Why Philip Morris’s Q2 2018 Earnings Failed to Impress



Second-quarter performance

Philip Morris International (PM) reported its second-quarter earnings before the market opened on July 19. The company posted adjusted EPS of $1.41 on revenues of $7.73 billion. Compared to the second quarter of 2017, the company’s revenues grew 11.7%, while its EPS increased 23.7%.

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Stock performance

Wall Street analysts expected Philip Morris to post EPS of $1.23 on revenues of $7.53 billion. Despite outperforming analysts’ revenue and EPS expectations, Philip Morris’s stock price fell due to the reduction of its 2018 EPS guidance by the company’s management. The management lowered its 2018 EPS guidance to $5.02–$5.12 from its earlier guidance of $5.25–$5.40.

The downward revision of its sales forecast for heated tobacco unit shipments in Japan and unfavorable currency factors prompted the company’s management to lower its EPS guidance. The reduced EPS guidance led Philip Morris’s stock price to fall to a low of $76.52 on July 19 before closing at $80.90, which represents a fall of 1.5% from its previous day’s closing price.

Year-to-date performance

Philip Morris has been struggling in 2018 due to the increase in anti-tobacco regulations, a declining number of smokers, and rising competition in RRP (reduced-risk products). Since the beginning of 2018, the company’s stock price has fallen 23.4%.

During the same period, the stock prices of its peers Altria Group (MO) and British American Tobacco (BTI) fell 20.3% and 24.4%, respectively. The S&P 500 Index (SPX) and the Consumer Staples Select Sector SPDR ETF (XLP) have returned 4.9% and -7.6%, respectively.

Series overview

In this series, we’ll analyze Philip Morris’s second-quarter earnings by comparing them with analysts’ expectations. We’ll also cover the management’s guidance for 2018 and analysts’ expectations for the next four quarters. Finally, we’ll look at the company’s valuation multiple and analysts’ recommendations.

Let’s start by looking at Philip Morris’s first-quarter performance.


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