Philip Morris Disappoints on Earnings and Outlook

Andrew Klips |

Declining sales volumes and unfavorable currency exchange rates hamstringed earnings for tobacco giant Philip Morris (PM) as reported Thursday morning. The maker of Marlboro and L&M cigarettes said that it earned $2.23 billion, or $1.32 per share, in the latest third quarter as compared to $2.38 billion, or $1.35 per share, in the same quarter last year. Excluding excise taxes, revenue fell 5.3 percent to $7.92 billion, despite PM raising prices on its smokes.

Wall Street was expecting earnings of $1.39 per share of revenue of $8.21 billion. On an adjusted basis, the company earned $1.38 per share in Q2, just shy of analyst predictions.

Total volume of cigarettes sold faded by 1.3 percent in the third quarter to 236.5 billion cigarettes. Asia, the company’s biggest market by volume, only had volume nudge upward by 0.6 percent which did not offset declines in the European Union (down 8.1 percent) and Latin America and Canada (down 4.9 percent combined). The financial turmoil in the EU has people cutting back on smoking, rolling their own less-expensive cigarettes or turning to contraband smokes to save money.

Philip Morris, based in New York and Switzerland, also trimmed its high-end view for the year, primarily attributable to prevailing exchange rates. The company now expects adjusted per-share earnings between $5.12 and $5.18 against its previously lowered view of between $5.10 and $5.20 a share.

A strong U.S. dollar against key foreign currencies hurts companies that sell products globally because of conversion rates back into the greenback. Philip Morris, who is particularly susceptible to forex rates because the majority of its sales are overseas, had warned previously that the USD trending stronger was limiting earnings potential.

Philip Morris is the world's second-biggest cigarette seller, only trailing state-run China National Tobacco Corp. Japan Tobacco Inc. rings-in at number three on the list.

Shares of PM closed Wednesday at $91.86 and are up about 43 percent in the last 52 weeks, but are looking to open lower with the earnings miss.

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Companies

Symbol Name Price Change % Volume
METR Metro Bancorp Inc (PA) n/a n/a n/a 0
PM Philip Morris International Inc 89.39 -0.48 -0.53 4,247,065

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