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How Has Philip Morris' Q3 Earnings Beat Impacted Staples ETFs?

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Philip Morris International Inc. (PM - Free Report) reported third-quarter 2021 results on Oct 19, before market open. The company’s earnings and revenues topped estimates. Moreover, the metrics rose year over year. However, since the earnings release, Philip Morris’ shares have lost about 1.7%, as of Oct 20. The downside might have been triggered by the company’s concerns regarding the tightness in global semiconductor supply, causing a shortage in the availability of IQOS devices.

Q3 Performance in Detail

Philip Morris reported adjusted earnings per share (EPS) of $1.58, beating the Zacks Consensus Estimate of $1.54. Moreover, the bottom line climbed 11.3% year over year. Furthermore, the metric rose 8.5% on an organic basis.

Net revenues of $8.12 billion surpassed the Zacks Consensus Estimate of $7.88 billion. The top line rose 9.1% year over year and 7.6% on an organic basis.

During the reported quarter, Philip Morris witnessed favorable pricing variance and a positive volume/mix. However, the upsides were partly offset by softer cigarette volumes.

Going on, adjusted operating income stood at $3.55 billion, up 9.4% year on year. The metric climbed 7.4% on an organic basis.

Shipment Volume

The company’s total cigarette and heated tobacco unit shipment volumes rose 2.1% to 188.3 billion units. While cigarette shipment volumes decreased 0.4% to around 164.8 billion units in the third quarter, heated tobacco unit shipment volumes of almost 23.5 billion units reflected a year-over-year rise of 23.8%.

There was a decline in shipment volumes in the European Union and South & Southeast Asia. In contrast, the same rose in the East Asia & Australia, Eastern Europe, Middle East & Africa, and Latin America & Canada regions.

Guidance Updated

Philip Morris expects full-year earnings per share in the range of $5.77-$5.82 compared with the earlier range of $5.76-$5.86. Adjusted earnings per share for 2021 are now envisioned in the $6.01-$6.06 band. For 2021, the company expects adjusted net revenues to increase 6.5-7% on an organic basis compared with 6-7% growth anticipated earlier. Adjusted operating margin on an organic basis is likely to expand 200 basis points (bps) in 2021.

In 2021, management expects a gradual improvement in the general operating scenario as the world is recovering from the pandemic-led restrictions. The company expects some improvement in the duty-free business in the fourth quarter with Asia and intercontinental travel still soft. Total cigarette and heated tobacco unit shipment volume growth in 2021 is likely to be 1-2% compared with the flat to 2% rise expected before. Heated tobacco shipment volumes are projected to be about 95 billion units now compared with 95-100 billion units stated previously.

Philip Morris is also concerned that the global semiconductor tightness is causing a shortage in the supply of IQOS devices. The chip crisis is hampering the assortment and availability of IQOS devices in several markets. This was also the primary reason for the drop in decreased IQOS user growth rates in the third quarter of 2021.

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 $814.2 million and charges a fee of 8 bps a year. It has 4.4% exposure to Philip Morris.

Since the earnings release, the fund has gained about 0.1% (as of Oct 20). FSTA has a Zacks ETF Rank #3 (Hold), with a Medium-risk outlook (see all Consumer Staples ETFs here).

iShares U.S. Consumer Staples ETF (IYK - Free Report)

This ETF tracks the Russell 1000 Consumer Staples RIC 22.5/45 Capped Index, giving investors exposure to the U.S. companies that produce a wide range consumer goods, including food, automobiles, and household goods. It has AUM of $687 million and charges a fee of 41 bps a year, as stated in the prospectus. It has 7.3% exposure to Philip Morris.

Since the earnings release, the fund has lost about 0.1%. However, the fund has a Zacks ETF Rank #3, with a Medium-risk outlook (read: P&G Shares Slump on Inflation Warning: ETFs in Focus).

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 $5.85 billion and charges a fee of 10 bps a year. It has 4.4% exposure to Philip Morris.

Since the earnings release, the fund has gained about 0.1%. VDC has a Zacks ETF Rank #3, with a Medium-risk outlook.