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ETFs in Focus Post Phillip Morris' Downbeat Earnings

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Philip Morris International Inc. (PM - Free Report) reported disappointing quarterly results in the first quarter of 2018. It registered a 13.7% year-over-year increase in quarterly revenues to $6.896 billion in the quarter from $6.064 billion a year ago.

It failed to beat the Zacks Consensus Estimate for sales but surpassed earnings estimates. Moreover, the share price took a massive hit owing to the poor performance of its cigarettes segment. The stock lost 15.6% at market close on Apr 19. Increased regulation and poor demand, owing to health concerns, weighed on the company’s performance.

Q1 Results in Focus

Philip Morris reported non-GAAP earnings per share of $1.00, surpassing the Zacks Consensus Estimate of 88 cents. However, the company’s revenues of $6.896 billion (excluding excise taxes) fell short of the Zacks Consensus Estimate of $7.024 billion. Excluding favorable currency impact, annual revenues grew 8.3% in the year.

The tobacco company reported operating income of $2.426 billion, down 2.7% year over year (excluding a favorable currency impact of $76 million).

Shipment Volume

The company’s total shipment volume came in at 173.846 billion units, down 5.3% from the first-quarter 2017 figure of 177.987 billion units. Although higher shipment volume of cigarettes in South and Southeast Asia was a positive, overall shipment volume of cigarettes declined 5.3% to 164.280 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 9.566 billion units from 4.435 billion units in the prior-year quarter.

Outlook

Philip Morris expects full-year 2018 diluted earnings per share in the range of $5.25-$5.40. This reflects a 35-39% increase from the 2017 EPS figure of $3.88. Excluding favorable currency impact, the company expects adjusted EPS growth of 8-11% 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 $7.56 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 25.6%, 22.6% and 19.7% allocation, respectively. It has a 7.9% exposure to Philip Morris. The fund has lost 7.1% in a year and 9.2% year to date. XLP has a Zacks ETF Rank #3 (Hold), 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, Soft drinks, Household products and Packaged Foods & Meats have the highest exposure to the fund, with 19.4%, 18.5% and 16.7% allocation, respectively. It has a 7.8% exposure to Philip Morris. The fund has lost 6.3% in a year and 8.2% year to date. VDC has a Zacks ETF Rank #3, 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 low expense ratio. It has AUM of $269.7 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 23.8%, 22.3% and 17.9% allocation, respectively. It has an 8.4% exposure to Philip Morris. The fund has lost 6.8% in a year and 9.0% year to date. FSTA has a Zacks ETF Rank # (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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