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Philip Morris Int’l Q2 profit falls 8%; hurt by PH tax increase in Asia

In this July 17, 2012, photo, Marlboro cigarettes are displayed in Montpelier, Vermont. Philip Morris International’s second-quarter profit fell about 8 percent as it shipped fewer cigarettes, sending company shares down in premarket trading Thursday, July 18, 2013. AP PHOTO/TOBY TALBOT

RICHMOND, Virginia—Philip Morris International’s second-quarter profit fell about 8 percent as it shipped fewer cigarettes, sending company shares down in premarket trading Thursday.

The company, which fell short of Wall Street expectations, also lowered its full-year guidance due to unfavorable foreign exchange rates, which also weighed on quarterly results.

Philip Morris International sells Marlboro and other cigarette brands outside of the US, so its results reflect smoking trends abroad. It’s the world’s second-biggest cigarette seller behind state-controlled China National Tobacco Corp.

The cigarette maker reported earnings of $2.12 billion, or $1.30 per share, in the quarter ended June 30, down from $2.32 billion, or $1.36 per share, a year ago.

Excluding excise taxes, revenue fell 2.5 percent to $7.9 billion despite higher prices. Costs to make and sell cigarettes rose more than one percent to $2.7 billion.

Analysts polled by FactSet had expected $1.41 per share on revenue of $8.17 billion. Its shares fell $2.30, or 2.5 percent, to $87.50 in premarket trading.

Cigarette shipments fell about 4 percent to 228.9 billion cigarettes as it saw volume declines in all of its regions. Total Marlboro volumes fell nearly 6 percent to 72.4 billion cigarettes.

Still, the company gained share in key markets including France, Germany, Indonesia, Spain and the United Kingdom.

Philip Morris International said economic woes in the European Union and increased excise taxes drove shipments down nearly 6 percent during the quarter as more than half of the countries in the European Union are now in recession.

Shipments fell 3.6 percent in the company’s region that encompasses Eastern Europe, the Middle East and Africa. Shipments also fell 2.4 percent in Latin America and Canada.

Hurt by Philippine tax increase

In Asia, one of its largest growth areas, the company said that cigarette volume fell 3.5 percent, hurt by a recent tax increase in the Philippines, which saw a 16.5 percent decline in shipments.

The company benefited from increases in Japan following the March 2011 earthquake and tsunami. The events offered the company a sales opportunity because supply disruptions led Japan Tobacco Inc., the world’s No. 3 tobacco maker, to stop shipping cigarettes within Japan. It also bought Philippines company Fortune Tobacco Co. in February 2010, bolstering its Asian business.

During the quarter, Philip Morris International saw volumes rise in Indonesia by about 3.5 percent and fall 2 percent in Japan, primarily due to the timing of inventory movements.

The company also noted a growing prevalence of counterfeit and contraband cigarettes.

Smokers face tax increases, bans, health concerns and social stigma worldwide, but the effect of those on cigarette demand generally is less stark outside the United States. Philip Morris International has compensated for volume declines by raising prices and cutting costs.

Because it does all its business overseas, the company also has to navigate changes in currency values. A stronger dollar cuts into revenue generated overseas when it’s translated back into dollars.

Philip Morris International Inc., based in New York and Switzerland, cut its profit guidance for the year because of recent changes in foreign exchange rates. It now expects $5.43 to $5.53 per share, versus $5.17 per share in 2012. The forecast includes a one-year $300 million cost-saving target and planned share buybacks of $6 billion for 2013. It spent $1.5 billion to buy back 16.7 million shares in the quarter.

Altria Group Inc. in Richmond, Virginia, the owner of Philip Morris USA, spun off Philip Morris International as a separate company in 2008. Altria is the largest U.S. cigarette seller.—Michael Felberbaum

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Tags: cigarettes , Earnings , Philip Morris , US

  • ting0508

    All Philippine made cigarettes by Philip Morris should be exported to China and Taiwan! I won’t mind!

    • Karabkatab

      The sad truth is, Chinese smokers still prefer their own brand. And their retail price of their own brand is much higher than foreign brand.

  • ting0508

    No problem. This Company is bound to die a natural death anyway. Why? It has caused millions of people die from smoking related illnesses like lung cancer, throat cancer and other pulmonary diseases. To hell with this Company!

  • Noelnoel Munro

    They knew its coming since 25 years ago. That was the reason why they bought Food Companies like Nabisco, Kraft Foods Int. Maxwell, Cadbury and many more. They are Mega mega mega mega rich.

  • Carum Al Dumal

    This means that the Philippine Government Can raise the Cigarette tax even higher. So those of us who are “can afford” can show off even more. Good for the public kasi they pay more taxes! Win-win to pre!

  • ReneV

    best to export all phillip morris cigarettes to china. we don’t mind.

  • divictes

    Maniwala kayo diyan! People around me are still puffing like ancient locomotives___in fact,with a vengeance, alam nyo naman ang Pinoy, gustong ipakita na ‘can afford’.

    • Chrisnadal19

      cnu mas paniniwalaan ikaw or PM executives? ur basing on observation only, not facts.

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