Smokers still spending

Cigarette makers found people still willing to spend even as other industries struggled with a pullback in the third quarter while consumers watched banks collapse and markets teeter.

Executives of Philip Morris International Inc., the biggest cigarette maker not owned by a government, and Reynolds American Inc., the second-biggest tobacco company in the U.S., said Wednesday that their results demonstrate how they can defy a downturn.

Philip Morris International's profit rose 20 percent in the third quarter as sales climbed and it benefited from favorable foreign exchange rates. It sells Marlboros, L&M, Chesterfield and Bond Street brands outside the U.S.

“No business in the world is actually recession-proof, but I am convinced that our business is very recession-resilient,” Chief Financial Officer Hermann Waldemer said.

Meanwhile, Reynolds American raised its full-year forecast even though profit fell 41 percent on hefty restructuring and trademark charges. The results still topped expectations as the tobacco company used higher prices to offset consumption declines.

Philip Morris International, which was spun off in March from Altria Group Inc., reported net income of $2.1 billion, or $1.01 per share, in the quarter that ended Sept. 30. It earned $1.73 billion, or 82 cents per share, in the same period a year ago.

Revenue climbed 22 percent to $17.37 billion. The company also affirmed its full-year profit forecast for 2008 and increased its quarterly dividend.

“PMI's reaffirmation of its full-year guidance could allay concern that guidance could be lowered following the recent strengthening of the U.S. dollar,” Goldman Sachs analyst Judy Hong told investors in a research note.

Richmond, Va.-based Altria still owns Philip Morris USA, which sells Marlboros in the U.S. and is Reynolds' bigger rival.

Reynolds American's net income slid to $211 million, or 72 cents per share, in the three months ended Sept. 30. It earned $358 million, or $1.21 per share, a year ago.

Excluding one-time costs, the Winston-Salem company earned $1.29 per share, beating analysts' average estimate of $1.19, according to a Thomson Reuters poll. The maker of Camel, Pall Mall and Kool brands said revenue dipped 1 percent to $2.27 billion — coming in just above Wall Street's $2.25 billion forecast.

Reynolds said cigarette sales volume declined 7.5 percent in the third quarter, compared to a 3.5 percent decline industrywide in recent quarters. The loss in volume was partially offset by higher prices and cost savings.

Due to the better-than-expected report, Reynolds American raised its full-year outlook. It now forecasts 2008 adjusted earnings growth in the low single digits, rather than flat results.

Reynolds announced last month that it would cut about 570 jobs, or 10 percent of its American work force, as cigarette sellers prepare to compete more aggressively for sales of smokeless tobacco products. They are looking for ways to offset declining cigarette sales by selling more chew, snuff, cigars and snus – small teabag-like pouches that users stick between the cheek and gum.