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Philip Morris (PM) Up 4.3% Since Earnings Report: Can It Continue?
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It has been about a month since the last earnings report for Philip Morris International Inc (PM - Free Report) . Shares have added about 4.3% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Philip Morris Earnings, Sales Miss Estimates in First Quarter
Philip Morris reported weaker-than-expected first-quarter 2017 results, wherein both earnings and revenues lagged the Zacks Consensus Estimate. The weak results were primarily due to lower cigarette volume and certain timing factors.
Adjusted earnings per share of $0.98 per share missed the Zacks Consensus Estimate of $1.03 by 4.85% in first-quarter 2017. However, it was flat from the year-ago quarter. While the company benefited from strong pricing, lower cigarette volumes related to low-price brands in specific markets however led to the decline. The company witnessed lower cigarette volumes reflecting the micro-economic environment in Indonesia, Pakistan, Philippines and Russia as well as the high prevalence of illicit trade in Pakistan and Philippines. Unfavorable inventory movements in Italy and Spain also led to the decline. Notably, currency did not impact earnings in the quarter.
Revenues & Margins
Net revenue, excluding excise taxes, was $6.1 billion, which was down 0.3% (up 1.7% excluding unfavorable currency of $120 million) in the first quarter. Revenues were way behind the Zacks Consensus Estimate of $6.4 billion by 5.6%. Revenues benefited from favorable pricing across all regions, especially Eastern Europe, the Middle East & Africa (EEMA) and Asia, but were partly offset by unfavorable volume/mix in the regions of European Union (EU), EEMA and Latin America & Canada.
Revenues from combustible products declined 6.6% (down 4.3% excluding negative currency) to $5.6 billion. On the contrary, RRPs reported a whooping increase from last year quarter, stemming from the shift of customer preference away from tobacco products.
Total cigarette and heated tobacco unit shipment volume fell 9.4% to 178.0 billion units, due to a tough year-over-year comparison as well as low-price volumes in specific markets, including Pakistan and Philippines. Last year, the results were benefited from the favorable estimated impact of the leap year.
While cigarette shipment volume declined 11.5% in the quarter, it was largely made up by heated tobacco unit shipment volume of 4.4 billion units which increased significantly from 453 million units recorded in 2016.
During the quarter, Philip Morris’ market share increased in Algeria, Belgium, France, Germany, Hong Kong, Japan, Kazakhstan, Kuwait, Poland, Saudi Arabia, Switzerland and United Arab Emirates.
Operating income was down 2.2% year over year to $2.5 billion due to lower revenues. Excluding currency impact, operating income declined 1.7%. Adjusted operating margin was also down 80 basis points to 41.1%.
Segment Details
European Union: Net revenue in the European Union region declined 6.6% year over year to $1.7 billion. Excluding the impact of currency, net revenue was down 3.7%, primarily due to 7.1% decline in cigarette and heated tobacco shipment volumes. Also, unfavorable volume/mix and the lower total market in Italy and Spain led to the decline. However, it was partly offset by a favorable pricing, notably in Germany, Italy and Poland.
Eastern Europe, the Middle East & Africa (EEMA): Net revenue in EEMA region declined 7.8% year over year to $1.5 billion. Excluding the impact of currency, net revenue declined 1.6%, primarily due to 10.2% decline in cigarette and heated tobacco shipment volumes. Also, unfavorable volume/mix and lower total market share were overshadowed by the favorable pricing primarily in Egypt, Saudi Arabia and Ukraine.
Asia: The company recorded net revenue growth of 13.9% to $2.2 billion in Asia. Excluding currency impact, revenue was up 11% from the prior-year quarter, despite a 9.7% decline in cigarette and heated tobacco shipment volumes. The increase was supported by favorable pricing in Australia, Indonesia and Philippines, along with favorable volume/mix driven by favorable heated tobacco unit volume in Japan. However, it was partly offset by unfavorable volume/mix in Indonesia and unfavorable volume in Australia, Pakistan and Philippines.
