Philip Morris International Inc (PM - Free Report) posted third-quarter 2018 results, with the top and the bottom lines improving year over year and beating the Zacks Consensus Estimate. Results gained from favorable pricing and strong brand performances in the combustible category.
Also, the company’s reduced risk products (RRPs) performed well in most regions, except East Asia & Australia. The favorable results aided the company’s shares to gain close to 2% during the pre-market trading session on Oct 18.
Quarter in Detail
Adjusted earnings of $1.44 per share rose 13.4% year over year and came ahead of the Zacks Consensus Estimate of $1.28. Excluding the positive impact from currency fluctuations, the bottom line rose 20.5% from the year-ago quarter’s tally.
Philip Morris International Inc. Price, Consensus and EPS Surprise
Net revenues of $ 7,504 million inched up 0.4% (up 3.3% on a constant-currency basis) in the quarter and beat the Zacks Consensus Estimate of $7,176 million. This was predominantly backed by solid performance in the combustible category.
During the quarter, revenues from combustible products rose 2.4% or 5.8% at constant currency (cc) to $ 6,681 million. Revenues from RRPs declined 13.2% (down 14.2% at cc) to $823 million. Growth in RRPs witnessed in most regions were more than offset by decline in East Asia & Australia.
Total cigarette and heated tobacco unit shipment volume declined 2.1% to 203.7 billion units. While cigarette shipment volume declined 1.7% to 195.1 billion units in the quarter, heated tobacco unit shipment volume of almost 8.7 billion units fell 11% year over year.
Adjusted operating income grew 2.2% year over year to $3,156 million. At cc, this metric was up 7.6% owing to favorable pricing variance and positive margin impact of lower iQOS device sales. These were partly offset by unfavorable volume/mix and higher costs. Adjusted operating margin expanded 80 basis points to 42.1%.
During the quarter under review, Phillip Morris announced a quarterly dividend of $1.14.
Net revenues in European Union increased 11.9% to $2,467 million. Revenues climbed 10.6% (at cc), courtesy of favorable pricing and volume/mix. Total shipment volume in the region inched up 0.8% to 49,953 million units.
In Eastern Europe, net revenues grew 10.4% to $778 million and jumped 16.9% at cc. The upside can be attributed to favorable pricing and volume/mix. Total shipment volumes tumbled 3.1% to 30,953 million units.
Net revenues increased 6% to $1,143 million in Middle East & Africa region. Also, total shipment volumes expanded 3.3% to 38,558 million units.
Moving to South & Southeast Asia, revenues rose 6% to $1,197 million. Shipment volumes grew 2.5% to 45,840 million units.
Revenues from East Asia & Australia declined 27.2% to $ 1,166 million. Total shipment volumes also went down 22.3% to 18,761 million units.
Finally, revenues from Latin America & Canada inched down 0.4% to $753 million. Also, total shipment volumes were down 3.9% at 19,655 million units.
Management remains impressed with third-quarter results and is encouraged about strength in iQOS devices. The company is on track with initiatives to augment this category. Further, the company is committed toward undertaking measures to instill growth in Japan as well as introducing new products in the heated tobacco category. Apart from this, management is impressed with the performance of combustible products supported by favorable pricing and strong brands.
That said, Philip Morris expects earnings for 2018 in the range of $4.97-$5.02, after considering the existing exchange rates. The guidance reflects year-over-year growth of 28-29%. Excluding the impacts of unfavorable currency of approximately 12 cents, earnings are projected to rise 8%-9%. The Zacks Consensus Estimate for 2018 is currently pegged at $5.01.
The revised forecast takes into consideration currency-neutral revenue growth of approximately 3% 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 almost $9 billion. Also, management expects effective tax rate for 2018 to be roughly 24%.
Price Performance & Rank
Shares of the company improved 4.5% in the past three months, against the industry’s decline of 2.4%. Currently, Philip Morris has a Zacks Rank #4 (Sell), which is subject to change following the earnings announcement.
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