Shares of Philip Morris (NYSE:PM) were moving lower after it posted a strong first-quarter earnings report, but pulled its full-year guidance amid COVID-19-related concerns and issued a weak second-quarter outlook.
As a result, the stock closed down 6%.
Revenue for the Marlboro maker was up 6% as reported, or 10% organically, excluding currency, to $7.15 billion, which was well ahead of analyst estimates at $6.84 billion. The company actually seemed to get a tailwind from the coronavirus pandemic in the first quarter as retailers stocked up on cigarettes and alternatives ahead of shutdown orders across much of Europe and elsewhere. Cigarette shipments fell 4.4% in the quarter, while shipments of heated tobacco units (made up of its next-gen IQOS product) jumped 45.5% to 16.7 billion. Combined shipments fell 1.2% as reported, or 0.6% organically.
Adjusted operating income in the period rose 11.4% to $2.79 billion, and adjusted earnings per share were up 11% to $1.21, which beat the analyst consensus at $1.13.
Despite the strong performance, CEO Andre Calantzopoulos cautioned on the impact of COVID-19, saying it would affect duty-free sales, a key source of high-margin business; limit its ability to market IQOS and therefore convert customers, and delay a minimum price hike in Indonesia that would have helped sales. Calantzopoulos also noted that 20% of the company's cigarette factories are currently affected by government-mandated shutdowns or limitations, but he did not anticipate any significant supply-related issues.
Due to the lack of visibility into the full impact of the pandemic, management axed its full-year guidance, which had previously called for a minimum of $5.50 in reported EPS. For the second quarter, it dialed down expectations, forecasting $1.00 to $1.10 in reported EPS (which includes the impact of some sales being pulled into the first quarter), a slowdown in duty-free sales, and the effect of the minimum price hike delay in Indonesia. That guidance was well below analyst expectations at $1.40.
The tobacco industry has been a reliable source of profits in good times and bad for generations. So Philip Morris' decision to pull its guidance shows that COVID-19 is affecting even the world's most stable, defensive-minded stocks. Ultimately, the coronavirus shouldn't be much more than a blip for the company over the long term, but it still faces secular challenges with the decline in smoking and the need to grow IQOS.