Why Philip Morris’s Net Margin Narrowed in 1Q18


Apr. 24 2018, Updated 7:30 a.m. ET

Performance in 1Q18

Philip Morris International (PM) had gross, EBIT (earnings before interest, and tax), and net margins of 61.8%, 35.2%, and 22.6%, respectively, in 1Q18, compared with 64.1%, 39.5%, and 26.2%, in 1Q17.

Article continues below advertisement

Factors affecting PM’s net margin

Between 1Q17 and 1Q18, Philip Morris’s costs of sales rose from 35.9% to 38.2%, impacting its gross margin. Unfavorable volumes and mix in GCC (Gulf Cooperation Council) countries (primarily Saudi Arabia), higher marketing, administration, and research costs, and an $80 million donation to the Foundation for a Smoke-Free World impacted the company’s EBIT margin. Marketing, administration, and research costs rose from 23.9% to 26.6% due to higher investments in reduced-risk products, primarily in the European Union. Some of these declines were offset by a favorable pricing variance in all regions and lower manufacturing costs. Philip Morris’s effective tax rate rose to 25.5% from 24.9% YoY, which also impacted its net margin in 1Q18.

Peer comparison and outlook

Altria Group’s (MO) gross, EBIT, and net margins are expected to be 60.9%, 49.4%, and 37.4%, respectively. Analysts expect Philip Morris’s gross, EBIT, and net margins to be 63.6%, 40.1%, and 25.9%, respectively, in the next four quarters, compared with 63.2%, 39.0%, and 24.9% in the last four quarters. The expansion is expected to be driven by price variance. Next, we’ll look at Philip Morris’s 1Q18 earnings.


More From Market Realist

  • what credit cards can you get without a credit check
    New Program Aims to GEt Credit Cards to People Without Credit Scores
  • Man going into a tax preparation office
    Should I File a Tax Extension Before the Tax Deadline?
  • Thai Airways plane
    Thai Airways (TAWNF) Is Risky, Best to Avoid the Penny Stock
  • A "now hiring" sign outside a Popeyes restaurant, one sign that employers are having trouble finding employees willing to work for current wages.
    Why Employers Are Struggling To Fill Jobs Despite High Unemployment
  • CONNECT with Market Realist
  • Link to Facebook
  • Link to Twitter
  • Link to Instagram
  • Link to Email Subscribe
Market Realist Logo
Do Not Sell My Personal Information

© Copyright 2021 Market Realist. Market Realist is a registered trademark. All Rights Reserved. People may receive compensation for some links to products and services on this website. Offers may be subject to change without notice.