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Apr-23-20082nd UPDATE: Philip Morris 1Q Net Up 29%, Boosts EPS Outlook(topic overview)
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April 23 (Bloomberg) -- Philip Morris International Inc., spun off last month by Altria Group Inc., posted first-quarter profit that rose faster than analysts estimated after new varieties of Marlboro cigarettes and acquisitions spurred sales in Indonesia, Pakistan and Mexico. The cigarette maker jumped 4.2 percent in New York trading, the biggest increase since the March 28 spinoff, after saying profit this year will exceed its forecasts. [1] CHICAGO, April 23 (Reuters) - Marlboro cigarette maker Philip Morris International Inc (PM.N: Quote, Profile, Research ) on Wednesday posted better-than-expected quarterly profit, helped by the weak dollar and better pricing in Poland, Russia and Turkey. The company, which was spun off from Altria Group Inc (MO.N: Quote, Profile, Research ) at the end of March, also raised its full-year earnings forecast, citing favorable foreign exchange rates and other factors. The world's largest non-state-owned cigarette maker posted double-digit revenue and profit increases in all its regions, and its stock rose more than 3.5 percent.[2]
Altria, based in Richmond, Virginia, fell 0.7 percent since March 31 through yesterday. It's scheduled to report first- quarter results tomorrow. Separately, in its first acquisition as an independent company, Philip Morris International agreed to buy some of Imperial Tobacco Group Plc's fine-cut tobacco trademarks for 254 million euros ($405 million). Bristol, England-based Imperial was required by European competition regulators to sell some brands to get approval for its purchase of Altadis SA. Philip Morris International expects the addition of Interval and other Imperial brands used for roll-your-own cigarettes to increase its annual profit by 1 cent a share.[1]
Oil and copper aren't the only commodities being hoovered up by fast-growing nations such as China and India. They're substantially increasing cigarette consumption. Profits announced by Philip Morris International this morning demolished analysts' estimtes. Cigarette maker Philip Morris International Inc., spun off last month by longtime owner Altria Group Inc., reported Wednesday a 29.2 percent rise in profit for the first quarter, beating estimates, and raised its outlook for the year.[3] NEW YORK -- Cigarette maker Philip Morris International Inc. will report its first-quarter results Wednesday, while Altria Group Inc. is scheduled to post its earnings Thursday.[4]
NEW YORK -- Emerging markets like Eastern Europe helped the newly independent Philip Morris International Inc. to report a 29% jump in its first-quarter profit even though the company sold fewer cigarettes in large developed countries. Philip Morris International which sells Marlboro cigarettes outside the U.S. beat forecasts and hiked its outlook for the year.[5] Goldman Sachs analyst Judy Hong said cigarette stocks tend to do well when the economy is weak, and said first-quarter results will lift Altria because investors have become too pessimistic about U.S. sales. She rates both Altria and Philip Morris shares at "Buy," and calls Altria her top pick in the sector. Hong believes Altria stock is trading at a discount to peers despite its strong market share and the opportunity for solid profit growth. JPMorgan analyst Erik Bloomquist says PMI is his "favorite U.S. listed stock," as good results from emerging markets including Eastern Europe, Africa and the Middle East will lead to strong profit growth.[4] The stock, which closed at $22.10 on April 18, yields 5.2% based on an annual dividend rate of $1.84. Goldman Sachs analyst Judy Hong calls Altria her top pick among U.S. tobacco stocks. She gives the stock a "conviction buy" rating. "The shares are trading at a discount to its tobacco peers despite its 9% earnings per share growth prospects, superior market share and ample value-enhancing opportunities," she says. The strength of the Marlboro brand and other products will give Altria the pricing power to weather a downturn in U.S. sales volume this year, she says. Altria shares trade at 13 times the $1.67 per share that analysts, on average, expect the company to earn this year.[6]
