April 22, 2010 / 1:30 PM / in 8 years

WRAPUP 2-Philip Morris misses estimates, Reynolds beats

* Philip Morris EPS $0.90 vs Wall St $0.93 view

* Philip Morris cigarette volume up 0.7 percent

* Reynolds American EPS $1.11 vs Wall St $1.07 view

* Reynolds cigarette volume down 2.5 percent

* Reynolds shares up 1 pct, Philip Morris down 3 pct (Adds company, analyst comments)

By Brad Dorfman

CHICAGO, April 22 (Reuters) - Philip Morris International (PM.N), which sells Marlboro cigarettes and other brands internationally, posted a lower-than-expected quarterly profit, hurt by a tax increases and a weak economy in parts of Europe.

Meanwhile, Reynolds American RAI.N, which sells Camel and Pall Mall cigarettes and other products only in North America, has been able to gain market share from rivals even in the face of high U.S. unemployment and higher taxes.

Both cigarette makers stood by their 2010 earnings forecasts, but shares in Philip Morris fell 3 percent as its forecast is below that of most analysts estimates, despite an improving currency environment for the company

Uncertainty over a large tobacco tax increase in Japan coming in October led the company to be cautious in its forecast, Chief Financial Officer Hermann Waldemer said in a conference call with analysts.

Philip Morris had been planning to raise prices in Japan in June, ahead of the tax increase, but reversed that decision after competitors decided not to make similar moves, he said.

Philip Morris also lost market share in several countries, including Germany and Greece.

Share losses in those developed markets are more worrisome that losses in emerging markets, where the longer-term trend of consumers trading up to higher-priced brands should resume when the economy picks up, Morningstar analyst Phil Gorham said.

“In developed markets, you have permanently higher prices and incomes aren’t rising as fast,” he said.

Philip Morris’s first-quarter profit rose to $1.75 billion, or 90 cents a share, from $1.52 billion, or 74 cents a share, a year earlier, helped by the weaker dollar.

Analysts on average expected 93 cents a share, according to Thomson Reuters I/B/E/S.

The company shipped 204.7 billion cigarettes, up 0.7 percent from a year earlier.

But excluding acquisitions, the company shipped 2.3 percent fewer cigarettes, driven down by weakness in the Baltic states, Spain, Ukraine and Turkey.

Revenue rose 17.3 percent to $15.59 billion. Excluding excise taxes, revenue was $6.50 billion. On that basis, analysts on average forecast $6.45 billion.

For the year, Philip Morris stood by its earnings per share view of $3.75 to $3.85. Analysts were expecting $3.84 a share.


Reynolds American, which also makes Grizzly smokeless tobacco, said profit was $82 million, or 28 cents a share, in the first quarter, compared with $8 million, or 3 cents a share, a year earlier.

Excluding the company’s payment to settle litigation over smuggling in Canada and other one-time items, earnings were $1.11 a share. Analysts on average forecast $1.07 a share, according to Thomson Reuters I/B/E/S/.

“We achieved these results in a challenging environment, marked by significant competitive promotional activity and product introductions in both the cigarette and moist-snuff categories,” Reynolds CEO Susan Ivey said. “In addition, consumer spending patterns continued to be affected by the ongoing impact of higher tobacco taxes and the weak economy.

Sales rose 3.4 percent to $1.99 billion. The company shipped 18.2 billion cigarettes, down 2.5 percent from a year earlier.

The U.S. cigarette market has been steadily declining, but the first-quarter drop was tempered by the fact that wholesalers cut down on shipments in the first quarter of 2009 ahead of a large federal tobacco tax increase.

For the year, Reynolds stood by its earnings per share forecast of $4.80 to $5.00, excluding one-time items. Analysts on average forecast $4.91 a share.

On Wednesday. Reynolds rival Altria Group Inc (MO.N) posted higher-than-expected profit for the first quarter, helped by cost cuts and price increases. [ID:nN21218457].

Reynolds shares were up 1 percent at $55.98 on the New York Stock Exchange. (Reporting by Brad Dorfman, editing by Dave Zimmerman)

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