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Philip Morris (PM) Ups EPS View on Q3 Earnings Beat, Solid Sales
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Philip Morris International Inc. (PM - Free Report) posted solid third-quarter 2023 results, wherein the top and bottom lines increased year over year, and the bottom line beat the Zacks Consensus Estimate. The company continued to benefit from pricing power, along with strength in IQOS and ZYN. Encouragingly, management raised its growth guidance for full-year adjusted EPS.
Quarter in Detail
Adjusted earnings per share (EPS) came in at $1.67, which jumped 20.3%, excluding currency impacts. The upside was driven by an organic increase in adjusted operating income, together with strong results from the Swedish Match business, driven by ZYN in the United States. Markedly, the bottom line beat the Zacks Consensus Estimate of $1.61.
Net revenues of $9,141 million increased by 9.3% on an organic basis. The Zacks Consensus Estimate for the top line was pegged at $9,211 million. The year-over-year upside was backed by a rise in total cigarette and heated tobacco unit (HTU) shipment volumes, an improved product mix impact related to the greater proportion of smoke-free products and elevated combustible tobacco pricing.
Philip Morris International Inc. Price, Consensus and EPS Surprise
During the quarter, net revenues from combustible products were up 4.3% to $5,832 million (up 6.2% on an organic basis). Revenues from smoke-free products (excluding Wellness and Healthcare) jumped 35.7% to $3,234 million (up 16.2% organically).
During the quarter, net revenues from smoke-free products formed 36.2% of the company’s total revenues. Total IQOS users at the end of the third quarter were estimated at roughly 27.4 million (including nearly 19.7 million who switched to IQOS and stopped smoking).
Total cigarette and HTU shipment volumes increased by 2.2% to 193.6 billion units in the quarter, beating our estimate of 191.1 billion units.
Cigarette shipment volumes dropped 0.5% to 161.1 billion units in the quarter, while HTU shipment volumes of 32.5 billion units rose 18% year over year.
The adjusted operating income ascended 11.3% on an organic basis due to positive underlying dynamics of PM’s shift to smoke-free products. Also, the company has been benefiting from the continued dissipation of supply-chain hurdles and ILUMA-related factors.
The adjusted operating margin of 40.8% rose 1.4 percentage points on a sequential basis.
Region-Wise Performance
Net revenues in the European region grew 6.1% on an organic basis to $3,672 million. This was a result of favorable pricing and volume/mix. Total shipment volumes in the region fell 0.8% to 56.5 billion units.
In the SSEA, CIS & MEA regions, adjusted net revenues increased by 12.6% organically to $2,777 million on improved pricing variance and a favorable volume/mix. Total shipment volumes rose by 3.4% to 95.5 billion units.
In the EA, AU & PMI DF regions, net revenues advanced 15.3% organically to $1,571 million due to a positive volume/mix and better pricing variance. Total shipment volumes in the region surged 11.4% to around 26 billion units.
Revenues in the Americas dropped 7.2% on an organic basis to $478 million. This was a result of an adverse volume/mix, partly made up by improved pricing. Shipment volumes decreased 7.3% to 15.6 billion units.
Other Updates
Philip Morris became the majority owner of Swedish Match on Nov 11, 2022. In the third quarter, revenues from the segment came in at $568 million, which increased 21.6%, excluding currency impacts and the effects of reclassification. The upside was mainly backed by solid growth in smoke-free products.
Revenues from the Wellness and Healthcare unit grew 26.3% year over year on an organic basis to $75 million. Management stated that increased net revenues of smoking cessation products and certain inhalation products led to the upside. Our model projected Wellness and Healthcare unit revenues of $70.7 million for the third quarter.
Management expects net revenues of about $300 million for the Wellness and Healthcare segment for the full year. It also expects a robust performance from Swedish Match’s existing operations due to expectations of strong ZYN volumes in the United States.
Philip Morris ended the quarter with cash and cash equivalents of $3,017 million, long-term debt of $42,914 million and a total shareholder deficit of $7,706 million.
During the third quarter, the company raised its quarterly dividend by 2.4%, taking it to $1.30 per share.
2023 Guidance
For the full year 2023, PM expects adjusted EPS in the band of $6.05-$6.08 compared with the $5.98 reported in 2022. Excluding currency movements, the adjusted EPS is envisioned in the band of $6.58-$6.61, suggesting 10-10.5% growth from the year-ago period figure. On a reported basis, management expects an EPS in the range of $4.95-$4.98 compared with the $5.81 reported in 2022.
Earlier, PM expected adjusted EPS in the band of $6.13-$6.22. Excluding currency movements, the adjusted EPS was envisioned in the band of $6.46-$6.55, suggesting 8-9.5% growth from the year-ago period figure. On a reported basis, management earlier projected an EPS in the range of $5.36-$5.45 compared.
