April 23, 2010 - Philip Morris International (PMI), which sells Marlboro cigarettes and other brands internationally, posted a lower-than-expected quarterly profit, hurt by a tax increases and a weak economy in parts of Europe.
Philip Morris' total cigarette shipment volume for the first quarter edged up 0.7% to 204.74 billion units from last year's 203.38 billion units, boosted by a 11.4% growth in Asia, and a 4.4% rise in Latin America & Canada. This nearly offset by a 4.8% decline in the European Union (EU), and a decline of 5.2% in Eastern Europe, Middle East and Arica (EEMA).
EU region net revenues, excluding excise taxes, grew 9.9% to $2.18 billion, due to favorable currency impact of $178 million. Excluding the impact of currency and acquisitions, net revenues increased only 0.8%, primarily reflecting higher pricing across most markets, which offset unfavorable volume/mix. Unfavorable economic conditions, primarily in the Baltic States and Spain also impacted revenues in the region.
Volume grew 07% - led by gains in Asia, primarily Indonesia. The EU posted a 4.8% decline, while Asia was up 11% and Latin America and Canada rose 4.4%. Marlboro-brand shipments were down 0.6% amid a sharp decline in Germany.
Net revenues for the EEMA (Eastern Europe, Middle East, Africa) region, excluding excise taxes, rose 20.2% to $1.75 billion, including favorable currency impact of $52 million. Excluding currency and acquisitions impact, net revenues grew 14.9%, reflecting favorable pricing primarily in Algeria, Tunisia, the Middle East, and to a lesser extent in Russia, partially offset by unfavorable volume/mix.
Chairman and CEO Louis C. Camilleri said the Baltics, Romania, Turkey and Ukraine suffered from the effect of steep excise-tax increases and weak economies.
Shipments excluding acquisitions sank 2.3 percent, hurt by the European economy and higher tobacco taxes. Volume tumbled 53 percent in the Baltics and 72 percent in Romania where tax increases have made it difficult for the average consumer to afford cigarettes, Chief Financial Officer Hermann Waldemer said.
Uncertainty over a large tobacco tax increase in Japan coming in October led the company to be cautious in its forecast, Chief Financial Officer Hermann Waldemer said in a conference call with analysts. Philip Morris had been planning to raise prices in Japan in June, ahead of the tax increase, but reversed that decision after competitors decided not to make similar moves, he said.
Reference: Philip Morris International Inc. Q1 2010 Earnings Call Transcript, Seeking Alpha, 4/22/2010; Philip Morris International Q1 Profit Rises 15%, But Misses View; Boosts 2010 Profit Outlook - Update, TradingMarkets.com, 4/22/2010.