Phillip Morris Q3 results beat estimates; maintains outlook

Phillip Morris International (PM) reported better-than-expected results for the third quarter sending the stock up 5% at 10:35 AM ET trading above $89, aided by improved market share and price hikes.

Last month, Phillip Morris trimmed its 2018 earnings outlook to $4.97 to $5.02 per share from the previous outlook of $5.02 to $5.12 per share announced last quarter, due to forex headwinds, weaker IQOS sales and transitioning to highly inflationary accounting in Argentina.

The tobacco giant’s earnings jumped 13.4% to $1.44 per share while sales rose modestly by 0.4% to $7.5 billion, which topped analysts’ estimates on earnings and revenue front. Excluding forex impacts, earnings and sales are up 20.5% and 3.3%, respectively.

Total volumes declined 2.1% to 203.7 billion units for the cigarette and heated tobacco units and increased 1.1% excluding inventory movements to distributors. Cigarette shipments decreased 1.7% and heated tobacco unit saw 11% drop in shipments. The double-digit drop in heated tobacco unit volumes was mainly due to lower sales in Japan and Korea.

Phillip Morris is transforming itself from traditional cigarette products to reduced-risk products (RRP) focusing on heated tobacco units and smoke-free IQOS devices. The company has been investing in smoke-free technology and taking various initiatives to increase customer adoption of RRP. However, the transformation seems to be an arduous task as sales of IQOS devices has fallen short of expectations.

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Based on the customer feedback, the company is launching new IQOS device with upgraded features in Japan. The sales impact of the launch would be known only in next year. Phillip Morris also hopes to improve the market share of HeatSticks in Korea. For 2018, heated tobacco shipment volumes are expected to be in the range of 41 billion to 42 billion units.

Earlier this month, the tobacco giant announced that it’s shifting to zero-based budgeting, which would help the firm to allocate more money towards developing smoke-free products in line with its long-term transition strategy. The company also plans to save $1 billion over a three-year period by various cost savings measures.

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