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Philip Morris Reports Mixed Results

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Philip Morris International Inc. (PM - Free Report) reported adjusted second quarter 2012 earnings per share of $1.36, surpassing the prior-year quarter earnings by 9.0%, excluding currency. The earnings beat the Zacks Consensus Estimate of $1.34.

Earnings went up due to the favorable impact of lower shares outstanding and share-based payments. We also note that currency had a negative impact of 7.5% on earnings this quarter.

Revenue in Detail

During the quarter, Philip Morris’ net revenue declined 1.8% from the prior year quarter to $8.1 billion, including an unfavorable currency impact of $402 million. Revenue was in line with the Zacks Consensus Estimate. Excluding currency translation, net revenue increased roughly 2.9% the prior-year quarter, mainly driven by pricing, which offset volume headwinds.

We note that the company faces difficult year-over-year comparisons in this quarter, as the prior-year quarter includes benefits from additional shipments to Japan following disruptions of its competitors' supply chains in the region.

During the quarter, net revenue in the European Union (EU) slipped 8.5% from the prior-year quarter to $2.3 billion.

Net revenue in the Eastern Europe, Middle East & Africa (EEMA) region stood at $2.2 billion, up 6.9% from the prior-year quarter. Asia recorded net revenue of $2.9 billion, down 2.8% from the prior-year quarter. The Latin American and Canada region reported a marginal increase to $829 million in the quarter.

Volumes in Detail

Cigarette shipment volume in the quarter went down by 1.2% from the prior-year quarter to 238.3 billion units due to volume decline in all major geographic regions.

In the European region, cigarette shipments declined 9.4%, driven by a lower market share, particularly in southern Europe.

Cigarette shipment volume in Asia declined 0.7% from the prior-year quarter to 83.6 billion units due to the lower total market share in Philippines and an unfavorable comparison due to the Japan Hurdle. 

In Latin America and Canada cigarette shipment volumes declined 3.0% due to a lower market share in Mexico.

However, shipment volume in EEMA went up 5.1% on the back of a higher market share in Turkey and Russia.

During the quarter, shipments of the Marlboro brand of cigarettes went up by 0.8%, excluding the Japan Hurdle as a result of growth in the EEMA market -- particularly in North Africa, Saudi Arabia and Serbia. Shipments of L&M were down by 1.0% during the quarter, driven by the decline in EU particularly in Greece and Spain.

Parliament and Bond Street brands recorded volume growth of 7.1% and 6.1%, respectively, while Chesterfield and Lark brands and Philip Morris brand witnessed declines of 2.3%, 5.3% and 7.6%, respectively, in the quarter.

Philip Morris’ quarterly gross profit edged up 0.5% to $5.5 billion from the prior-year quarter, while operating income slipped 2.9% y/y to $3.6 billion during the quarter.

Financial Analysis

Philip Morris exited the second quarter 2012 with cash and cash equivalents of $3.8 billion compared to $3.6 billion in the sequentially preceding quarter. Long-term debt stood at $14.8 billion in the second quarter compared to $14.3 billion in the previous quarter.

Share Buyback

During the second quarter, Philip Morris spent $1.5 billion to repurchase 17.8 million shares. In June 2012, the company announced a share buy back program of $18.0 billion that is scheduled to commence on August 1, 2012, as approved by its board of directors


Concurrent with the earnings release, the company maintains its guidance and expects 2012 full-year reported diluted earnings per share to be in a range of $5.10 to $5.20 compared with $4.85 in 2011. It expects currency to have an unfavorable effect of 27 cents per share, up by 2 cents previously announced. 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 - Free Report) and Reynolds American Inc. . Currently, we have a Neutral recommendation on the stock. Further, Philip Morris holds the Zacks #4 Rank, which translates into a short-term Sell rating.

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