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Philip Morris (PM) Q2 Earnings Top Estimates, Raises View

Zacks Equity Research

Philip Morris International Inc. PM delivered second-quarter 2019 results, with the top and the bottom line beating the Zacks Consensus Estimate. Also, the company’s earnings improved year on year. Apart from favorable pricing, the quarterly results benefited from improved revenues and shipment volumes in the heated tobacco category. Further, management raised earnings view for 2019. These upsides fueled investors’ optimism, evident from the stock’s rise of almost 3% during the premarket trading session on Jul 18.  

On the flip side, dismal performance in the combustible category was a drag. This exerted pressure on the company’s top line.

Quarter in Detail

Adjusted earnings per share (EPS) of $1.46 beat the Zacks Consensus Estimate of $1.33. Also, the bottom line improved 3.5% year over year. Excluding currency impacts, the bottom line rose 8.5% from the year-ago quarter’s tally. On a like-for-like basis, after excluding currency, the bottom line improved 15%.  

Net revenues of $7,699 million beat the Zacks Consensus Estimate of $7,352 million. However, the top line declined 0.3% in the reported quarter. Nevertheless, the metric was up 5.4% on a constant-currency (cc) basis, backed by favorable pricing across most regions.

Philip Morris International Inc. Price, Consensus and EPS Surprise

 

Philip Morris International Inc. Price, Consensus and EPS Surprise

Philip Morris International Inc. price-consensus-eps-surprise-chart | Philip Morris International Inc. Quote

 

During the quarter under review, revenues from combustible products declined 7.1% to $6,233 million. Except South & Southeast Asia and Middle East & Africa, figures in the category declined across most regions. Further, revenues in the Reduced-Risk Products (RRPs) improved 43.7% to $1,466 million. Growth in RRPs in most regions was partially offset by decline in Middle East & Africa and Latin America & Canada.

Total cigarette and heated tobacco unit shipment volume inched down 1.4% to 198.9 billion units. Cigarette shipment volume went down 3.6% to 183.8 billion units in the second quarter, while heated tobacco unit shipment volume of almost 15.1 billion units rose 37% year over year.

Adjusted operating income rose 3.8% to reach $3,210 million. On a like-for-like basis, after excluding currency, adjusted operating income went up 15.7% year over year. The metric rose 9.1% at cc.

Adjusted operating margin also expanded 170 basis points to 41.7%. Excluding currency, the metric improved 1.4 percentage points.



Region-Wise Performance

Net revenues in European Union increased 3% to $2,577 million. Revenues climbed 11.6% at cc, courtesy of favorable pricing and volume/mix. Total shipment volume in the region inched up 0.5% to 49,410 million units.

In Eastern Europe, net revenues grew 8.2% to $822 million and rose 16.8% at cc. The upside can be attributed to favorable pricing and volume/mix. Total shipment volumes increased 1.6% to 29,887 million units.

In Middle East & Africa region, net revenues declined 1.8% (up 7% at cc) to $1,004 million. Further, total shipment volumes contracted 7.9% to 32,378 million units.

Revenues in South & Southeast Asia rose 8% (up 10.7% at cc) to $1,248 million. Performance was aided by favorable pricing variance.  Shipment volumes grew 3.5% to 46,376 million units.

Revenues from East Asia & Australia improved 2.9% (up 4.6% at cc) to $1,521 million, mainly due to favorable pricing and partially countered by unfavorable volume/mix. Total shipment volumes fell 3% to 22,273 million units.

Finally, revenues from Latin America & Canada fell 34.7% (down 32.5% at cc) to $527 million. Moreover, total shipment volumes were down 8.4% to 18,531 million units.

Other Financials

Philip Morris ended the quarter with cash and cash equivalents of $4,008 million. Also, the company had long-term debt of $24,858 million and shareholders’ deficit of $9,409 million.

Also, in the reported quarter, management paid quarterly dividend of $1.14 per share.

Guidance

Philip Morris raised its outlook for 2019. Adjusted earnings are now expected at $5.14 compared with the earlier forecast of $5.09. The revised view indicates growth of almost 6% from the year-ago quarter’s figure. Excluding the impacts of unfavorable currency of approximately 14 cents, earnings are projected to rise at least 9% to reach $5.28. The Zacks Consensus Estimate for 2019 is currently pegged at $5.15. Further, management expects effective tax rate for 2019 to be roughly 23%.

Price Performance & Zacks Rank

Shares of the company gained 9.9% in the past six months compared with the industry’s rise of 7.7%. Currently, Philip Morris has a Zacks Rank #3 (Hold).

Looking for More Consumer Staples Stocks? Check These

The J. M. Smucker Company SJM, with a Zacks Rank #2 (Buy), has long-term earnings growth rate of 4%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Campbell Soup Company CPB, with a Zacks Rank #2, has long-term earnings growth rate of 5%.

Kimberly-Clark Corporation KMB, with an expected long-term earnings growth rate of 5.2%, also carries a Zacks Rank #2.

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