Tobacco company earnings boosted by higher prices

CHICAGO Thu Jul 22, 2010 9:54am EDT

CHICAGO (Reuters) - Some of the world's largest tobacco companies showed this week that even in a sluggish global economy they have the power to raise prices and beat earnings expectations.

Marlboro cigarette maker Philip Morris International Inc (PM.N) and Camel cigarette maker Reynolds American Inc (RAI.N) posted higher-than-expected quarterly profits on Thursday and raised their 2010 earnings forecasts.

The results came a day after Philip Morris USA parent Altria Group Inc (MO.N) raised its forecast for the year after the 2010 first half went better than expected.

The tobacco companies' figures helped mitigate concerns that a large increase in the U.S. tax on tobacco last year, and high unemployment in Western Europe and the United States, would force a switch by consumers to lower-priced smokes.

"This industry is all about pricing," Morningstar analyst Phil Gorham said. "They've still got very strong pricing power."

Philip Morris International, the world's largest non-state-controlled tobacco company, said profit was $1.98 billion, or $1.07 a share, in the second quarter, up from $1.55 billion, or 79 cents a share, a year earlier.

Analysts on average forecast 97 cents a share, according to Thomson Reuters I/B/E/S.

Revenue rose 14.3 percent to $17.4 billion.

The company shipped 240.96 billion cigarettes in the quarter, up 8 percent from a year earlier. Part of the increase was fueled by customers stocking up in Japan ahead of a tax increase that takes effect October 1.

Higher prices helped lift the company's operating income by 15 percent, excluding the impact of currency fluctuations.

The company said it now expects earnings of $3.75 to $3.85 a share for the year, compared with its forecast a month ago of $3.70 to $3.80.

Philip Morris shares were up 0.7 percent at $50.24 in early trading.

Reynolds American said profit was $341 million, or $1.17 a share, in the second quarter, weighed down by plant-closing costs, compared with $377 million, or $1.29 a share, a year earlier.

Excluding one-time items, earnings were $1.32 a share, 2 cents above the average analyst estimate.

Sales were little changed at $2.25 billion. In the 2009 second quarter, shipments were skewed higher by the timing of the U.S. tax increase.

The company shipped 20.3 billion cigarettes in the quarter, down 9.5 percent from a year earlier. but key brands Camel and Pall Mall both saw increased market share.

Reynolds also shipped 97.1 million cans of smokeless tobacco under brands like Grizzly and Kodiak.

Reynolds expects full-year earnings, excluding one-time items, of $4.90 to $5.05 a share, up from a previous forecast of $4.80 to $5.00. Analysts on average expect $4.92.

Reynolds shares were up 0.4 percent to $56.05 in early trading. Altria was up 0.4 percent to $21.50.

(Reporting by Brad Dorfman; Editing by Derek Caney and John Wallace)