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Philip Morris (PM) Beats Q2 Earnings & Revenues, Down Y/Y - Analyst Blog

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Philip Morris International Inc. 's PM second-quarter earnings and revenues beat the respective Zacks Consensus Estimates. Results, however, declined year over year due to lower volume.

Philip Morris' adjusted earnings per share of $1.21 beat the Zacks Consensus Estimate of $1.12 by 8%. However, earnings declined 14.2% from the prior-year quarter figure of $1.41 due to currency headwinds and lower year-over-year sales.

Excluding an unfavorable currency impact of 33 cents, earnings surpassed the prior-year quarter figures by 9.2%.

Revenues and Margin

Net revenue (excluding excise taxes) went down 12% year over year to $6.9 billion. Results, however, beat the Zacks Consensus Estimate of $6.7 billion by 2.9%. Revenues declined from the year-ago level due to difficult operating environment and currency headwinds.

Excluding currency, revenues went up 4.5% backed by improving macroeconomic environment and lower gas prices. Cigarette shipment volume, however, went down 1.4% to 219.8 billion units mainly due to unfavorable currency translations. Lower shipments in all the geographic regions of European Union and Eastern Europe, Middle East & Africa (EMEA) led to the decline.

Philip Morris' quarterly gross profit declined 12.2% from the prior-year quarter to $4.5 billion as a result of lower revenues. Operating income slipped 11.5% year over year to $797 million due to higher operating expenses.

Segment Details

Net revenue in the European Union region slipped 16.9% to $2.0 billion due to currency headwinds. Excluding currency, revenues climbed 3.5% year over year primarily reflecting positive pricing, especially in Germany and Italy. Market share in the European Union remained flat at 40.4%.

Net revenue in the EMEA region slipped 15.9% to $1.9 billion due to unfavorable currency effect. Excluding currency, revenues went up 4.4% year over year backed by favorable pricing in Russia and Ukraine.

Asia recorded net revenue of $2.1 billion, down 7.2% due to currency headwind. Excluding currency, revenues went up 2.7% from the prior-year period on the back of favorable pricing, primarily in Australia, Indonesia and Korea.

In Latin America and Canada, revenues remained nearly flat at $807 million. Excluding currency, revenues went up 13.5%, mainly due to favorable pricing in Argentina, Brazil, Mexico and Canada.

Financial Update

During the quarter, Philip Morris did not repurchase any shares, but announced a quarterly dividend of $1.00 per share.

Philip Morris dissolved the joint venture with Swedish Match AB ("SWMA"). Henceforth, both the companies will focus on independent strategies for the commercialization of smoke-free tobacco products worldwide, outside Scandinavia and the United States.

Moreover, Philip Morris expanded its agreement with Altria Group Inc. MO to combine their marketing powers to ramp up the distribution of their unconventional cigarettes. In Dec 2013, the two companies entered into a distribution agreement. Under the deal, Philip Morris will market Altria's MarkTen e-cigarettes internationally and the latter will distribute two of Philip Morris' heated tobacco products in the U.S.

The heated tobacco products are claimed to be less harmful than conventional tobacco products as they heat the nicotine instead of burning it. The extended agreement provides the framework for both the companies to develop the next generation of e-vapor products for commercialization in the U.S. by Altria and internationally by Philip Morris.

Guidance

Philip Morris reaffirmed the fiscal 2015 earnings growth rate of 9-11% versus $5.02 in fiscal 2014. The company expects currency impact of $1.15 per share.

Philip Morris carries a Zacks Rank #3 (Hold). A better-ranked stock in the tobacco sector is Reynolds American Inc. RAI carrying a Zacks Rank #2 (Buy). Another stock worth a look in the consumer staple sector is Cal-Maine Foods CALM sporting a Zacks Rank #1 (Strong Buy).

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PHILIP MORRIS (PM): Free Stock Analysis Report

ALTRIA GROUP (MO): Free Stock Analysis Report

REYNOLDS AMER (RAI): Free Stock Analysis Report

CAL-MAINE FOODS (CALM): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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