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Philip Morris Beats on Q1 Earnings, Lags Revs

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Philip Morris International Inc.’s (PM - Free Report) adjusted first-quarter 2014 earnings per share of $1.19 beat the Zacks Consensus Estimate of $1.17 by 1.7%. However, earnings lagged the prior-year quarter results by 7.8% due to unfavorable currency translations, industrial headwinds in Asia and inventory distortions.

Excluding an unfavorable currency impact of 16 cents, earnings exceeded the prior-year quarter figures by 4.7%.

Revenues and Margin

Net revenue went down 8.8% (down1.6% excluding currency) to $6.9 billion and lagged the Zacks Consensus Estimate of $7.1 billion by 2.8%. Earnings declined from the prior-year level mainly due to volume decline in the tobacco category. Cigarette shipment volume decreased 4.4% to 196.0 billion units mainly due to a decline in total market share .

Segment Details

During the quarter, net revenue in the European Union region climbed 2.2% (down 0.4% excluding currency) from the prior-year quarter to $2.0 billion predominantly reflecting lower total market share, notably in France and Poland.

Net revenue in the Eastern Europe, the Middle East & Africa (EMEA) region declined 1.7% (up 4.5% excluding currency) from the prior-year quarter to $2.0 billion. Revenues improved in organic terms backed by favorable pricing of $234 million, principally in Russia. The new business structure in Egypt also contributed to the growth in the region.

Asia recorded net revenue of $2.2 billion, down 21.8% (down 8.7% excluding currency) from the prior-year quarter due to unfavorable volume/mix primarily in Japan and Indonesia.

In Latin America and Canada, revenues slipped 8.7% (up 4.2% excluding currency) to $713 million. Earnings improved in organic terms mainly due to favorable pricing in Argentina, Canada and Mexico.

Philip Morris' quarterly gross profit declined 10.8% from the prior-year quarter to $4.5 billion, mainly due to higher excise tax faced by the company during the quarter. Operating income slipped 12.3% year over year to $3.0 billion in the reported quarter due to higher marketing, administration and research costs.

Financial Update

During the quarter, Philip Morris spent $1.25 billion to repurchase 15.4 million shares.


Management revised increased its outlook for fiscal 2014. It now expects GAAP earnings in the range of $5.09 to $5.19, higher than $5.02 to $5.12 expected previously.  For fiscal 2014, the company expects currency impact of 61 cents per share, lower than 71 cents expected previously. Excluding the currency impact and one time restructuring charges, the company expects its earnings to increase approximately 6% to 8% from adjusted earnings of $5.40 in 2013.

Philip Morris carries a Zacks Rank #3 (Hold). Other consumer staples sector that are performing well at the current level include Supervalu Inc. (SVU - Free Report) , Diamond Foods Inc. and Mondelez International Inc. (MDLZ - Free Report) . All the stocks sport a Zacks Rank #2 (Buy).

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