UPDATE 1-Czech Philip Morris CR H1 net slightly above fcast

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Consolidated net profit at Czech cigarette maker Philip Morris CR dropped 19 percent in the first half to 882 million crowns ($43.40 million) as the company grappled with tax hikes and migration to cheaper brands.

The result beat market expectations however, of a deeper drop to 862 million crowns, according to a Reuters poll, and the stock gained ground.

The company said in a statement that sales dipped to 4.68 billion crowns from 4.79 billion a year ago.

The market had expected a drop in to 4.31 billion, as many Czechs swapped their Marlboros for cheaper brands, often supplied by competitors of the Czech market leader.

Physical shipments rose 7.6 percent year-on-year, the company said, to 10.5 billion cigarettes.

Philip Morris stock, traditionally popular with investors for its high dividend yield of 6.05 percent, jumped 3.5 percent after the results to 10,271 crowns. It has lost 5 percent since January.

"Competition had cheaper brands on the market longer than they had, so they have lost some market share. Now, as it has equalled a bit, their market share may stabilise," said Dan Karpisek, an analyst at UniCredit Global research.

The government raised cigarette taxes by some 7-9 crowns per pack in April, adding to the hike last year which was only shown in early 2007 sales due to stockpiling.

Yet another tax hike will come in January, which analysts said will continue to pressure sales and margins.

Philip Morris is part of the Altria Group .

[PRAGUE/Reuters/Finance.cz]