RICHMOND, Va. (AP) — Cigarette maker Philip Morris International Inc., which sells Marlboro and other brands abroad, is wary of a slowdown in Asia, one of its largest growth areas. The company is releasing second-quarter 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 impacts are 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.
Still, cigarettes remain in demand. Shipments rose 5.4 percent to more than 219 billion cigarettes in the January-March quarter, while Philip Morris International’s market share increased or remained stable in important markets despite higher prices.
Asia is driving growth. Philip Morris International bought Philippines company Fortune Tobacco Co. in February 2010, bolstering its Asian business. It has also gained market share in Japan from because last year’s earthquake and tsunami disrupted Japan Tobacco Inc.’s supply chain.
But the company has cautioned that the volume comparisons in Asia will be tougher in the second quarter as it laps the benefit from last year’s big gains in Japan.
And swings in currency markets are also having an effect. The company cut its earnings guidance for the year because of the stronger dollar.
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 $1.35 per share on revenue of $8 billion, according to FactSet. Analysts typically exclude one-time items.
LAST YEAR’S QUARTER: Philip Morris International reported adjusted net income of $1.34 per share on revenue of $8.3 billion, excluding excise taxes.
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Michael Felberbaum can be reached at http://www.twitter.com/MLFelberbaum.
