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Why Is Philip Morris (PM) Down 3.3% Since the Last Earnings Report?
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It has been about a month since the last earnings report for Philip Morris International Inc (PM - Free Report) . Shares have lost about 3.3% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Philip Morris Earnings & Sales Miss Estimates in Q2
Philip Morris reported weaker-than-expected second-quarter 2017 results, wherein both earnings and revenues lagged the Zacks Consensus Estimate. Moreover, the company lowered its earnings guidance for 2017 due to higher impact of unfavorable currency.
Quarter in Detail
Adjusted earnings per share of $1.14 per share missed the Zacks Consensus Estimate of $1.23 by 7.3% in the second quarter. It also dipped 0.9% from the year-ago quarter. While the company benefited from strong pricing, lower cigarette volumes led to the decline.
Net revenue, excluding excise taxes, was $6.917 billion, which were way behind the Zacks Consensus Estimate of $7.058 billion by 2.0%. Revenue was up 4.0% year-over-year (up 7.0% excluding unfavorable currency of $195 million) in the second quarter driven by higher heated tobacco unit and iQOS device sales, notably in Japan, as well as favorable pricing. Favorable pricing and volume/mix in the quarter drove revenues. Revenue increased across Eastern Europe, the Middle East & Africa (EEMA), Latin America & Canada and Asia regions but were partly offset by regions of European Union (EU).
Revenues from combustible products declined 3.4% (down 0.5% excluding negative currency) to $6.3 billion. On the contrary, Reduced Risk Products (RRPs) reported a whooping increase from last-year quarter, stemming from the shift of customer preference away from tobacco products. Notably, a portion of RRP net revenues are from iQOS devices, which gained popularity despite yielding a negative margin due to introductory discounts offered in the initial phase to accelerate adult smoker switching. Underpinned by the strong growth outlook for RRPs, the company now anticipates total currency-neutral net revenue growth above 7% in 2017.
Total cigarette and heated tobacco unit shipment volume fell 5.0% to 199.9 billion units. The volumes were unfavorable in Asia, due to a challenging consumer spending environment in Indonesia as well as ongoing declines of low-margin cigarette volumes in Pakistan and in Philippines. In EEMA regions, volume declines were due to impact of excise tax-driven price increases in Russia and an increase in illicit trade in Turkey. The decline was also due to lower volume in Saudi Arabia related to the introduction in June of an excise tax that resulted in a doubling of retail selling prices.
Despite a 5% decline in total volume in the second quarter, the decline was narrower sequentially from 7.8% decline in first quarter. For 2017, the company continues to anticipate a total shipment volume decline of 3% to 4%, broadly in line with last year. This reflects the further expected sequential improvement in the third and the fourth quarters, notably driven by the Asia region, with higher RRP volume and improved cigarette volume in markets such as Indonesia, Pakistan and the Philippines.
While cigarette shipment volume declined 7.5% in the quarter, heated tobacco unit shipment volume of 6.4 billion units increased significantly from 1.2 billion units recorded in second-quarter 2016.
Adjusted operating companies income was down 1.1% year over year to $2.8 billion due to lower revenues from combustible products and unfavorable currency. Excluding currency impact of $199 million, adjusted operating income increased 5.9%. Adjusted operating margin was also down 210 basis points to 40.6%.
Segment Details
European Union: Net revenue in the European Union region declined 2.1% year over year to $2.1 billion. Excluding the impact of currency, net revenue increased 2.2%, driven by favorable pricing in Germany and the United Kingdom, partly offset by unfavorable pricing in France and Italy. Favorable volume/mix in Italy, reflecting the performance of reduced-risk products, also led to revenue growth.
Adjusted operating companies income, excluding unfavorable currency, decreased by 3.7%. Adjusted operating companies income margin, excluding unfavorable currency, decreased by 2.9 points to 46.8%.
Eastern Europe, the Middle East & Africa (EEMA): Net revenue in EEMA region increased just 0.7% year over year to $1.7 billion. Excluding the impact of currency, net revenue grew 4.4%, principally driven by favorable pricing, mainly by North Africa, notably Egypt, Turkey and Ukraine. The favorable pricing variance was partly offset by unfavorable volume/mix, mainly due to lower total markets in Russia, Saudi Arabia, mainly resulting from the implementation of a new excise tax, and Turkey, partly offset by North Africa.
