Philip Morris Beats Analysts’ Top and Bottom-Line Estimates

Today, Philip Morris International (NYSE:PM) reported its fourth-quarter earnings. For the quarter, the company posted an adjusted EPS of $1.22 on revenues of $7.71 billion. Meanwhile, analysts expected the company to report an adjusted EPS of $1.21 on revenues of $7.66 billion. The stock rose due to the impressive fourth-quarter performance. In today’s pre-market hours, the company was trading 1.2% higher.

Philip Morris’s YoY revenue growth

In the fourth quarter, Philip Morris’s revenue grew by 2.8% from $7.50 billion in the fourth quarter of 2018. The revenue increased due to favorable pricing in France, Germany, the Philippines, and Saudi Arabia. However, a decline in the cigarette shipment volume, mainly in Australia, the EU, Japan, the Philippines, and Russia, and an unfavorable mix in Indonesia offset some of the revenue growth. The unfavorable currency translation also had a negative impact on the company’s revenue.

During the quarter, Philip Morris’s cigarette shipment volume fell by 8.0%. Meanwhile, the shipment volume of heated tobacco units increased by 40.7% on a YoY basis to 17.1 billion units.

Lower adjusted EPS

For the fourth quarter, Philip Morris reported an EPS of $1.04. However, removing one-time or special items, the company’s adjusted EPS was $1.22, which represents a fall of 2.4% from $1.25 in the fourth quarter of 2018. The increase in interest and tax expenses and a higher number of shares outstanding lowered the company’s adjusted EPS. However, the higher adjusted operating income offset some of the declines. Philip Morris reported an adjusted operating income of $2.86 billion—a rise of 6.0% from $2.70 billion in the fourth quarter of 2018. The higher revenue, lower cost of sales, and lower asset impairment and exit expenses drove the company’s adjusted operating profits. However, during the quarter, the company’s marketing, administration, and research expenses increased by 20.8% to $2.41 billion, which offset some of the gains from the operating income.

Philip Morris’s outlook

For 2020, Philip Morris’s management expects the total international industry volume, except the US and China, to fall by 3%–4%. Management expects the company’s total cigarette and heated tobacco unit shipments to fall by 2.5%–3.5%. The company’s management also expects its currency-neutral revenue to increase by 5.0%. Meanwhile, management expects the cost efficiencies to offset the effect of the company’s investment in RRPs. Philip Morris could report an improvement of 1.5% in its operating income margin in 2020. Management expects the company’s effective tax rate to be at 23%.

With all of these projections, Philip Morris expects its EPS to be $5.50. However, the adjusted EPS could be $5.54, which represents a rise of 8% from $5.13 in 2019. Management’s adjusted EPS guidance was lower than analysts’ expectations. Before Philip Morris’s fourth-quarter earnings, analysts expected the company to report an EPS of $5.60 in 2020.

Stock comparison

After delivering an impressive 27.5% in 2019, Philip Morris was trading 1.4% lower this year as of Wednesday. However, we expect the company’s impressive fourth-quarter performance to drive its stock price. Meanwhile, Altria Group (NYSE:MO), which returned 1.1% last year, has lost 7.3% of its stock value YTD. Altria reported its fourth-quarter earnings on January 30. During the quarter, Altria met analysts’ EPS expectations, while it fell short of the revenue estimates.