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Philip Morris' (PM) Pricing, Smoke-Free Forte Aid Amid Hurdles
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Philip Morris International Inc. (PM - Free Report) is strategically positioned to benefit from its smoke-free product lineup and strong pricing power. The company's robust performance in the second quarter of 2023 demonstrated its resilience amid cost inflation and soft cigarette volumes.
Impressive Q2 & Guidance
Philip Morris posted robust second-quarter 2023 results. Adjusted earnings per share (EPS) came in at $1.60, which jumped 16.9% year over year and beat the Zacks Consensus Estimate of $1.48.
Moreover, net revenues of $8,967 million increased by 10.5% on an organic basis. The Zacks Consensus Estimate for the top line was pegged at $8,690 million. The year-over-year upside was backed by a rise in total cigarette and heated tobacco unit (HTU) shipment volumes, an improved product mix impact related to the greater proportion of smoke-free products and elevated combustible tobacco pricing.
For 2023, Philip Morris expects net revenues to increase by nearly 7.5-8.5% on an organic basis. For the full-year 2023, management expects adjusted EPS in the band of $6.13-$6.22 compared with the $5.98 reported in 2022. Excluding currency movements, the adjusted EPS is envisioned in the band of $6.46-$6.55, suggesting 8-9.5% growth from the year-ago period figure.
PM expects robust organic adjusted operating income growth in the second half of 2023, which is likely to fuel adjusted operating margin expansion. For the third quarter of 2023, Philip Morris expects adjusted EPS in the band of $1.60-$1.65. The EPS guidance reflects organic top-line growth in the high single digits, among other factors. Moving on, the company expects a meaningfully solid performance in the fourth quarter.
Image Source: Zacks Investment Research
A Shift Toward Smoke-Free Products
One of the pivotal strengths of Philip Morris lies in its successful transition toward smoke-free alternatives, which contributed to 35.4% of the company's net revenues in the second quarter. PM is well-placed toward becoming a majority smoke-free company by 2025. Toward this end, the company’s IQOS, a heat-not-burn device, counts among one of the leading reduced-risk products (RRPs) in the industry.
Backed by substantial scientific research, these advanced products are designed to facilitate adult smokers in transitioning away from traditional cigarettes. In the second quarter of 2023, revenues from smoke-free products (excluding Wellness and Healthcare) jumped 35.3% to $3,101 million (up 18.3% organically).
Further, in the quarter, the company witnessed continued strength in IQOS performance, along with pricing power. Total IQOS users at the end of the second quarter were estimated at roughly 27.2 million (including nearly 19.4 million who switched to IQOS and stopped smoking).
For 2023, management expects HTU shipment volumes of 125-130 billion units. HTU shipment volumes are likely to be about 31-33 billion units in the third quarter.
Cost & Cigarette Volume Concerns
Cigarette volumes, in general, have been affected by consumers’ rising health consciousness and a shift to low-risk tobacco alternatives. In the second quarter of 2023, Philip Morris’ cigarette shipment volumes dropped 0.4% to 157 billion units.
In 2023, the total international industry volume for cigarettes and HTUs is estimated to decline in the range of 0.5-1.5%, excluding China and the United States. For Philip Morris, cigarette shipment volumes are expected to decrease 1.5-2.5% in 2023.
The company has been battling cost-related headwinds for a while now. In the second quarter of 2023, the adjusted operating income was somewhat affected by global inflationary headwinds associated with direct materials, tobacco leaf, energy and wages. The adjusted operating margin of 39.4% contracted 1.4 percentage points year over year. PM expects to make additional growth-oriented investments, including the commercialization of ILUMA.
Steadfast Pricing Offers Shield
Philip Morris has been benefiting from its strong pricing power, which has aided its revenues and adjusted operating income in the face of declining cigarette volumes. Though higher pricing might lead to a possible decline in cigarette consumption, it is seen that smokers tend to absorb price increases due to the addictive quality of cigarettes. Higher pricing variance was an upside to the company’s performance (mainly due to increased combustible tobacco pricing) in the second quarter of 2023.
Philip Morris remains well-positioned, leveraging its pricing strategies and smoke-free product portfolio strength to navigate the headwinds successfully. Shares of this Zacks Rank #3 (Hold) company have climbed 1.5% in the past three months compared with the industry’s growth of 1.1%.
The Zacks Consensus Estimate for Post Holdings’ current fiscal year sales and earnings suggests growth of 13.5% and 184.5%, respectively, from the corresponding year-ago reported figures.
Helen of Troy (HELE - Free Report) , a provider of several consumer products, currently has a Zacks Rank #2 (Buy). HELE’s expected EPS growth rate for three to five years is 8%.
The Zacks Consensus Estimate for Helen of Troy’s current fiscal-year sales suggests a decline of 2.9% from the year-ago reported numbers. HELE has a trailing four-quarter earnings surprise of 8.1%, on average.
Inter Parfums (IPAR - Free Report) , which manufactures, markets and distributes a range of fragrances and fragrance-related products, currently carries a Zacks Rank #2. IPAR has an expected EPS growth rate of 15% for three to five years.
The Zacks Consensus Estimate for Inter Parfums’ current financial-year sales indicates 19.7% growth from the year-ago reported figure. IPAR has a trailing four-quarter earnings surprise of 45.9%, on average.