Latin America and Canada: In Latin America and Canada, revenues declined 6.8% (down 3.4% excluding currency) to $606 million, primarily due to 11.1% decline in cigarette and heated tobacco shipment volumes. Also, unfavorable volume/mix was partly offset by a favorable pricing in Argentina, Canada and Mexico.
Financial Update
During the quarter, Philip Morris announced a regular quarterly dividend of $1.04 per share.
Guidance
Philip Morris raised its earnings guidance for 2017, owing to a favorable tax item of $0.04 per share. The company now expects 2017 earnings in the band of $4.84–$4.99 per share, compared with the earlier guidance of $4.80–$4.95, forecasted in February 2017. This was also higher than adjusted earnings of $4.48 reported in 2016. Excluding unfavorable currency of $0.08 per share expected in full-year 2017 and favorable tax item of $0.04 reported in the first quarter, this earnings guidance reflects growth of nearly 9–12% over 2016.
Further, the company expects revenue growth, excluding excise taxes, to be more than its present target growth, which in the range 4–6%, annually. Moreover, the outlook excludes share repurchases in the year. However, the company anticipates a combined cigarette and heated tobacco unit volume decline of 3% to 4% for the full year.
Nevertheless, we believe the company’s strong pricing power and focus on accelerating iQOS volume growth will help the company deliver upbeat results in 2017.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There have been three revisions lower for the current quarter.
Philip Morris International Inc Price and Consensus
At this time, Philip Morris' stock has an average Growth Score of 'D'. It has a score of 'D' on the momentum front as well. Following the exact same course, the stock was allocated a grade of 'D' on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'D'. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate investors will probably be better served looking elsewhere.
Outlook
Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Notably, the stock has a Zacks Rank #3 (Hold). We expect an in-line return from stock in the next few months.
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Philip Morris (PM) Up 4.3% Since Earnings Report: Can It Continue?
It has been about a month since the last earnings report for Philip Morris International Inc (PM - Free Report) . Shares have added about 4.3% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Philip Morris Earnings, Sales Miss Estimates in First Quarter
Philip Morris reported weaker-than-expected first-quarter 2017 results, wherein both earnings and revenues lagged the Zacks Consensus Estimate. The weak results were primarily due to lower cigarette volume and certain timing factors.
Adjusted earnings per share of $0.98 per share missed the Zacks Consensus Estimate of $1.03 by 4.85% in first-quarter 2017. However, it was flat from the year-ago quarter. While the company benefited from strong pricing, lower cigarette volumes related to low-price brands in specific markets however led to the decline. The company witnessed lower cigarette volumes reflecting the micro-economic environment in Indonesia, Pakistan, Philippines and Russia as well as the high prevalence of illicit trade in Pakistan and Philippines. Unfavorable inventory movements in Italy and Spain also led to the decline. Notably, currency did not impact earnings in the quarter.
Revenues & Margins
Net revenue, excluding excise taxes, was $6.1 billion, which was down 0.3% (up 1.7% excluding unfavorable currency of $120 million) in the first quarter. Revenues were way behind the Zacks Consensus Estimate of $6.4 billion by 5.6%. Revenues benefited from favorable pricing across all regions, especially Eastern Europe, the Middle East & Africa (EEMA) and Asia, but were partly offset by unfavorable volume/mix in the regions of European Union (EU), EEMA and Latin America & Canada.
Revenues from combustible products declined 6.6% (down 4.3% excluding negative currency) to $5.6 billion. On the contrary, RRPs reported a whooping increase from last year quarter, stemming from the shift of customer preference away from tobacco products.
Total cigarette and heated tobacco unit shipment volume fell 9.4% to 178.0 billion units, due to a tough year-over-year comparison as well as low-price volumes in specific markets, including Pakistan and Philippines. Last year, the results were benefited from the favorable estimated impact of the leap year.
While cigarette shipment volume declined 11.5% in the quarter, it was largely made up by heated tobacco unit shipment volume of 4.4 billion units which increased significantly from 453 million units recorded in 2016.
During the quarter, Philip Morris’ market share increased in Algeria, Belgium, France, Germany, Hong Kong, Japan, Kazakhstan, Kuwait, Poland, Saudi Arabia, Switzerland and United Arab Emirates.
Operating income was down 2.2% year over year to $2.5 billion due to lower revenues. Excluding currency impact, operating income declined 1.7%. Adjusted operating margin was also down 80 basis points to 41.1%.
Segment Details
European Union: Net revenue in the European Union region declined 6.6% year over year to $1.7 billion. Excluding the impact of currency, net revenue was down 3.7%, primarily due to 7.1% decline in cigarette and heated tobacco shipment volumes. Also, unfavorable volume/mix and the lower total market in Italy and Spain led to the decline. However, it was partly offset by a favorable pricing, notably in Germany, Italy and Poland.
Eastern Europe, the Middle East & Africa (EEMA): Net revenue in EEMA region declined 7.8% year over year to $1.5 billion. Excluding the impact of currency, net revenue declined 1.6%, primarily due to 10.2% decline in cigarette and heated tobacco shipment volumes. Also, unfavorable volume/mix and lower total market share were overshadowed by the favorable pricing primarily in Egypt, Saudi Arabia and Ukraine.
Asia: The company recorded net revenue growth of 13.9% to $2.2 billion in Asia. Excluding currency impact, revenue was up 11% from the prior-year quarter, despite a 9.7% decline in cigarette and heated tobacco shipment volumes. The increase was supported by favorable pricing in Australia, Indonesia and Philippines, along with favorable volume/mix driven by favorable heated tobacco unit volume in Japan. However, it was partly offset by unfavorable volume/mix in Indonesia and unfavorable volume in Australia, Pakistan and Philippines.
Latin America and Canada: In Latin America and Canada, revenues declined 6.8% (down 3.4% excluding currency) to $606 million, primarily due to 11.1% decline in cigarette and heated tobacco shipment volumes. Also, unfavorable volume/mix was partly offset by a favorable pricing in Argentina, Canada and Mexico.
Financial Update
During the quarter, Philip Morris announced a regular quarterly dividend of $1.04 per share.
Guidance
Philip Morris raised its earnings guidance for 2017, owing to a favorable tax item of $0.04 per share. The company now expects 2017 earnings in the band of $4.84–$4.99 per share, compared with the earlier guidance of $4.80–$4.95, forecasted in February 2017. This was also higher than adjusted earnings of $4.48 reported in 2016. Excluding unfavorable currency of $0.08 per share expected in full-year 2017 and favorable tax item of $0.04 reported in the first quarter, this earnings guidance reflects growth of nearly 9–12% over 2016.
Further, the company expects revenue growth, excluding excise taxes, to be more than its present target growth, which in the range 4–6%, annually. Moreover, the outlook excludes share repurchases in the year. However, the company anticipates a combined cigarette and heated tobacco unit volume decline of 3% to 4% for the full year.
Nevertheless, we believe the company’s strong pricing power and focus on accelerating iQOS volume growth will help the company deliver upbeat results in 2017.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There have been three revisions lower for the current quarter.
Philip Morris International Inc Price and Consensus
Philip Morris International Inc Price and Consensus | Philip Morris International Inc Quote
VGM Scores
At this time, Philip Morris' stock has an average Growth Score of 'D'. It has a score of 'D' on the momentum front as well. Following the exact same course, the stock was allocated a grade of 'D' on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'D'. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate investors will probably be better served looking elsewhere.
Outlook
Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Notably, the stock has a Zacks Rank #3 (Hold). We expect an in-line return from stock in the next few months.