Adjusted operating companies income, excluding unfavorable currency, increased 3.3%. Adjusted operating companies income margin, excluding unfavorable currency, decreased by 0.5 points to 47.2%.
Asia: The company recorded net revenue growth of 11.8% to $2.4 billion in Asia. Excluding currency impact, revenue was up 12.8% from the prior-year quarter, despite a decline in cigarette revenues and shipment volumes.
Latin America and Canada: In Latin America and Canada, revenues increased 7.3% (up 10.2% excluding currency) to $748 million, primarily driven by growth in cigarette revenues and tobacco shipment volumes.
During the quarter, Philip Morris announced a regular quarterly dividend of $1.04 per share.
Guidance
Philip Morris lowered its earnings guidance for 2017, including currency. The company now expects its 2017 diluted earnings per share in the band of $4.78–$4.93 as compared with $4.84–$4.99, expected earlier. Excluding adverse effect of currency of $0.14 ($0.08 per share expected earlier) in 2017 and favorable tax item of $0.04 reported in the first quarter, this guidance reflects growth of nearly 9–12% over the adjusted earnings of $4.48 delivered in 2016. Further, the company expects higher currency-neutral growth in the second half of 2017, mainly reflecting increased heated tobacco unit shipment volume, partly offset by continued investments behind the commercialization of iQOS.
For 2017, the company continues to anticipate a total shipment volume decline of 3% to 4%, broadly in line with last year. This reflects the further expected sequential improvement in the third and the fourth quarters, notably driven by the Asia region, with higher RRP volume and improved cigarette volume in markets such as Indonesia, Pakistan and the Philippines.
Further, the company expects revenues growth, excluding excise taxes, of over 7% excluding currency impact and acquisitions.
How Have Estimates Been Moving Since Then?
Analysts were quiet during the last one month period as none of them issued any earnings estimate revisions.
Philip Morris International Inc Price and Consensus
At this time, the stock has a nice Growth Score of B, though it is lagging a lot on the momentum front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
The company's stock is suitable solely for growth based on our styles scores.
Outlook
The stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.
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Why Is Philip Morris (PM) Down 3.3% Since the Last Earnings Report?
It has been about a month since the last earnings report for Philip Morris International Inc (PM - Free Report) . Shares have lost about 3.3% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Philip Morris Earnings & Sales Miss Estimates in Q2
Philip Morris reported weaker-than-expected second-quarter 2017 results, wherein both earnings and revenues lagged the Zacks Consensus Estimate. Moreover, the company lowered its earnings guidance for 2017 due to higher impact of unfavorable currency.
Quarter in Detail
Adjusted earnings per share of $1.14 per share missed the Zacks Consensus Estimate of $1.23 by 7.3% in the second quarter. It also dipped 0.9% from the year-ago quarter. While the company benefited from strong pricing, lower cigarette volumes led to the decline.
Net revenue, excluding excise taxes, was $6.917 billion, which were way behind the Zacks Consensus Estimate of $7.058 billion by 2.0%. Revenue was up 4.0% year-over-year (up 7.0% excluding unfavorable currency of $195 million) in the second quarter driven by higher heated tobacco unit and iQOS device sales, notably in Japan, as well as favorable pricing. Favorable pricing and volume/mix in the quarter drove revenues. Revenue increased across Eastern Europe, the Middle East & Africa (EEMA), Latin America & Canada and Asia regions but were partly offset by regions of European Union (EU).
Revenues from combustible products declined 3.4% (down 0.5% excluding negative currency) to $6.3 billion. On the contrary, Reduced Risk Products (RRPs) reported a whooping increase from last-year quarter, stemming from the shift of customer preference away from tobacco products. Notably, a portion of RRP net revenues are from iQOS devices, which gained popularity despite yielding a negative margin due to introductory discounts offered in the initial phase to accelerate adult smoker switching. Underpinned by the strong growth outlook for RRPs, the company now anticipates total currency-neutral net revenue growth above 7% in 2017.
Total cigarette and heated tobacco unit shipment volume fell 5.0% to 199.9 billion units. The volumes were unfavorable in Asia, due to a challenging consumer spending environment in Indonesia as well as ongoing declines of low-margin cigarette volumes in Pakistan and in Philippines. In EEMA regions, volume declines were due to impact of excise tax-driven price increases in Russia and an increase in illicit trade in Turkey. The decline was also due to lower volume in Saudi Arabia related to the introduction in June of an excise tax that resulted in a doubling of retail selling prices.
