By Brad Dorfman

Philip Morris maintained its full-year outlook, while Reynolds raised its forecast. Shares of Philip Morris fell 2.4 percent, while stock of Reynolds rose 0.8 percent amid a broader market selloff.

Philip Morris International, home to the Marlboro brand, also benefited from a weaker dollar and strength in markets like Eastern Europe, Asia and Latin America that offset volume declines in Western Europe. PMI was spun off from Altria Group <MO.N> in March 2008.

Philip Morris results showed consumers in emerging markets were still trading up for more premium brands, at least as far as tobacco is concerned, UBS analyst Jonathan Leinster said in a research note.

"The downtrading that everyone is referring to or afraid of, we have just not seen," Chief Financial Officer Hermann Waldemer said during a conference call with analysts.

By contrast, Reynolds may have benefited as U.S. consumers traded down to cheaper products, at least in its smokeless tobacco business.

Reynolds, which makes Camel and Salem cigarettes, saw its Conwood smokeless tobacco business continue to gain market share. U.S. consumers moved to its lower-priced brands like Grizzly as they cut back spending in what many economists are already calling a recession.

Government tax increases and greater restrictions on smoking in public places have caused a steady decline in U.S. smoking rates, while Philip Morris International has a wider array of potential customers in overseas markets.

PMI'S STRONG SALES

Philip Morris profit rose to $2.08 billion, or $1.01 a share, from $1.73 billion, or 82 cents a share, a year earlier. The 2007 figures are pro forma, as the company was still part of Altria at that time.

Excluding one-time items, earnings were 93 cents a share, the company said on Wednesday. On that basis, analysts on average had forecast 89 cents, according to Reuters Estimates.

Sales, excluding excise taxes, rose 17.5 percent to $7 billion, helped by price increases and the weaker dollar. Analysts were expecting $6.6 billion.

The number of cigarettes the company shipped rose 4 percent to 225.9 billion.

"Key developing markets, particularly Russia, Ukraine, Indonesia and Argentina showed both volume growth and consumer-uptrading," Goldman Sachs analyst Judy Hong said in a research note.

Philip Morris stood by its 2008 forecast of earnings of $3.32 to $3.38, before items. At current spot currency rates, the company should hit the lower end of the forecast range, Waldemer said.

UBS's Leinster noted that the company maintained its forecast even though the dollar has since gained strength and could pressure results.

Reynolds saw a 7.5 percent drop in the number of cigarettes the company sold, which fell to 23.1 billion.

Profit in the quarter fell to $211 million, or 72 cents a share, from $358 million, or $1.21 a year earlier.

Excluding restructuring and other charges, earnings were $1.29 a share. Analysts on average forecast $1.20 a share.

Sales fell 1.1 percent to $2.27 billion, in line with Wall Street estimates.

Reynolds now expects a low-single-digit increase in 2008 earnings, excluding items. Its prior forecast called for earnings to be about flat.

Philip Morris shares were off $1.01 at $41.15 on Wednesday on the New York Stock Exchange and Reynolds shares were up 35 cents at $45.57.

(Editing by Dave Zimmerman)