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Philip Morris (PM) Misses Q3 Earnings & Sales, Lowers View

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After reporting weaker-than-expected results in the first half of 2017, Philip Morris International Inc (PM - Free Report) continued with its dismal performance in the third quarter. Both earnings and revenues lagged the Zacks Consensus Estimate in third-quarter 2017 results. Moreover, the company lowered its earnings guidance for 2017 due to higher impact of unfavorable currency.

Quarter in Detail

Adjusted earnings of $1.27 per share missed the Zacks Consensus Estimate of $1.39. While the company benefited from strong pricing and growth in Reduced Risk Products, lower cigarette volumes hurt its performance. Nevertheless, adjusted earnings in the reported quarter inched up 1.6% from the year-ago period

Net revenue, excluding excise taxes, was $7,473 million, which increased 7% (up 9% excluding unfavorable currency of $136 million) in the third quarter. Favorable pricing and volume/mix in the quarter drove revenues. While, revenue increased across Asia, Latin America & Canada and the European Union (EU), the same had declined in Eastern Europe, the Middle East & Africa (EEMA).

During the quarter, revenues from combustible products declined 3.6% (down 4.6% excluding negative currency) to $6.5 billion. On the contrary, Reduced Risk Products (RRPs) reported a whopping increase from last-year quarter, stemming from the shift of customer preference away from tobacco products. The company generated revenues of $947 million from RRPs, significantly higher than $212 million reported last year.

However, net revenues lagged the Zacks Consensus Estimate of $7,616 million.

Total cigarette and heated tobacco unit shipment volume fell 0.5% to 208.2 billion units. The figures were unfavorable in the EU, EEMA region and in Latin America & Canada mainly owing to low cigarette shipment volumes. These were offset by increased volumes in Asia, as well as higher heated tobacco unit shipment volume across all regions. While cigarette shipment volume declined 4.1% in the quarter, heated tobacco unit shipment volume of 9.7 billion units, increased significantly from 2.1 billion units recorded in third-quarter 2016.

Adjusted operating companies income was up 2.2% year over year to $3.1 billion due to favorable pricing and growth witnessed in Asia. Excluding currency impact of $140 million, adjusted operating income increased 6.8%. However adjusted operating margin was down 190 basis points to 42%.

Financial Update

During the quarter, Philip Morris increased the regular quarterly dividend by approximately 2.9% to reach an annualized rate of $4.28 per share.

Guidance

Philip Morris lowered its earnings guidance for 2017 and now expects the same in range of $4.75 to $4.80, lower than the previous range of $4.78 to $4.93. The revised guidance depicts a growth of 9-10% over the adjusted earnings of $4.48 delivered in 2016. The estimated earnings range, however, excludes the negative impacts of currency of 17 cents, and favorable tax item of 4 cents.

The Zacks Consensus Estimate for 2017 is currently pegged at $4.86, which is above the company’s guidance.

 

Share Price Performance

Despite weak results, shares of Philip Morris have outperformed the industry on a year-to-date basis. Shares of this Zacks Rank #3 (Hold) company have returned 23% compared with the industry’s gain of 9.7%.

Looking for More? Check These Three Consumer Staple Stocks

Investors interested in the same sector may also consider stocks such as McCormick & Company, Inc. (MKC - Free Report) flaunting a Zacks Rank #1 (Strong Buy), as well as Constellation Brands, Inc. (STZ - Free Report) and The Estée Lauder Companies Inc (EL - Free Report) , both carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks Rank #1 stocks here.

McCormick delivered an average positive earnings surprise of 4.1% in the trailing four quarters. It has a long-term earnings growth rate of 9.4%.

Constellation Brands delivered an average positive earnings surprise of 13.6% in the trailing four quarters. It has a long-term earnings growth rate of 14.8%.

Estée Lauder delivered an average positive earnings surprise of 13.7% in the trailing four quarters. It has a long-term earnings growth rate of 12.1%.

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