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Philip Morris Stock Rose Due to Strong Q4 Earnings

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Fourth-quarter performance

Philip Morris International (PM) posted its fourth-quarter earnings on February 7. For the quarter ending on December 31, the company posted an adjusted EPS of $1.25 and outperformed analysts’ EPS expectation of $1.16. The company’s revenues of $7.50 billion also beat analysts’ estimate of $7.39 billion. The strong fourth-quarter performance appears to have increased investors’ confidence. Philip Morris was trading in the green on February 7.

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Declining revenues

Philip Morris’s revenues declined 9.6% YoY (year-over-year). However, excluding the unfavorable currency, the company’s revenues fell 4.1% due to a fall of 4.6% in the shipment volume of cigarettes and heated tobacco units. Some of the declines were partially offset by favorable pricing variance.

During the quarter, the shipment volume of heated tobacco units fell 22.6% due to unfavorable estimated distributor inventory movements in Japan. The fall was partially offset by a favorable performance across the European Union, Eastern Europe, and Latin America and Canada.

Lower EPS

Philip Morris’s EPS fell 5.3% YoY from $1.32 in the fourth quarter of 2017. The company’s EPS fell due to lower revenues and a decline in the adjusted operating margin. The company’s adjusted operating margin declined from 40.3% in the fourth quarter of 2017 to 36.0% due to the unfavorable mix and volume and an increase in research, manufacturing, administrative, and marketing costs related to reduced risk products.

Outlook

For 2019, Philip Morris’s management expects its diluted EPS to be $5.37—at the prevailing exchange rate, which represents 5.7% growth from $5.08 in 2018. Management also expects currency neutral revenue growth of 5.0%. The shipment volume of cigarettes and heated tobacco units is expected to fall 1.5%–2.0%.

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