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Philip Morris' (PM) Smoke-Free Unit Solid, Cigarette Volumes Low
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Philip Morris International Inc. (PM - Free Report) has strengthened its position in the tobacco space by leveraging its pricing strategy and emphasizing smoke-free products in response to evolving consumer preferences. These advantages have proven effective for this Zacks Rank #3 (Hold), especially in the face of declining cigarette volumes.
For the full year 2023, PM continues to expect 10-10.5% growth in adjusted earnings per share (EPS), excluding currency movements. Management expects robust organic top-line growth. The company’s guidance is supported by the constant success of its smoke-free portfolio, driven by the exceptional performance of its flagship premium brands — IQOS and ZYN.
Higher Pricing, a Key Driver
Strong pricing power has been helping Philip Morris stay firm amid soft cigarette shipment volumes and times of higher taxes. Though higher pricing might lead to a possible decline in cigarette consumption, it is seen that smokers tend to absorb price increases due to the addictive quality of cigarettes. Higher pricing variance was an upside to the company’s performance in the third quarter of 2023, mainly due to increased combustible tobacco pricing.
Image Source: Zacks Investment Research
Solid Smoke-Free Products
Consumers are increasingly gravitating toward reduced-risk products (RRPs) or smoke-free alternatives, driven by the well-acquainted health risks associated with traditional cigarette smoking. In response to this evolving market dynamic, Philip Morris has been focused on strengthening its smoke-free alternatives. The company is making significant strides in its business transformation, with smoke-free products contributing to 36.2% of the company's net revenues in the third quarter of 2023.
Markedly, Philip Morris is well-placed to become a majority smoke-free company by 2025. To this end, PM’s IQOS, a heat-not-burn device, counts as one of the leading RRPs in the industry. The company expects such advanced and high-quality products to aid adult smokers in switching from traditional cigarettes to smoke-free options.
Among other initiatives, Philip Morris became the majority owner of Swedish Match on Nov 11, 2022. The company witnessed impressive results from the Swedish Match business in the third quarter, driven by ZYN in the United States. Management expects this strength to continue in 2023.
In the third quarter of 2023, revenues from smoke-free products (excluding Wellness and Healthcare) jumped 35.7% to $3,234 million (up 16.2% organically). In the quarter, the company witnessed continued strength in IQOS performance. 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).
Soft Cigarette Volumes & High Costs
The overall cigarette industry has been bearing the brunt of the inflationary environment, which has affected Adult Tobacco Consumers’ (“ATC”) spending patterns. Also, cigarette volumes, in general, have been affected by consumers’ rising health consciousness and a shift to low-risk tobacco alternatives.
In the third quarter of 2023, Philip Morris’ cigarette shipment volumes dropped 0.5% to 161.1 billion units. In 2023, 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. For Philip Morris, cigarette shipment volumes are expected to decrease 1-2% in 2023.
On its third-quarter earnings call, Philip Morris also stated that it expects to make additional growth-oriented investments in 2023, including the commercialization of ILUMA. These are likely to weigh on the company’s margins. While management expects robust organic operating margin growth in the fourth quarter of 2023, the same is likely to decline toward the upper end of the 50-150 basis point range in the full year 2023.
Wrapping Up
Nonetheless, these investments bode well for Philip Morris’ long-term growth. Management is confident about its CAGR targets for 2024-2026. These include organic top-line growth of 6-8%, organic operating income growth of 8-10 and currency-neutral adjusted EPS growth of 9-11%.
Shares of Philip Morris have dropped 4% in a year compared with the industry’s decline of 5%.
The Zacks Consensus Estimate for Kraft Heinz’s current financial-year sales and earnings suggests growth of 1.1% and 6.5%, respectively, from the year-ago reported numbers.
Celsius Holdings, Inc. (CELH - Free Report) , which develops, processes, markets, distributes and sells functional drinks and liquid supplements, holds a Zacks Rank #2. CELH has a trailing four-quarter earnings surprise of 110.9%, on average.
The Zacks Consensus Estimate for Celsius Holdings’ current financial-year sales and earnings suggests growth of 98.5% and 184.1%, respectively, from the year-ago reported numbers.
Vital Farms Inc. (VITL - Free Report) offers a range of produced pasture-raised foods. It currently has a Zacks Rank #2. VITL has a trailing four-quarter earnings surprise of 145%, on average.
The Zacks Consensus Estimate for Vital Farms’ current financial-year sales suggests growth of 29.4% from the year-ago reported figure.
