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Philip Morris International Inc. (PM - Analyst Report) reported adjusted first quarter 2012 earnings per share, excluding special items, of $1.27, surpassing the year-ago earnings by 19.8% excluding currency and the Zacks Consensus Estimate of $1.19.

Revenue, Volumes & Margins

During the quarter, Philip Morris’ net revenue grew 9.7% year over year to $7.4 billion, including favorable currency impact of $92 million. It surpassed the Zacks Consensus Estimate of $7.2 billion. Excluding currency translation, net revenue increased roughly 11.0%, mainly driven by $369 million of favorable pricing and $370 million of favorable volume/mix.

During the quarter, net revenue in the European Union (EU) went up 2.6% y/y to $2.05 billion. Net revenue in the Eastern Europe, Middle East & Africa (EEMA) region stood at $1.8 billion, up 8.8% from the previous year comparable quarter. Asia led the race among the regions as it recorded net revenue of $2.7 billion, up 19.5% from the same period a year ago. Latin American and Canada region reported a marginal 0.4% y/y growth to $0.78 billion.

Cigarette shipment volume in the quarter increased slightly by 5.4% year over year to 219.1 million units, primarily driven by a 12.4% increase in shipment volume in Asia, which was a result of double-digit growth in Indonesia, Japan, Korea the Philippines and Thailand. While volume in EEMA (Eastern Europe, Middle East & Africa) went up 3.6%, Latin America and Canada reported a growth of 2.9%. However, EU suffered a decline of 1.5%.

In EU, cigarette shipment volume dropped on a year-over-year basis, predominantly due to lower total market share, higher tax imposed by the European governments, macro-economic headwinds, particularly in southern Europe, decreased consumer and the prevalence of illicit trade, mainly in Greece and Spain.

During the quarter, shipments of Marlboro rose 5.2% as a result of growth in the EEMA market. Shipments of L&M were also up 4.4% during the quarter, driven by the growth in EU, Asia, Latin America and Canada. Parliament and Lark brands recorded increased volumes of 10.6% and 15.1%, respectively, while Chesterfield and Bond Street witnessed increases of 2.3% and 4.9%, respectively, in the quarter.

Philip Morris’ quarterly gross profit expanded 11.3% year over year to $5.0 billion, while operating companies income increased 13.4% to $3.5 billion in the first quarter of 2012. Operating income went up 13.2% y/y to $3.4 billion during the quarter.

Financial Analysis

As of March 31, 2012, Philip Morris had cash and cash equivalents of $3.6 billion compared to $2.5 billion as on December 31, 2011 and long-term debt of $15.34 billion compared to $14.82 billion in the previous quarter.

Share Buyback

During the first quarter, Philip Morris spent $1.5 billion to repurchase 18.1 million shares. The company has a target of buying back shares worth $6.0 billion during 2012.


Concurrent with the earnings release, the company expects 2012 full-year reported diluted earnings per share to be in a range of $5.20 to $5.30 compared with $4.85 in 2011. However, adjusted diluted earnings per share are projected to increase by approximately 10% to 12% over $4.88 in 2011.

The company’s major competitors are Altria Group Inc. (MO - Analyst Report) and Reynolds American Inc. (RAI - Analyst Report). Phillip Morris currently has a Zacks #4 Rank, which implies short-term Sell rating on the stock. On a long-term basis we remain Neutral on the stock.

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