Philip Morris Beats Q3 Earnings, Revenues, Lowers View
Philip Morris International Inc.’s (PM) adjusted third-quarter 2014 earnings per share of $1.39 beat the Zacks Consensus Estimate of $1.33 by 4.5%. Earnings, however, slipped from the prior-year quarter earnings of $1.44 by 3.5% due to soft sales.
Excluding an unfavorable currency impact of 20 cents, earnings exceeded the prior-year quarter figures by 10.4%.
Revenues and Margin
Net revenue went down 0.9% (up 4% excluding currency) to $7.9 billion and beat the Zacks Consensus Estimate of $7.7 billion by 2.6%. Revenues declined from the year-ago level due to lower sales in the tobacco category following the shift of preference away from tobacco products. Cigarette shipment volume decreased 0.4% to 222.3 billion units mainly due to a decline in total market share.
Philip Morris' quarterly gross profit declined 3.5% from the prior-year quarter to $5.1 billion due to higher cost of sales and excise tax during the quarter. Operating income slipped 5.8% year over year to $3.4 billion in the reported quarter due to higher marketing, administration and research costs.
Segment Details
Net revenue in the European Union region climbed 3.3% (up 0.5% excluding currency) from the prior-year quarter to $2.4 billion predominantly reflecting higher market share in most of the geographic regions, especially in Italy and Germany.
Net revenue in the Eastern Europe, the Middle East & Africa (:EMEA) region increased 6.5% (up 13.3% excluding currency) from the prior-year quarter to $2.4 billion. Revenues improved due to favorable pricing in Russia and Ukraine, as well as the impact of the change to Philip Morris’ new business structure in Egypt.
Asia recorded net revenue of $2.2 billion, down 12.2% (down 4% excluding currency) from the prior-year quarter due to unfavorable volume/mix and lower total market share, primarily in Japan and Indonesia.
In Latin America and Canada, revenues gained 1.8% (up 13.2% excluding currency) to $833 million. Earnings improved mainly due to favorable pricing in Argentina and Canada.
Financial Update
During the quarter, Philip Morris spent $750.0 billion to repurchase 8.9 million shares.
In Sep 2014, Philip Morris increased its dividend to $1.00, up 6.4% from $0.94, which represents an annualized rate of $4.00 per common share.
Guidance
Management revised the fiscal 2014 outlook announced during the second-quarter conference call. It now expects GAAP earnings in the range of $4.76 to $4.81 compared with $5.26 in fiscal 2013. Previously, the company expected earnings in the range of $4.87 to $4.97 for fiscal 2014. For fiscal 2014, the company expects currency impact of 72 cents per share. Excluding the currency impact and one-time restructuring charges, the company expects its earnings to increase approximately 6.5% to 7.5% from adjusted earnings of $5.40 in 2013. Previously, the company expected adjusted earnings to increase 6% to 8% from the year-ago results. The guidance includes productivity and cost savings target of $300 million and a share repurchase target of $4.0 billion.
Philip Morris carries a Zacks Rank #5 (Strong Sell). In order to combat macro difficulties, Philip Morris, along with other tobacco majors like Reynolds American Inc. (RAI), Lorillard Inc. (LO) and Altria Group Inc. (MO), is putting greater focus on the growing alternative tobacco product category.
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