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Cigarette manufacturer and marketer Philip Morris International Inc. (PM) reported third quarter 2011 earnings per share, excluding special items, of $1.37, surpassing the Zacks Consensus Estimate of $1.23.

Furthermore, compared with the prior-year period, Philip Morris’ earnings per share were up 36.4% excluding currency effect. The year-on-year uptick was attributable to price increases and strong volume growth in Asia.

Revenue, Volumes & Margins

During the quarter, Philip Morris’ net revenues grew 26.4% year over year to $8.4 billion, including favorable currency impact of $697 million. Excluding currency translation, net revenue increased 15.9%, mainly driven by favorable pricing of $564 million, primarily in Asia, and favorable volume of $472 million.

Cigarette shipment volume in the quarter increased slightly by 4.4% year over year to 239.4 million units, primarily driven by a 12.6% increase in shipment volume in Asia, which was a result of double-digit growths in Indonesia, Japan and Korea. While volume in EEMA (Eastern Europe, Middle East & Africa) went up 5.1%, European Union (EU) and Latin America and Canada suffered a decreased of 3.5%, 1.1% respectively.

In EU, cigarette shipment volume dropped on a year-over-year basis, predominantly due to lower total market share (mainly in Spain), lower market share (mainly in Poland) and unfavorable distributor inventory movements. In Latin America & Canada, the shipment volume was impacted due to lower market share in Mexico, partly offset by growth in Brazil, Canada and Columbia

During the quarter, shipments of Marlboro rose 3.9% as a result of growth in the EEMA market. Shipments of L&M were also up 3.9% during the quarter, driven by the growth in EU. Parliament and Lark brands recorded increased volumes of 16.4% and 44.2%, respectively, while Chesterfield and Bond Street witnessed declines of 7.0% and 6.8%, respectively, in the quarter.

Philip Morris’ quarterly gross profit expanded 27.5% year over year to $5.5 billion, while operating income increased 29.7% to $3.7 billion in the third quarter of 2011.

Financial Analysis

As of September 30, 2011, Philip Morris had cash and cash equivalents of $3.4 billion and long-term debt (including current portion) of $12.9 billion.

Share Buyback and Dividend

During the reported quarter, the company repurchased 21.2 million shares, worth $1.4 billion. The company increased its regular quarterly dividend during the quarter by 20.3% to an annualized rate of $3.08 per common share

Guidance

Concurrent with the earnings release, the company raised its outlook for fiscal 2011. Phillip Morris now expects earnings between $4.75 and $4.80 for fiscal 2011. The guidance is up by approximately 21% to 22.5% versus $3.92 in 2010.

The company plans share repurchases of approximately $5.0 billion against its previously communicated three-year share repurchase program of $12 billion, initiated in May 2010.

The company’s major competitors are Altria Group Inc. (MO) and Reynolds American Inc. (RAI). Phillip Morris currently has a Zacks #3 Rank which implies short term Hold rating on the stock. On a long term basis we remain Neutral on the stock.

 
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