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Philip Morris (PM) Cuts 2021 Earnings View on Currency Impacts

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Philip Morris International Inc. (PM - Free Report) , in its address to investors at the Morgan Stanley Virtual Global Consumer & Retail Conference, indicated that the recent currency volatility might have an unfavorable impact on its 2021 and 2022 earnings. However, PM is witnessing strong momentum in IQOS and expects sequential IQOS user growth for the fourth quarter.

At current rates, the company is likely to record a favorable currency impact of 14 cents per share on 2021 earnings per share compared with a 17-cents favorable impact mentioned earlier. PM noted that other underlying assumptions for the 2021 earnings guidance have been unchanged.

On an adjusted basis, earnings per share for 2021 are expected to reflect an unfavorable currency impact of 40 cents per share. Based on these assumptions, the company anticipates earnings per share (on a reported basis) of $5.74-$5.79 versus $5.77-$5.82 mentioned earlier. Adjusted earnings per share are anticipated to be $5.98-$6.03, whereas it reported $5.17 in 2020. On a currency-neutral basis, the company expects adjusted earnings per share of $5.84-$5.89, suggesting 13-14% year-over-year growth. The company also stated that it will outline its 2022 guidance in February 2022.

What's More?

Philip Morris is acclaimed for developing leading low-risk alternatives in an environment where consumers are shifting from cigarettes to other reduced-risk products ("RRPs"). The company's IQOS — a heat-not-burn device — is among the most popular RRPs in the industry. It has also been making radical progress in the respiratory drug delivery platform as part of the 'Beyond Nicotine' strategy.  Its pricing power has also been a key catalyst for the company's top-line growth.

Philip Morris' IQOS has been doing well across different markets globally. It launched IQOS in the United States in 2019 through a commercial deal with Altria Group, Inc. (MO - Free Report) that the FDA approved. Since then, Philip Morris has been expanding the brand by introducing its newer versions with improved features. The company is well placed toward becoming a majority smoke-free company by 2025.

Altria is another company responding to the changing market scenario by offering several oral and heated tobacco products. Altria (through its subsidiary Helix Innovations) has full global ownership of on! — a popular tobacco-derived nicotine (TDN) pouch product. Management believes that on! is a worthwhile addition to Altria's smokeless portfolio, as oral TDN products are gaining popularity in the United States owing to their low-risk claims. Management continues to expand the manufacturing capacity as well as the commercial availability of the product.

Coming back to Philip Morris, in February 2021, the company revealed plans of generating at least $1 billion in annual net revenues from "Beyond Nicotine" products by 2025. The initiative leverages PM's expertise in life sciences, inhalation technology and natural ingredients, among others. As part of the strategy, the company made three buyouts in the third quarter, including Vectura Group plc, Fertin Pharma A/S and OtiTopic.

Driven by the success of these plans, the Zacks Rank #3 (Hold) stock has risen 4.9% year to date compared with the industry's growth of 0.2%.

 

Zacks Investment ResearchImage Source: Zacks Investment Research

 

However, Philip Morris stated that the global semiconductor tightness is causing a shortage in the supply of IQOS devices, which is hampering the assortment and availability of these devices in several markets. This was also the reason behind the reduced IQOS user growth rates in the third quarter. The company expects the restrained supply scenario to persist in the first half of 2022. Management expects the full-year organic growth rate for 2022 to be lower than the 2021-2023 period's growth expectation due to the IQOS device supply situation.

On its third-quarter 2021 earnings call, management highlighted that it only expects a limited recovery in duty-free sales in the fourth quarter, after seeing a modest enhancement in the third quarter as intercontinental and Asia travel remain subdued. The company expects the pandemic-related hurdles in certain markets to linger in the fourth quarter, especially in South & Southeast Asia. Also, it anticipates tough comparisons in Germany and Australia.

Stocks to Watch

We have highlighted some better-ranked stocks from the broader Consumer Staples space, namely United Natural Foods (UNFI - Free Report) and Hershey (HSY - Free Report) .

United Natural currently sports a Zacks Rank #1 (Strong Buy). The company has a trailing four-quarter earnings surprise of 13.1%, on average. Shares of UNFI have surged 196.8% year to date.

You can see the complete list of today's Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for United Natural's current financial-year sales suggests growth of 4.1% and that for earnings per share indicates growth of 5.2% from the year-ago period's reported figure.

Hershey, a Zacks Rank #2 (Buy) stock at present, has a trailing four-quarter earnings surprise of 4.4%, on average. The HSY stock has gained 15.2% year to date.

The Zacks Consensus Estimate for Hershey's current financial-year sales and earnings per share suggests growth of 8.9% and 12.6%, respectively, from the year-ago period's reported numbers.