After showing signs of a demand recovery in 2009's final quarter, Philip Morris International (NYSE: PM) once again saw cigarette volume decline on an organic basis (excluding acquisitions). However, virtually every other first-quarter metric was significantly positive.

Net revenue of $6.5 billion, excluding excise taxes, was up 16.1%. Favorable currency dynamics and acquisitions together chipped in more than half that gain, with "higher prices in nearly all key markets" making up the balance of revenue growth.  

Free cash flow jumped more than 42%, to hit $1.8 billion. Contributing factors included better working capital management, positive foreign exchange movements, and stronger top and bottom line growth.

Speaking of profit, earnings per share of $0.90 represented 21.6% year-over-year growth. Sans currency effects, EPS advanced 13.5% -- not smoking hot, but certainly respectable.

Those who have been encouraged by PMI's share buyback program will be happy to know that a lower share count boosted EPS by more than $0.05. Combined with the company's 4.5% dividend yield, I'd say that management is doing an excellent job of returning cash to shareholders.

Now, about that volume issue.

On a reported basis, cigarette volume inched up 0.7%, helped in no small part by Philip Morris' recent tie-up with Fortune Tobacco in the Philippines. Excluding such transactions, however, volume declined 2.3%, marking what management described as "a very satisfactory result in what is still a difficult economic environment in many parts of the world ...."

Indeed, PMI's results well exceed the adjusted 11% volume decline recently posted by former parent Altria (NYSE: MO), not to mention the similarly adjusted 4.8% cigarette volume loss just reported by Reynolds American (NYSE: RAI).

And for the next several quarters, investors may have to content themselves with relative (versus absolute) outperformance. Management is currently forecasting a full-year 1.5% slip in organic cigarette volume, with a number of factors pressuring results. Among them, illicit trade has increased, particularly in countries that have implemented substantial tax increases (Romania, for example, has seen illicit sales double). 

In addition, management reported that certain markets in the European Union are either especially price sensitive -- Germany, for instance -- or, in the case of Spain and Greece, remain mired in a broad economic rut.

On the topic of Europe, I can't wrap things up without calling out the risk of a falling euro. In 2009, business in the European Union contributed 43.9% of PMI's operating companies income. Said differently, a big downside move in the euro could ravage profitability.

Philip Morris isn't alone in its euro zone exposure. Global consumer-packaged goods companies including Coca-Cola (NYSE: KO), Johnson & Johnson (NYSE: JNJ), and Colgate-Palmolive (NYSE: CL) all derive a significant portion of business from the region. Notably, PMI does hedge its transaction-based currency risk, although it does not hedge balance-sheet exposure (the changing value of assets and liabilities based on currency movements).

Ultimately, investors should be prepared for potential currency-driven, non-cash earnings hits as well as actual cash flow declines should PMI inadequately hedge its euro-area transactions.

I'm not expecting anything dire anytime soon, but if I'm wrong, the 15 P/E multiple that I recently used to rate Philip Morris shares a moderate buy would likely collapse into the low teens.

Consider that my version of the Surgeon's General warning.

Philip Morris International is a Motley Fool Global Gains recommendation. Coca-Cola is an Inside Value selection. Johnson & Johnson and Coca-Cola are Income Investor choices. Motley Fool Options has recommended a buy calls position on Johnson & Johnson. Try any of our Foolish newsletters, free for 30 days.

Fool contributor Mike Pienciak holds no financial interest in any company mentioned in this article. The Fool has a disclosure policy.