Philip Morris Beats on Q3 Earnings & Revenues; Ups FY View

Philip Morris International Inc.'s PM third-quarter earnings and revenues beat the respective Zacks Consensus Estimate. Results, however, declined year over year due to lower volume.

Philip Morris' adjusted earnings per share of $1.24 surpassed the Zacks Consensus Estimate of $1.11 by 12%. However, earnings declined 10.8% year over year from $1.39 due to currency headwinds and lower sales.

Excluding an unfavorable currency impact of 37 cents, earnings went up 15.8% from the year-ago quarter.

Revenues and Margin

Net revenue (excluding excise taxes) decreased 12% year over year to $6.9 billion due to difficult operating environment and currency headwinds. Results, however, beat the Zacks Consensus Estimate of $6.7 billion by 2.9%.

Excluding currency, revenues went up 5.9% backed by improving macroeconomic environment and lower gas prices. Cigarette shipment volume, however, dipped 1.5% to 218.9 billion units mainly due to unfavorable currency translations. Lower shipments in most of the geographic regions of European Union, Asia and Latin America and Canada were also responsible for the decline.

Philip Morris' quarterly gross profit declined 11.3% from the prior-year period to $4.5 billion as a result of lower revenues. Operating income slipped 11.5% year over year to $2.95 billion due to higher operating expenses.

Segment Details

Net revenue in the European Union region decreased 13.4% to $2.0 billion hurt by currency headwinds. Excluding currency, revenues climbed 4.5% year over year primarily reflecting positive pricing, especially in Germany and Italy. Market share in the European Union remained flat at 40.4%.

Net revenue in the Eastern Europe, Middle East & African (EMEA) region slipped 13.8% to $2.1 billion due to unfavorable currency impact. Excluding currency, revenues went up 9% year over year backed by favorable pricing in Russia, Turkey and Ukraine.

Asia recorded net revenue of $2.0 billion, down 11.1% due to currency headwind. Excluding currency, revenues went up 0.9% year over year supported by favorable pricing, primarily in Australia and Indonesia.

In Latin America and Canada, revenues decreased 3.5% to $804 million. Excluding currency, revenues improved 13.9% mainly on the back of favorable pricing in Argentina, Brazil, Mexico and Canada.

Financial Update

During the quarter, the tobacco company did not repurchase any share, but announced a 2% quarterly dividend hike to an annualized rate of $4.08 per share.

On Oct 9, 2015, Philip Morris' Indonesian unit — PT HM Sampoerna Tbk ("Sampoerna") — set the price of its rights offering at Rp. 77,000 for each rights share. The rights offering in the country is aimed to meet the mandatory minimum free float requirement, per new Indonesian law.

Guidance

Philip Morris upped the full-year 2015 earnings growth rate to a range of 11–12% from 9–11%. In 2014, the company reported earnings of $5.02. The company expects a negative currency impact of $1.22 per share.

Philip Morris carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the consumer staple sector are Cal-Maine Foods CALM, Diamond Foods Inc. DMND and Flower Foods Inc. FLO. While Cal-Maine sports a Zacks Rank #1 (Strong Buy), Diamond Foods and Flower Foods carry a Zacks Rank #2 (Buy).

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