UPDATE: International Cigarette Market Remains Solid, US Weakens
April 21 2011 - 10:56AM
Dow Jones News
While cigarette sales continue to drag in the U.S. and parts of
Europe, tobacco volumes in many other corners of the world remain
robust.
Philip Morris International Inc.'s (PM) first-quarter profit
rose 13% on growth in Asian markets that offset trouble in Ukraine,
which recently raised taxes, and cash-strapped Spain.
While Philip Morris continues to see volume growth in pockets of
the international market, companies that sell their tobacco wares
in the U.S. are relying more on pricing power to keep up
bottom-line gains and offset weak sales. On Wednesday Altria, the
nation's largest cigarette maker, said profit rose 15% as price
hikes and cost cuts offset a 6.4% cigarette volume decline.
Reynolds American Inc. (RAI) is seeing a similar sales slide.
First-quarter earnings more than quadrupled from a year-ago period
weighed by a settlement with the Canadian government, while
cigarette volumes fell 5.2%.
The Altria Group Inc. (MO) spinoff, which sells cigarette brands
such as Marlboro and L&M outside the U.S., boosted its
full-year earnings forecast by 20 cents because of improving
business conditions and favorable currency exchange. The company
now expects per-share earnings of $4.55 to $4.65.
Philip Morris said it plans higher brand-support spending and
more conservative pricing as consumers in countries like Greece,
Spain and Ukraine face continued economic pressure. Still, pricing
will remain "the key driver" of profitability growth, company
executives said on a conference call.
Philip Morris is taking advantage of upheaval in Japan's tobacco
market in the wake of last month's earthquake and tsunami. While
the company won't be able to gauge the full impact of changes to
its shipment patterns until the second quarter, it does expect some
upside from the decision to boost deliveries as Japan Tobacco Inc.
(2914.TO) struggles to fix its hobbled manufacturing
capabilities.
Philip Morris reported a first-quarter profit of $1.92 billion,
or $1.06 a share, up from $1.7 billion, or 90 cents a share, a year
earlier.
Revenue rose 6% to $16.5 billion, due in part to higher pricing.
Excluding excise taxes, sales increased 4.5% to $6.8 billion, or
2.7% excluding currency fluctuations.
Analysts polled by Thomson Reuters most recently forecast
per-share earnings of $1.05 on $6.95 billion in revenue.
Shipments of Marlboro, the company's flagship brand, slid 2.9%
on weakness in Greece and Spain and an excise tax increase in
Mexico.
Philip Morris's overall volume rose 1.6%, as a 14% spike in Asia
more than offset a 7.3% decline in the European Union region and a
5.5% drop in Latin America and Canada. Volume slid 0.8% in Eastern
Europe, the Middle East and Africa, due to the political turmoil in
North Africa and continued weakness in Ukraine.
Reynolds, whose brands include Camel cigarettes and Grizzly
moist snuff, has diversified into smokeless tobacco, cut production
costs and put its energy into a few key brands as tobacco demand
shifts. Reynolds said it will continue to "refine" its cigarette
portfolio this year.
The company reported a profit of $353 million, or 60 cents a
share, up from $82 million, or 14 cents a share, in the same period
a year earlier. Excluding items such as plant closing costs and
settlements with the Canadian government, per-share earnings rose
to 59 cents from 56 cents.
Revenue edged up 0.3% to $1.99 billion.
Analysts polled by Thomson Reuters most recently forecast
per-share earnings of 58 cents on revenue of $2.04 billion.
One bright spot for Reynolds American is smokeless tobacco.
Earnings edged up $1 million to $85 million at the American Snuff
unit, which makes Grizzly- and Kodiak-branded moist snuff. Total
moist snuff volume rose 13.2% and the company gained 1.3 share
points to grab 31.1% of the market.
Shares of Philip Morris gained 2.2% to $67.94 in recent trading,
while Reynolds American rose 1% to $36.66.
-By Melissa Korn, Dow Jones Newswires; 212-416-2271;
melissa.korn@dowjones.com
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