Last month's breakup was designed to separate the lucrative international division from U.S. regulators and had been planned for years despite concerns that the tobacco litigants would try to stop the transaction. Looking forward, Philip Morris now expects growth in adjusted 2008 earnings of 14% to 16% to a range of $3.18 to $3.24 a share, above the 12% to 14% range given by Altria when it reported its fourth-quarter results.[7] Philip Morris, the world's largest tobacco company outside of China, sold more clove-flavored Marlboro cigarettes in Indonesia, unburdened by the slowing U.S. tobacco market and the threat of litigation from sick American smokers since the separation from Altria. "These developing economies are growing faster, benefiting Philip Morris as people are able to afford their cigarettes,'' said Giri Cherukuri, who helps manage $1.4 billion in assets including 82,950 Philip Morris shares at Oakbrook Investments LLC in Lisle, Illinois.[1]
Since the spin-off, Philip Morris shares are down about 2 per cent, while Altria's are down 3.2 per cent. Philip Morris raised its 2008 earnings per share forecast to a range of $3.18 to $3.24 from its previous forecast of $3.11 to $3.17.[8] Philip Morris is expected to report a profit of 77 cents per share and $6.15 billion in sales.[4]
The company said first-quarter profit of $1.87 billion, or 89 cents a share, compared with proforma results of $1.45 billion, or 69 cents a share, a year earlier.[2] The world's largest non-state owned cigarette maker posted first-quarter profit of $1.87-billion (U.S.), or 89 cents a share, compared with pro-forma results of $1.45-billion, or 69 cents a share, a year earlier.[8]
Ten analysts projected average first-quarter profit of 78 cents a share in a Bloomberg survey. The maker of Virginia Slims and Chesterfield cigarettes said it expects 2008 per-share profit to increase 14 percent to 16 percent, faster than its projection last month of 12 percent to 14 percent. It forecast annual profit of $3.18 to $3.23 a share.[1]
Davenport analyst Ann Gurkin estimates that shipments will fall between 2.5 percent and 3 percent over the next few years, which is slightly more than the declines of recent years. She thinks cigarette excise taxes should rise about state 13 cents per pack in 2008, similar to 2007. Bloomquist thinks PMI will report double-digit profit growth over the next two years, noting its presence in important emerging markets like Argentina and Indonesia.[4]
Stifel Nicholas analyst Chris Growe estimates that achievement of a modest 10% market share in China over the next ten years would add nearly two percentage points annually to PM's growth in sales volume. The company has not yet done much with its Chinese ventures because management had to deal with the spinoff. Now PM can make sure its agreement with China National Tobacco bears fruit. "It has the potential to be a significant part of the business and change the growth profile of the company," says Charles Norton, manager of the Vice Fund, which holds shares of both Altria and PM.[6] The company has offices in New York and Lausanne, Switzerland. Altria now does all its business in the U.S. PMI is operating in international markets, where cigarette sales are growing and the threat of lawsuits is lower. Both companies produce Marlboro cigarettes.[4] Philip Morris International was spun off from Altria to give investors a pure play in the international cigarette business, which is seen as having more growth while the U.S. market continues to shrink.[8] A new star has joined the tiny universe of tobacco stocks. Altria spun off its overseas operations to shareholders on March 28, leaving Philip Morris International as the largest publicly traded tobacco company in the world.[6] Philip Morris rose $1.84 to $51.91 at 11:32 a.m. in New York Stock Exchange composite trading. Before today, the stock declined 1 percent since March 31, its first trading day after being spun off as an independent company.[1]
Only the state-owned China National Tobacco sells more cigarettes. Although Philip Morris International has better prospects, you should consider owning both stocks, assuming you have no problems investing in tobacco.[6] Philip Morris International started selling Marlboro "kretek'' cigarettes, a mixture of tobacco and the sweet- smelling clove spice, in Indonesia last year.[1] Philip Morris International which sells Marlboro cigarettes outside the U.S. beat forecasts and hiked its outlook for the year.[7]
Louis Camilleri, 53, took charge of Philip Morris International after serving as Altria's chief executive officer since 2002. He's expanding distribution of Marlboro, the world's top-selling cigarette, in emerging markets after smoking bans and rivals' discount cigarettes eroded demand in western Europe.[1]
