Wall Street analysts are expecting Philip Morris International (PM) to post gross margins, EBITDA (earnings before interest, tax, depreciation, and amortization) margins, and net margins of 65.4%, 44.2%, and 26.9%, respectively. Earlier in 2Q16, the company had posted gross margins, EBITDA margins, and net margins of 64.5%, 44.9%, and 27.2%, which represents YoY (year-over-year) declines of 0.9%, 0.7%, and 0.6%, respectively.
The fall in cigarette shipments and increased investments in RRPs (reduced-risk products) have led to this fall in margins.
Factors contributing to the decline in PM’s 3Q16 margins
PM’s management has stated that it expects its total cost base for fiscal 2016 to rise by 1% under constant currency. The rise in investments to expand the commercialization of RRPs, higher expenses associated with iQOS device replacements, and urgent shipping of HeatSticks to Japan are expected to increase total expenses, thus lowering Philip Morris’s margins.
PM is also building its base to commercialize other reduced-risk products, and this initiative has increased the company’s expenses.
For the next four quarters, Philip Morris is expected to post EBITDA margins and net margins of 45.3% and 27.2%, respectively. The company’s management has given guidance of a cost rise of 1%–3% for the short term, which includes increased expenses associated with the rollout of RRPs.
Continue to the next part for a look at Philip Morris’s 3Q16 earnings per share estimates.