Philip Morris 2Q Sales Slump as Demand Slows

Marlboro cigarette maker Philip Morris (NYSE:PM) backed its fiscal 2012 view despite reporting a 3.8% decline in second-quarter profit as the tobacco giant’s operations were hurt by slumped demand in Europe and a strong dollar that lowered the value of its products overseas.

Sales narrowed in the quarter by 8.5% to $2.3 billion in the European Union and slumped 2.8% in Asia on macroeconomic problems in Europe and weak foreign exchange rates. The declines were partially offset by 6.9% sales growth in Eastern Europe, the Middle East and Africa.

To help offset falling volumes in developed markets, the company has lifted prices in established markets and started venturing into emerging markets such as untapped areas in Asia. However, weak foreign exchange rates that have lowered the value of its products outside the U.S. have remained a challenge.

Philip Morris has also faced increasing competition from Japanese rival Japan Tobacco, which was hurt during the 2011 earthquake, but has started to ramp up production and shipments.

The company still topped Wall Street expectations and backed its full-year forecast.

The New York-based company reported quarterly profit of $2.32 billion, down from $2.41 billion a year ago, however earnings per share rose to $1.36 from $1.35 and topped average analyst estimates of $1.34 in a Thomson Reuters poll.

“Despite the anticipated Japan hurdle and currency headwinds, we had a solid second quarter which underscored our sustained business momentum,” Philip Morris CEO Louis Camilleri said in a statement.

Revenue for the three-month period was $8.12 billion, down 1.8% from $8.27 billion a year ago, but bested the Street’s view of $8.01 billion.

Looking ahead, Camilleri said the company’s ability to weather future uncertainty will be based on its ability to continue expanding into new markets and lifting prices.

The cigarette manufacturer reiterated its fiscal 2012 earnings view in the range of $5.10 to $5.20 a share, which would be up from $4.85 a year ago. Analysts are looking for earnings of $5.18 a share.

Shares of Philip Morris climbed more than 1% to $90.39 Thursday morning.