It has been about a month since the last earnings report for Philip Morris International Inc. (NYSE:PM) . Shares have lost about 5.4% in that time frame.
Will the recent negative trend continue leading up to its next earnings release, or is PM due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Philip Morris Q1 Earnings Beat, Sales Miss
Philip Morris delivered a beat in first-quarter 2018 after missing earnings estimates five straight times. Moreover, the top and the bottom lines grew year over year. Also, management raised its bottom-line view for 2018, encouraged by tax reforms. However, these factors were not enough to placate investors, who were let down by the fifth consecutive sales miss and drop in constant currency (cc) earnings. This could be largely accountable to soft volumes.
Quarter in Detail
Adjusted earnings of $1.00 per share rose 2% year over year and it came ahead of the Zacks Consensus Estimate of 88 cents. Excluding the positive impact from currency fluctuations, the bottom line dipped 1% from 98 cents reported in the year-ago period.
Net revenues were $6,896 million, which increased 13.7% (up 8.3% on a constant currency basis) in the quarter. However, net revenues lagged the Zacks Consensus Estimate of $7,024 million. Favorable pricing of combustible products and greater volumes of heated tobacco units and IQOS devices drove currency-neutral revenues.
During the quarter, revenues from combustible products inched up 2.5% (down 2.5% at cc) to $5,769 million. Revenues from RRPs doubled (also on a cc basis) to $1,127 million, largely driven by increased sales of IQOS devices.
Total cigarette and heated tobacco unit shipment volume fell 2.3% to 173.8 billion units, due to declines across most regions other than S&SA and EA&A. While cigarette shipment volume declined 5.3% to 164.3 billion units in the quarter, heated tobacco unit shipment volume of 9.6 billion units, increased 5.1 billion units year over year.
Adjusted operating income inched higher by 0.4% year over year to $2,426 million, while it slipped 2.7% (on a cc basis) due to adverse volume/mix (especially in GCC) and escalated marketing, research and administration expenses. These hurdles couldn’t be fully compensated by favorable pricing. Adjusted operating margin (on a cc basis) fell 4.0 points to 35.8%.
Also, during the quarter, Phillip Morris announced a quarterly dividend of $1.07.
Region-Wise Performance
Net revenues in EU climbed 0.2% (on a cc basis) to $1,988 million, courtesy of favorable pricing, somewhat offset by adverse volume/mix. Total shipment volume fell 5% to 40,599 million units.
In EE, net revenues jumped 4.3% to $567 million, courtesy of the same factors that drove EU revenues. Total shipment volumes tumbled 8.3% to 22,603 million units.
Net revenues slipped 1.5% to $961 million in ME&A region as adverse volume/mix more than offset gains from pricing. Total shipment volumes dropped 6.5% to 29,957 million units.
Moving to S&SA, a 5.6% rise in revenues to $1,081 million was witnessed, which was backed by improved pricing, though it was also somewhat countered by unfavorable volume/mix. Shipment volumes grew 6.1% to 40,218 million units.
EA&Asaw its revenues surge 27.5% to $1,591 million, owing to solid pricing. Total shipment volumes climbed 0.2% to 21,433 million units.
Finally, revenues at LA&C advanced 17% to $708 million, on the back of favorable pricing. However, total shipment volumes were down 1.4% at 19,036 million units.
Guidance
Management is confident about delivering solid results in 2018, along with being committed toward making shareholder-friendly moves. The company is optimistic about strength its IQOS devices and favorable pricing of combustible products. While soft volumes in GCC, difficult pricing in Russia and sluggish sales in Japan pose hurdles, the company is on track to double its worldwide in-market heated tobacco unit sales from 2017.
That said, management projects revenues in 2018 to grow about 8% (on a cc basis). Also, it expects the recent tax reforms to boost bottom-line growth. Incidentally, management now expects effective tax rate for 2018 to be roughly 26%, down from 28% projected in February.
Consequently, earnings are envisioned in the range of $5.25-$5.40 compared with the previous forecast of $5.20-$5.35. The updated guidance reflects year-over-year growth of 35-39%, up from the previous projection of 34-38%. Excluding a favorable currency impact, the company anticipates adjusted earnings growth of nearly 8-11%, up from the previous forecast of 7-10%.
Additionally, management expects capital expenditures of roughly $1.7 billion in 2018, while operating cash flow is envisioned to be more than $9 billion.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. There have been four revisions lower for the current quarter.
VGM Scores
At this time, PM has a nice Growth Score of B, though it is lagging a lot on the momentum front with a D. The stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for growth investors than value investors.
Outlook
Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Interestingly, PM has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Philip Morris International Inc. (PM): Free Stock Analysis Report
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