No Downturn for Tobacco in Tough Economic Times - YET..

October 24, 2008 - No Downturn for Tobacco
Cigarette makers Philip Morris International Inc. (PMI) and Reynolds American Inc. (RAI) display sales resilience as other industries struggled with a pullback in the third quarter while consumers watched banks collapse and markets teeter.

PMI's profit rose 20% in the third quarter as sales climbed, and it benefited from favorable foreign exchange rates. PMI, which was spun off in March from Altria Group Inc., reported net income of $2.1 billion, or $1.01 per share, in the quarter that ended Sept. 30. It earned $1.73 billion, or 82 cents per share, in the same period a year ago. Revenue climbed 22% to $17.37 billion. The company also affirmed its full-year profit forecast for 2008 and increased its quarterly dividend.

Reynolds American raised its full-year forecast even though profit fell 41% on hefty restructuring and trademark charges. The results still topped expectations as the tobacco company used higher prices (and cost savings) to offset consumption declines (cigarette sales volume declined 7.5% in the 3rd quarter). The net income slid to $211 million, or 72 cents per share, in the three months ended Sept. 30. It earned $358 million, or $1.21 per share, a year ago. The maker of Camel, Pall Mall and Kool brands said revenue dipped 1% to $2.27 billion, coming in just above Wall Street's $2.25 billion forecast.

With U.S. excise taxes likely to rise in 2009 and the economy weakening, loyalty toward premium brands could come under fire.

Reference: No Downturn for Tobacco, Convenience Store/Petroleum (CSP) News, 10/24/2008.