We expect tobacco giant Philip Morris International Inc. (PM - Free Report) to beat expectations when it reports second-quarter 2016 results on Jul 19, before market opens. Last quarter, the company delivered a negative earnings surprise of 11.71%. However, the company delivered an average positive surprise of 2.01% in the last four quarters.
Let’s see how things are shaping up for this announcement.
Why a Likely Positive Surprise?
Our proven model shows that Philip Morris is likely to beat earnings because it has the right combination of two key ingredients.
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +0.83%. This is meaningful and leading indicator of a likely positive earnings surprise.
Zacks Rank: Philip Morris carries a Zacks Rank #3 (Hold), which when combined with positive ESP makes us confident of an earnings beat.
The Sell-rated stocks (Zacks Rank #4 and 5) should never be considered going into an earnings announcement.
What is Driving the Better-Than-Expected Earnings?
Improved volumes, positive pricing, a strong brand portfolio and product innovation have been boosting the company's results over the past few quarters. The company expects the trend to continue in the second quarter as well.
The company is focusing on its unconventional tobacco products. It has entered into a strategic agreement with Altria Group Inc. (MO - Free Report) to market the latter’s MarkTen e-cigarettes internationally. Altria will, in turn, distribute two of Philip Morris’ heated tobacco products in the U.S. The companies have also decided to partner in a regulatory engagement related to the products. Moreover, the companies will work toward gaining shares as well as improving the existing versions for the products. We expect these efforts to have a favorable impact on Philip Morris’ bottom line in the second quarter.
During the first quarter, Philip Morris launched the latest version of the iQOS ( a reduced risk tobacco product) device. The company is refocusing on the marketing approach and touch points to increase the effectiveness of the product. These initiatives are further expected to boost Philip Morris’ top line in the to-be-reported quarter.
Other Stocks to Consider
Apart from Philip Morris, other stocks in the consumer staples sector with a positive Earnings ESP and a favorable Zacks Rank include:
Nu Skin Enterprises Inc.(NUS - Free Report) with an Earnings ESP of +2.6% and a Zacks Rank #2 (Buy). The company will likely release earnings on Aug 2.
Post Holdings Inc. (POST - Free Report) with an Earnings ESP of +12.77% and a Zacks Rank #1 (Strong Buy). The company is expected to release earnings in Aug 2016.
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