How Philip Morris International's Earnings Will Fare

On Thursday, Philip Morris International (NYSE: PM  ) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed knee-jerk reaction to news that turns out to be exactly the wrong move.

Philip Morris has been the go-to investment for those interested in tobacco stocks without having to deal with the prospects of U.S. regulation and legal liability. But will the international markets continue to be a haven of profits for the cigarette giant? Let's take an early look at what's been happening with Philip Morris over the past quarter and what we're likely to see in its quarterly report.

Stats on Philip Morris

Analyst EPS Estimate	$1.34
Change From Year-Ago EPS	7.2%
Revenue Estimate	$7.52 billion
Change From Year-Ago Revenue	0.9%
Earnings Beats in Past 4 Quarters	3

Source: Yahoo! Finance.

Will Philip Morris keep smoking this quarter?
Analysts have reduced their expectations of Philip Morris International's earnings over the past several months, with a $0.02-per-share decline in their consensus for the just-ended quarter and a further $0.08-per-share drop for the full 2013 year. The stock hasn't responded badly to that news, however, rising more than 10% since early January.

The advantages that Philip Morris has over its domestic counterparts became clearer than ever last week, when President Obama released his new budget. With a proposed increase in cigarette taxes from $1.01 to $1.95 per pack, the budget hopes to raise $78 billion in taxes over the next decade. Yet the inevitable impact of such a tax will be to reduce demand further, which is a trend that Altria (NYSE: MO  ) and Reynolds American (NYSE: RAI  ) have already had to endure in the past. With both Altria and Reynolds already having announced layoffs in recent years to cut costs in light of declining sales, the impact of a cigarette tax could hurt the U.S. industry further.

By contrast, Philip Morris enjoys the growth potential of China, India, and countless other emerging markets with rising middle-class populations and more favorable regulatory environments. Yet even it has faced regulatory threats in Australia and Russia, and further efforts to curb smoking internationally could eventually hurt its prospects. Meanwhile, with nearly $23 billion in debt, Philip Morris has benefited greatly from low interest rates, but those tailwinds could reverse themselves when interest rates start rising again.

In Philip Morris International's earnings report, watch for the impact that the U.S. dollar's strength recently has on earnings. If the dollar returns to its longer-trend weakening trend, then it could boost Philip Morris's earning power in future quarters, making any short-term correction a potential buying opportunity.

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