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Could IQOS Sales Drive Philip Morris’s 4Q16 Revenue?

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Business segments

Philip Morris International (PM), which engages in the manufacturing and sale of cigarettes and other nicotine-containing products in markets outside the United States, has classified its business into four segments: European Union, EEMA (Eastern Europe, the Middle East, and Africa), Asia, and Latin America and Canada.

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4Q16 estimates

In 4Q16, analysts expect Philip Morris to post net revenue, excluding excise taxes, of $6.7 billion, which represents a growth of 4.9% from the $6.4 billion posted in 4Q15. The revenue growth is expected to be driven by an improvement in RRP (Reduced-Risk Product) sales, and favorable price variance of 8% to 9% from 4Q15.

At the Morgan Stanley Consumer & Retail Conference on November 16, 2016, the company stated that it had introduced IQOS in 13 markets, and by the end of 2016, it would expand it to 20 markets. In Japan, where the adoption rate of IQOS is high, the weekly market share for HeatSticks reached 4.9% in the last week of October 2016. The sales growth of HeatSticks also improved in Italy, Portugal, and Russia. Along with these factors, the geographical expansion of U Bold and Marlboro Filter Black in 3Q16 is also expected to contribute towards the company’s 4Q16 revenue growth.

However, the strengthening of the US dollar, softness in cigarette sales in countries such as Pakistan, the Philippines, and Indonesia due to higher product prices, and local competition are expected to offset some of the revenue growth in 4Q16.

Peer comparison

In 4Q16, Altria Group (MO) and Reynolds American (RAI) are expected to post revenue growth of 1.6% and 3.3%, respectively.

Outlook

During the next four quarters, analysts expect Philip Morris to post revenue of $27.4 billion, which represents a growth of 4.9% from the corresponding quarters of the previous year. The sales growth of IQOS and MESH, an e-vapor product, is expected to drive Philip Morris’s revenue. Next, we’ll look at Philip Morris’s estimated 4Q16 margins.

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