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Philip Morris International Struts Its Stuff

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Since Altria (NYSE: MO  ) originally spun off Philip Morris International (NYSE: PM  ) , and Altria lays claim to the Marlboro Man's original U.S. market, it'd make sense to think of Altria as PMI's older sibling.

By that analogy, picture PMI as the quicker, bigger, stronger, better-looking younger sibling that gets all the attention -- and steals its older brother's girlfriends.

For proof of this lopsided relationship, look no further than the companies' respective second-quarter earnings reports. Altria's bottom line posted a 6% year-over-year increase that did not wow investors. But PMI delivered a 34% jump in adjusted diluted earnings per share, for a total of $1.34. Analysts expected just $1.22 in per-share profit for the quarter. Consider them sufficiently wowed.

Looking past the smoke
At the risk of underplaying PMI's very good quarter, Fools should recognize that some of that growth came from currency translation. Excluding that, adjusted diluted earnings per share increased 21% -- still not shabby in the least.

With the exception of Asia, much of the quarterly growth came from pricing increases and favorable product mix. Weak economies like Greece and Spain hurt overall volume, while the company lost market share in some areas such as Ukraine. It also had to cease business altogether in Libya because of import sanctions.

A breakdown of the regional results reveals Asia as the quarter's big driver:


Net Revenue

Operating Company Income

Shipment Volume

European Union 0.7% 2.1% (3.1%)
Eastern Europe, Middle East & Africa 3.6% 4.8% (3.3%)
Asia 27.8% 48.3% 7.5%
Latin America & Canada 5.8% 8.8% (4.8%)
Total PMI 10.2% 16.5% 0.1%

Source: Philip Morris International.

Note: All numbers are year-over-year increases excluding currency impact.

Considering that three of its four regions saw volume declines, it's a serious tribute to the Asian market that the company managed to keep total volume roughly flat from last year. And of course, it's even more impressive that PMI was able to grow revenue and profits so dramatically on basically no volume growth.

But here's the real kicker
Investors frowned on Altria's quarter because the company said that sales would likely slow in the third quarter, as customers worked off built-up inventory. Not so with PMI.

Philip Morris International boosted its 2011 full-year forecast to $4.70 to $4.80, which, at the midpoint, is above current analyst estimates. That's a $0.15 increase from the company's prior forecast and while $0.05 of that is coming from currency translation, $0.10 will come from "improved business outlook." That sounds darn good to me.

Do you really have to choose?
PMI is larger than Altria, has much better geographic diversity, and has a brighter growth outlook. However, Altria's stock is currently cheaper on a price-to-earnings basis and has a better dividend yield. Just because the company split itself up, I don't think you have to choose one or the other for your portfolio -- I see both managing good returns in the years ahead.

The Motley Fool owns shares of Philip Morris International and Altria Group. Motley Fool newsletter services have recommended buying shares of Philip Morris International. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Fool contributor Matt Koppenheffer does not have a financial interest in any of the companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or Facebook. The Fool’s disclosure policy prefers dividends over a sharp stick in the eye.

Read/Post Comments (2) | Recommend This Article (9)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 24, 2011, at 12:51 PM, granterich wrote:

    I purchased PM at around $52 a share and sold at $70 thinking that there couldn't be that much more growth left in it. But, after thinking about it I am beginning to doubt my decision to sell I think PM probably can grow at least 10 more dollars. Anyways, great article!

  • Report this Comment On July 24, 2011, at 6:58 PM, midnightmoney wrote:

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