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Can Favorable Pricing and iQOS Help Philip Morris’s 2Q16 Revenue?

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1Q16 highlights

Philip Morris International (PM) is set to release its 2Q16 earnings results before the Market opens on July 19, 2016. The second quarter for 2016 ended on June 30, 2016.

Philip Morris’s earnings and revenue missed the consensus Wall Street analyst expectations in 1Q16, which ended on March 31, 2016.

Philip Morris’s (PM) reported revenue, excluding excise taxes, fell by 8.1% to $6.1 billion in 1Q16 compared to $6.6 billion in 1Q15. Reported revenue was negatively affected by $0.7 billion due to unfavorable foreign currency movement.

However, excluding the adverse impact of foreign currency, the company’s net revenue increased by 2.4% in 1Q16.

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Pricing variance

The increase in Philip Morris’s net revenue, excluding the adverse impact of foreign currency, was primarily due to the favorable pricing impact of $0.3 billion from all regions, despite an unfavorable comparison with 1Q15 related to the gain in Korea.

During the company’s 1Q16 earnings report, Philip Morris’s chief financial officer, Jacek Olczak, noted that the pricing variance was slightly positive in the Asia region.

For 2Q16, Wall Street analysts estimated that the company’s consensus revenue would be $6.8 billion, a 0.6% increase from its 2Q15 revenue.

Roll-out of innovative products

Organic cigarette volume fell by 1.4% in 1Q16 mainly due to the Asia region. To counter lower cigarette volumes, PM developed iQOS under its reduced-risk products. During the last week of March, the HeadStick offtake share reached 0.8%, the highest since the launch in August. Also, the rollout of iQOS embassies was successfully deployed in Japan.

PM’s competitors British American Tobacco (BTI), Reynold American (RAI), and Vector Group (VGR) also produce e-cigarettes to meet consumer expectations—Vype (BTI), Vuse (RAI), and Zoom (VGR), respectively. Altria Group (MO) also produces NuMark e-vapor cigarettes.

On July 9, 2016, Philip Morris (PM) comprised 0.9% of the iShares S&P 500 Growth ETF (IVW).

In the next part, we’ll discuss why Philip Morris’s 1Q16 EPS declined and what to expect from its 2Q16 EPS.

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