 also bought the Philippines company Fortune Tobacco Co. in February 2010, bolstering its Asian business.

The quarterly performance helped increase its global market share, excluding China and the U.S., to a record 28.8 percent for the year.

For 2013, the company has said it expects full-year earnings to grow 10 to 12 percent compared with the previous year. Some analysts say that may be conservative as its strong pricing power is expected to offset cigarette volume declines in some markets. The company also began a $300 million cost-savings plan for 2013 and has a $6 billion share buyback target for the year.

Still the weak economy in Europe and swings in currency markets remain challenges.

When the U.S. dollar is rising against the world's other currencies, companies that sell goods internationally take a hit when converting revenue in foreign currencies back into the dollar. That effect is particularly strong for Philip Morris International, because it does all its business overseas.

Analysts also will be interested in any updates on the company's next-generation products. Philip Morris International has said it expects to launch the first of these products between 2016 and 2017, which could include an aerosol nicotine-delivery system or one that heats tobacco in a cigarette with a controlled heating mechanism.

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.

Richmond, Va.,-based Altria Group Inc., the 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 earnings of $1.34 per share on revenue of $7.5 billion, according to FactSet. Analysts typically exclude one-time items.

LAST YEAR'S QUARTER: Philip Morris International reported net income of $1.25 per share on revenue of $7.45 billion, excluding excise taxes.

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Michael Felberbaum can be reached at http://www.twitter.com/MLFelberbaum.

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