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Will Staples ETFs Shine on Philip Morris' (PM) Q3 Earnings Beat?
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Philip Morris International Inc. (PM) reported third-quarter 2020 results on Oct 20, before market open. Earnings and revenues topped estimates but declined year over year. However, since the earnings release, Philip Morris’ shares have declined about 5.2% largely due to weakness in year-over-year comparisons.
Q3 Performance in Detail
Philip Morris reported adjusted earnings per share (EPS) of $1.42, beating the Zacks Consensus Estimate of $1.36. However, the bottom line declined 0.7% year over year. Meanwhile, the metric rose 5.6% on an organic basis.
Net revenues of $7.45 billion surpassed the Zacks Consensus Estimate of $7.26 billion. However, the top line declined 2.6% year over year. Furthermore, the metric fell 1.5% at constant currency (cc). During the reported quarter, the company saw an adverse volume/mix, mainly coming from soft cigarette volumes, somewhat made up by higher heated tobacco volumes. Philip Morris, however, witnessed favorable pricing variance in the quarter, particularly in the combustible category.
Adjusted operating income increased 1.9% year over year to $3.24 billion.
Shipment Volume
The company’s total cigarette and heated tobacco unit shipment volume fell 7.6% to 184.4 billion units. While cigarette shipment volumes declined 9.8% to around 165.5 billion units in the third quarter, heated tobacco unit shipment volumes of almost 19 billion units reflected a year-over-year rise of 18.7%.
There was a decline in shipment volumes in the Middle East & Africa, South & Southeast Asia and Latin America & Canada regions.
Pandemic Not a Big Concern
Philip Morris expects continued pandemic-related business disruptions. The company informed that it currently has sufficient access to inputs and is not facing any major supply-related hurdle. Considering all factors and the current sales trends, Phillip Morris does not anticipate any out-of-stock situation in any core operating income market. The company doesn’t expect any national lockdown recurrence in any of its core international markets in the remainder of 2020. However, any near-term recovery is also not expected in the duty-free business due to travel-related uncertainties. Further, Philip Morris expects complete enforcement of requirements for minimum retail selling price in Indonesia, earliest by 2020-end.
Guidance Raised
It is worth noting that Philip Morris has raised its earnings per share guidance for 2020, largely due to greater-than-expected third-quarter total industry volumes (especially in the European Union and Indonesia) and a slight expected decline in fourth-quarter cigarette industry volumes in Indonesia, among other factors.
The company now expects adjusted earnings per share at $5.05-$5.10 in 2020 compared with $5.13 reported in the year-ago period. At cc, adjusted earnings per share are expected to grow 5-6% to $5.37-$5.42 now. In the second-quarter earnings release, management projected adjusted earnings for 2020 in a band of $4.92-$5.07 per share. At cc, adjusted earnings per share were expected to grow 2-5% to $5.23-$5.38. For the fourth quarter, Philip Morris expects earnings per share of $1.16, including currency headwinds of about 4 cents. This reflects expectations of almost the same underlying consumption trends as the third quarter. Also, various costs that were originally planned for the third quarter are now anticipated in the fourth quarter.
ETF Impact
Some consumer staples ETFs with significant exposure to Philip Morris seem to have lost ground since its earnings release.
Fidelity MSCI Consumer Staples Index ETF (FSTA - Free Report)
This fund offers exposure to the U.S. Consumer Staples sector at a very low expense ratio. It has AUM of $770.2 million and charges a fee of 8 basis points (bps) a year. It has 5.5% exposure to Philip Morris.
Since the earnings release, the fund has relatively remained flat (as of Oct 21). FSTA has a Zacks ETF Rank #3 (Hold), with a Medium-risk outlook (see all Consumer Staples ETFs here).
This ETF tracks the Dow Jones U.S. Consumer Goods Index, giving investors exposure to the consumer goods space. It has AUM of $605.4 million and charges a fee of 43 bps a year, as stated in the prospectus. From a sector-look, Food Beverage Tobacco, Household & Personal Products and Autos & Components have the highest exposure to the fund, with 38.2%, 21.4% and 16.8% allocation, respectively. It has 4.2% exposure to Philip Morris.
This fund is one of the most popular in the U.S. Consumer Staples sector. It has AUM of $5.45 billion and charges a fee of 10 basis points a year. From a sector-look, Household products, Soft drinks and Packaged Foods & Meats have the highest exposure to the fund, with 25.3%, 20.2% and 16.5% allocation, respectively. It has 4.3% exposure to Philip Morris.
Image: Bigstock
Will Staples ETFs Shine on Philip Morris' (PM) Q3 Earnings Beat?
Philip Morris International Inc. (PM) reported third-quarter 2020 results on Oct 20, before market open. Earnings and revenues topped estimates but declined year over year. However, since the earnings release, Philip Morris’ shares have declined about 5.2% largely due to weakness in year-over-year comparisons.
