Investors in Philip Morris International (NYSE:PM) have been increasingly optimistic lately. With the success of its alternatives to traditional cigarettes and the pause in the rise in the value of the U.S. dollar, the tobacco giant has inspired many to believe that long-stagnant earnings growth could finally start to pick up again.

Philip Morris will report its third-quarter earnings on Thursday, Oct. 19, and there's a lot of enthusiasm about the company's potential to return to double-digit percentage growth on its top and bottom lines. The tobacco giant faces plenty of challenges, but it also has shown an ability to overcome similar obstacles and has strategies to foster new business opportunities. Let's take a closer look at what people expect from Philip Morris International and whether it's likely to deliver.

Stats on Philip Morris International

Analyst EPS Estimate

$1.38

Change From Year-Ago EPS

10.4%

Revenue Estimate

$7.72 billion

Change From Year-Ago Revenue

10.5%

Earnings Beats in Past 4 Quarters

1

Data source: Yahoo! Finance.

Will Philip Morris International's earnings give investors what they want?

Those who follow the tobacco stock have had mixed views about Philip Morris International's earnings prospects. On the one hand, they've boosted their views on earnings for the fourth quarter of 2017. Yet full-year projections for both 2017 and 2018 have come down marginally, reversing increases in past quarters. The stock has also come down from recent highs, falling 6% since mid-July.

Part of the reason why Philip Morris International has struggled recently has to do with negative sentiment following the cigarette maker's second-quarter results. Revenue gained at barely half the pace that investors had hoped to see, and net income was actually lower than in the year-earlier period. Shipments of cigarettes were down a whopping 7.5%, showing an acceleration in the long-term trend away from traditional tobacco products. Currency-related hits to earnings returned during the quarter, and even though the euro strengthened against the U.S. dollar, other key foreign exchange measures weighed on performance.

iQOS package, including case, heating unit, and plugs.

Image source: Philip Morris International.

The bright spot in Philip Morris' earnings recently has been the way that reduced-risk products have performed. During the second quarter, iQOS-related sales soared not only in Japan but also in Korea and throughout several markets in Europe, including Italy, Portugal, and Romania. The heated-tobacco product has a huge amount of potential, with the company expecting to roll out iQOS nationally in several markets as capacity for production picks up. Sales of iQOS are just a fraction of Philip Morris International's overall revenue, but that share is growing, and the willingness of consumers to move from smoking regular cigarettes to alternatives like iQOS could sustain a trend toward the reduced-risk product for years to come.

Indeed, Philip Morris International's sustainability report, which was released in September, shows the company's commitment to pursuing reduced-risk efforts. The report unabashedly showed Philip Morris' recognition of its past, noting that "smoking cigarettes causes serious disease" and that "we are now focusing our efforts to transform our company from a cigarette maker to a smoke-free technology leader." Some consumer advocates remain skeptical, but as a first-mover in the alternative space, Philip Morris actually has a competitive advantage that could make itself felt more fully if cigarettes go away more quickly. Investors will want to see evidence that a flood of demand for iQOS products won't lead to capacity constraints, and Philip Morris' efforts to meet that demand will need to continue in order to instill confidence among its shareholders.

In the Philip Morris earnings report, investors can expect to see traditional cigarette metrics keep falling, but the real key will be the extent to which iQOS takes up the slack. In the long run, Philip Morris needs to find a way to replace any lost cigarette sales with alternative products, and although it has made great strides, the company must keep working hard to maintain its early success and ensure that its earnings can climb higher.

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.