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This Thursday, June 14, 2018, a photo shows packs of Marlboro cigarettes on the shelves of the JR Burlington, N.C. store (AP Photo / Gerry Broome)
Philip Morris International (NYSE: PM) far exceeded consensus expectations in the third quarter, recording 0.4% revenue growth, 3.3% foreign currency earnings and an improved 13% adjusted earnings per share. , 4%. Revenue growth is the result of higher prices for its fuel tobacco portfolio, partially offset by the negative impact of inventory movements in its units of heated tobacco. Higher sales, a lower tax rate and lower interest expense contributed to the increase in profits. Looking ahead, the company expects year-over-year net sales growth of about 3%, excluding foreign exchange, and EPS of $ 4.97 to $ 5.02. Since the beginning of the year, the company's revenue growth has been 6.5%, which would imply a revenue decline of about 5% in the fourth quarter. This is mainly due to a difficult comparison compared to the impressive growth of 19% recorded in the fourth quarter of last year, as well as the fact that sales of cigarettes and units of heated tobacco rose in the third quarter in anticipation of October 1 price increases. As a result, fourth quarter volumes could end up being lower. This factor, combined with the $ 600 million increase in PRP (reduced risk product), which is asymmetric in the fourth quarter, also led to lower EPS in the fourth quarter.
We have a price estimate of $ 105 for Philip Morris, which is significantly higher than the current market price. The graphics were made with the help of our new interactive platform. You can click here for our dashboard on Our Prospects for Philip Morris for FY 2018 modify different engines and see their impact on the revenues, profits and estimated prices for Philip Morris.
How has iQOS evolved in the third quarter?
After the vertiginous growth reported by the device and its HeatSticks / HEETS until the 2017 fiscal year, many things were anticipated. However, the disappointing first and second quarter performance, which led to a substantial decline in the company's stock price, dampened analysts' expectations and, as a result, a decent third quarter performance led to higher shares on Thursday and Friday. . The poor results of the first half resulted in a massive reduction in the inventory of the device, concentrated in the third quarter. As a result, the company estimates that inventories have been properly sized, which positions them better for future growth.
The iQOS user base continued in the third quarter, resulting in an increase in market share, reaching 1.7% of the total volume of the industry's units of cigarettes and heated tobacco, to the exclusion of China and the United States. In Japan, its largest iQOS market, the company has recorded stable statistics share on a sequential basis. This is encouraging, given the number of measures taken by PM to accelerate HeatSticks' performance in the face of sluggish growth and increased competitive pressure, including the upcoming launch of the iQOS 3 and iQOS 3 Multi systems, which are expected to be successful soon. next year. .
In Korea, another important market for iQOS, while volume growth was stable on a sequential basis, market share declined. The company said that the responsibility in this area is mainly based on the actions of the Korean government and the FDA, which has created confusion among adult consumers regarding the category of heated tobacco. The Korean government has begun discussing graphic health warnings for heated tobacco products, while the Korean FDA has misinterpreted the tar generated by the device, an assertion refuted by the company on the basis of scientific evidence.
The device is experiencing strong growth in the EU, with a market share reaching 1.2%, reflecting a new growth in the number of iQOS users. In addition, the quarterly share of HEETS increased in all iQOS markets in the region compared to the third quarter of 2017. The momentum of the device in Russia also remains favorable, with the share of HEETS reaching 1.1% at despite the fact that the company is currently focusing on key cities representing only 20% of the total cigarette market in the country.
For the full year, the company expects a reduction of approximately 2% in the total volume of its shipments, with HeatSticks' volume growth partly offsetting the decline in shipments. of cigarettes. PM predicts that the volume of its heated tobacco shipments will rise between 41 billion and 42 billion units for the year, reflecting a projected net reduction in distributor inventories of about $ 3 billion. units and a sales volume in the market of units of heated tobacco between 44 and 45 billion units.
What other factors influenced performance?
1. The price variance remains strong: PM's fuel tobacco portfolio has shown impressive growth due to the strong variance in prices, offsetting lower volumes. The variance in fuel prices in the third quarter was about 8%, driven in particular by the EU, Indonesia, the Philippines and Russia. For the year, the company anticipates a price difference of 7%.
2. Performance in Saudi Arabia Moderating: While declines improved sequentially, the volume of the cigarette industry and the volume of sales of PM remained under pressure in the second quarter, decreasing by approximately 24% and 40%, respectively. This trend reversed in the third quarter, reflecting the end of the implementation of the June 2017 excise tax. As a result, the total volume of shipments in the region increased by 18.5% , reflecting an increased market share of 6.1 points.
3 IQOS application in the United States: Philip Morris, in collaboration with Altria, is about to get the FDA's approval to start selling his device for heat-free tobacco called iQOS with a reduced risk claim in the United States. PM was the first company to seek FDA approval for its product. BAT, its competitor, said that he had obtained permission to sell his own device to the US market and that he should start testing it by the end of 2018. Philip Morris, meanwhile, hopes to hear from the FDA before the end of the year.
4. Reduced tax rate: Philip Morris is expected to see its earnings grow thanks to the redesign of the corporate tax code, which has reduced the tax rate from 35% to 21% as of January 1, 2018. Its tax rate should from 44% in FY 2017 to around 24% in FY 2018.
