Philip Morris, Reynolds Top Analyst Profit Estimates

Philip Morris International Inc., the world’s largest publicly traded tobacco company, and Reynolds American Inc., the second-largest U.S. cigarette maker, reported second-quarter profit that topped analysts’ estimates and raised their 2009 earnings forecasts.

Higher prices helped Philip Morris, the maker of top- selling Marlboro cigarettes, earn 83 cents a share excluding some items, beating the average analyst estimate of 77 cents. Reynolds’ profit of $1.29 a share topped analysts’ expectations by 13 cents.

Philip Morris and Reynolds joined Altria Group Inc., the largest U.S. tobacco company, in saying price increases contributed to earnings and helped counter declining or little- changed shipments. Altria reported second-quarter earnings yesterday that also exceeded analysts’ projections.

“Everybody’s pricing has been impressive and shows the resilience of the tobacco space,’‘ Brian Barish, who manages Philip Morris and Altria shares at Cambiar Investors, said today in an e-mail. The Denver-based firm oversees $4.7 billion.

Philip Morris advanced $2.14, or 4.9 percent, to $46.02 at 4 p.m. in New York Stock Exchange composite trading. The shares have risen 5.8 percent this year. Reynolds gained $1.04, or 2.5 percent, to $42.22.

Net income at New York-based Philip Morris, which generates all of its revenue outside of the U.S., fell 8.6 percent to $1.55 billion, or 79 cents a share, in the second quarter from $1.69 billion, or 80 cents, a year earlier. Revenue declined 8.9 percent to $15.2 billion.

Philip Morris Forecast

Higher prices in Argentina, Germany, Russia and other major markets added to Philip Morris’ earnings while shipments of 223.2 billion cigarettes were little changed.

The company said currency fluctuations will hurt earnings less than it anticipated this year. It expects to earn $3.10 to $3.20 this year, higher than its February forecast of $2.85 to $3 a share.

Some analysts such as Christopher Growe of Stifel Nicolaus & Co. in St. Louis already raised their full-year expectations because of currency changes, pushing the average estimate to $3.11 a share.

The higher forecast “should bolster investor confidence that Philip Morris can sustain its solid underlying business momentum,’‘ Judy Hong, a Goldman Sachs Group Inc. analyst in New York, wrote today in a note to clients. She recommends buying the stock.

Through yesterday, the U.S. currency had fallen over the past month against all 16 most-traded currencies tracked by Bloomberg. The dollar’s decline helps revenue by increasing the value of overseas sales when converted to the U.S. currency.

Reynolds Earnings

Reynolds, based in Winston-Salem, North Carolina, said higher prices countered a 6 percent drop in shipments in the second quarter to 22.4 billion cigarettes.

Camel’s share of U.S. cigarette sales remained unchanged at 7.5 percent, while Pall Mall‘s share rose 2.6 percentage points to 5.2 percent. Reynolds’ total market share increased to 28.7 percent.

Reynolds “gained market share at the retail level, the first time in many years that the company was able to accomplish this,’‘ Thilo Wrede, a Credit Suisse analyst in New York, wrote today in a note to clients. He rates the stock as “neutral’‘ and said promotions contributed to the market share gain.

The company’s smokeless tobacco unit increased its market share to 29.4 percent from 27.5 percent, led by Grizzly snuff.

Reynolds projected 2009 profit of $4.40 to $4.60, an increase from a forecast of $4.15 to $4.45 in April.

Altria, based in Richmond, Virginia, reported yesterday adjusted earnings of 50 cents, helped by price increases and manufacturing cost cuts. The profit beat the average analysts’ estimate by 3 cents. Altria also raised its full-year profit forecast.