Can Low Cigarette Sales Hurt Philip Morris' (PM) Q2 Earnings?

Philip Morris International Inc. (NYSE:PM) is slated to release second-quarter 2019 results on Jul 18. The company’s earnings have surpassed the Zacks Consensus Estimate in the trailing four quarters, the average being 11.3%. Let’s take a look at the factors that are likely to impact this tobacco giant’s upcoming quarterly announcement.

Estimates for the Quarter

The Zacks Consensus Estimate for revenues is currently pegged at $7,352 million, suggesting a decline of almost 5% from the year-ago quarter’s tally.

Further, the Zacks Consensus Estimate for second-quarter 2019 earnings has declined by a penny in the past 30 days and is currently pegged at $1.32 per share. The figure indicates a decline of 6.4% from $1.41 in the year-ago quarter.

Philip Morris International Inc. Price, Consensus and EPS Surprise

Receding Cigarette Sales, Adverse Currency

Regulatory hurdles and anti-tobacco campaigns are charring Philip Morris’ cigarette sales. Shipment volumes in the segment have been deteriorating for a while. Considering the constant vigilance on tobacco products, it is hard for Philip Morris to escape the impacts of sluggish cigarette sales. In fact, management predicts cigarette shipment volumes to decline in the range of 1.5-2% in 2019, which mars hopes for the upcoming quarter results.

Adverse impacts from currency fluctuations have been weighing on the company’s performance. Management expects currency to make an unfavorable impact of close to 14 cents on earnings in 2019. Persistence of such a hurdle during the second quarter is likely to dent quarterly results.

Pricing & Low Risk Products are Upsides

Philip Morris is witnessing rapid growth in reduced risk products (RRPs) like e-cigarettes, courtesy of consumers’ rising health consciousness and awareness regarding the harmful impacts of nicotine. Continued research in this arena is aiding the company to come up unique offerings that are helping adult smokers to switch from traditional cigarettes to smoke-free options. This in turn is supporting revenues.

Speaking of RRPs, the company’s IQOS is performing exceptionally well in various markets. We expect Philip Morris’s performance in the second quarter to gain from consistent growth in RRPs space. Other tobacco companies like Altria (NYSE:MO) , British American Tobacco (NYSE:BTI) and Vector Group (NYSE:VGR) are also striving to expand in low-risk tobacco products arena.

Pricing is also a vital factor that is supporting Philip Morris’ business. In fact, high pricing is aiding the company to generate substantial revenues in the combustible category. Strategic pricing is likely to cushion the company’s performance in the to-be-reported quarter.

Zacks Model

Our proven model shows that Philip Morris is likely to beat earnings estimates this quarter. A stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. You can see the complete list of today’s Zacks #1 Rank stocks here.

Philip Morris’s Zacks Rank #3 combined with the Earnings ESP of +0.54% makes us reasonably confident about an earnings beat. You may uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

More Stock News: This Is Bigger than the iPhone!

It could become the mother of all technological revolutions. Apple (NASDAQ:AAPL) sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.

Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.

Click here for the 6 trades >>