NEW YORK, Jan 31 (Reuters) - Philip Morris Cos. Inc. <MO> on Wednesday posted fourth-quarter profits that climbed 7.5 percent on increased income from its food and tobacco units, and said it sees earnings growth in fiscal 2001.
New York-based Philip Morris, the world's largest tobacco company with the top-selling Marlboro cigarette brand, said underlying earnings climbed to $1.95 billion, up from $1.81 billion a year earlier.
On an underlying basis, diluted earnings per share climbed 13 percent to 87 cents from 77 cents. Analysts on average expected the company, which also operates Kraft Foods Inc. and the Miller Brewing Co., to earn 88 cents per share, according to research firm First Call/Thomson Financial.
Shares of Philip Morris slipped 91 cents to $44 in Wednesday trade on the New York Stock Exchange, at the high end of a 52-week range of $18.69 to $46.50. The shares, which are part of the Dow Jones industrial average, had traded higher earlier, but skidded soon after the results were announced.
"I think the market's reaction to the 1 cent below consensus for the quarter is inappropriate," said Salomon Smith Barney tobacco analyst Martin Feldman, who has a $65 price target on the company's shares. "If one looks at all of the important measures within Philip Morris' businesses, the company continues to perform very strongly."
The company earned $3.71 per share for the year, matching its previously announced target and Wall Street expectations.
Underlying fourth-quarter operating revenues climbed 1.6 percent to $19.39 billion, and for the full year, underlying operating revenues jumped 3.2 percent to $80.32 billion.
Philip Morris acquired Nabisco Holdings Corp. last month for about $19.2 billion, including the assumption of debt, adding such brands as Oreo cookies and Ritz crackers to Kraft, the No. 2 food company behind Nestle <NESZn>. Nabisco's operating results were not included in Philip Morris' results.
In the past, Philip Morris has said it plans to make an initial public offering of 10 to 15 percent of the combined Kraft and Nabisco company in the first half of this year. The company expects to file a registration statement with the Securities and Exchange Commission in the first quarter, but would not disclose any other details about the IPO.
Philip Morris expects underlying diluted earnings per share in 2001 to climb 9 to 11 percent, including the previously disclosed dilutive impact of the Nabisco acquisition. Cash earnings per share, or earnings that exclude the impact of goodwill amortization, are expected to grow 13 to 15 percent.
Philip Morris Chairman and Chief Executive Geoffrey Bible said the strength of the U.S. dollar against foreign currencies represents a continuing risk to those projections.
Quarterly underlying income would have climbed almost 12 percent if an unfavorable currency impact of $219 million were excluded.
"At the very least it will achieve the top end of its 9 to 11 percent estimate for EPS growth in 2001," Feldman said.
The company expects first half earnings to be weaker than in the second half of 2001 due mainly to the dilution from the Nabisco acquisition, as well as the foreign currency impact.
"I think currency is still a risk not just for Philip Morris, but all international companies right now," said Davenport & Co analyst Ann Gurkin. "Raw material costs, things like energy, could be a wild card for 2001. Right now I think the company is well-positioned, but those are two wild cards."
Gurkin also said she thinks the market overreacted to the company's results, and said a move by the Federal Reserve to cut interest rates, like the one made on Wednesday, typically does not have a positive impact on consumer stocks.
Analysts, on average, currently expect the company to earn $4.09 per share in fiscal 2001, according to First Call.
Philip Morris released results on a reported and underlying basis. Analysts track the company based on its underlying results.
ONLY MILLER POSTS DECLINE IN INCOME
Underlying income for the domestic tobacco business climbed 5 percent to $1.5 billion. But volume slipped 1.8 percent to 51.4 billion units, due mainly to wholesaler inventory reductions after a price increase and the effect of one less shipping day.
Underlying income for the international tobacco business, which represents about 33 percent of the company's revenues, gained 4.5 percent to $1 billion on higher volume. Excluding a negative foreign exchange impact of $170 million, income jumped 21.7 percent.
Kraft Foods North America's underlying income climbed 8.5 percent to $751 million, on a 7.7 percent volume gain, which was helped by an extra week of shipments in December, among other factors. Kraft was led by double-digit gains for brands such as Capri Sun, Tang, Altoids and Oscar Mayer Lunchables.
Fourth-quarter underlying income for Miller Brewing dropped 31.4 percent to $59 million, due in part to a 9.5 percent decline in U.S. underlying shipment volume. Volume was hit by a drop in distributor inventories, higher retail pricing and lower industry shipments in the quarter, the company said.
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