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This Thursday, June 14, 2018, a photo shows packs of Marlboro cigarettes on the shelves of the JR Burlington, N.C. store (AP Photo / Gerry Broome)
Philip Morris International (NYSE: PM) far exceeded consensus expectations in the third quarter, recording 0.4% revenue growth, 3.3% foreign currency earnings and an improved 13% adjusted earnings per share. , 4%. Revenue growth is the result of higher prices for its fuel tobacco portfolio, partially offset by the negative impact of inventory movements in its units of heated tobacco. Higher sales, a lower tax rate and lower interest expense contributed to the increase in profits. Looking forward, the company expects full-year net sales growth of about 3% excluding foreign exchange and EPS of US $ 4.97 to US $ 5.02. Since the beginning of the year, the company's revenue growth has been 6.5%, which would imply a revenue decline of about 5% in the fourth quarter. This is mainly due to a difficult comparison compared to the impressive growth of 19% recorded in the fourth quarter of last year, as well as the fact that sales of cigarettes and units of heated tobacco rose in the third quarter in anticipation of October 1 price increases. As a result, fourth quarter volumes could end up being lower. This factor, combined with the $ 600 million increase in PRP (reduced risk product), which is asymmetric in the fourth quarter, also led to lower EPS in the fourth quarter.
We have a price estimate of $ 105 for Philip Morris, which is significantly higher than the current market price. The graphics were made with the help of our new interactive platform. You can click here for our dashboard on Our Prospects for Philip Morris for FY 2018 modify different engines and see their impact on the revenues, profits and estimated prices for Philip Morris.
How has iQOS evolved in the third quarter?
After the vertiginous growth reported by the device and its HeatSticks / HEETS until the 2017 fiscal year, many things were anticipated. However, the disappointing first and second quarter performance, which led to a substantial decline in the company's stock price, dampened analysts' expectations and, as a result, a decent third quarter performance led to higher shares on Thursday and Friday. . The poor results of the first half resulted in a massive reduction in the inventory of the device, concentrated in the third quarter. As a result, the company estimates that inventories have been properly sized, which positions them better for future growth.
The iQOS user base continued in the third quarter, resulting in an increase in market share, reaching 1.7% of the total volume of the industry's units of cigarettes and heated tobacco, to the exclusion of China and the United States. In Japan, its largest iQOS market, the company has recorded stable statistics share on a sequential basis. This is encouraging, given the number of measures taken by PM to accelerate HeatSticks' performance in the face of sluggish growth and increased competitive pressure, including the upcoming launch of the iQOS 3 and iQOS 3 Multi systems, which are expected to be successful soon. next year. .
In Korea, another important market for iQOS, while volume growth was stable on a sequential basis, market share declined. The company said that the responsibility in this area is mainly based on the actions of the Korean government and the FDA, which has created confusion among adult consumers regarding the category of heated tobacco. The Korean government has begun discussing graphic health warnings for heated tobacco products, while the Korean FDA has misinterpreted the tar generated by the device, an assertion refuted by the company on the basis of scientific evidence.
The device is experiencing strong growth in the EU, with a market share reaching 1.2%, reflecting a new growth in the number of iQOS users. In addition, the quarterly share of HEETS increased in all iQOS markets in the region compared to the third quarter of 2017. The momentum of the device in Russia also remains favorable, with the share of HEETS reaching 1.1% at despite the fact that the company is currently focusing on key cities representing only 20% of the total cigarette market in the country.
For the full year, the company expects a reduction of approximately 2% in the total volume of its shipments, with HeatSticks' volume growth partly offsetting the decline in shipments. of cigarettes. PM predicts that the volume of its heated tobacco shipments will rise between 41 billion and 42 billion units for the year, reflecting a projected net reduction in distributor inventories of about $ 3 billion. units and a sales volume in the market of units of heated tobacco between 44 and 45 billion units.
What other factors influenced performance?
1. The price variance remains strong: PM's fuel tobacco portfolio has shown impressive growth due to the strong variance in prices, offsetting lower volumes. The variance in fuel prices in the third quarter was about 8%, driven in particular by the EU, Indonesia, the Philippines and Russia. For the year, the company anticipates a price difference of 7%.
2. Performance in Saudi Arabia Moderating: While declines improved sequentially, the volume of the cigarette industry and the volume of sales of PM remained under pressure in the second quarter, decreasing by approximately 24% and 40%, respectively. This trend reversed in the third quarter, reflecting the end of the implementation of the June 2017 excise tax. As a result, the total volume of shipments in the region increased by 18.5% , reflecting an increased market share of 6.1 points.
3 IQOS application in the United States: Philip Morris, in collaboration with Altria, is about to get the FDA's approval to start selling his device for heat-free tobacco called iQOS with a reduced risk claim in the United States. PM was the first company to seek FDA approval for its product. BAT, its competitor, said that he had obtained permission to sell his own device to the US market and that he should start testing it by the end of 2018. Philip Morris, meanwhile, hopes to hear from the FDA before the end of the year.
4. Reduced tax rate: Philip Morris is expected to see its earnings grow thanks to the redesign of the corporate tax code, which has reduced the tax rate from 35% to 21% as of January 1, 2018. Its tax rate should from 44% in FY 2017 to around 24% in FY 2018.
What is behind Trefis? Find out how this feeds new collaboration and assumptions
For CFO and financial teams | Product, Research and Development and Marketing Teams
More searches on Trefis
Do you like our cards? Explore examples of interactive dashboards and create your own.
