Earnings Preview: Philip Morris Int'l

Michael Felberbaum, AP Tobacco Writer

RICHMOND, Va. (AP) -- Cigarette maker Philip Morris International Inc., which sells Marlboro and other brands abroad, should give investors a sense of how difficult economic conditions and unemployment in many of its markets have impacted cigarette volumes. The company is releasing its fourth-quarter and full-year financial results on Thursday before the market opens.

WHAT TO WATCH FOR: Whether fewer cigarettes were sold because of tax hikes and growing tobacco control efforts. Smokers face new tax increases, bans, health concerns and social stigma worldwide, but the impact is starker in the U.S. than in many other countries.

Philip Morris International has compensated for consumers buying fewer, or cheaper, cigarettes — and for the weak economy — by cutting costs and raising prices.

Cigarette shipments fell more than 1 percent to 236.5 billion cigarettes in the third quarter compared with a year ago when the company saw volumes jump more than 4 percent.

The company said its market share increased or remained stable in many key areas during the quarter.

Shipments grew 3 percent in the company's region that encompasses Eastern Europe, the Middle East and Africa, but fell about 8 percent in the European Union as the region is under pressure because of the continent's government debt crisis, which has caused smokers to switch to cheaper roll-your-own tobacco and counterfeit cigarettes.

Shipments also fell nearly 5 percent in Latin America and Canada. And in Asia, one of its largest growth areas, shipments grew less than 1 percent during the quarter on a tough comparison with the year-ago period, when shipments shot up in Japan following the March 2011 earthquake and tsunami.

The events offered the company a sales opportunity because supply disruptions led Japan Tobacco Inc., the world's No. 3 tobacco maker, to stop shipping cigarettes within Japan.

Philip Morris International also bought Philippines company Fortune Tobacco Co. in February 2010, bolstering its Asian business.

Swings in currency markets are also having an effect. Last quarter, the company narrowed its earnings guidance for the year because of unfavorable foreign currency exchange rates.

When the U.S. dollar is rising against the world's other currencies, companies that sell goods internationally take a hit when converting revenue in foreign currencies back into the dollar. That effect is particularly strong for Philip Morris International, because it does all its business overseas.

WHY IT MATTERS: Philip Morris International, with offices in New York and in Lausanne, Switzerland, is the world's second-biggest cigarette company after state-controlled China National Tobacco Corp.

Richmond, Va.,-based Altria Group Inc., the owner of Philip Morris USA, spun off Philip Morris International in 2008. Altria is the largest U.S. cigarette seller.

WHAT'S EXPECTED: Analysts on average expect Philip Morris International to report adjusted earnings of $1.22 per share on revenue of $8.03 billion, according to FactSet. Analysts typically exclude one-time items.

LAST YEAR'S QUARTER: Philip Morris International reported adjusted net income of $1.01per share on revenue of $7.67 billion, excluding excise taxes.

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Michael Felberbaum can be reached at http://www.twitter.com/MLFelberbaum.