The unit will increase Philip Morris International's share of the fine-cut tobacco market to more than 10 percent in the European Union.[1] While tobacco use has waned for decades in the developed world, it is growing in China, Russia, India and other emerging nations. Philip Morris International, based in Lausanne, Switzerland, has just begun to exploit these key markets.[6]
Philip Morris took control of Lakson Tobacco Co., Pakistan's second-largest cigarette maker, last year. It also increased its ownership of its Mexican joint venture with Grupo Carso SAB to 80 percent from 50 percent.[1] Philip Morris delivered 217.9 billion cigarettes in the quarter, 2.2 percent more than a year earlier.[1]
Philip Morris, which was Altria's international arm, is growing faster than the U.S. cigarette business.[7]
The deal is expected to add 1 cent a share to Philip Morris earnings, the company said.[8] Analysts' latest mean estimates were earnings of 77 cents a share and revenue of $6.15 billion.[7] Analysts polled by Thomson Financial expect Altria to earn 37 cents per share on $3.83 billion in revenue.[4]
Analysts polled by Thomson Financial expected profits of 77 cents per share.[3]
Earnings per share rose 29 percent to US$0.89 (0.56) from US$0.69. "Of this increase, 11 cents per share reflects the strength of our business, and favorable currency accounts for the balance of 9 cents per share," chief financial officer Hermann Waldemer told investors during a conference call.[9] Earnings per share beat estimates by analysts polled by Thomson Financial, who predicted US$0.77 (0.48) per share.[9]
Management says it thinks earnings per share will grow 12% to 14%, from $2.78 per share in 2007 (the $2.78 figure is pro forma -- that is, what PM would have earned last year if it were a separate company).[6]
PMI said it earned $1.87 billion, or 89 cents a share, in the first three months of the year, up from $1.445 billion, or 69 cents a share, in the same period last year.[3] The company posted net income of $1.87 billion, or 89 cents a share, compared with $1.45 billion, or 69 cents a share, a year earlier.[7] Net income advanced 29 percent to $1.87 billion, or 89 cents a share, the company said today in a statement.[1]
Altria has legal baggage and must cope with the declining demand for tobacco in the U.S. But the shares should benefit from stock buybacks and the company's effort to cut about $700 million in annual costs by 2011. [6] The stock was recently up 3.4% to $51.75. The international company was recently spun off from parent Altria Group Inc. (MO) and this is the first time the company is reporting as an independent company.[7]
Existing shareholders of the widely held Altria (symbol MO ) received one share of Phillip Morris International ( PM ) for each share of Altria stock owned as of March 19.[6] PMI stock began trading on March 17, and its split from Altria was completed on March 28.[4] PMI shares began trading at $50 on March 17, and finished the quarter at $50.58.[4]
Adjusted for the split, Altria shares declined 4.8 percent during the period, to $22.20 from $23.31.[4] Based in Richmond, Va., Altria launched a $7.5-billion, two-year-long share repurchase program in April.[6]
Marlboro is the dominant brand in the global tobacco market, with an 8.5% share excluding the Chinese market. That's four times the size of its largest rival. Growe says new products, such as Marlboro Intense, Marlboro Filter Plus and Marlboro Fresh Mint, will give the brand more swagger internationally. [6] A beachhead in the tightly controlled Chinese tobacco market, the world's largest, gives PM an edge over competitors. It is the only tobacco company that has struck a standing deal with Chinese National Tobacco. That means PM can sell its popular Marlboro brand of cigarettes and other products in China.[6] PMI sells Marlboro and other cigarette brands outside of the United States since it was spun off to shareholders by parent company Altria last month.[9]
The introduction of the new variety followed the company's 2005 purchase of PT H.M. Sampoerna, Indonesia's third-largest cigarette maker. The cigarette maker also uses its acquisitions to start distributing Marlboro, Parliament, Virginia Slims and its other top brands in new markets. "We benefit from up-trading in those markets, which is the strength of our portfolio,'' Chief Financial Officer Hermann Waldemer told analysts on a conference call.[1] Imperial, Europe's second-largest publicly traded cigarette maker, had operating profit of 25 million euros from the brands last year.[1] Higher prices in Turkey, Russia and Colombia contributed to operating profit, adjusted for some costs, of $2.86 billion, which was 29 percent higher than a year earlier and beat Goldman Sachs Group Inc.' s estimate by $313 million.[1]
