Shares of Philip Morris International Inc (NYSE:PM) were getting smoked today after the tobacco giant turned in another disappointing earnings report. Three months after the stock crashed on news that sales of its iQos product were slowing down in Japan, the stock got hit again following its second-quarter report after it slashed its earnings and revenue. Shares fell as much as 6.9% and were down 2.5% as of 1:16 p.m. EDT.
Trouble continued for the seller of Marlboro cigarettes outside the U.S. as it said that sales growth of iQos, its heat-not-burn product that investors had pinned big hopes on, had continued to slow in Japan, one of its biggest markets. Philip Morris said it would launch a new lower-priced product in October and introduce a new generation of iQos devices globally by the end of the year.
As for the quarter itself, growth remained solid as revenue increased 11.7%, or 8.3% on a currency-neutral basis to $7.7 billion, ahead of estimates at $7.5 billion. Cigarette volumes fell 1.5% to 190.7 billion, but heated tobacco unit volumes jumped 73% to 11 billion, more than making up for the slide in cigarettes. On the bottom line, earnings growth remained strong as adjusted earnings per share increased 24% to $1.41, easily beating estimates at $1.23.
CEO Andre Calantzopoulos said the results "highlight the fundamental strength of the business," and, "We are seeing encouraging improvement in the markets we previously cited as challenging, with a sequential recovery of volume in the GCC (Saudi Arabia, UAE, Qatar, Oman, Kuwait, Bahrain) and an improving pricing environment in Russia."
Despite the strong beat, Philip Morris still slashed its forecast due to a strategic shift in its iQos product. The company lowered its earnings-per-share guidance to $5.02-$5.12 from $5.25 to $5.40, and said it only expects currency-neutral revenue growth of 3% to 4%, down from a previous target of 8%.
Given that cut, it's understandable why the stock fell -- but this seems to be the right move for Philip Morris, as growing the heated tobacco segment is of the utmost importance to the company and its investors.