NEW YORK (Reuters) - U.S. tobacco companies are expected to post solid profits when they report second quarter results next week, but foreign currency rates could hit the largest cigarette maker, Philip Morris, going forward, analysts said.

Analysts expect the top two U.S. cigarette makers, Philip Morris Cos. Inc. and R.J. Reynolds Tobacco Holdings Inc., along with chewing tobacco maker UST Inc., to meet or exceed consensus expectations for the quarter. But looking ahead, the outlook is not as bright for the full year. Despite a somewhat gloomy outlook, the tobacco sector is missing one thing present in a slew of other groups: warnings. ``In times of everyone pre-announcing and missing earnings, boring is good,'' Credit Suisse First Boston's Bonnie Herzog said of the sector. ``If you look at the overall market, all the blowups, this should be a good place for investors to hide.'' PHILIP MORRIS COULD BE HIT BY FOREIGN EXPOSURE Philip Morris has said it sees 9 percent to 11 percent underlying earnings per share growth for the full year. ``I wouldn't doubt if they're going to come in at the lower end of the range for the year and I think we're going to get more clarity on that in their conference call,'' Herzog said. While Herzog expects the company to cast a lower stance on its profit prospects, she cites foreign currency as the cause. ``The encouraging thing about that, in my opinion, is that it's out of the company's control,'' Herzog said. ``I like the fact that if earnings are going to be a little bit lighter than we expected, it's not necessarily that the fundamentals are deteriorating.'' Salomon Smith Barney tobacco analyst Martin Feldman expects Philip Morris to narrow its full year earnings per share range to around $4.04 to $4.10, due largely to concern over the ongoing strength of the U.S. dollar. But Feldman added that the international tobacco unit is ''picking up new volume, additional market share, and local currency earnings gains in virtually all its key national markets. Its strength remains intact, despite the strengthening dollar.'' As Herzog noted, foreign currency has had a negative impact on Philip Morris for the last several years, but this year's impact could be ``bigger then what we thought at the beginning of the year.'' Analysts currently expect the company to earn $4.05 to $4.10 per share for the year, with a consensus of $4.07, up from $3.71 in 2000, according to Thomson Financial/First Call. Sanford C. Bernstein's William Pecoriello cut his 2001 and 2002 earnings per share views on Philip Morris earlier this month, due in part to a higher foreign currency impact. R.J. REYNOLDS USES PROMOTIONAL STANCE R.J. Reynolds has used promotions to boost sales of its brands, but analysts say such promotions will not help the company ensure long term success. Pecoriello sees earnings risk in the second half of the year for R.J. Reynolds due to the stepped up promotional spending. Others also see the promotions hurting the company going forward. ``We do not believe that RJR's rented market share is sustainable,'' Feldman said. ``As soon as its promotions ease, its share is likely to slide. And while Herzog expects R.J. Reynolds to meet expectations, she noted that a lot of the company's earnings per share is driven by its interest income. ``The biggest challenge for RJR is to grow operating income, and I'm not expecting high growth this quarter,'' she said. CAN UST MEET ITS EARNINGS PER SHARE GROWTH TARGET? Chewing tobacco maker UST has said it expects earnings to climb 6 percent in the second quarter and 10 percent for the full year. Feldman calls the company's prospects for 6 percent earnings per share growth to 73 cents ``likely.'' He said sales of premium brands Skoal and Copenhagen may have declined, but sales of lower margin brands, such as Red Seal, may have jumped some 30 percent. He sees total volumes up slightly. UST's sales could also be boosted by wholesale price increases the company took on a variety of its brands in May. While Feldman expects UST to deliver its forecast of 10 percent earnings per share growth this year, Herzog does not think such growth is ``doable.'' Analysts, on average, expect the company to earn $2.95 for the full year, while 10 percent growth would call for the company to earn $2.97 per share. LATEST LITIGATION NEWS Philip Morris suffered a major setback in individual cases in June, when a California jury awarded smoker Richard Boeken more than $3 billion. But the company is appealing that verdict, and has seen a number of positive moves for the industry during the quarter. Most recently, a federal judge in South Carolina dismissed a lawsuit against Philip Morris U.S.A., its domestic tobacco unit. ``The news flow has decreased regarding litigation which should be a catalyst for the tobacco stocks,'' Herzog said. The tobacco sector, as measured by the Standard & Poor's Tobacco index .SPTOBC), has unperformed the broad Standard & Poor's 500 index .SPX) by about 8 percent since the beginning of the second quarter. Analysts still see the stocks as solid plays. ``You can get great yields that aren't at risk, you've got minimal chance for the companies missing earnings and you've got the litigation environment, which is clearing up,'' Herzog said. She said investors are likely waiting to see how the companies report and getting more visibility for the second half. ``and then you might start to see the stocks perform a little bit better.'' The following table lists earnings per share estimates for the second quarter of 2001 compared with actual results from the second quarter of 2000.

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