Philip Morris' (PM -1.46%) investors heard yet more bad news last week after the company lowered its full-year 2014 earnings guidance yet again.
Philip Morris revealed that its earnings for 2014 would come in at around $4.87 to $4.97 per share, below the previous forecast of $5.09 to $5.19 .
Multiple headwinds
Philip Morris' management had plenty of excuses for this lower-than-expected figure. The most important one was the impact of currency effects on its results.
Emerging market turmoil and a strong dollar have crimped earnings for Philip Morris, a company which conducts almost all of its sales outside of the US, but reports earnings in US dollars.
Indeed, unfavorable currency effects took $0.16 per share off the company's first-quarter earnings. Excluding currency effects, earnings per share jumped $0.06, or 4.7% year over year. Including currency effects, earnings per share fell 7.8% year over year for the first quarter .
Other factors will also weigh on the company's results. Restructuring costs due to the closure of factories within the Netherlands and Australia will take several cents out of earnings. What's more, Australia's plain packing introduction has hit the sales of Philip Morris' high-cost Marlboro cigarettes.
And this is not to mention the Philippines, where Philip Morris' sales have been slammed by a flood of non-duty-paid cigarettes manufactured by domestic rivals.
All in all, 2014 is turning into what Philip Morris' management have called a "complex and truly atypical year".
Still, one of Wall Street's most respected and revered tobacco analysts, Wells Fargo's Bonnie Herzog, remains positive on Philip Morris' outlook:
...We believe PMI's solid execution will continue despite challenging conditions...
However, the analyst did warn that Philip Morris' investors might have to get used to a slower rate of growth for the next few years .
...[for 2015] PM targets...EPS growth of 8-10% (lower than its long-term 10-12% target), reflecting share repurchases of $23B, also lower than historical levels, with volumes flat to down 1%...On a positive note, PM maintained its annual dividend target payout ratio of 65%...Bottom line–we are disappointed that PM's growth outlook for FY2015 and "near term" is lower than historical trends...
Some good news
Nevertheless, the company released this bad news alongside some good news. Philip Morris' management revealed that the company had dived further into the electronic cigarette market with the acquisition of UK-based Nicocigs, which makes Nicolites.
This is Philip Morris' first direct step into the e-cig business. The company's only e-cig exposure so far is an e-cig distribution deal with Altria Group (MO 0.72%).
Officially called a technology-sharing deal, the deal saw Altria make its MarkTen e-cig products available exclusively to Philip Morris for commercialization outside of the United States.
Altria has been working on its e-cig offering for some time now and is planning a national roll-out over the next few months.
Altria initially released its offering into 3,000 retail stores within Indiana and it has since expanded into Arizona. That being said, Altria has not released sales figures for its product within Indiana, which could be a bad thing.
In exchange for Altria's tech, Philip Morris will make two of its reduced-risk tobacco products available for Altria to market within the US. Philip Morris' reduced-risk tobacco products are essentially cigarettes designed to burn at a lower temperature.
These devices heat the tobacco instead of burning it, reducing the volume of toxic chemicals inhaled. Philip Morris believes that these products could become the next big thing as they replicate the taste of traditional cigarettes without the harmful effects. Reduced-risk cigarette products are completely different from e-cigs.
Foolish summary
So all in all, Philip Morris recently revealed that it will miss its earnings targets this year due to a number of factors. However, excluding these negative effects, the company's underlying business remains strong. What's more, analysts love Philip Morris' exposure to the rapidly growing e-cig market and investors should see the benefits from this expansion in the near future.