"The results reinforce our view that PM should be viewed as a premier tobacco company with healthy top-line and profit growth prospects," Judy Hong, an analyst at Goldman Sachs, said in a research note. "Both net revenue and operating profit came in higher than expected, partly due to currency benefits, but also driven by stronger price/mix and margin improvement."[2] PM shareholders own a broadly diversified global tobacco company with strong opportunities for growth.[6]
Growth was strongest in Asia, with shipments up 10 percent, while the European Union declined by 5.9 percent. The company said its decline in the EU mirrored a general drop in sales in the region due to price increases and newly implemented smoking bans in France and Germany.[9] The company's European Union shipments dropped 5.9 percent to 62.8 billion cigarettes in the first quarter.[1] Marlboro shipments fell 1.2 percent to 77.3 billion units, hurt by a drop in the European Union.[1]
PMI, which has an operations center in Lausanne, Switzerland, is active in more than 160 countries. It earned revenue of US$55.1 billion in 2007, compared with PMUSAs US$18.49 billion. Besides Marlboro, PMI makes LM and Bond Street brands, as well as other products tailored to local markets such as the clove-based Marlboro Mix 9 in Indonesia and Marlboro Fresh Mint and Crisp Mint in Hong Kong. [9] PMI says net earnings increased to US$1.87 billion (1.17 billion) from US$1.445 billion in the same period last year.[9] New York-headquartered PMI said it shipped 218 billion cigarettes during the first quarter, 2.2 percent more than the previous year.[9] Full-year earnings are predicted to rise by 14-16 percent in 2008, PMI said in a statement from New York.[9]
The forecast is based on estimated long-term earnings growth of 8% to 10%, combined with Altria's dividend.[6] Over the long-term, management expects to generate earnings growth of 10% to 12% a year.[6]
"We continue to witness an improvement in our business fundamentals as evidenced by the double-digit revenue and income growth recorded in each of our geographic segments," chairman and chief executive Louis Camilleri said in the statement. "While we continue to face some challenges in certain markets, I am confident that we have the appropriate strategies and resources in place to deal with them effectively," he added.[9]
Thomson Reuters is the world's largest international multimedia news agency, providing investing news, world news, business news, technology news, headline news, small business news, news alerts, personal finance, stock market, and mutual funds information available on Reuters.com, video, mobile, and interactive television platforms.[2] Tobacco companies can generate steady profits even in tough times, making the stocks ideal holdings in a weak economy.[6] U.S. stocks fell early Tuesday as investors continued to worry about corporate profits and oil prices crossed.[9]
Because Altria emerged from the spinoff will little debt, Growe says, the company could buy back even more stock.[6]
The company also shipped 217.94-billion cigarettes, up 2.2 per cent from a year earlier.[8] Analysts on average forecast 77 cents a share, according to Reuters Estimates.[8] The company says it will begin a two-year, US$13 billion (8.16 billion) share repurchase program in May.[9] PMI shares traded on the Zurich exchange were down 0.6 percent at 51.75 Swiss francs (US$51.36; 32.24).[9]
In a separate announcement PMI said Wednesday it will acquire several fine-cut brands from Imperial Tobacco Group PLC for 254 million (US$405 million).[9] Separately, the company also said it has agreed to buy the fine cut tobacco trademark Interval and other trademarks from Imperial Tobacco Group PLC for 254 million euros ($406-million).[8]
The idea behind the split was to give Philip Morris International room to flourish. [6]
SOURCES
1. Bloomberg.com: Worldwide
2. UPDATE 2-Philip Morris Int'l profit up, raises forecast | Deals | Mergers & Acquisitions | Reuters
3. baltimoresun.com - Jay Hancock's blog: Emerging markets bullish on tobacco, cancer, too
4. Earnings Preview: Altria and Philip Morris International | Chron.com - Houston Chronicle
5. Free Preview - WSJ.com
6. Altria Versus Philip Morris International - washingtonpost.com
7. 2nd UPDATE: Philip Morris 1Q Net Up 29%, Boosts EPS Outlook
8. reportonbusiness.com: Philip Morris profit up
9. Philip Morris International reports 29 percent rise in first-quarter net profit - International Herald Tribune
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