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ETFs in Focus After Phillip Morris's Downbeat Q4 Results

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Philip Morris International Inc. (PM - Free Report) reported disappointing quarterly results in the fourth quarter of 2017. Excluding excise taxes, it registered a 19% year over year increase in quarterly revenues, as it increased to $8.294 billion in the fourth quarter of 2017 from 6.971 billion a year earlier.

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

Q4 Results in Focus

Philip Morris reported non-GAAP earnings per share of $1.31, falling short of the Zacks Consensus Estimate of $1.36. Moreover, the company’s revenues of $8.294 billion fell short of the Zacks Consensus Estimate of $8.372 billion. The tobacco company reported operating income of $3.381 billion, increasing 18.2% year over year (excluding favorable currency impact of $196 million).

Excluding excise taxes, the company registered a 7.7% year-over-year increase in annual revenues, as it rose to $28.748 billion in 2017 from $26.685 billion in 2016. Excluding unfavorable currency impact, it grew 9.4% in the year.

Shipment Volume

The company’s total shipment volume came in at 212.085 billion units, increasing 3.8% from fourth-quarter 2016 figure of 204.260 billion units. Although higher shipment volume of cigarettes in the EU was a positive, overall shipment volume of cigarettes declined 2.1% to 196.369 billion units in the quarter. However, some respite came in the form of an increase in shipment volume in heated tobacco units, which increased to 15.716 billion units compared with 3.695 billion units in the prior-year quarter.

Outlook

Philip Morris expects full-year 2018 diluted earnings per share to be in the range of $5.20-$5.35. This reflects a 34-38% increase from the 2017 EPS figure of $3.88. Excluding favorable currency impact, the company expects adjusted EPS figure to grow 7-10% in the period.

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 13 basis points a year. From a sector look, Beverages, Food & Staples Retailing and Household Products have the highest exposure to the fund, with 25.0%, 22.7% and 20.4% allocation, respectively (as of Dec 31, 2017). It has an 8.9% exposure to Philip Morris (as of Feb 8, 2018). The fund has returned 0.5% in a year but has lost 5.2% year to date. XLP currently has a Zacks ETF Rank #4 (Sell), 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 19.1%, 19.1% and 17.4% allocation, respectively (as of Dec 31, 2017). It has a 7.7% exposure to Philip Morris (as of Dec 31, 2017). The fund has returned 0.1% in a year but has lost 5.2% year to date. VDC currently has a Zacks ETF Rank #4, 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 $338.4 million and charges a fee of 8 basis points a year. From a sector look, Beverages, Food & Staples Retailing and Food products have the highest exposure to the fund, with 23.4%, 23.3% and 18.1% allocation, respectively (as of Feb 7, 2018). It has a 7.8% exposure to Philip Morris (as of Feb 7, 2018). The fund has returned 0.8% in a year but has lost 5.1% year to date. FSTA currently has a Zacks ETF Rank #5 (Strong sell), with a Medium risk outlook.

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

 

Source: Yahoo Finance

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