Why Philip Morris’s Net Margins Declined in 2Q17

2Q17 performance

In 2Q17, Philip Morris International (PM) posted its gross margin, EBIT (earnings before interest and tax) margin, and net margin of 63.7%, 39.3%, and 25.7%, respectively.

In 2Q17, Philip Morris’s cost of goods sold increased from 35.6% to 36.4% due to an unfavorable cost comparison in 2Q16. The increased investment to support reduced-risk products has increased the marketing, administration, and research costs of the company by 1.1%–23.9% of its total revenues.

Why Philip Morris’s Net Margins Declined in 2Q17

The increase in these expenses has lowered the company’s net margins. However, some of these declines were offset by lower interest expenses and provision for income taxes.

Peer comparisons

During the same period, Altria Group (MO) is expected to post its gross margin, EBIT margin, and net margin of 62.0%, 52.1%, and 33.4%, respectively.

The gross margin, EBIT margin, and net margin of Reynolds American (RAI) is expected to be 60.8%, 48.4%, and 27.9%, respectively.

Outlook

For the next four quarters, analysts expect Philip Morris to post its gross margin, EBIT margin, and net margin of 64.9%, 40.5%, and 26.5%, respectively.

Next, we’ll look at Philip Morris’s 2Q17 earnings.