Philip Morris (PM) Beats On Q4 Earnings, Revenues Down Y/Y
Zacks Investment Research | Feb 07, 2019 03:21AM ET
Philip Morris International Inc (NYSE:PM) reported fourth-quarter 2018 results, with both the top and the bottom line beating the Zacks Consensus Estimate. However, earnings and revenues declined year over year. While favorable pricing continued to benefit results, declines in shipment volumes in both combustible and reduced risk products (RRPs) were a drag.
Quarter in Detail
Adjusted earnings per share (EPS) of $1.25 came ahead of the Zacks Consensus Estimate of $1.16. However, the bottom line declined 5.3% year over year. Excluding the unfavorable impact of 9 cents from currency fluctuations, the bottom line rose 1.5% from the year-ago quarter’s tally.
Net revenues of $ 7,499 million beat the Zacks Consensus Estimate of $7,349 million. However, the top line declined 9.6% (down 4.1% on a constant-currency basis) in the reported quarter. Revenues were impacted by unfavorable volume/mix, partially compensated by favorable pricing variance. Moreover, declines in both combustible and RRPs marred performance.
Philip Morris International Inc. Price, Consensus and EPS Surprise
During the quarter under review, revenues from combustible products declined 4.2% to $6,373 million. At constant currency (cc) revenues improved 1.9%. Further, revenues from RRPs declined 31.5% (down 28.4% at cc) to $1,126 million. Growth in RRPs witnessed in most regions were more than offset by decline in East Asia & Australia.
Total cigarette and heated tobacco unit shipment volume declined 4.6% to 202.4 billion units. While cigarette shipment volume declined 3.1% to 190.2 billion units in the fourth quarter, heated tobacco unit shipment volume of almost 12.2 billion units fell 22.6% year over year.
Adjusted operating income declined 19.1% year over year to $2,702 million. At cc, this metric was down 12.8%. Adjusted operating margin contracted 430 basis points to 36%, owing to adverse volume/mix and high costs, partially mitigated by favorable pricing variance.
Region-Wise Performance
Net revenues in European Union increased 3.4% to $2,340 million. Revenues climbed 6.2% (at cc), courtesy of favorable pricing and volume/mix. Total shipment volume in the region declined 1.8% to 45,868 million units.
In Eastern Europe, net revenues grew 2.9% to $816 million and jumped 14.5% at cc. The upside can be attributed to favorable pricing and volume/mix. Total shipment volumes decreased 1.8% to 30,736 million units.
Net revenues increased 1.8% to $988 million in Middle East & Africa region. Further, total shipment volumes expanded 1.4% to 36,345 million units.
Moving to South & Southeast Asia, revenues inched up 0.9% to $1,222 million. Shipment volumes grew 1.4% to 47,623 million units.
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Revenues from East Asia & Australia declined 39.5% to $1,345 million. Total shipment volumes went down as much as 29.8% to19,883 million units.
Finally, revenues from Latin America & Canada fell 5.2% to $788 million. Moreover, total shipment volumes were down 4.3% to21,958 million units.
Guidance
Philip Morris provided outlook for 2019. Earnings are expected to be nearly $5.37, after considering the existing exchange rates. The guidance reflects year-over-year growth of 5.7%. Excluding the impacts of unfavorable currency of approximately 14 cents, earnings are projected to rise 8%. The Zacks Consensus Estimate for 2018 is currently pegged at $5.31.
The revised forecast takes into consideration currency-neutral revenue growth of approximately 5%. Further the company anticipates cigarette and heated tobacco shipment volumes to decline in the range of 1.5%-2%. Additionally, the company expects capital expenditures of roughly $1.1 billion, while operating cash flow is envisioned to be almost $10 billion. Further, management expects effective tax rate for 2018 to be roughly 23%.
Moving on, the company provided targets for the three-year period of 2019 to 2021. During this time frame, it anticipates net revenue growth at cc of nearly 5%, compounded annually. Further, adjusted EPS is expected to grow 8%. Heated tobacco unit volume is projected to rise in the range of 90-100 billion units by 2021.
Price Performance & Rank
Shares of the company fell 14.3% in the past three months, compared with the Zacks Investment Research
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