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Philip Morris (PM) Firm on 2021 View, Duty-Free Unit Weak

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Philip Morris International Inc. (PM - Free Report) reaffirmed its view for full-year 2021 as well as for the second quarter. The company apprehends persistent weakness in its duty-free business. Nevertheless, management expects the company to gradually recover from the pandemic-led impacts across key markets as the year progresses.

Outlook in Detail

For 2021, Philip Morris envisions adjusted earnings per share (EPS) in the range of $5.95-$6.05. At constant currency, adjusted EPS are expected to grow 11-13% to $5.75-$5.85 from $5.17 reported in 2020. The Zacks Consensus Estimates for the bottom line is currently pegged at $6.08.

In 2021, management expects gradual improvement in the general operating landscape. The company does not expect a near-term recovery in the duty-free business due to travel-related uncertainties. Additionally, the company expects limited impacts from the global shortage of semiconductors on the supply of electronic devices to consumers. Further, international industry volume progression (excluding China and the United States) is estimated between a decline of 3% to flat year on year. Total cigarette and heated tobacco unit shipment volume growth is likely to be between a decline of 2% to up 1% in 2021. Heated tobacco shipment volumes are envisioned in the band of 95-100 billion units in 2021.

For 2021, Phillip Morris expects net revenues to increase nearly 5-7% on an organic basis. Adjusted operating margin on an organic basis is likely to jump 200 basis points. Operating cash flow is anticipated at around $11 billion, while capital expenditures are likely to be at $0.8 billion. Moreover, the company expects to carry out no share repurchases during the year. The Zacks Consensus Estimate for 2021 revenues is currently pegged at $31.3 billion.

Speaking of the second quarter, the company continues to expect earnings in the bracket of $1.50-$1.55, including favorable currency impact of nearly 4 cents per share. The view takes into consideration sturdy sequential and year-over-year growth of heated tobacco unit shipment and in-market sales volumes, mainly driven by European Union, Japan and Russia. Markedly, heated tobacco unit shipment volume is projected at 24 billion units for the quarter. The Zacks Consensus Estimate for earnings in the second quarter is currently pegged at $1.53.

Management projects strong organic net revenue growth in the second quarter, partly driven by favorable year-over-year comparison. Also it expects to see continued improvement in organic adjusted operating income margin. Apart from these, management expects that even if pandemic-related restrictions are prolonged, consumptions levels will not be as low as second-quarter 2020 levels. Markedly, the Zacks Consensus Estimate for second-quarter revenues is pegged at $7.79 billion.


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Wrapping Up

We note that Philip Morris has long been grappling with soft cigarette sales volumes. Apart from pandemic-led hurdles, cigarette shipment volumes are being adversely impacted by regulatory limitations and consumers’ rising health consciousness. Nevertheless, the company has managed to stay afloat on the back of efficient pricing strategies. It has also been gaining from the popularity of reduced risk products (“RRPs”). Markedly, the company’s IQOS is one of the leading RRPs in the industry. These upsides are likely to keep supporting the company’s performance in the forthcoming periods.

Shares of this Zacks Rank #3 (Hold) company have gained 11.1% in the past three months compared with the industry’s rise of 9%.

Looking for Consumer Staples Stocks? Check These

Medifast, Inc. (MED - Free Report) , flaunting a Zacks Rank #1 (Strong Buy), has a trailing four-quarter earnings surprise of 12.7%, on average. You can see the complete list of today’s Zacks #1 Rank  stocks here.

Darling Ingredients Inc. (DAR - Free Report) , with a Zacks Rank #2 (Buy), has a trailing four-quarter earnings surprise of 29.8%, on average.

Nomad Foods Limited (NOMD - Free Report) with a Zacks Rank #2, has a trailing four-quarter earnings surprise of 10.3%, on average.

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