The total international industry volume for cigarettes and HTUs is estimated to decline in the range of 1.5-2% now (excluding China and the United States) compared with a decline of 0.5-1.5% expected earlier.
The total cigarette and HTU shipment volume growth for Philip Morris is likely to be 1-1.5% now compared with the prior view of up to 1% growth.
HTU shipment volumes are now envisioned in the lower half of the earlier guided range of 125-130 billion units. Cigarette shipment volumes are expected to decrease 1-2% in 2023 compared with a 1.5-2.5% decline expected earlier.
For 2023, PM expects net revenues to increase by nearly 8% on an organic basis compared with roughly 7.5-8.5% projected earlier. The adjusted operating margin on an organic basis is now likely to decline toward the upper end of the 50-150 basis point range. The company expects to make additional growth-oriented investments, including the commercialization of ILUMA.
Management expects operating cash flow of around $10 billion in 2023 compared with the prior view of $10-$11 billion. Capital expenditures are likely to be around $1.3 billion. The adjusted effective tax rate is envisioned in the 20.5-21.5% band. Philip Morris stated that it would not make share repurchases in 2023.
Shares of this Zacks Rank #3 (Hold) company have fallen 4.3% in the past three months compared with the industry’s decline of 4.7%.
The Zacks Consensus Estimate for Lamb Weston’s current financial-year sales and earnings suggests growth of 27.4% and 20.1%, respectively, from the year-ago reported numbers.
The Kraft Heinz Company (KHC - Free Report) , a food and beverage product company, currently carries a Zacks Rank #2 (Buy). KHC has a trailing four-quarter earnings surprise of 11.3%, on average.
The Zacks Consensus Estimate for Kraft Heinz’s current fiscal-year sales suggests growth of 2.2% from the corresponding year-ago reported figure.
The J. M. Smucker Company (SJM - Free Report) , a branded food and beverage products company, currently carries a Zacks Rank #2. SJM has a trailing four-quarter earnings surprise of 7.3%, on average.
The Zacks Consensus Estimate for J. M. Smucker’s current fiscal-year earnings suggests growth of 8.9% from the corresponding year-ago reported figure.
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Philip Morris (PM) Ups EPS View on Q3 Earnings Beat, Solid Sales
Philip Morris International Inc. (PM - Free Report) posted solid third-quarter 2023 results, wherein the top and bottom lines increased year over year, and the bottom line beat the Zacks Consensus Estimate. The company continued to benefit from pricing power, along with strength in IQOS and ZYN. Encouragingly, management raised its growth guidance for full-year adjusted EPS.
Quarter in Detail
Adjusted earnings per share (EPS) came in at $1.67, which jumped 20.3%, excluding currency impacts. The upside was driven by an organic increase in adjusted operating income, together with strong results from the Swedish Match business, driven by ZYN in the United States. Markedly, the bottom line beat the Zacks Consensus Estimate of $1.61.
Net revenues of $9,141 million increased by 9.3% on an organic basis. The Zacks Consensus Estimate for the top line was pegged at $9,211 million. The year-over-year upside was backed by a rise in total cigarette and heated tobacco unit (HTU) shipment volumes, an improved product mix impact related to the greater proportion of smoke-free products and elevated combustible tobacco pricing.
Philip Morris International Inc. Price, Consensus and EPS Surprise
Philip Morris International Inc. price-consensus-eps-surprise-chart | Philip Morris International Inc. Quote
During the quarter, net revenues from combustible products were up 4.3% to $5,832 million (up 6.2% on an organic basis). Revenues from smoke-free products (excluding Wellness and Healthcare) jumped 35.7% to $3,234 million (up 16.2% organically).
During the quarter, net revenues from smoke-free products formed 36.2% of the company’s total revenues. Total IQOS users at the end of the third quarter were estimated at roughly 27.4 million (including nearly 19.7 million who switched to IQOS and stopped smoking).
Total cigarette and HTU shipment volumes increased by 2.2% to 193.6 billion units in the quarter, beating our estimate of 191.1 billion units.
Cigarette shipment volumes dropped 0.5% to 161.1 billion units in the quarter, while HTU shipment volumes of 32.5 billion units rose 18% year over year.
The adjusted operating income ascended 11.3% on an organic basis due to positive underlying dynamics of PM’s shift to smoke-free products. Also, the company has been benefiting from the continued dissipation of supply-chain hurdles and ILUMA-related factors.
The adjusted operating margin of 40.8% rose 1.4 percentage points on a sequential basis.
Region-Wise Performance
Net revenues in the European region grew 6.1% on an organic basis to $3,672 million. This was a result of favorable pricing and volume/mix. Total shipment volumes in the region fell 0.8% to 56.5 billion units.
