Philip Morris International Inc. ( PM Quick Quote PM - Free Report) reported fourth-quarter 2020 results on Feb 4, before market open. Earnings and revenues topped estimates but the top line declined year over year. Accordingly, since the earnings release, Philip Morris’ shares have gained about 5%. Q4 Performance in Detail
Philip Morris reported adjusted earnings per share (EPS) of $1.26, beating the Zacks Consensus Estimate of $1.23. Moreover, the bottom line climbed 3.3% year over year. Furthermore, the metric rose 7.4% on an organic basis.
Net revenues of $7.444 billion marginally surpassed the Zacks Consensus Estimate of $7.435 billion. However, the top line declined 3.5% year over year. Furthermore, the metric fell 3.5% at constant currency (cc). During the reported quarter, the company saw an adverse volume/mix, mainly coming from soft cigarette volumes, somewhat compensated by higher heated tobacco shipment volumes. Philip Morris, however, witnessed favorable pricing variance in the quarter, particularly in the combustible category.
Adjusted operating income rose 1.7% on an organic basis.
The company’s total cigarette and heated tobacco unit shipment volumes fell 8.2% to 176.4 billion units. While cigarette shipment volumes declined 11.7% to around 154.7 billion units in the fourth quarter, heated tobacco unit shipment volumes of almost 21.7 billion units reflected a year-over-year rise of 26.9%.
There was a decline in shipment volumes in the European Union, Eastern Europe, 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 hurdles. Going on, all of the company’s cigarette and heated tobacco production units are operational across the globe. The ongoing health crisis doesn’t have any significant impact on the availability of the company’s products to its customers and adult consumers. Further, Philip Morris has ample liquidity to manage business. The company does not anticipate a near-term recovery in the duty-free business due to travel-related uncertainties. In fact, management expects the existing dynamics to persist through the end of 2021.
Philip Morris expects net revenues to increase nearly 4-7% on an organic basis in 2021, largely on the back of increasing contribution from IQOS. Moreover, the company projects adjusted earnings per share of $5.90-$6. At cc, adjusted earnings per share are expected to grow 9-11% to $5.65-$5.75 from $5.17 reported in 2020. This is likely to be supported by revenue growth and focus on attaining cost efficiencies.
For the first quarter of 2021, the company expects net revenue growth (on an organic basis) in the range of slight decline to largely stable. Management projects robust operating income margin improvement in the quarter on increased IQOS weight in the business and continued cost savings. Based on these factors, the company envisions earnings per share of $1.40, including positive currency impact of about 9 cents.
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 Quick Quote FSTA - Free Report)
This fund offers exposure to the U.S. Consumer Staples sector at a very low expense ratio. It has AUM of $830.7 million and charges a fee of 8 basis points (bps) a year. It has 4.7% exposure to Philip Morris.
Since the earnings release, the fund has gained about 1.7% (as of Feb 8). 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 Quick Quote 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 $771.7 million and charges a fee of 43 bps a year, as stated in the prospectus. It has 4.1% exposure to Philip Morris.
Since the earnings release, the fund has risen about 1.7%. However, the fund has a Zacks ETF Rank #3, with a Medium-risk outlook (read:
Tesla Hits Brake After Dismal Q4 Earnings: ETFs to Watch). Vanguard Consumer Staples ETF ( VDC Quick Quote VDC - Free Report)
This fund is one of the most popular in the U.S. Consumer Staples sector. It has AUM of $5.38 billion and charges a fee of 10 basis points a year. It has 4.7% exposure to Philip Morris.
Since the earnings release, the fund has risen about 1.6%. VDC has a Zacks ETF Rank #3, with a Medium-risk outlook.
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