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Has Philip Morris Lost Its Edge Over Altria and Lorillard?

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Philip Morris International (NYSE: PM  ) will release its quarterly report on Thursday, and investors haven't been too excited about the cigarette-maker's prospects lately. Although analysts expect Philip Morris earnings to grow, the once-huge growth rates that distinguished the company from U.S.-centered Altria Group (NYSE: MO  ) and Lorillard (NYSE: LO.DL  ) have seemingly disappeared as the threat of regulation spreads around the world.

One of the big reasons Altria spun off Philip Morris into a separate entity was to help it take advantage of its international opportunity. At the time, regulation in the U.S. was far more stringent than what you found throughout most of the world. Lately, though, increased calls for regulation worldwide have put a ceiling over Philip Morris' growth potential. Will the company face the same struggles to grow that have plagued Altria and Lorillard? Let's take an early look at what's been happening with Philip Morris International over the past quarter and what we're likely to see in its report.

Stats on Philip Morris International

Analyst EPS Estimate


Change From Year-Ago EPS


Revenue Estimate

$7.94 billion

Change From Year-Ago Revenue


Earnings Beats in Past 4 Quarters


Source: Yahoo! Finance.

How can Philip Morris earnings start accelerating higher?
Analysts have kept cutting their views on Philip Morris earnings in recent months, with a reduction of $0.06 per share on their third-quarter estimates and double that figure for the full 2013 year. The stock has also failed to perform for investors lately, falling 4% since mid-July.

Philip Morris has dealt with some big challenges lately in its core business. In its second-quarter results, the company saw earnings fall year-over-year, with foreign currency impacts causing much of the decline. The strong dollar was entirely responsible for its 2.5% drop in net revenue, but cigarette shipment volumes declined by 3.9%. The company gave fairly encouraging news for the second half of the year, though, expecting strong pricing conditions and better volumes in keeping its 10% to 12% target for adjusted earnings-per-share growth. By contrast, Altria and Lorillard have little currency exposure because of their domestic focus.

The bigger problem behind these numbers is an increasing trend toward greater regulation of tobacco around the globe. Earlier this month, the European Parliament approved its Tobacco Products Directive, voting to ban menthol and other flavored cigarettes. Warning labels will also cover twice the current area on their packaging. In essence, this puts Europe on a par with U.S. regulation, eliminating a key advantage Philip Morris enjoyed over Lorillard and Altria.

The silver lining for Philip Morris is that the legislation wasn't as bad as it could have been. Earlier versions would have threated the fast-growing electronic-cigarette business by regulating it as a medical product, but the final version didn't include those provisions. Nevertheless, limits on e-cigarette advertising could hurt the industry, which British Tobacco (NYSEMKT: BTI  ) and Philip Morris both see as potential growth avenues in the future.

In the Philip Morris earnings report, watch to see how the company's various geographical segments perform. With so many long-term threats to its business, investors have started to realize that just like Altria and Lorillard have risks at home, so too does Philip Morris have to defend itself abroad.

Make money from the world
Even with its woes, Philip Morris shows how companies can earn money by moving aggressively into the global markets for their products. We have some other stocks you should look at that have used the same strategy. You'll find them in The Motley Fool's free report, "3 American Companies Set to Dominate the World." Click here to get your free copy before it's gone.

Click here to add Philip Morris International to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.

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