Philip Morris Misses Earnings Estimates, Shares Decline

Shares of Philip Morris International experienced a decline after the cigarette maker's quarterly earnings fell short of expectations.

According to FactSet, Philip Morris reported adjusted fourth-quarter earnings of $1.36 per share, which missed the estimated $1.45 per share.

The company's quarterly revenue of $9 billion aligned with analysts' expectations. Notably, smoke-free products made up 39.3% of sales.

In a statement, Chief Executive Officer Jacek Olczak expressed optimism for the upcoming year, stating, "We are entering 2024 with strong momentum, and we expect it will be another year of excellent performance underpinned by an acceleration in organic smoke-free net revenue and profit growth."

Looking ahead to 2024, Philip Morris anticipates adjusted earnings in the range of $6.32 to $6.44 per share. While this is higher than the recorded $6.01 per share for 2023, it fell short of analysts' expectations of $6.60 per share.

As a result of these news, Philip Morris stock saw a 1.9% decline, trading at $89.70 in premarket activity on Thursday.

This is breaking news. Read a preview of Philip Morris International's earnings below and check back for more analysis soon.

Smokeless Tobacco Drives Growth for Philip Morris

In the third quarter of 2023, smokeless tobacco products emerged as the fastest-growing segment of Philip Morris International's business. Sales soared, accounting for one-third of total revenue. Now, investors are eager to see if this trend will continue.

The well-known cigarette company, famous for their Marlboro brand, is scheduled to report their fourth-quarter earnings before the market opens on Thursday. Analysts predict adjusted earnings per share of $1.45, excluding the impact of exchange rate changes. This forecast represents a 4.3% increase from last year's result of $1.39.

The majority of growth is expected in the European and Asian markets, with projected sales of $3.6 billion and $2.7 billion, respectively. These figures represent a significant increase of 23% and 149% compared to the previous year.

Net revenue is anticipated to reach $9 billion, showcasing a 10.5% rise from the same period last year. This aligns closely with Philip Morris' third-quarter results when the company reported $9.1 billion in revenue. Notably, organic revenue growth reached an impressive 9.3%.

In the third quarter, combustible tobacco experienced a growth of 4.3%, primarily driven by higher prices rather than increased sales volume.

Smokeless Products Drive Growth for Philip Morris

Introduction

Smokeless items like heated tobacco and oral nicotine products have been major contributors to the growth of Philip Morris. This growth can be attributed to a $16 billion deal that gave the company over 93% of the stock in Swedish Match, an oral tobacco firm.

Sales Performance

During the third quarter, cigarette alternatives generated $3.3 billion in sales, marking a 36% growth. These products accounted for one third of the firm's total revenue. Shipments of heated tobacco products saw an 18% increase compared to the previous year, while oral products more than doubled. The number of Zyn nicotine pouch cans shipped in the U.S. during the third quarter also rose significantly by 66% from the previous year, reaching over 105 million.

Adjusted Earnings Guidance

Impressed by the strong growth, Philip Morris management raised their adjusted earnings guidance for 2023 to a range of $6.05 to $6.08 per share. This is an increase from the previous range of $5.96 to $6.05. Analysts on Wall Street are expecting even higher earnings at $6.13 per share.

Positive Outlook from Analysts

Analysts tracking the stock have expressed optimism, with three quarters of them giving a Buy or equivalent rating. The average target price stands at $108, which is 18% higher than the closing level of $91.44 on Wednesday.

Potential for Stock Rebound

Many believe that Philip Morris shares could experience a rebound when fourth-quarter earnings are reported. The stock has seen a decline of 10% over the past year, and it currently trades at 13.7 times forward earnings. This is substantially lower than the average valuation of 16.7 times over the past decade.

Regulatory Scrutiny

While investors remain optimistic, there is regulatory scrutiny surrounding the rapid growth of oral nicotine products. Senator Chuck Schumer recently raised concerns about the marketing of products like Zyn to children and teenagers on social media. He has called for federal regulators to investigate the health effects of these products and their marketing strategies.