Philip Morris Raises EPS Guidance After Impressive Q2

On Thursday, Philip Morris International (PM) reported its second-quarter earnings results. For the quarter, the company reported adjusted EPS of $1.46 on revenue of $7.70 billion. It outperformed both analysts’ EPS estimate of $1.32 and their revenue estimate of $7.38 billion. Following its second-quarter performance, PM’s management raised its adjusted EPS guidance for 2019 to $5.14 from its earlier guidance of $5.09.

PM’s impressive second-quarter performance and its management’s raising of its EPS guidance appear to have led to a rise in its stock price. The company was up over 3.0% in premarket trading.

Philip Morris Raises EPS Guidance After Impressive Q2

Fall in PM’s revenue

Year-over-year, PM’s revenue fell 0.3% from $7.73 billion in the second quarter of 2018. However, excluding unfavorable currency translation, the company’s revenue rose 5.4%. The increase in shipment volumes of head tobacco units and favorable price variance drove Philip Morris’s second-quarter revenue. However, a fall of 3.6% in cigarette shipment volumes offset some of the increase in the company’s revenue.

During the quarter, heated tobacco units posted strong performances in the European Union, Eastern Europe, and Latin America & Canada regions. However, in the Middle East & Africa region, the shipment volumes of heated tobacco units fell 26.0%. Its cigarette shipment volumes fell in all regions except South & Southeast Asia, which reported growth of 3.6%.

EPS growth

Philip Morris reported diluted EPS of $1.49. However, removing one-time items, the company’s adjusted EPS stood at $1.46. Year-over-year, its adjusted EPS rose 3.5% from $1.41 in the second quarter of 2018. An expanded adjusted operating margin, a decline in interest expenses, and a lower effective tax rate drove the company’s EPS during the quarter. In the quarter, its adjusted operating margin expanded from 40.0% to 41.7%. Favorable pricing variance and growth in the sales of heated tobacco units drove the company’s EBIT margin during the quarter. However, higher manufacturing costs and an increase in marketing, administration, and research costs offset some of the improvement in its operating margin.

Outlook for PM

For 2019, PM’s management expects the combined shipment volumes of cigarette and heated tobacco units to fall 1.0%. Earlier, management had forecast a fall in the range of 1.5%–2.0%. Management has also raised its currency-neutral revenue growth guidance to 6.0% from the earlier 5.0%, and it’s increased its adjusted EPS guidance to $5.14 from its previous guidance of $5.09.