Philip Morris Beats, Gives View

Philip Morris International Inc. ( PM - Analyst Report ) reported adjusted third quarter 2012 earnings per share of $1.24, surpassing the comparable prior-year quarter earnings by 12.7%. Excluding currency impact of 4 cents, adjusted earnings exceeded the prior-year quarter earnings by 16.4%. Earnings beat the Zacks Consensus Estimate of $1.22.

Earnings shot up on the back of higher revenues and favorable impact of lower shares outstanding.

Revenue and Margin

Excluding the impact of currency translation and acquisitions, net revenue increased roughly 6.4% from the prior-year quarter, mainly driven by favorable pricing. During the quarter, Philip Morris’ net revenue inched up 2.8% from the prior-year quarter to $7.9 billion, including an unfavorable currency impact of $270 million. Revenue also exceeded the Zacks Consensus Estimate of $7.3 billion.

During the quarter, net revenue in the European Union (EU) slipped 6.6% from the prior-year quarter to $2.1 billion, including unfavorable currency.

Net revenue in the Eastern Europe, Middle East & Africa (EMEA) region stood at $2.1 billion, up 8.5% from the prior-year quarter. Asia recorded net revenue of $2.8 billion, up 6.0% from the prior-year quarter. The Latin American and Canada region reported an increase of 4.5% to $882 million in the quarter.

Philip Morris’ quarterly gross profit increased 4.6% from the prior-year quarter to $5.2 billion, while operating income went up 9.5% year over year to $3.2 billion during the quarter.

Volumes in Detail

Cigarette shipment volume excluding acquisitions went up 2.9% year over year to 233.1 million units on the back of increase in shipment volume in the EMEA region.

In the European region, cigarette shipments declined 5.7%, driven by a lower market share, particularly in France and southern Europe.

In Latin America and Canada, cigarette shipment volumes declined 1.1% due to lower total market share in Mexico and partly offset by share gains in Brazil.

Cigarette shipment volume in Asia went up 5.7% from the prior-year quarter, mainly in Indonesia and the Philippines.

Shipment volume in EMEA grew 7.1% on the back of improved market conditions in Egypt and Turkey.

During the quarter, shipments of the Marlboro brand of cigarettes went up by 1.2% fuelled by growth in EMEA particularly in North Africa and Turkey. Shipment volume of the L&M brand went up 9.7% during the quarter also mainly due to EMEA. Parliament and Bond Street brands recorded volume growth of 12.4% and 2.2%, respectively.

Chesterfield and Philip Morris witnessed a decline of shipment volume of 5.9% and 2.0% respectively, while Bond Street witnessed an increase of 2.2%.

Full Year Results

For the full year 2012 earnings per share of $5.22 surpassed the prior-year earnings by 7.0%. Excluding currency, adjusted earnings beat prior-year earnings by 11.7%. Earnings beat the Zacks Consensus Estimate of $5.21.

Net revenue went up 0.9% to $31.4 billion from the prior year. Excluding currency, revenue went up by 5.6%

Financial Analysis

Philip Morris exited the fourth quarter 2012 with cash and cash equivalents of $3.0 billion compared with $4.8 billion in the preceding quarter. Long-term debt stood at $17.6 billion in the fourth quarter compared with $17.5 billion in the previous quarter.

Share Buyback and Dividend Update

During the quarter, Philip Morris spent $6.5 billion to repurchase 74.9 million shares. After completing a three-year share buyback program worth $12 billion in July 2012, the company announced a new share buyback program of $18.0 billion in August 2012.

The company increased its quarterly dividend by 10.4% during the quarter to 85 cents from 77 cents, representing an annualized rate of $3.40 per common share.

Guidance

Concurrent with the earnings release, the company issued guidance. Accordingly, earnings are forecasted to be in the range of $5.68 to $5.78 per share for 2013, representing a growth rate of approximately 10% to 12% versus adjusted earnings of $5.22 per share in 2012. The Zacks Consensus Estimate of $5.79, was much better than guided, indicating downward estimate revisions.

This excludes the unfavorable impact of currency and net tax expense of 6 cents per share. This guidance also excludes the impact of any potential future acquisitions, unanticipated asset impairment and exit cost charges.

Philip Morris carries a Zacks Rank #4 (Sell). However, we would recommend some other stocks, such as Flowers Foods Inc. ( FLO - Snapshot Report ) – Zacks Rank #1 (Strong Buy) , Procter & Gamble Company ( PG - Analyst Report ) and Kellogg Company ( K - Analyst Report ) - Zacks Rank #2 (Buy) that are currently doing well and are worth considering in the consumer staples industry.