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Philip Morris Q2 falls short as currency impacts take out a bite

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Philip Morris International (NYSE:PM) returned lower-than-expected figures for the quarter ending June 30 as the stronger greenback reduced the New York-based cigarette maker’s overseas sales. Lower cigarette shipments also hurt the world’s largest publicly traded tobacco company. 

Net income of $2.12 billion marked a drop of more than 8 per cent from the $2.32 billion recorded in the same quarter the year before, with reported diluted earnings per share of $1.30, down on the $1.36 per share earnings of the year ago period, a drop of 4.4 per cent.

The nature of Philip Morris’ business model – wherein the company generates all its revenue outside its home country, the United States -- lays the manufacturer and seller of cigarettes and other tobacco products open to the vagaries of currency movements. This factor of “unfavourable currency” reduced diluted earnings per share by 7 cents.

Net revenue came in at $7.92 billion, dropping from the year-ago figure of $8.12 billion for a drop of 2.5 per cent, including $243 million lost to currency impacts. Excluding currency impacts, revenue edged up 0.5 per cent. 

The results missed estimates, which called for a profit of $1.41 per share on revenue of $8.17 billion, according to Thomson Reuters

The tobacco giant revised its earning guidance for the year downwards, forecasting full-year diluted earnings per share to now fall in the range of $5.43 to $5.53 as a consequence of prevailing exchange rates. It estimated in April earnings of between $5.55 to $5.65 per share. 

Revenue from the company’s segment covering Eastern Europe, the Middle East and Africa was up 1.4 per cent to hit $2.181 billion, up year-on-year from $2.151 billion. Revenue from the segment covering Latin American and Canada was also up, increasing 1.1 per cent to $838 million from the year-ago $829 million.

All other segments recorded revenue that dropped year-on-year, with Asia losing the most, at 5.7 per cent, to drop to $2.69 billion from $2.85 billion. Revenue flowing from the European Union was also down, losing 3.5 per cent to fall to $2.2 billion from the year ago figure of $2.28 billion.

“As expected, despite strong pricing and a robust share performance, our second-quarter results were primarily impacted by lower industry volume in several key markets, as well as the timing of inventory movements in Japan, higher costs, predominantly in Asia, and stiffer currency headwinds,” said Chief Executive Officer, André Calantzopoulos.

“For the second half of the year, we expect volume/mix to improve, pricing to remain strong and our total cost variance, excluding currency, to be flat. While industry volume remains a challenge, our underlying business performance is such that we continue to expect to meet our mid to long-term currency-neutral adjusted diluted EPS growth rate target of 10 to 12 per cent in 2013.”

Shares were trading down on the New York Stock Exchange on the day of the release of figures, losing 14 cents off their previous close of $89.71 to hit $89.57 as of 11:27am EST.

Quick facts: Philip Morris International

Price: 75.9 USD

NYSE:PM
Market: NYSE
Market Cap: $118.2 billion
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