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Philip Morris' (PM) Pricing, Smoke-Free Forte Aid Amid Hurdles
Philip Morris International Inc. (PM - Free Report) is strategically positioned to benefit from its smoke-free product lineup and strong pricing power. The company's robust performance in the second quarter of 2023 demonstrated its resilience amid cost inflation and soft cigarette volumes.
Impressive Q2 & Guidance
Philip Morris posted robust second-quarter 2023 results. Adjusted earnings per share (EPS) came in at $1.60, which jumped 16.9% year over year and beat the Zacks Consensus Estimate of $1.48.
Moreover, net revenues of $8,967 million increased by 10.5% on an organic basis. The Zacks Consensus Estimate for the top line was pegged at $8,690 million. The year-over-year upside was backed by a rise in total cigarette and heated tobacco unit (HTU) shipment volumes, an improved product mix impact related to the greater proportion of smoke-free products and elevated combustible tobacco pricing.
For 2023, Philip Morris expects net revenues to increase by nearly 7.5-8.5% on an organic basis. For the full-year 2023, management expects adjusted EPS in the band of $6.13-$6.22 compared with the $5.98 reported in 2022. Excluding currency movements, the adjusted EPS is envisioned in the band of $6.46-$6.55, suggesting 8-9.5% growth from the year-ago period figure.
PM expects robust organic adjusted operating income growth in the second half of 2023, which is likely to fuel adjusted operating margin expansion. For the third quarter of 2023, Philip Morris expects adjusted EPS in the band of $1.60-$1.65. The EPS guidance reflects organic top-line growth in the high single digits, among other factors. Moving on, the company expects a meaningfully solid performance in the fourth quarter.
Image Source: Zacks Investment Research
A Shift Toward Smoke-Free Products
One of the pivotal strengths of Philip Morris lies in its successful transition toward smoke-free alternatives, which contributed to 35.4% of the company's net revenues in the second quarter. PM is well-placed toward becoming a majority smoke-free company by 2025. Toward this end, the company’s IQOS, a heat-not-burn device, counts among one of the leading reduced-risk products (RRPs) in the industry.
Backed by substantial scientific research, these advanced products are designed to facilitate adult smokers in transitioning away from traditional cigarettes. In the second quarter of 2023, revenues from smoke-free products (excluding Wellness and Healthcare) jumped 35.3% to $3,101 million (up 18.3% organically).
Further, in the quarter, the company witnessed continued strength in IQOS performance, along with pricing power. Total IQOS users at the end of the second quarter were estimated at roughly 27.2 million (including nearly 19.4 million who switched to IQOS and stopped smoking).
For 2023, management expects HTU shipment volumes of 125-130 billion units. HTU shipment volumes are likely to be about 31-33 billion units in the third quarter.
Cost & Cigarette Volume Concerns
Cigarette volumes, in general, have been affected by consumers’ rising health consciousness and a shift to low-risk tobacco alternatives. In the second quarter of 2023, Philip Morris’ cigarette shipment volumes dropped 0.4% to 157 billion units.
In 2023, the total international industry volume for cigarettes and HTUs is estimated to decline in the range of 0.5-1.5%, excluding China and the United States. For Philip Morris, cigarette shipment volumes are expected to decrease 1.5-2.5% in 2023.
The company has been battling cost-related headwinds for a while now. In the second quarter of 2023, the adjusted operating income was somewhat affected by global inflationary headwinds associated with direct materials, tobacco leaf, energy and wages. The adjusted operating margin of 39.4% contracted 1.4 percentage points year over year. PM expects to make additional growth-oriented investments, including the commercialization of ILUMA.
Steadfast Pricing Offers Shield
Philip Morris has been benefiting from its strong pricing power, which has aided its revenues and adjusted operating income in the face of declining cigarette volumes. Though higher pricing might lead to a possible decline in cigarette consumption, it is seen that smokers tend to absorb price increases due to the addictive quality of cigarettes. Higher pricing variance was an upside to the company’s performance (mainly due to increased combustible tobacco pricing) in the second quarter of 2023.
Philip Morris remains well-positioned, leveraging its pricing strategies and smoke-free product portfolio strength to navigate the headwinds successfully. Shares of this Zacks Rank #3 (Hold) company have climbed 1.5% in the past three months compared with the industry’s growth of 1.1%.
Solid Consumer Staple Bets
Post Holdings (POST - Free Report) , a consumer-packaged goods holding company, currently sports a Zacks Rank #1 (Strong Buy). POST has a trailing four-quarter earnings surprise of 59.6% on average. You can see the complete list of today’s Zacks #1 Rank stocks here
The Zacks Consensus Estimate for Post Holdings’ current fiscal year sales and earnings suggests growth of 13.5% and 184.5%, respectively, from the corresponding year-ago reported figures.
Helen of Troy (HELE - Free Report) , a provider of several consumer products, currently has a Zacks Rank #2 (Buy). HELE’s expected EPS growth rate for three to five years is 8%.
The Zacks Consensus Estimate for Helen of Troy’s current fiscal-year sales suggests a decline of 2.9% from the year-ago reported numbers. HELE has a trailing four-quarter earnings surprise of 8.1%, on average.
Inter Parfums (IPAR - Free Report) , which manufactures, markets and distributes a range of fragrances and fragrance-related products, currently carries a Zacks Rank #2. IPAR has an expected EPS growth rate of 15% for three to five years.
The Zacks Consensus Estimate for Inter Parfums’ current financial-year sales indicates 19.7% growth from the year-ago reported figure. IPAR has a trailing four-quarter earnings surprise of 45.9%, on average.