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Philip Morris (PM) Q4 Earnings Miss, Sales Beat Estimates

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Philip Morris International Inc. (PM - Free Report) reported adjusted fourth-quarter 2016 earnings per share of $1.10, missing the Zacks Consensus Estimate of $1.11 by a penny. Additionally, earnings gained 36% compared with the prior-year quarter figure driven by higher sales.

Excluding an unfavorable currency impact of 13 cents, earnings surged 52% year over year.

Shares of the company declined 0.3% over the past three months underperforming the Zacks-categorized Tobacco industry which has witnessed an increase of 6%.

Revenues & Margins

Net revenue was up 9.1% (up 10.5% excluding currency) to $7.0 billion, outpacing the Zacks Consensus Estimate of $6.39 billion. The sales gain is attributable to higher sales in Asia and European Union region. However, the increase was partially offset by lower sales in the tobacco category, stemming from the shift of customer preference away from tobacco products. Cigarette shipment volumes fell 4.4% to 2.1 billion units, primarily due to a decline in total market share.

Philip Morris’ market share of cigarettes increased in a number of markets, including Brazil, Canada, the Czech Republic, France, Kazakhstan, Korea, Kuwait, Mexico, the Netherlands, Norway, Poland, Saudi Arabia, Switzerland, Turkey and the United Arab Emirates.

The company's gross profit gained 11.3% year over year at $4.5 billion as higher excise tax and cost of sales were neutralized by increased revenues. Operating income gained 37.4% year over year to $4.6 billion due to lower marketing, administration and research costs.

Segment Details

Net revenue in the European Union region remained almost flat year over year to $1.9 billion. Excluding the impact of currency, net revenue inched up 1.8%, primarily due to favorable pricing in Germany, Spain and Italy.

Cigarette shipment volumes declined 4.3% to 45.2 billion units.

Market share in the region increased 0.4 percentage points (pp) as the increase in Marlboro’s market share was offset by the decrease in overall cigarette market share.

Net revenue in the Eastern Europe, the Middle East & Africa (EMEA) region gained 4.7% year over year to $1.8 billion. Excluding the impact of currency net revenue gained 9.7%, primarily owing to unfavorable pricing in Russia and North Africa.

Shipment volumes decreased 20% to 8.1 billion units, chiefly due to unfavorable pricing in North Africa and Russia.

The company recorded net revenue from Asia of $2.4 billion, up 27.4% (up 21.2% excluding currency) from the prior-year quarter, neutralized by unfavorable volume/mix, mainly in Australia.

Shipment volumes of 27 billion units decreased 4% due to reduced demand in Japan.

In Latin America and Canada, revenues declined 4.5% (up 7.4% excluding currency) to $785 million. Revenues (in terms of constant currency) increased year over year mainly in Argentina owing to the impact of excise tax-driven price increases.

Shipment volumes of 7.1 billion units dropped 18% year over year due to lower volumes in Argentina.

Fiscal Results

Adjusted 2016 earnings per share of $4.5 came in line with the Zacks Consensus Estimate. Earnings gained 1.4% from the prior-year quarter figure driven by higher sales.

Excluding an unfavorable currency impact of 46 cents, earnings were up 12% year over year.

Net revenue edged down 0.4% (up 11.8% excluding currency) to $26.7 billion and came in line with the Zacks Consensus Estimate of $6.39 billion.

Financial Update

During the 2016, Philip Morris raised the regular quarterly dividend by 2.0% to annualized rate of $4.16 per common share.

Philip Morris exited the quarter with cash and cash equivalents of $4.23 billion compared with $4.99 billion in third-quarter 2016. Long-term debt was $25.85 billion in the third quarter compared with $29.69 billion in the previous quarter.

Guidance

For 2017, management expects its GAAP-earnings to be in the range of $4.70–$4.85, compared with $4.48 in 2016. Excluding an unfavorable currency impact, the reported diluted earnings per share range represents a projected increase of approximately 9% to 12% compared with adjusted diluted earnings per share of $4.48 in 2016.

Philip Morris currently carries a Zacks Rank #3 (Hold).

Better-ranked stocks in the consumer staples sector worth considering includes,

Helen of Troy Limited (HELE - Free Report) carrying a Zacks Rank #2 (Buy) and has an expected earnings growth rate of 10.8%. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Pinnacle Foods Inc. (PF - Free Report) carrying a Zacks Rank #2 and has an expected earnings growth rate of 8.3%.

Con Agra Foods Inc. (CAG - Free Report) also carrying a Zacks Rank #2 and has an expected earnings growth rate of 8%.

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