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How Has Philip Morris' Q2 Earnings Beat Impacted Staples ETFs?

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Philip Morris International Inc. (PM - Free Report) reported second-quarter 2021 results on Jul 20, before market open. The company’s earnings topped while revenues missed estimates. However, both the metrics rose year over year. Since the earnings release, Philip Morris’ shares have gained about 1.7%, as of Jul 21.

Q2 Performance in Detail

Philip Morris reported adjusted earnings per share (EPS) of $1.57, beating the Zacks Consensus Estimate of $1.54. Moreover, the bottom line climbed 21.7% year over year. Furthermore, the metric rose 17.8% on an organic basis.

Net revenues of $7.59 billion missed the Zacks Consensus Estimate of $7.84 billion. However, the top line rose 14.2% year over year and 7.9% on an organic basis.

During the reported quarter, Philip Morris witnessed favorable pricing variance, volume/mix and higher cigarette volumes. However, the upsides were partly offset by unfavorable impacts of around $246 million arising from the Saudi Arabia customs assessments.

Going on, adjusted operating income stood at $3.45 billion, up 23.3% year on year. The metric climbed 18.7% on an organic basis.

Shipment Volume

The company’s total cigarette and heated tobacco unit shipment volumes rose 6.1% to 180.5 billion units. While cigarette shipment volumes increased 3.2% to around 156.1 billion units in the second quarter, heated tobacco unit shipment volumes of almost 24.4 billion units reflected a year-over-year rise of 30.2%.

There was a decline in shipment volumes in the East Asia & Australia whereas the same rose 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 to witness lower COVID-related business disruptions. The company has informed that it presently has sufficient access to inputs and is not facing any major supply-related hurdles. All of the company’s cigarette and heated tobacco unit production units are operational globally. The pandemic doesn’t have any significant impact on the availability of the company’s products to its customers and adult consumers. Further, the company has sufficient liquidity to manage business.

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. In fact, management expects the existing dynamics to remain through the end of 2021. Furthermore, total cigarette and heated tobacco unit shipment volume growth is likely to be between flat to an increase of 2% in 2021.

Guidance Updated

For 2021, Phillip Morris revised its view for 2021 and envisions adjusted earnings per share (EPS) in the range of $5.97-$6.07 compared with the earlier view of $5.95-$6.05. At constant currency, adjusted EPS is expected to grow 12-14% to $5.79-$5.89 compared with growth of 11-13% anticipated earlier. The guidance takes into account favorable impacts from currency exchange rates worth 18 cents per share. 

The company expects adjusted net revenues to increase nearly 6-7% on an organic basis, compared with growth of 5-7% anticipated earlier. Adjusted operating margin on an organic basis is likely to rise 200 basis points (bps) in 2021.

For third-quarter 2021, the company expects earnings in the bracket of $1.50-$1.55, including favorable currency impact of nearly 4 cents per share.

ETF Impact

Here we highlight some consumer staples ETFs with significant exposure to Philip Morris 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 $808.2 million and charges a fee of 8 bps a year. It has 4.6% exposure to Philip Morris.

Since the earnings release, the fund has lost about 0.2% (as of Jul 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 $679.8 million and charges a fee of 43 bps a year, as stated in the prospectus. It has 4.6% exposure to Philip Morris.

Since the earnings release, the fund has remained almost flat. However, the fund has a Zacks ETF Rank #3, with a Medium-risk outlook (read: Tesla to Report After the Bell: What Lies Ahead for ETFs?).

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 $5.57 billion and charges a fee of 10 basis points a year. It has 4.6% exposure to Philip Morris.

Since the earnings release, the fund has lost about 0.2%. VDC has a Zacks ETF Rank #3, with a Medium-risk outlook.