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Philip Morris (PM) Queued for Q1 Earnings: Factors to Watch

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Philip Morris International Inc. PM is likely to witness an increase in the top and bottom lines, when it reports first-quarter 2021 numbers on Apr 20. Though the Zacks Consensus Estimate for earnings has dropped a penny over the past 30 days to $1.40 per share, it indicates a rise of 15.7% from the figure reported in the prior-year period. This tobacco products giant has a trailing four-quarter earnings surprise of 8.1%, on average.

The Zacks Consensus Estimate for revenues is pegged at $7,345 million, suggesting growth of 2.7% from the prior-year quarter’s reported figure.

Key Factors to Note

Philip Morris has been benefiting from its strong pricing power. Though higher pricing might lead to possible declines in cigarette consumption, it is seen that smokers tend to absorb price increases owing to the addictive quality of cigarettes. Incidentally, higher pricing variance was an upside to the company’s performance across most regions during the fourth quarter of 2020, wherein favorable combustible pricing aided its adjusted operating income margin.

Philip Morris International Inc. Price, Consensus and EPS Surprise

Philip Morris International Inc. Price, Consensus and EPS Surprise
Philip Morris International Inc. Price, Consensus and EPS Surprise

Philip Morris International Inc. price-consensus-eps-surprise-chart | Philip Morris International Inc. Quote

However, soft cigarette sales volume has been taking a toll on Philip Morris’ performance. Apart from pandemic-related hurdles, cigarette shipment volumes are being adversely impacted by lower demand for cigarettes, stemming from anti-tobacco campaigns and consumers’ rising health consciousness. Moreover, regulatory hurdles have created limitations for marketing cigarettes, further hindering its sales volumes. Management expects total cigarette and heated tobacco unit shipment volumes between a decline of 2% and an increase of 1% in 2021. Total international industry volume (excluding China and the United States) is estimated to be down 3% to flat.

In its fourth-quarter earnings call, management highlighted that it does not expect a near-term recovery in the duty-free business due to travel-related uncertainties amid the coronavirus pandemic. Moreover, the company pointed out that reduced social gatherings have adversely impacted cigarette consumption. Apart from this, pricing-related headwinds in Indonesia, stemming from the excise tax structure, remain a drag. Nonetheless, overall pricing has been favorable and working well for Philip Morris.

Additionally, the company has been benefiting from its efforts to expand in the low-risk, reduced risk products (RRPs) space, given consumers’ rising preference for the same. The company is progressing well with its business transformation, with 10.8% of shipment volumes and 23.8% of net revenues coming from smoke-free products as of the end of 2020. Toward this end, the company’s IQOS, a smokeless cigarette, counts among one of the leading RRPs in the industry. We note that IQOS devices accounted for nearly 7% of the company’s revenues in the RRPs category, in 2020. In the fourth quarter of 2020, RRPs formed 26% of the company’s total net revenues. These next-generation devices are backed by substantial scientific insights and research. The company expects such advanced and high-quality products to aid adult smokers to switch from traditional cigarettes to smoke-free options. In fact, total users of IQOS as of the end of the fourth quarter were estimated to be about 17.6 million, including roughly 12.7 million users who have shifted from smoking to IQOS. Management earlier noted that since the onset of the pandemic, the switch from smoking to RRPs has been trending positively.

Impressively, management’s earnings per share guidance for 2021 suggests growth, which is expected to be backed by increased revenues and a focus on achieving cost efficiencies. Certainly, these factors bode well for the quarter under review as well.

What the Zacks Model Unveils

Our proven model doesn’t conclusively predict an earnings beat for Philip Morris this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Philip Morris currently has a Zacks Rank #3 and an Earnings ESP of -0.92%.

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Here are some companies you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this season.

Kimberly-Clark KMB has an Earnings ESP of +0.13% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Coty COTY has an Earnings ESP of +16.67% and a Zacks Rank #3.

Sysco Corporation SYY has an Earnings ESP of +6.02% and a Zacks Rank #3.

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