In the SSEA, CIS & MEA regions, adjusted net revenues increased by 12.6% organically to $2,777 million on improved pricing variance and a favorable volume/mix. Total shipment volumes rose by 3.4% to 95.5 billion units.
In the EA, AU & PMI DF regions, net revenues advanced 15.3% organically to $1,571 million due to a positive volume/mix and better pricing variance. Total shipment volumes in the region surged 11.4% to around 26 billion units.
Revenues in the Americas dropped 7.2% on an organic basis to $478 million. This was a result of an adverse volume/mix, partly made up by improved pricing. Shipment volumes decreased 7.3% to 15.6 billion units.
Other Updates
Philip Morris became the majority owner of Swedish Match on Nov 11, 2022. In the third quarter, revenues from the segment came in at $568 million, which increased 21.6%, excluding currency impacts and the effects of reclassification. The upside was mainly backed by solid growth in smoke-free products.
Revenues from the Wellness and Healthcare unit grew 26.3% year over year on an organic basis to $75 million. Management stated that increased net revenues of smoking cessation products and certain inhalation products led to the upside. Our model projected Wellness and Healthcare unit revenues of $70.7 million for the third quarter.
Management expects net revenues of about $300 million for the Wellness and Healthcare segment for the full year. It also expects a robust performance from Swedish Match’s existing operations due to expectations of strong ZYN volumes in the United States.
Philip Morris ended the quarter with cash and cash equivalents of $3,017 million, long-term debt of $42,914 million and a total shareholder deficit of $7,706 million.
During the third quarter, the company raised its quarterly dividend by 2.4%, taking it to $1.30 per share.
2023 Guidance
For the full year 2023, PM expects adjusted EPS in the band of $6.05-$6.08 compared with the $5.98 reported in 2022. Excluding currency movements, the adjusted EPS is envisioned in the band of $6.58-$6.61, suggesting 10-10.5% growth from the year-ago period figure. On a reported basis, management expects an EPS in the range of $4.95-$4.98 compared with the $5.81 reported in 2022.
Earlier, PM expected adjusted EPS in the band of $6.13-$6.22. Excluding currency movements, the adjusted EPS was envisioned in the band of $6.46-$6.55, suggesting 8-9.5% growth from the year-ago period figure. On a reported basis, management earlier projected an EPS in the range of $5.36-$5.45 compared.
The total international industry volume for cigarettes and HTUs is estimated to decline in the range of 1.5-2% now (excluding China and the United States) compared with a decline of 0.5-1.5% expected earlier.
The total cigarette and HTU shipment volume growth for Philip Morris is likely to be 1-1.5% now compared with the prior view of up to 1% growth.
HTU shipment volumes are now envisioned in the lower half of the earlier guided range of 125-130 billion units. Cigarette shipment volumes are expected to decrease 1-2% in 2023 compared with a 1.5-2.5% decline expected earlier.
For 2023, PM expects net revenues to increase by nearly 8% on an organic basis compared with roughly 7.5-8.5% projected earlier. The adjusted operating margin on an organic basis is now likely to decline toward the upper end of the 50-150 basis point range. The company expects to make additional growth-oriented investments, including the commercialization of ILUMA.
Management expects operating cash flow of around $10 billion in 2023 compared with the prior view of $10-$11 billion. Capital expenditures are likely to be around $1.3 billion. The adjusted effective tax rate is envisioned in the 20.5-21.5% band. Philip Morris stated that it would not make share repurchases in 2023.
Shares of this Zacks Rank #3 (Hold) company have fallen 4.3% in the past three months compared with the industry’s decline of 4.7%.
3 Solid Consumer Staple Picks
Lamb Weston (LW - Free Report) , which offers frozen potato products, currently sports a Zacks Rank #1 (Strong Buy). LW delivered an earnings surprise of 46.2% in the last reported quarter. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Lamb Weston’s current financial-year sales and earnings suggests growth of 27.4% and 20.1%, respectively, from the year-ago reported numbers.
The Kraft Heinz Company (KHC - Free Report) , a food and beverage product company, currently carries a Zacks Rank #2 (Buy). KHC has a trailing four-quarter earnings surprise of 11.3%, on average.
The Zacks Consensus Estimate for Kraft Heinz’s current fiscal-year sales suggests growth of 2.2% from the corresponding year-ago reported figure.
The J. M. Smucker Company (SJM - Free Report) , a branded food and beverage products company, currently carries a Zacks Rank #2. SJM has a trailing four-quarter earnings surprise of 7.3%, on average.
The Zacks Consensus Estimate for J. M. Smucker’s current fiscal-year earnings suggests growth of 8.9% from the corresponding year-ago reported figure.