Philip Morris International Earnings: Is International Tobacco Under Fire?

Could the long trend toward U.S. tobacco companies being more dangerous to investors finally be reversing?

Jul 15, 2014 at 11:02AM

File
Source: Wikimedia Commons, courtesy Takeaway.

On Thursday, Philip Morris International (NYSE:PM) will release its quarterly report, and investors aren't entirely comfortable with the company's prospects looking forward. Even as the proposed merger of Lorillard (NYSE:LO) and Reynolds American (NYSE:RAI) focuses attention on the U.S. side of the tobacco business, regulatory threats overseas have taken some of the wind out of Philip Morris' sails, making some question whether the best days for the international tobacco giant are behind it.

Philip Morris International was originally spun off from Altria (NYSE:MO) precisely to give investors what they saw at the time as favorable exposure to overseas markets. Without onerous U.S. tobacco regulation, Philip Morris seemed to have limitless potential. Gradually, though, other companies have looked at similar regulatory efforts as those in the U.S., and that has introduced new doubts for Philip Morris investors. 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

$1.24

Change From Year-Ago EPS

(4.6%)

Revenue Estimate

$7.52 billion

Change From Year-Ago Revenue

(5%)

Earnings Beats in Past 4 Quarters

2

Source: Yahoo! Finance.

Which way will Philip Morris earnings move?
In recent months, analysts have had generally favorable views on Philip Morris earnings, raising second-quarter estimates by a penny per share and full-year 2014 projections by almost 1%. The stock has managed to pick up some ground as well, gaining 4% since early April.

Philip Morris' first-quarter results reveal both the obstacles and the promise of the international tobacco industry. On one hand, cigarette volumes fell 4.4%, and even though roughly half of that decline came from movements of inventory, it nevertheless confirmed a troubling trend in the global tobacco industry. For the year, though, Philip Morris International stayed fairly confident, still expecting 6% to 8% growth in adjusted earnings per share for the full year.

Pm Cigs
Source: Philip Morris.

But late last month, Philip Morris warned that its earnings results wouldn't be as favorable as it had initially hoped. The tobacco giant cut its earnings-per-share forecast for the full year by about 4.5%, citing a tougher regulatory environment in which several countries are looking at tighter restrictions on tobacco sales and packaging. Moreover, a strong U.S. dollar has hurt Philip Morris International's financials, with weakness in the foreign currencies that the company accepts from customers weighing on its dollar-denominated revenue and earnings.

To try to address these problems, Philip Morris has turned to the electronic-cigarette market, with the acquisition of U.K.-based Nicocigs to help it gain a bigger market share in the growing space. Yet Lorillard nevertheless has a huge first-mover advantage in electronic cigarettes, and if the company is able to follow through on its proposed merger with Reynolds American, then the combined entity could pose an even bigger threat to Philip Morris and its efforts to build market share in the booming niche.

At this point, Philip Morris International's biggest problem might be a lack of momentum. Some dividend stocks have addressed periods of weaker results by boosting share repurchases, but Philip Morris has enough outstanding debt that moves in that direction aren't likely. Without any obvious way to goose earnings upward, Philip Morris International investors should prepare for possible stagnation, at least temporarily.

In the Philip Morris earnings report, watch to see how well the company does at limiting the damage from a strong dollar and weak trends in tobacco sales. If the electronic cigarette initiative goes well, then Philip Morris International might find a way to return to its all-time record high levels from last month.

Top dividend stocks for the next decade
The smartest investors know that dividend stocks simply crush their non-dividend-paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

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.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers