Why Is Philip Morris (PM) Up 1.3% Since Last Earnings Report?

It has been about a month since the last earnings report for Philip Morris (PM). Shares have added about 1.3% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Philip Morris due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Philip Morris Q4 Earnings Match Estimates, Revenues Beat

Philip Morris reported fourth-quarter 2019 results. Adjusted earnings per share of $1.22 came in line with the Zacks Consensus Estimate. The bottom line edged down 2.4% year over year. On a like-for-like (LFL) basis, after excluding currency, the bottom line rose 4.3%.

Net revenues of $7,713 million beat the Zacks Consensus Estimate of $7,680 million. The top line grew 2.9% in the reported quarter. On an LFL basis, the metric was up 6.3%, excluding currency. This was backed by favorable pricing variance, partly negated by adverse volume/mix.

During the quarter under review, revenues from combustible products fell 3% to $6,179 million due to declines in all regions, except South & Southeast Asia. Further, revenues in the RRPs improved 36.2% to $1,534 million. Most regions saw growth in RRPs, apart from South & Southeast Asia wherein revenues remained flat.

Total cigarette and heated tobacco unit shipment volumes dropped 5% to 192.2 billion units. Cigarette shipment volumes fell 8% to 175.1 billion units in the quarter, while heated tobacco unit shipment volumes of nearly 17.1 billion units surged 40.7% year over year.

Adjusted operating income grew nearly 6% to reach $2,863 million. On an LFL basis, after excluding currency, adjusted operating income improved 11.9% year over year. Adjusted operating margin expanded 1.1 points to 37.1% and 1.8 points to 36.7% (excluding currency and on an LFL basis).

Region-Wise Performance

Net revenues in the European Union increased 4.1% to $2,436 million. Revenues grew 8.6% at cc, courtesy of favorable pricing and volume/mix. Total shipment volumes in the region slipped 1.9% to 44,985 million units.

In Eastern Europe, net revenues grew 20.3% to $982 million and rose 16.8% at cc. The upside can be attributed to favorable pricing and volume/mix. Total shipment volumes inched up 1.2% to 31,105 million units.

In the Middle East & Africa region, net revenues declined 0.4% (down 1.6% at cc) to $984 million. Further, total shipment volumes fell 8.6% to 33,204 million units.

Revenues in South & Southeast Asia rose 21.7% (up 16.1% at cc) to $1,487 million. The upside was driven by favorable pricing variance, partly offset by adverse volume/mix. Shipment volumes declined 6.1% to 44,704 million units.

Revenues from East Asia & Australia fell 5.6% (at cc) to $1,270 million due to unfavorable volume/mix, partly compensated by pricing gains. Total shipment volumes dropped 5.8% to 18,725 million units.

Finally, revenues from Latin America & Canada decreased 29.7% (down 28.6% at cc) to $554 million. Moreover, total shipment volumes declined 11.3% to 19,484 million units.

Other Financials

The company ended the quarter with cash and cash equivalents of $6,861 million. Also, the company had long-term debt of $26,656 million and shareholders’ deficit of $9,599 million.

Guidance

While management foresees some hurdles in Indonesia in 2020, it expects to deliver currency-neutral net revenue and bottom-line growth in 2020 (on an LFL basis). In 2020, currency-neutral revenues are expected to rise about 5% on an LFL basis. Total cigarette and heated tobacco unit shipment volumes are likely to drop 2.5-3.5% on an LFL basis. In fact, international industry volumes are also expected to decline, owing to higher excise taxes in Indonesia and the cigarillo category gaining traction in Japan.

Currency-neutral adjusted operating margin is expected to expand 150 bps on an LFL basis, thanks to cost-control measures, which are expected to completely offset additional investments in RRPs. Further, management expects effective tax rate for 2020 to be roughly 23%.

Finally, the company envisions adjusted earnings per share of $5.50 for 2020. Excluding the expected currency impact of 4 cents, earnings are anticipated to be at least $5.54, which indicates growth of at least 8% from the year-ago quarter’s reported figure.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

VGM Scores

Currently, Philip Morris has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Philip Morris has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.