In the fourth quarter, Philip Morris International (PM) posted EPS of $1.23. However, excluding special or one-time items, the company’s adjusted EPS stood at $1.25, which represents a fall of 5.3% from $1.32 in the corresponding quarter of 2017. However, the company has outperformed analysts’ EPS expectation of $1.16.
Decline in EPS
Year-over-year, Philip Morris’s EPS declined due to a fall in its fourth-quarter revenue and adjusted operating margin partially offset by lower interest expenses and a lower effective tax rate. The company’s adjusted operating margins declined by 4.3% to 36.0% due to increased expenses on manufacturing, research, marketing, and administrative initiatives primarily related to heated tobacco units.
During the quarter, the company’s interest expenses fell from 3.1% of the total revenue to 1.7%. Philip Morris’s effective tax rate for the fourth quarter of 2018 stood at 21.6% compared to 29.7% in the corresponding quarter of 2017.
Altria Group (MO) posted adjusted EPS of $0.95 in the fourth quarter, which represents a rise of 4.4% from $0.91 in the corresponding quarter of 2017.
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%.
Next, we’ll look at the valuation multiple of Philip Morris.