Despite a 5% decline in total volume in the second quarter, the decline was narrower sequentially from 7.8% decline in first quarter. For 2017, the company continues to anticipate a total shipment volume decline of 3% to 4%, broadly in line with last year. This reflects the further expected sequential improvement in the third and the fourth quarters, notably driven by the Asia region, with higher RRP volume and improved cigarette volume in markets such as Indonesia, Pakistan and the Philippines.
While cigarette shipment volume declined 7.5% in the quarter, heated tobacco unit shipment volume of 6.4 billion units increased significantly from 1.2 billion units recorded in second-quarter 2016.
Adjusted operating companies income was down 1.1% year over year to $2.8 billion due to lower revenues from combustible products and unfavorable currency. Excluding currency impact of $199 million, adjusted operating income increased 5.9%. Adjusted operating margin was also down 210 basis points to 40.6%.
Segment Details
European Union: Net revenue in the European Union region declined 2.1% year over year to $2.1 billion. Excluding the impact of currency, net revenue increased 2.2%, driven by favorable pricing in Germany and the United Kingdom, partly offset by unfavorable pricing in France and Italy. Favorable volume/mix in Italy, reflecting the performance of reduced-risk products, also led to revenue growth.
Adjusted operating companies income, excluding unfavorable currency, decreased by 3.7%. Adjusted operating companies income margin, excluding unfavorable currency, decreased by 2.9 points to 46.8%.
Eastern Europe, the Middle East & Africa (EEMA): Net revenue in EEMA region increased just 0.7% year over year to $1.7 billion. Excluding the impact of currency, net revenue grew 4.4%, principally driven by favorable pricing, mainly by North Africa, notably Egypt, Turkey and Ukraine. The favorable pricing variance was partly offset by unfavorable volume/mix, mainly due to lower total markets in Russia, Saudi Arabia, mainly resulting from the implementation of a new excise tax, and Turkey, partly offset by North Africa.
Adjusted operating companies income, excluding unfavorable currency, increased 3.3%. Adjusted operating companies income margin, excluding unfavorable currency, decreased by 0.5 points to 47.2%.
Asia: The company recorded net revenue growth of 11.8% to $2.4 billion in Asia. Excluding currency impact, revenue was up 12.8% from the prior-year quarter, despite a decline in cigarette revenues and shipment volumes.
Adjusted operating companies income, excluding unfavorable currency, increased 15.0%.
Latin America and Canada: In Latin America and Canada, revenues increased 7.3% (up 10.2% excluding currency) to $748 million, primarily driven by growth in cigarette revenues and tobacco shipment volumes.
Adjusted operating companies income, excluding unfavorable currency, increased 31.3%.
Financial Update
During the quarter, Philip Morris announced a regular quarterly dividend of $1.04 per share.
Guidance
Philip Morris lowered its earnings guidance for 2017, including currency. The company now expects its 2017 diluted earnings per share in the band of $4.78–$4.93 as compared with $4.84–$4.99, expected earlier. Excluding adverse effect of currency of $0.14 ($0.08 per share expected earlier) in 2017 and favorable tax item of $0.04 reported in the first quarter, this guidance reflects growth of nearly 9–12% over the adjusted earnings of $4.48 delivered in 2016. Further, the company expects higher currency-neutral growth in the second half of 2017, mainly reflecting increased heated tobacco unit shipment volume, partly offset by continued investments behind the commercialization of iQOS.
For 2017, the company continues to anticipate a total shipment volume decline of 3% to 4%, broadly in line with last year. This reflects the further expected sequential improvement in the third and the fourth quarters, notably driven by the Asia region, with higher RRP volume and improved cigarette volume in markets such as Indonesia, Pakistan and the Philippines.
Further, the company expects revenues growth, excluding excise taxes, of over 7% excluding currency impact and acquisitions.
How Have Estimates Been Moving Since Then?
Analysts were quiet during the last one month period as none of them issued any earnings estimate revisions.
Philip Morris International Inc Price and Consensus
Philip Morris International Inc Price and Consensus | Philip Morris International Inc Quote
VGM Scores
At this time, the stock has a nice Growth Score of B, though it is lagging a lot on the momentum front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
The company's stock is suitable solely for growth based on our styles scores.
Outlook
The stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.