Thursday July 28, 2011
by Geoffrey Seiler, editor BullMarket.com
Strong volume growth out of Asia along with higher prices enabled Recommended List selection Philip Morris International (PM) to top the consensus Wall Street analyst estimate.
This was an exceptionally strong quarter from Philip Morris. The company also raised its full-year guidance above the current Street estimate.
The international tobacco seller reported that its Q2 net income grew by 21.5% to $2.41 billion, or $1.35 per share.
Net revenues excluding excise taxes grew by 17% to $8.3 billion on an as-reported basis. Sales grew by 10% excluding the impact of foreign exchange.
Wall Street was expecting the company to report $1.22 in net income on sales net of excise taxes of $7.8 billion.
The company's sales performance out of Asia was exceptional. Net revenue from that region grew by nearly 28% on a currency-neutral basis to $2.94 billion.
Asian segment operating income grew to $1.4 billion from $845 million, up 65.4% as reported and 48.3% ex-currencies. Overall operating income increased by 27% to $3.78 billion from $2.97 billion (up 16.5% ex-currencies).
Say what you will about the business, PMI is a model of consistent execution. It uses its pricing power to grow revenue in spite of modest volume growth (or in some cases decline) and regularly grows its bottom line.
The company also allocates capital in a shareholder-friendly manner by buying back stock and regularly boosting its dividend.
As the quarter's results show, PMI is also a great play on the weak dollar. And overall dollar weakness, rather than strength, still seems like a prevailing longer-term theme.
We continue to rate Philip Morris International a "Buy." We're going to boost our price target to $79, which is about a 15.5x multiple on the 2012 consensus of $5.12 (but we also think that estimates will continue to move up).
The company also yields a healthy 3.6%, and we're expecting a nice dividend increase this fall.
Learn more about this financial newsletter at Geoffrey Seiler's BullMarket.com.
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