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Philip Morris (PM) Beats on Q2 Earnings & Sales, Lowers View

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Philip Morris International Inc (PM - Free Report) posted second-quarter 2018 results, with the top and the bottom lines improving year over year and beating the Zacks Consensus Estimate. Nevertheless, on account of several growth initiatives planned for 2018, management lowered bottom-line view.

Quarter in Detail

Adjusted earnings of $1.41 per share rose 23.7% year over year and came ahead of the Zacks Consensus Estimate of $1.23. Excluding the positive impact from currency fluctuations, the bottom line rose 20.2% from the year-ago quarter’s tally.

Net revenues of $7,726 million increased 11.7% (up 8.3% on a constant-currency basis) in the quarter and beat the Zacks Consensus Estimate of $7,528 million. The company witnessed growth across most geographical regions, buoyed by favorable pricing of combustible products and strong volume surge in heated tobacco.

During the quarter, revenues from combustible products rose 6.4% or 3.3% at constant currency (cc) to $6,706 million. Revenues from Reduced Risk Products (RRPs) increased 65.9% (up 58.8% at cc) to $1,020 million.

Total cigarette and heated tobacco unit shipment volume inched up 0.9% to 201.7 billion units. While cigarette shipment volume declined 1.5% to 190.7 billion units in the quarter, heated tobacco unit shipment volume of almost 11 billion units surged 73% year over year.

Adjusted operating income grew 13% year over year to $3,093 million (up 9.8% at cc), owing to favorable volume/mix and pricing variance, that were partly offset by higher marketing and research spending on RRPs. Adjusted operating margin expanded 40 basis points to 40%.

During the quarter under review, Phillip Morris also announced a hike of 6.5% in its quarterly dividend from $1.07 to $1.14.

Philip Morris International Inc. Price, Consensus and EPS Surprise

Region-Wise Performance

Net revenues in EU increased 18.6% to $2,503 million. Revenues climbed 5.5% (at cc), courtesy of favorable pricing and volume/mix. Total shipment volume in the region fell 1.9% to 49,179 million units.

In EE, net revenues grew 9% to $760 million and jumped 10.3% at cc. The upside can be attributed to favorable pricing, partly offset by adverse volume/mix. Total shipment volumes tumbled 8.7% to 29,405 million units.

Net revenues increased 4.5% to $1,022 million in ME&A region. Also, total shipment volumes expanded 8.3% to 35,148 million units.

Moving to S&SA, revenues rose 10.5% to $1,156 million. Shipment volumes grew 6.6% to 44,788 million units.

EA&A posted revenues that rose 10.5% to $1,478 million. Total shipment volumes climbed 6.7% to 22,952 million units.

Finally, revenues at LA&C advanced 7.9% to $807 million, on the back of favorable pricing. However, total shipment volumes were down 6.1% at 20,236 million units.



Guidance

Management remains encouraged about strength in iQOS devices and favorable pricing of combustible products. Moreover, the company is optimistic about the encouraging trends witnessed across the GCC region and Russia. Further, the company is committed toward undertaking measures to instill growth in Japan as well as introducing new products in the heated tobacco category.

That said, Philip Morris lowered 2018 earnings forecast and expects it to range between $5.02-$5.12 compared with the previous view of $5.25-$5.40. The updated guidance reflects year-over-year growth of 29-32%. Excluding the impacts of unfavorable currency of approximately 7 cents, earnings are projected to rise 8%-10%. The Zacks Consensus Estimate for 2018 is currently pegged at $5.11.

The revised forecast takes into consideration currency-neutral revenue growth of approximately 3-4% as well as the impacts of certain marketing and product initiatives. Further, the company expects capital expenditures of roughly $1.5 billion in 2018, while operating cash flow is envisioned to be more than $9 billion. Also, management expects effective tax rate for 2018 to be roughly 24%.

Price Performance

Shares of the Zacks Rank #3 (Hold) company have declined 24.5% in the past six months, almost in-line with the industry’s decline. The unimpressive trend was primarily caused by the company’s struggle with decreasing cigarette volumes.

Looking for Consumer Staple Stocks? Check These

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Lamb Weston Holdings Inc (LW - Free Report) , with long-term earnings per share growth rate of 12.2%, carries a Zacks Rank #2 (Buy).

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