PM Misses, Shipments & Currency Blamed

Zacks

Philip Morris International Inc. (PM) reported adjusted first-quarter 2013 earnings per share of $1.29, missing the Zacks Consensus Estimate by 4.4% but surpassing the comparable prior-year quarter earnings by 3.2%.

Earnings missed due to currency headwind, shipment volume loss in the Philippines and a difficult comparison due to the 2012 leap-year effect. Excluding an unfavorable currency impact of 7 cents, adjusted earnings of $1.36 exceeded the prior-year quarter earnings by 8.8%.

Revenues and Margin

Excluding the impact of an unfavorable currency translation of $103.0 million, net revenue increased roughly 3.2% from the prior-year quarter, mainly driven by favorable pricing. During the quarter, Philip Morris’ net revenue inched up 1.8% from the prior-year quarter to $7.6 billion. Revenues also exceeded the Zacks Consensus Estimate of $7.4 billion.

During the quarter, net revenue in the European Union (EU) slipped 4.0% from the prior-year quarter to $1.97 billion due to lower market share in Germany, Italy and Spain.

Net revenue in the Eastern Europe, the Middle East & Africa (:EMEA) region stood at $2.0 billion, up 11.3% from the prior-year quarter fuelled by positive pricing in Russia, Turkey and Ukraine.

Asia recorded net revenue of $2.8 billion, up 0.5% from the prior-year quarter driven by favorable pricing in Australia, Indonesia and the Philippines. In the Latin America and Canada region, revenue slipped 0.3% to $781 million in the quarter.

Philip Morris' quarterly gross profit increased 1.8% from the prior-year quarter to $5.1 billion, while operating companies income (operating income before general corporate expenses and the amortization of intangibles) slipped 0.6% year over year to $3.5 billion during the quarter.

Volumes in Detail

Cigarette shipment volume excluding the unfavorable excise tax increase in the Philippines went down by 2.1% due to an unfavorable reversal of trade inventories built up in the fourth quarter of 2012, weak economic and employment environment and growth of the Other Tobacco Product Category.

In the European region, cigarette shipments declined 10.1%, driven by a lower market share, particularly in southern Europe.

In Latin America and Canada, cigarette shipment volumes declined 7.5% due to lower total market share in Argentina, Brazil and Mexico.

Cigarette shipment volume in Asia declined 10.4% from the prior-year quarter, mainly due to excise tax hike in the Philippines.

Shipment volume in EMEA grew 1.4% on the back of improved market conditions in North Africa, the Middle East, Russia and Ukraine.

During the quarter, shipments of the Marlboro brand of cigarettes slipped by 4.8% due to decline in EU particularly in France and Spain. Shipment volume of the L&M brand went up 4.3% during the quarter, mainly due to shipment rise in Egypt, Russia and Saudi Arabia. Parliament recorded volume growth of 4.5%.

Chesterfield, Philip Morris, Lark and Bond Street witnessed a decline of shipment volume of 6.0%, 11.4%, 8.3% and 0.7%, respectively.

Financial Analysis

Philip Morris exited the first quarter 2013 with cash and cash equivalents of $3.9 billion compared with $3.0 billion in the preceding quarter. Long-term debt stood at $20.8 billion in the first quarter of 2013 compared with $17.6 billion in the previous quarter.

Share Buyback and Dividend Update

During the quarter, Philip Morris spent $1.5 billion to repurchase 16.7 million shares. After completing a three-year share buyback program worth $12 billion in Jul 2012, the company announced a new share buyback program of $18.0 billion in Aug 2012.

Guidance

The company expects currency impact of 19 cents per share for 2013, higher than 6 cents per share forecasted previously. Excluding the currency impact, the company reiterates its earnings guidance to increase by approximately 10%-12% compared with adjusted earnings of $5.22 in 2012.

Philip Morris carries a Zacks Rank #4 (Sell). However, we would recommend some other stocks, such as Flowers Foods Inc. (FLO) and Green Mountain Coffee Roasters Inc. (GMCR) – Zacks Rank #1 (Strong Buy), and Kellogg Company (K) - Zacks Rank #2 (Buy) that are currently doing well and are worth considering in the consumer staples industry.

Read the Full Research Report on PM

Read the Full Research Report on K

Read the Full Research Report on GMCR

Read the Full Research Report on FLO

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