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Philip Morris' (PM) Smoke-Free Unit Solid, Cigarette Volumes Low
Philip Morris International Inc. (PM - Free Report) has strengthened its position in the tobacco space by leveraging its pricing strategy and emphasizing smoke-free products in response to evolving consumer preferences. These advantages have proven effective for this Zacks Rank #3 (Hold), especially in the face of declining cigarette volumes.
For the full year 2023, PM continues to expect 10-10.5% growth in adjusted earnings per share (EPS), excluding currency movements. Management expects robust organic top-line growth. The company’s guidance is supported by the constant success of its smoke-free portfolio, driven by the exceptional performance of its flagship premium brands — IQOS and ZYN.
Higher Pricing, a Key Driver
Strong pricing power has been helping Philip Morris stay firm amid soft cigarette shipment volumes and times of higher taxes. Though higher pricing might lead to a possible decline in cigarette consumption, it is seen that smokers tend to absorb price increases due to the addictive quality of cigarettes. Higher pricing variance was an upside to the company’s performance in the third quarter of 2023, mainly due to increased combustible tobacco pricing.
Image Source: Zacks Investment Research
Solid Smoke-Free Products
Consumers are increasingly gravitating toward reduced-risk products (RRPs) or smoke-free alternatives, driven by the well-acquainted health risks associated with traditional cigarette smoking. In response to this evolving market dynamic, Philip Morris has been focused on strengthening its smoke-free alternatives. The company is making significant strides in its business transformation, with smoke-free products contributing to 36.2% of the company's net revenues in the third quarter of 2023.
Markedly, Philip Morris is well-placed to become a majority smoke-free company by 2025. To this end, PM’s IQOS, a heat-not-burn device, counts as one of the leading RRPs in the industry. The company expects such advanced and high-quality products to aid adult smokers in switching from traditional cigarettes to smoke-free options.
Among other initiatives, Philip Morris became the majority owner of Swedish Match on Nov 11, 2022. The company witnessed impressive results from the Swedish Match business in the third quarter, driven by ZYN in the United States. Management expects this strength to continue in 2023.
In the third quarter of 2023, revenues from smoke-free products (excluding Wellness and Healthcare) jumped 35.7% to $3,234 million (up 16.2% organically). In the quarter, the company witnessed continued strength in IQOS performance. 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).
Soft Cigarette Volumes & High Costs
The overall cigarette industry has been bearing the brunt of the inflationary environment, which has affected Adult Tobacco Consumers’ (“ATC”) spending patterns. Also, cigarette volumes, in general, have been affected by consumers’ rising health consciousness and a shift to low-risk tobacco alternatives.
In the third quarter of 2023, Philip Morris’ cigarette shipment volumes dropped 0.5% to 161.1 billion units. In 2023, 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. For Philip Morris, cigarette shipment volumes are expected to decrease 1-2% in 2023.
On its third-quarter earnings call, Philip Morris also stated that it expects to make additional growth-oriented investments in 2023, including the commercialization of ILUMA. These are likely to weigh on the company’s margins. While management expects robust organic operating margin growth in the fourth quarter of 2023, the same is likely to decline toward the upper end of the 50-150 basis point range in the full year 2023.
Wrapping Up
Nonetheless, these investments bode well for Philip Morris’ long-term growth. Management is confident about its CAGR targets for 2024-2026. These include organic top-line growth of 6-8%, organic operating income growth of 8-10 and currency-neutral adjusted EPS growth of 9-11%.
Shares of Philip Morris have dropped 4% in a year compared with the industry’s decline of 5%.
3 Staple Picks
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 9.9%, on average. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Kraft Heinz’s current financial-year sales and earnings suggests growth of 1.1% and 6.5%, respectively, from the year-ago reported numbers.
Celsius Holdings, Inc. (CELH - Free Report) , which develops, processes, markets, distributes and sells functional drinks and liquid supplements, holds a Zacks Rank #2. CELH has a trailing four-quarter earnings surprise of 110.9%, on average.
The Zacks Consensus Estimate for Celsius Holdings’ current financial-year sales and earnings suggests growth of 98.5% and 184.1%, respectively, from the year-ago reported numbers.
Vital Farms Inc. (VITL - Free Report) offers a range of produced pasture-raised foods. It currently has a Zacks Rank #2. VITL has a trailing four-quarter earnings surprise of 145%, on average.
The Zacks Consensus Estimate for Vital Farms’ current financial-year sales suggests growth of 29.4% from the year-ago reported figure.