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ETFs in Focus After Phillip Morris's Downbeat Results

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Shares of Philip Morris International Inc. (PM - Free Report) dropped 3.9% at market close on Thursday, Oct 19, 2017. Excluding excise taxes, it registered a 7% increase in quarterly revenues, as it increased to $7.473 billion in the third quarter of 2017 compared with $6.982 billion a year earlier.


It failed to beat the Zacks Consensus Estimate on both earnings and sales in the third quarter of 2017. Increased regulation and poor demand owing to health concerns weighed on the company’s performance.


Q3 Results in Focus


Philip Morris reported non-GAAP earnings per share of $1.27, falling short of the Zacks Consensus Estimate of $1.39. Moreover, the company’s third quarter revenues of $7.473 billion fell short of the Zacks Consensus Estimate of $7.616 billion. The tobacco company reported operating income of $3.1 billion, up 2.2% year over year.


Shipment Volume


The company’s total shipment volume came in at 208.190 billion units, declining 0.5% from third-quarter 2016 figure of 209.140 billion units. The decline was due to a sharp fall in shipment volume of cigarettes, which declined 4.1% to 198.465 billion compared with 207.051 billion units in the third quarter 2016. However, some respite came in the form of an increase in shipment volume in heated tobacco units, which increased to 9.725 billion units compared with 2.089 billion units in the prior-year quarter.


Outlook


Philip Morris expects its full-year 2017 diluted earnings per share to be in the range of $4.75-$4.80 compared with its July forecast of $4.78-$4.93. Moreover, this forecast is further down from the guidance range of $4.84-$4.99 given six months ago.


In the current scenario, we believe it is prudent to discuss the following ETFs that have a relatively high exposure to Philip Morris.


Consumer Staples Select Sector SPDR Fund (XLP - Free Report)


This fund offers exposure to the Consumer Staples sector of the United States. It has AUM of $8.1 billion and charges a fee of 14 basis points a year. From a sector look, Beverages, Household Products and Food & Staples Retailing, have the highest exposure to the fund, with 24.6%, 20.9% and 20.0% allocation, respectively (as of Sep 30, 2017). It has a 9.5% exposure to Philip Morris (as of Oct 19, 2017). The fund has returned 2.6% in a year but has lost 5.1% year to date (as of Oct 19, 2017). The fund lost 0.5% at market close on Oct 19, 2017. XLP currently has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.


Vanguard Consumer Staples ETF (VDC - Free Report)


This fund is one of the most popular funds in the Consumer Staples sector of the United States. It has AUM of $3.8 billion and charges a fee of 10 basis points a year. From a sector look, Household products, Soft drinks and Packaged Foods & Meats have the highest exposure to the fund, with 19.6%, 19.1% and 17.1% allocation, respectively (as of Sep 30, 2017). It has an 8.5% exposure to Philip Morris (as of Sep 30, 2017). The fund has returned 2.4% in a year but has lost 5.2% year to date (as of Oct 19, 2017). The fund lost 0.5% at market close on Oct 19, 2017. VDC currently has a Zacks ETF Rank #2 with a Medium risk outlook.


Fidelity MSCI Consumer Staples Index ETF (FSTA - Free Report)


This fund offers exposure to the Consumer Staples sector of the United States at a very cheap expense ratio. It has AUM of $311.8 million and charges a fee of 8 basis points a year. From a sector look, Beverages, Food & Staples Retailing and Household products have the highest exposure to the fund, with 23.4%, 21.0% and 19.6% allocation, respectively (as of Oct 18, 2017). It has a 9.0% exposure to Philip Morris (as of Oct 18, 2017). The fund has returned 3.4% in a year and 4.2% year to date (as of Oct 19, 2017). The fund lost 0.5% at market close on Oct 19, 2017. FSTA currently has a Zacks ETF Rank #2 with a Medium risk outlook.


Given below is a chart for comparing the year-to-date performance of the funds and Philip Morris.


 
Source: Google Finance


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