Philip Morris International Inc. PM posted fourth-quarter 2022 results, wherein the top and bottom lines increased year over year and came ahead of their respective Zacks Consensus Estimate.
The company will report results based on its new regional structure (unveiled in November 2022) from the first quarter of 2023. This includes four regions instead of six, which is likely to take the company forward toward its goal of becoming a majority smoke-free business (in terms of net revenues) by 2025.
Quarter in Detail
Adjusted earnings per share (EPS) came in at $1.39, which increased 1.5% year over year. On a reported basis, the EPS of $1.54 grew 14.9%. The Zacks Consensus Estimate was pegged at $1.29.
Philip Morris International Inc. Price, Consensus and EPS Surprise
Philip Morris International Inc. price-consensus-eps-surprise-chart | Philip Morris International Inc. Quote
Net revenues of $8,152 million increased by 7.5% on an organic basis. The top line surpassed the Zacks Consensus Estimate of $7,480 million. The year-over-year upside was backed by an improved volume/mix and higher pricing variance (mainly due to increased combustible tobacco pricing). Excluding Ukraine and Russia, net revenues grew 7.9% on an organic basis.
During the quarter, net revenues from combustible products were up 1.3% to $5,214 million (on an organic basis). Revenues from smoke-free products (excluding Wellness and Healthcare) jumped 23% to $2,866 million. Net revenues from the Wellness and Healthcare segment came in at $72 million in the fourth quarter, down 18.8% on an organic basis.
During the quarter, net revenues from smoke-free products formed 36% of the company’s total revenues. Total IQOS users at the end of the fourth were estimated at roughly 24.9 million (including nearly 17.8 million who switched to IQOS and stopped smoking).
Total cigarette and heated tobacco unit shipment volumes increased by 1.2% to around 186 billion units. Cigarette shipment volumes dropped 2.8% to around 154 billion units in the quarter, while heated tobacco unit shipment volumes of 32 billion units rose 26.1% year over year. Excluding Ukraine and Russia, net revenues grew 7.9% on an organic basis, and total shipment volumes rose 2.6%.
The adjusted operating income rose 7.5% on an organic basis to $2,976 million, while the respective margin remained unchanged year over year at 36.5% on an organic basis. The improved volume/mix and pricing variance were somewhat negated by increased manufacturing costs (mainly due to escalated logistics costs and other inflationary impacts, partly countered by productivity) and elevated marketing, administration and research costs.
Net revenues in the European Union increased by 11.2% on an organic basis to $2,890 million. This was backed by an improved volume/mix, partly negated by adverse pricing (stemming from reduced HTU net pricing). Total shipment volumes rose 3.1% to 46,810 million units.
In Eastern Europe, net revenues increased by 5.9% organically to $992 million on improved pricing variance, somewhat negated by an adverse volume/mix. Total shipment volumes fell by 6% to 26,297 million units.
In the Middle East & Africa, net revenues jumped 3.4% to $924 million due to a positive volume/mix. Total shipment volumes in the region grew 4.9% to 37,142 million units.
Revenues in South & Southeast Asia advanced 9.4% on an organic basis to $1,100 million. This was a result of improved pricing variance, partly negated by a slight adverse volume/mix. Shipment volumes dropped by 4.1% to 34,745 million units.
Revenues from East Asia & Australia jumped 6% to $1,322 million on an organic basis due to the improved volume/mix, partially offset by adverse pricing variance. Total shipment volumes advanced 11.3% to 22,428 million units.
Revenues from America increased by 23% to $536 million on an organic basis on positive pricing variance, countered by an adverse volume/mix. Total shipment volumes grew 0.1% to 18,625 million units.
Results for the Swedish Match operating segment for the fourth quarter and full year include results from Swedish Match, starting Nov 11, 2022 through Dec 31, 2022. Philip Morris became the majority owner of Swedish Match on Nov 11, 2022. During this period, revenues from the segment came in at $316 million.
On Jan 30, 2023, Philip Morris unveiled a long-term partnership with KT&G to continue commercializing the innovative smoke-free devices and consumables of the latter on a unique, worldwide basis (excluding South Korea). The deal covers 15 years and is likely to enhance Philip Morris’ smoke-free product portfolio.
Philip Morris ended the quarter with cash and cash equivalents of $3,207 million. It had long-term debt of $34,875 million and a shareholders’ deficit of $6,311 million as of Dec 31, 2022.
Management expects operating cash flow of $10-$11 billion in 2023, with the capital expenditure likely to be around $1.3 billion. The adjusted effective tax rate is envisioned in the 20.5-21.5% band. The company stated that it would not make share repurchases in 2023.
Update on the Ukraine War
Philip Morris announced the temporary suspension of its operations in Ukraine, including its factory in Kharkiv, on Feb 25, 2022. In the second quarter, the company resumed some retail activities per safety. However, production at the company's factory in Kharkiv remains suspended. For Russia, PM announced (in March 2022) concrete steps to suspend planned investments and scale down manufacturing operations in the country.
Management expects a top-and-bottom-line recovery in 2023, which is likely to be more weighted toward the second half. Management expects certain margin pressures in the first half. Management’s 2023 guidance includes the full contribution from its operations in Russia and Ukraine.
The total international industry volume growth is estimated in the range of 1-2%, excluding China and the United States. The total cigarette and HTU shipment volume growth is likely to come in the range of around flat to an increase of 1%. HTU shipment volumes are envisioned between 125 and 130 billion units.
For 2023, PM expects net revenues to increase by nearly 7-8.5% on an organic basis. The adjusted operating margin growth on an organic basis is likely to decline 50-150 basis points.
Management expects net revenues of about $300 million for the Wellness and Healthcare segment for the full year. It also expects a robust performance from Swedish Match’s existing operations.
The company expects increased net interest costs of around $200 million from 2022. For the first quarter, PM expects EPS in the band of $1.28-$1.33, including a currency headwind of 10 cents per share. This reflects HTU shipment volumes of about 26-28 billion units, organic top-line growth in the low single digits and lower margins.
Shares of this Zacks Rank #1 (Strong Buy) company have rallied 8.6% in the past three months compared with the industry’s growth of 4.9%.
Other Consumer Staple Stocks Worth a Look
Some other top-ranked consumer staple stocks are Conagra Brands CAG, Lamb Weston LW and Post Holdings POST.
Conagra, a consumer-packaged goods food company, currently sports a Zacks Rank #1. CAG has a trailing four-quarter earnings surprise of 8.9%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Conagra’s current fiscal-year sales and earnings suggests growth of 6.8% and 11.9%, respectively, from the corresponding year-ago reported figures.
Lamb Weston, which is a frozen potato product company, currently sports a Zacks Rank #1. LW has a trailing four-quarter earnings surprise of 52.6%, on average.
The Zacks Consensus Estimate for Lamb Weston’s current fiscal-year sales and EPS suggests an increase of 19.5% and 89.9%, respectively, from the year-ago reported number.
Post Holdings, which operates as a consumer-packaged goods company, currently sports a Zacks Rank #1. POST has a trailing four-quarter earnings surprise of 9.6%, on average.
The Zacks Consensus Estimate for Post Holdings’ current fiscal-year EPS suggests an increase of 70.8% from the year-ago reported number.
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