010442 Philip Morris Quarterly Profit Rises

New York - Tobacco, food and beer giant Philip Morris Cos. Inc. reported higher first-quarter profits, boosted by a gain in income at its domestic tobacco unit and the addition of Nabisco foods to its Kraft portfolio.

Philip Morris, the world's largest tobacco company with the top-selling Marlboro cigarette brand, said that on an underlying basis it earned $2.11 billion, or 95 cents a diluted share, up from a profit of $2.07 billion, or 89 cents, a year earlier.

“They look like very solid numbers,” said Ann Gurkin, an analyst at Davenport & Co. “It was nice to see upside from our estimates in the food and the international tobacco business.”

Analysts who track the company's underlying results had expected the company to earn 94 to 95 cents a share, with an average estimate of 94 cents, according to research firm Thomson Financial/First Call.

“Philip Morris started the year with good momentum and our results are in line with our expectations,” Geoffrey Bible, chairman and chief executive, said in a statement. Bible said the company is still comfortable with its projection of 9% to 11% underlying earnings per share growth for the full year, including the dilutive impact of the Nabisco acquisition, and 13% to 15% growth on an underlying cash earnings per share basis, which excludes the impact of goodwill amortization.

But, as in the past, Bible cautioned that “the impact of adverse currency,” along with other factors, will continue to be a risk to those forecasts.

Shares of Philip Morris, a component of the Dow Jones industrial average, slipped in early morning trading and were last off 13 cents at $46.43. The shares have more than doubled over the last year, easily outperforming the Standard & Poor's 500 Index, which has shed about 20% of its value in that time.

The stock has performed roughly in line with its peers, as measured by the Standard & Poor's Tobacco index, which consists of nine tobacco-related companies, including Philip Morris. The tobacco industry overall has shown strong gains amid an easing litigation environment and renewed investor interest in some consumer cyclicals.

Underlying income from the domestic tobacco unit, Philip Morris Inc., rose 7.7% to $1.2 billion, largely from pricing and solid share performance from Marlboro and other premium brands. Shipment volume slipped 2.3% to 51.6 billion units, against an industry volume decline of 3.7% to 98.5 billion total units, Philip Morris said.

Credit Suisse First Boston analyst Bonnie Herzog called the unit's 7.7% income gain “great.”

Philip Morris International, the company's international tobacco unit, posted an 4.6% gain in underlying income to $1.6 billion on higher pricing and increased volume. The international tobacco business gained share in what the company called “most” of its important markets.

Herzog said PMI's income gain was a little lower than she had anticipated. “But I'm still encouraged for the full year.”

Kraft Foods Inc., the world's No. 2 food company behind Nestle, with products such as Kraft Macaroni & Cheese and Oscar Mayer meats, said last month it hopes to raise as much as $5 billion in what could be one of the biggest U.S. initial public offerings. Kraft has applied for a New York Stock Exchange listing.

On Tuesday, Philip Morris said it expects to complete the IPO of the Kraft Foods unit by the end of the second quarter.

Kraft added a host of brands to its food portfolio, including Oreo cookies and Ritz crackers, when Philip Morris acquired Nabisco Holdings Corp. in December.

The added Nabisco lineup boosted profits at both Kraft divisions. Income at the Kraft Foods North America jumped 25.1% to $1.2 billion, while Kraft Foods International's underlying income climbed 16.6% to $239 million.

Underlying income for Miller Brewing Co., the second-largest U.S. brewer, plunged 18.4% to $124 million, as volume dropped and the company upped its marketing spending behind core premium brands by “double-digit” percentages.

“While volume and income were down in our beer business, we are addressing the challenges,” Bible said.

Analysts seem wary of Miller's near term prospects.

“Miller, of course, is bleeding,” Herzog said. “I hope that they're putting the right things in place to turn that business around.”

Gurkin also said the Miller results were weaker than she had anticipated, but added “that's not surprising.” She said marketing spending needs to stay at an increased level for Miller to show progress. “It's going to take the full year to turn Miller around,” Gurkin said.

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