For the past several years, Philip Morris International (NYSE:PM) has struggled to produce strong earnings growth. A host of challenges, including increased regulation, falling demand, and rising competition, have held back Philip Morris' fundamental strength in its international operations. Yet what has really made a negative impact on the tobacco giant's earnings power is the strong U.S. dollar, which has turned bottom-line growth on a local-currency basis into major headwinds to its income statement.

As Philip Morris investors get ready for Thursday's second-quarter financial report, they're optimistic about the fact that the U.S. dollar has weakened recently. Without currency impacts to hurt the bottom line, shareholders want Philip Morris to return to more attractive growth levels. Let's look more closely at what's happened with Philip Morris International lately and whether it can keep up the momentum that has sent its stock to new all-time highs.

Stats on Philip Morris International

Analyst EPS Estimate


Change From Year-Ago EPS


Revenue Estimate

$7.11 billion

Change From Year-Ago Revenue


Earnings Beats in Past 4 Quarters


Data source: Yahoo! Finance.

Can Philip Morris International's earnings rebound?

In recent months, investors have been guardedly optimistic about Philip Morris International's earnings prospects. They've kept their near-term projections unchanged, but they've boosted their 2017 and 2018 full-year views by $0.02 to $0.03 per share. The stock has kept on its upward trajectory, gaining 6% since mid-April.

Philip Morris International's first-quarter results showed the extent to which tough conditions continue to plague the tobacco maker. Revenue levels dropped slightly from the year-ago quarter, dashing expectations for 6% growth. Cigarette shipment volumes plunged more than 11%, and adjusted earnings were little changed from the first quarter of 2016. The only unambiguously good news came from the reduced-risk product arena, where the iQOS heated-tobacco system continued to perform extremely well in the Japanese market. A slight boost to full-year earnings expectations came solely from a tax-related item and not from any belief that fundamental strength would pick up.

Even though Philip Morris' financial performance hasn't been all that inspiring, the stock has done extremely well. That's due in large part to the decline in the U.S. dollar so far in 2017. Just since April, the euro has gained in value from around $1.07 to $1.15, and the Japanese yen has held onto its gains from earlier in the year against the greenback. Stronger foreign currencies will have a twofold positive impact: by boosting revenue and earnings when measured in dollar terms, and by potentially giving the company more latitude to consider larger dividend increases in the future.

iQOS heated tobacco system.

Image source: Philip Morris International.

Reduced-risk products are the real growth driver for Philip Morris, and the company sees that role expanding in the near future. One Philip Morris executive said in late June that the iQOS heated tobacco system could potentially make the U.K. smoke-free in the future, referring to the launch late last year of iQOS in Britain. The company also hopes that consumer advocates will actually stand behind and support iQOS, citing statistics that show that about 70% of those who use the heated tobacco product are able to give up conventional cigarettes, which Philip Morris argues are more dangerous. Increased production of the tobacco sticks that go into the iQOS system toward 100 billion units in 2018 could go a long way toward making launches not just in the U.K. but around the world go more smoothly and progress more quickly.

In the Philip Morris earnings report, many market participants will focus on the dollar's impact on earnings, and comments from company executives should give signs about whether they see the reversal in currency effects as continuing into the future. Yet what long-term investors need to scrutinize is the effort that Philip Morris is making toward promoting growth of its reduced-risk product portfolio, because that's what is going to push the company forward in the years to come.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.