Q3 Performance in Detail
Philip Morris reported adjusted earnings per share (EPS) of $1.42, beating the Zacks Consensus Estimate of $1.36. However, the bottom line declined 0.7% year over year. Meanwhile, the metric rose 5.6% on an organic basis.
Net revenues of $7.45 billion surpassed the Zacks Consensus Estimate of $7.26 billion. However, the top line declined 2.6% year over year. Furthermore, the metric fell 1.5% at constant currency (cc). During the reported quarter, the company saw an adverse volume/mix, mainly coming from soft cigarette volumes, somewhat made up by higher heated tobacco volumes. Philip Morris, however, witnessed favorable pricing variance in the quarter, particularly in the combustible category.
Adjusted operating income increased 1.9% year over year to $3.24 billion.
Shipment Volume
The company’s total cigarette and heated tobacco unit shipment volume fell 7.6% to 184.4 billion units. While cigarette shipment volumes declined 9.8% to around 165.5 billion units in the third quarter, heated tobacco unit shipment volumes of almost 19 billion units reflected a year-over-year rise of 18.7%.
There was a decline in shipment volumes in the Middle East & Africa, South & Southeast Asia and Latin America & Canada regions.
Pandemic Not a Big Concern
Philip Morris expects continued pandemic-related business disruptions. The company informed that it currently has sufficient access to inputs and is not facing any major supply-related hurdle. Considering all factors and the current sales trends, Phillip Morris does not anticipate any out-of-stock situation in any core operating income market. The company doesn’t expect any national lockdown recurrence in any of its core international markets in the remainder of 2020. However, any near-term recovery is also not expected in the duty-free business due to travel-related uncertainties. Further, Philip Morris expects complete enforcement of requirements for minimum retail selling price in Indonesia, earliest by 2020-end.
Guidance Raised
It is worth noting that Philip Morris has raised its earnings per share guidance for 2020, largely due to greater-than-expected third-quarter total industry volumes (especially in the European Union and Indonesia) and a slight expected decline in fourth-quarter cigarette industry volumes in Indonesia, among other factors.
The company now expects adjusted earnings per share at $5.05-$5.10 in 2020 compared with $5.13 reported in the year-ago period. At cc, adjusted earnings per share are expected to grow 5-6% to $5.37-$5.42 now. In the second-quarter earnings release, management projected adjusted earnings for 2020 in a band of $4.92-$5.07 per share. At cc, adjusted earnings per share were expected to grow 2-5% to $5.23-$5.38. For the fourth quarter, Philip Morris expects earnings per share of $1.16, including currency headwinds of about 4 cents. This reflects expectations of almost the same underlying consumption trends as the third quarter. Also, various costs that were originally planned for the third quarter are now anticipated in the fourth quarter.
ETF Impact
Some consumer staples ETFs with significant exposure to Philip Morris seem to have lost ground since its earnings release.
Fidelity MSCI Consumer Staples Index ETF (FSTA - Free Report)
This fund offers exposure to the U.S. Consumer Staples sector at a very low expense ratio. It has AUM of $770.2 million and charges a fee of 8 basis points (bps) a year. It has 5.5% exposure to Philip Morris.
Since the earnings release, the fund has relatively remained flat (as of Oct 21). FSTA has a Zacks ETF Rank #3 (Hold), with a Medium-risk outlook (see all Consumer Staples ETFs here).
iShares U.S. Consumer Goods ETF (IYK - Free Report)
This ETF tracks the Dow Jones U.S. Consumer Goods Index, giving investors exposure to the consumer goods space. It has AUM of $605.4 million and charges a fee of 43 bps a year, as stated in the prospectus. From a sector-look, Food Beverage Tobacco, Household & Personal Products and Autos & Components have the highest exposure to the fund, with 38.2%, 21.4% and 16.8% allocation, respectively. It has 4.2% exposure to Philip Morris.
Since the earnings release, the fund has lost about 0.3%. However, the fund has a Zacks ETF Rank #3, with a Medium-risk outlook (read: Why You Should Buy Tesla ETFs Ahead of Q3 Earnings).
Vanguard Consumer Staples ETF (VDC - Free Report)
This fund is one of the most popular in the U.S. Consumer Staples sector. It has AUM of $5.45 billion and charges a fee of 10 basis points a year. From a sector-look, Household products, Soft drinks and Packaged Foods & Meats have the highest exposure to the fund, with 25.3%, 20.2% and 16.5% allocation, respectively. It has 4.3% exposure to Philip Morris.
Since the earnings release, the fund has lost about 0.1%. VDC has a Zacks ETF Rank #3, with a Medium-risk outlook (read: Bet on Defensive Sector ETFs as Stimulus Talks Stall).
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