Philip Morris International Inc. (PM - Analyst Report) reported adjusted second-quarter 2013 earnings per share of $1.30, missing the Zacks Consensus Estimate of $1.41 by 7.8% and the prior-year quarter earnings by 4.4%.
Earnings missed due lower sales,lower industry volume, and higher cost . Excluding an unfavorable currency impact of 7 cents, adjusted earnings of $1.31exceeded the prior-year quarter earnings by 3.7%.
Revenues and Margin
Net revenue went down by 2.5% to $7.9 billion. It also missed the Zacks Consensus Estimate of $8.2 billion by 3.6%. Excluding the impact of an unfavorable currency translation, net revenue increased roughly 0.5% from the prior-year quarter, mainly driven by favorable pricing.
During the quarter, net revenue in the European Union (EU) slipped 3.5% (down by 2.4% excluding currency) from the prior-year quarter to $2.2 billion due to unfavorable volume/mix and lower market share in France, Germany and Poland.
Net revenue in the Eastern Europe, the Middle East & Africa (EMEA) region stood at $2.2 billion, up 1.4% (up by 3.7% excluding currency) from the prior-year quarter fuelled by positive pricing in Russia, Turkey and Ukraine.
Asia recorded net revenue of $2.7 billion, down by 5.7% (down by 0.8% excluding currency) from the prior-year quarter due to unfavorable volume/mix primarily in Japan and Philippines. In the Latin America and Canada region, revenue went up by 1.1% (up by 4.5% excluding currency) to $838 million in the quarter due to favorable pricing in Argentina, Brazil, Canada and Mexico.
Philip Morris' quarterly gross profit declined 4.4% from the prior-year quarter to $5.2 billion, mainly due to higher excise tax faced by the company during the quarter. Operating companies income (operating income before general corporate expenses and the amortization of intangibles) slipped 7.4% year over year (went down 3.3% excluding currency) to $3.4 billion during the quarter due to higher marketing, administration and research costs.
Volumes in Detail
Cigarette shipment volume went down by 3.9% to 228.9 billion units due to due to a total industry volume decline, excise tax driven price increases and weak economic and employment situation in the European Union.
During the quarter, shipments of the Marlboro brand of cigarettes slipped by 5.9% due to decline in EU particularly in France, the Netherlands, Poland and the United Kingdom. Shipment volume of the L&M brand went up 6.1% during the quarter, mainly due to shipment rise in Egypt and partly offset by Algeria and Turkey. Parliament recorded volume growth of 4.0% on the back of strong results in Korea and Turkey.
Chesterfield, Philip Morris, Lark and Bond Street brands witnessed a decline of shipment volume of 7.9%, 8.5%, 7.9% and 8.9%, respectively, due to lower industry volume.
Philip Morris exited the second quarter 2013 with cash and cash equivalents of $3.6 billion compared with $3.9 billion in the preceding quarter. Long-term debt stood at $21.6 billion in the second quarter of 2013 compared with $20.8 billion in the previous quarter.
During the quarter, Philip Morris spent $1.5 billion to repurchase 16.7 million shares.
Philip Morris announced the buyout of 20% interest of its Mexican tobacco business Grupo Carso for approximately $700 million. The deal is expected to be completed by by September 30, 2013
You should say that the company has revised its currency expectationand expects a currency impact of 31 cents for fiscal 2013.
The company expects earnings for fiscal 2013 to be in the range of $5.43 to $5.53. Excluding the currency impact, the company reiterates its earnings guidance to increase by approximately 10%-12% compared with adjusted earnings of $5.22 in 2012.
Philip Morris carries a Zacks Rank #4 (Sell). Other diversified retailers worth considering include Reynolds American Inc. (RAI - Analyst Report) , Lorillard Inc. and Tyson Foods Inc. (TSN - Analyst Report) all carrying a Zacks Rank #2 (Buy).