Philip Morris International (NYSE:PM) enjoyed a solid 2017, although the stock's gains weren't as large as investors would have preferred. Despite some more favorable trends emerging, many shareholders remain concerned about the company's overarching strategic shift away from traditional cigarettes toward reduced-risk products, especially given the widely differing opinions about alternatives like the iQOS heated tobacco system.

Philip Morris is scheduled to report its fourth-quarter earnings on Thursday, Feb. 8, and investors have a lot of things on their minds. Between poor shipment volumes, ongoing currency volatility, and regulatory challenges in trying to push its reduced-risk portfolio into a larger number of national markets, Philip Morris needs to make progress on key initiatives. Let's look more closely at Philip Morris International and what it'll be saying in its financial report.

Stats on Philip Morris International

 Metric

Result

Analyst EPS Estimate

$1.35

Change From Year-Ago EPS

23%

Revenue Estimate

$8.17 billion

Change From Year-Ago Revenue

17.3%

Earnings Beats in Past 4 Quarters

0

Source: Yahoo! Finance.

Can Philip Morris International deliver with strong earnings?

In recent months, investors have stayed fairly confident about Philip Morris International's earnings prospects. They've reduced their views on fourth-quarter profits by $0.01 per share, but changes in longer-range outlooks have been minimal. The stock has stabilized, rising about 2% since early November.

Philip Morris continues to face the negative impacts from long-term trends against smoking. Those effects showed up again in Philip Morris' third-quarter results, which included reasonable revenue gains of 7%, but featured only a 2% rise in net income. Currency impacts remain a factor despite the weakness of the U.S. dollar against the euro, as the tobacco giant's broad global reach leaves it exposed to other currencies that have been even weaker. But a big 6% drop in shipment volumes for the company's key Marlboro brand reveals the falling demand for cigarettes despite Philip Morris' impressive marketing efforts. Reduced guidance contributed to pessimism among investors, and only part of that came from foreign exchange headwinds.

Conveyor carrying raw tobacco through a production facility.

Image source: Philip Morris International.

Even on the reduced-risk front, Philip Morris is dealing with challenges. Third-quarter iQOS-related revenue and profits were impressive, but the future success of the platform requires greater penetration across the global market. Early indications from the U.S. Food and Drug Administration regarding Philip Morris' application to have iQOS recognized as a modified-risk tobacco product haven't gone as well as investors had hoped, with an advisory panel voting against most of the key claims that the tobacco giant was hoping to establish. Company officials were pleased that the FDA supported the idea that iQOS results in fewer toxic chemicals than traditional cigarettes. However, the failure to show a tangible reduction in harm or a reduced risk of contracting diseases connected to cigarette smoking shows that Philip Morris has more work to do on the scientific front.

One question that Philip Morris has been silent on is whether it will seek to expand its scope to offer marijuana products in the future. Some investors think it would be a natural fit, with the tobacco giant already being featured in the new ETFMG Alternative Harvest ETF despite having no cannabis-related operations. Advocates believe Philip Morris' distribution network would make it an obvious choice to participate in the marijuana boom. The company is likely to at least wait until all the countries that make it illegal to possess or transport marijuana have resolved those issues and indicated their support to allow distribution of the drug.

In the Philip Morris earnings report, investors need to watch for further shipment volume decreases and market share declines for its traditional cigarette lines, as well as the progress that iQOS makes in grabbing more market share from rivals. Philip Morris has a lot of risk right now, but it also still offers a great opportunity if you believe in the transition toward alternatives from regular cigarettes.

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.