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Philip Morris Let Down Investors with 1Q16 Earnings

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Philip Morris’s 1Q16 earnings

Philip Morris International (PM) released its 1Q16 earnings on April 19, 2016. The quarter ended on March 31, 2016. The company’s adjusted diluted EPS (earnings per share) fell 15.5% to $0.98 compared to $1.15 in 1Q15. However, excluding unfavorable currency of $0.19, adjusted EPS rose 0.9% compared to the same quarter in the previous year. Revenue, excluding excise taxes, declined 8.1% to $6.1 billion in 1Q16.

In 1Q16, Philip Morris missed Wall Street analyst expectations on earnings after being at par in the previous quarter.

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Reasons for decline in earnings versus peers

The decline in Philip Morris’s 1Q16 diluted earnings was due to the strengthening of the US dollar against virtually all key operating currencies. The Indonesian rupiah, the Japanese yen, and the Russian ruble were the principle drivers of the variance. Also, incremental investments concentrated in 4Q15 and 1Q16 resulted in a decline in earnings.

Altria Group (MO), Reynolds American (RAI), and Vector Group (VGR) are yet to announce their 1Q16 earnings. However, MO’s adjusted earnings increased 1.5% to $0.67 in 4Q15. RAI’s adjusted earnings increased 9.1% to $0.48 that same quarter. British American Tobacco’s (BTI) 2015 constant currency EPS also increased 10.1%. Vector Group’s earnings missed Wall Street analyst expectations by $0.05.

Increased EPS guidance for 2016

In its 1Q16 earnings and at prevailing exchange rates, Philip Morris increased its 2016 reported EPS by $0.15 to $4.40–$4.50. This includes $0.45 of unfavorable currency with a growth rate of 10%–12% compared to diluted EPS of $4.42 in 2015. The company expects its 2016 adjusted diluted EPS to be skewed toward the second half of 2016 and the fourth quarter, in particular.

Philip Morris makes up 0.9% of the SPDR S&P 500 ETF (SPY).[1. updated April 19, 2016]

In the next part, we’ll focus on what led to a decline in Philip Morris’s sales.

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