Will Philip Morris Beat Expectations This Earnings Season?

Philip Morris International (NYSE:PM) is set to report its third quarter earnings on October 18. Philip Morris’ shareholders are no doubt waiting for the earnings slide to end. Consensus estimates expect a flat earnings report, with a slight gain in sales.

See Our Complete Analysis For Philip Morris International

During the second quarter, the company’s revenue, excluding excise taxes, fell by over 3%, while its earnings per share fell by 5%. At that time, the CEO Andre Calantzopoulos stated that he expected the growth to take place in the second half of the year. The company had also raised its EPS guidance, from $4.40-$4.50 to $4.45-$44.55, to reflect a 10%-12% growth. This was driven solely by currency, and included 40 cents of unfavorable currency, instead of 45 cents earlier. Recently, the company narrowed its forecast of reported diluted earnings per share to be in the range of $4.53 to $4.58, which includes an unfavorable currency impact of $0.35. For the full year, PMI forecasts a total cigarette industry decline of 2% to 2.5%, excluding China and the US, and the company’s volume to fall at a rate of 3.9%.

PMI also expects its Reduced Risk Products (RRPs) to approach break-even OCI (Operating Companies Income) in 2017, and to start contributing positively by 2018. The company is targeting 30 to 50 billion units in incremental volume through RRPs, which would add an additional OCI of $0.7 billion to $1.2 billion by 2020, with an increasing confidence of reaching the upper end of the target range. There are plans of increasing the annual RRP production capacity to 50 billion units, an increase of 20 billion units from its initial planned capacity of 30 billion units, by the end of 2017. The heated tobacco stick capacity is anticipated to be 7 billion units, available for commercialization, in 2016 with an installed annual capacity of 15 billion units by the end of the year. iQOS should be present in close to 20 markets by the end of 2016, and in 30 to 35 markets by the end of 2017.

Japan is the only country where the national roll-out of iQOS has occurred, and it has witnessed exceptional performance. The market share has steadily climbed since it was first introduced in the country. During FY 2015, the iQOS launch was expanded in Japan to reach 60% of the adult smoking population, and the national roll-out was completed in the beginning of the second quarter. For the second quarter, the HeatSticks market share increased to 2.2%, more than twice its share in the first quarter. Furthermore, the share in the week starting September 18, 2016, reached an estimated 5.2%, and an even higher 7% in Tokyo. The company also noted that the level of cannibalization from its own cigarette portfolio had reduced, from 40% when the initial geographic expansion started last September, to 35% in the second quarter. Moreover, the growth of these HeatSticks is also resulting in uptrading by adult smokers, as those across all price segments are switching to the premium-priced product. What is an even more compelling argument is that 70% of iQOS purchasers have either fully, or predominantly, converted to it. According to company estimates, this would mean about 600,000 people in Japan, who are exclusive or fully-switched users of iQOS.

Have more questions on Philip Morris? See the links below:

• What Factors Will Ensure Growth For Philip Morris In Asia?
• Philip Morris Disappoints Investors With Its Dividend Hike
• What Are The Risks Associated With Holding Philip Morris’ Stock?
• Can iQOS Be A Key Growth Driver For Philip Morris In The Future?
• Philip Morris Q2 2016 Earnings: Currency Headwinds Leave The Company Flat
• How Will Philip Morris Perform In Q2 2016?
• Which Is A Better Dividend Bet – Altria Or Philip Morris?
• What Is The State Of The Illicit Cigarette Market In The European Union?
• How Will The Brexit Impact Philip Morris?
• What Effect Will The Plain Packaging Ruling In Canada Have On Philip Morris?
• What Effect Will A Tobacco Tax Hike Have In New Zealand?
• How Will Philip Morris Perform In 2016?
• Why Has Philip Morris’ Price Risen ~17% This Year Despite An Earnings Miss?
• Philip Morris Misses Q1 Revenue And EPS Estimates
• Will Philip Morris Beat Expectations This Earnings Season?
• How Did Philip Morris Perform In Russia, Given The Currency Headwinds And Excise Tax Rise?
• How Has Philip Morris Fared In Comparison To Its Peers?
• How Will Philip Morris’ Revenue And EBITDA Change In The Next 3 Years?
• Philip Morris: Year 2015 In Review
• What is Philip Morris’ Fundamental Value Based On Expected 2016 Results?
• What is Philip Morris’ Revenue And EBITDA Breakdown?

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