Philip Morris International
The stock was lower on Tuesday following the tobacco giant’s second-quarter results as the market reacted to the full-year outlook that was slightly below expectations. The CFO says the company “continues to move in the right direction.”
Philip Morris (ticker: PM) said it made $2.17 billion, or $1.39 per share, up from $1.25 per share in the same period a year ago. On an adjusted basis, excluding one-time items, earnings were $1.57 per share. Revenue rose 14% to $7.59 billion. Analysts were looking for earnings per share of $1.55 on revenue of $7.67 billion.
Smoke-free products accounted for 29% of sales in the quarter, while the company’s modified risk product, IQOS, which heats rather than burns tobacco, had more than 20 million users at the end of the quarter. Cigarette volume increased by 3.2%, while the shipment of heated tobacco increased by more than 30%.
For the full year, Philip Morris said it now expects to earn between $5.76 and $5.86 per share, down from a previous range of $5.93 to $6.03, citing asset write-downs and customs assessments from Saudi Arabia, which the company previously warned about. On an adjusted basis, it sees earnings per share between $5.97 and $6.07, two cents higher than the old forecast but below $6.08, a stock that consensus is calling for. Philip Morris forecasts organic net sales growth of 6% to 7%.
It also announced that its board of directors had approved a new three-year $7 billion share repurchase program beginning in the third quarter.
Philip Morris Chief Financial Officer Emmanuel Babeau spoke to Barron’s following the report, saying he is “very pleased with another very strong quarter”.
Babeau notes that year-over-year comparisons were easy given the impact of Covid-19 in 2020, but even that upside, there was a lot to like in the quarter: IQOS has continued its strength from the first quarter and the cost savings from that product also resulted in higher margins.
Philip Morris noted that heated tobacco market share in markets where IQOS is available – excluding the US – rose to 7.3% in the quarter. Babeau says that “awareness is everything” in terms of new reduced-risk products, and that “we started from scratch in some regions, but are now seeing a snowball effect – the brand is gaining visibility and smokers are discovering the product.”
Although markets vary, he is pleased with IQOS’s performance in a number of key countries, from Russia to Western Europe, and there are now eight countries in the European Union where IQOS has more than 10% of the market share. The company estimates that approximately 14.7 million IQOS users have quit smoking.
As for the pandemic, which has once again made headlines around the world amid the spread of the virulent Delta variant, Babeau notes that he doesn’t expect “normality” to return for several more months. However, the picture gets better, at least in many developed countries, as more people get vaccines. Traditional cigarette use tends to increase in social settings such as bars and clubs, and he is optimistic that if consumers are given more freedom with inoculation, it will be positive for that business.
Shares of Philip Morris fell 3.7% to $94.31 in recent trading, although the shares have gained more than 15% so far and are up 25.5% in the past year.
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