The company, which fell short of Wall Street expectations, also lowered its full-year guidance due to unfavourable foreign exchange rates, which weighed on quarterly results as well.
Philip Morris International sells Marlboro and other cigarette brands outside of the U.S., so its results reflect smoking trends abroad. It's the world's second-biggest cigarette seller behind state-controlled China National Tobacco Corp.
The cigarette maker reported earnings of $2.12 billion, or $1.30 per share, in the quarter ended June 30, down from $2.32 billion, or $1.36 per share, a year ago.
Excluding excise taxes, revenue fell 2.5 per cent to $7.9 billion despite higher prices. Costs to make and sell cigarettes rose more than one per cent to $2.7 billion.
Analysts polled by FactSet had expected $1.41 per share on revenue of $8.17 billion. Its shares fell 46 cents, or less than one per cent, to close at $89.25 Thursday.
Cigarette shipments fell about 4 per cent to 228.9 billion cigarettes as it saw volume declines in all of its regions. Total Marlboro volumes fell nearly 6 per cent to 72.4 billion cigarettes.
Still, the company gained share in key markets including France, Germany, Indonesia, Spain and the United Kingdom.
Philip Morris International said economic woes in the European Union and increased excise taxes drove shipments down nearly 6 per cent during the quarter as more than half of the countries in the European Union are now in recession.
Shipments fell 3.6 per cent in the company's region that encompasses Eastern Europe, the Middle East and Africa. Shipments also fell 2.4 per cent in Latin America and Canada.
In Asia, one of its largest growth areas, the company said that cigarette volume fell 3.5 per cent, hurt by a recent tax increase in the Philippines, which saw a 16.5 per cent decline in shipments.
The company benefited from increases in Japan following the March 2011 earthquake and tsunami. The events offered the company a sales opportunity because supply disruptions led Japan Tobacco Inc., the world's No. 3 tobacco maker, to stop shipping cigarettes within Japan. It also bought Philippines company Fortune Tobacco Co. in February 2010, bolstering its Asian business.
During the quarter, Philip Morris International saw volumes rise in Indonesia by about 3.5 per cent and fall 2 per cent in Japan, primarily due to the timing of inventory movements.
The company also noted a growing prevalence of counterfeit and contraband cigarettes.
In a conference call with investors, Chief Financial Officer Jacek Olczak said the company anticipates better results in the second half of the year, especially in the fourth quarter, as smokers adjust to price increases put into place earlier this year.
Smokers face tax increases, bans, health concerns and social stigma worldwide, but the effect of those on cigarette demand generally is less stark outside the United States. Philip Morris International has compensated for volume declines by raising prices and cutting costs.
Because it does all its business overseas, the company also has to navigate changes in currency values. A stronger dollar cuts into revenue generated overseas when it's translated back into dollars.
Philip Morris International Inc., based in New York and Switzerland, cut its profit guidance for the year because of recent changes in foreign exchange rates. It now expects $5.43 to $5.53 per share, versus $5.17 per share in 2012. The forecast includes a one-year $300 million cost-saving target and planned share buybacks of $6 billion for 2013. It spent $1.5 billion to buy back 16.7 million shares in the quarter.
Altria Group Inc. in Richmond, Va., the owner of Philip Morris USA, spun off Philip Morris International as a separate company in 2008. Altria is the largest U.S. cigarette seller.
Michael Felberbaum can be reached at http://www.twitter.com/MLFelberbaum.