Why Philip Morris’s 2Q17 Revenues Missed Analysts’ Estimates

2Q17 revenues

In 2Q17, Philip Morris International (PM) posted revenues of ~$6.9 billion, which represents 4.0% growth from ~$6.7 billion in 2Q16. However, the company’s 2Q17 revenues were lower than the analyst estimate of ~$7.1 billion.

The depreciation of the Japanese yen and Russian ruble, as well as a decline in cigarette shipments, lowered the company’s revenues in 2Q17.

Why Philip Morris’s 2Q17 Revenues Missed Analysts’ Estimates

Revenue growth

The revenues from PM’s Asian segment rose 11.8% to ~$2.4 billion in 2Q17. This revenue growth was driven by strong growth of its HeatSticks in Japan, as well as higher pricing and a favorable portfolio mix in the Philippines.

Philip Morris International (PM) expanded the availability of two new HeatStick variants, which helped raise the market share of HeatSticks to 10% in Japan. Some of the growth in revenues was offset by a decline in cigarette shipments.

During the quarter, the segment’s cigarette shipments fell 16.6%, mainly due to a decline in Indonesia, Japan, and Pakistan. The rise in these products’ prices due to increased excise taxes, the prevalence of illicit trade, and the switch to heated tobacco products in Japan led to the decline.

International segments

During the quarter, the company’s Latin America and Canada segment posted revenue growth of 7.3%. This revenue growth was driven by favorable price variance of $74.0 million. The company had raised its product prices in Argentina, Canada, and Mexico. However, some of the revenue growth was offset by unfavorable volume mix and currency exchange.

The company’s EEMA (Eastern Europe, the Middle East, and Africa) segment posted revenue growth of 0.7% in 2Q17. This revenue growth was driven by favorable pricing, which contributed $127 million. The company had increased its product prices primarily in Egypt, Turkey, and Ukraine. However, some of this growth was offset by unfavorable volume, product mix, and currency exchange.

During the quarter, the cigarette shipment volume decreased 5.4%. The excise tax–driven price increases, which were mostly seen in Russia and Saudi Arabia, contributed to the decline in cigarette volumes.

The revenues from the European Union segment fell 2.1%. The 0.6% decline in cigarette shipments and unfavorable currency exchange of $92.0 million lowered the company’s revenues in 2Q17. However, some of the revenue declines were offset by a favorable price variance of $38.0 million and a favorable product mix of $9.0 million.

Peer comparisons

During 2Q17, analysts are expecting Reynolds American (RAI) and Altria Group (MO) to post revenue growth of 2.9% and 2.7%, respectively.

Next, we’ll look at analysts’ revenue estimates for the next four quarters.