|Philip Morris Profit Rises 29% on Emerging Markets
Philip Morris International Inc., spun off last month by Altria Group Inc., posted first-quarter profit that rose faster than analysts estimated after new varieties of Marlboro cigarettes and acquisitions spurred sales in Indonesia, Pakistan and Mexico.
The cigarette maker jumped 3.9 percent in New York trading, the biggest increase since the March 28 spinoff, after saying profit this year will exceed its forecasts.
Net income advanced 29 percent to $1.87 billion, or 89 cents a share, the company said today in a statement. Sales rose 18 percent to $15.6 billion, boosted by the dollars declines.
Philip Morris, the worlds largest tobacco company outside of China, sold more clove-flavored Marlboro cigarettes in Indonesia, unburdened by the slowing U.S. tobacco market and the threat of litigation from sick American smokers since the separation from Altria.
"These developing economies are growing faster, benefiting Philip Morris as people are able to afford their cigarettes", said Giri Cherukuri, who helps manage $1.4 billion in assets including 82,950 Philip Morris shares at Oakbrook Investments LLC in Lisle, Illinois.
Ten analysts projected average first-quarter profit of 78 cents a share in a Bloomberg survey.
The maker of Virginia Slims and Chesterfield cigarettes said it expects 2008 per-share profit to increase 14 percent to 16 percent, faster than its projection last month of 12 percent to 14 percent. It forecast annual profit of $3.18 to $3.23 a share.
Philip Morris rose $1.93 to $52 at 4:15 p.m. in New York Stock Exchange composite trading. The stock has advanced 2.8 percent since March 31, its first trading day after being spun off as an independent company.
Altria, based in Richmond, Virginia, has increased 0.5 percent since March 31. It's scheduled to report first-quarter results tomorrow.
Separately, in its first acquisition as an independent company, Philip Morris International agreed to buy some of Imperial Tobacco Group Plcs fine-cut tobacco trademarks for 254 million euros ($405 million).
Bristol, England-based Imperial was required by European competition regulators to sell some brands to get approval for its purchase of Altadis SA.
Imperial Tobacco Brands
Philip Morris International expects the addition of Interval and other Imperial brands used for roll-your-own cigarettes to increase its annual profit by 1 cent a share.
Imperial, Europes second-largest publicly traded cigarette maker, had operating profit of 25 million euros from the brands last year. The unit will increase Philip Morris Internationals share of the fine-cut tobacco market to more than 10 percent in the European Union.
Louis Camilleri, 53, took charge of Philip Morris International after serving as Altrias chief executive officer since 2002. Hes expanding distribution of Marlboro, the worlds top-selling cigarette, in emerging markets after smoking bans and rivals discount cigarettes eroded demand in western Europe.
The companys European Union shipments dropped 5.9 percent to 62.8 billion cigarettes in the first quarter. Shipments rose 10 percent in Asia, 5.6 percent in Latin America and 2.9 percent in eastern Europe, the Middle East and Africa. Philip Morris delivered 217.9 billion cigarettes in the quarter, 2.2 percent more than a year earlier.
Marlboro shipments fell 1.2 percent to 77.3 billion units, hurt by a drop in the European Union. The expansion of public- smoking restrictions hurt sales in France and Germany while higher prices lowered demand in Italy and Poland.
Price increases in emerging markets helped counter the decline in demand in western Europe. Higher prices in Turkey, Russia and Colombia contributed to operating profit, adjusted for some costs, of $2.86 billion, which was 29 percent higher than a year earlier and beat Goldman Sachs Group Inc.s estimate by $313 million.
The company benefited from "positive pricing and volume growth in emerging markets," Erik Bloomquist, a J.P. Morgan Securities Ltd. analyst in London, wrote today in a note to clients today.
The company boosted shipments in Russia, where smokers traded up to Marlboro and Parliament cigarettes, and in Indonesia.
Philip Morris International started selling Marlboro "kretek" cigarettes, a mixture of tobacco and the sweet- smelling clove spice, in Indonesia last year.
The introduction of the new variety followed the companys 2005 purchase of PT H.M. Sampoerna, Indonesias third-largest cigarette maker. The cigarette maker also uses its acquisitions to start distributing Marlboro, Parliament, Virginia Slims and its other top brands in new markets.
"We benefit from up-trading in those markets, which is the strength of our portfolio," Chief Financial Officer Hermann Waldemer told analysts on a conference call.
Philip Morris took control of Lakson Tobacco Co., Pakistans second-largest cigarette maker, last year. It also increased its ownership of its Mexican joint venture with Grupo Carso SAB to 80 percent from 50 percent.