Thursday, June 24, 2010

Philip Morris Lowers Guidance

On Wednesday, Philip Morris International (PM: 46.14 -0.35 -0.75%) lowered its full-year 2010 earnings outlook to between $3.70 and $3.80 per share from a prior view of $3.75-$3.85. The downward revision primarily reflects a weakening euro.
The European Union (EU) contributes a major portion to Philip Morris’ revenues. In 2009, total revenues were $25 billion, of which $9 billion came from the EU. During the first quarter of 2010, revenue totaled $6.5 billion, of which $2.2 billion came from the EU. Therefore, a weak euro is expected to affect the results of Philip Morris adversely.
However, the revised full-year 2010 earnings guidance reflects a year-over-year improvement of 14%-17% from earnings of $3.24 per share reported in 2009. A better business outlook, particularly in Japan, as well as benefits from the reversal of certain tax provisions will help increase earnings per share over the previous year. This improvement is expected to be tempered by a negative foreign currency translation impact of 20 cents per share.
Worldwide, demand for cigarettes declined due to bans on smoking, health concerns and increased taxes. Philip Morris’ top line was consequently affected, thus trickling down to hamper the bottom line as well. As a remedial measure, the company raised its prices and focused on emerging markets to book profits. The strategic moves seem to have yielded results, already reflecting in the first quarter of 2010. Revenues during the 2010 first quarter increased 17.3% year over year with the bottom line increasing 15.6% over the year-ago quarter.
We believe the company’s strong performance, solid cash flow generation, pricing power and increased shareholder value will be somewhat muted by the decrease in demand for cigarettes and a weak euro.  
Shares of Philip Morris increased 3.3% to close at $46.49 at the NYSE Wednesday.

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