Dj Philip Morris International In, Inst Holders, 3Q 2024 (Pm)

A month has gone by since the last earnings report for Philip Morris (PM). Shares have lost about 0.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Philip Morris due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

PM Q3 Earnings Top Estimates on Combustible Pricing, 2024 View Up

Philip Morris posted strong third-quarter 2024 results, wherein adjusted EPS came in at $1.91, which increased 14.4% year over year. Excluding currency effects, the adjusted EPS jumped 18%. The bottom line beat the Zacks Consensus Estimate of $1.83. Net revenues of $9,911 million increased 8.4% on a reported basis and 11.6% on an organic basis (excluding currency movements and acquisitions).

Revenues came ahead of the Zacks Consensus Estimate of $9,571 million. The increase in organic revenues was backed by positive pricing variance (mainly backed by elevated combustible tobacco pricing) and favorable volume/mix (accountable to increased smoke-free product volumes).

During the quarter, net revenues from combustible products increased 5.2% and 8.6% organically due to high single-digit pricing and robust industry volumes. Revenues from the smoke-free business increased 14.2% (up 16.8% on an organic basis) and formed 38% of the company’s total revenues (up by 1.9 percentage points compared with the year-ago period). Within the smoke-free business, inhalable smoke-free products (SFP) were driven by strength in IQOS, while oral SFP was fueled by increased shipment volumes of ZYN. Total shipment volumes (including heated tobacco units, oral SFP and cigarettes) increased 2.9% to 203 billion units in the third quarter.

The adjusted operating income ascended 11.2% (up 13.8% on an organic basis) to $4,153 million due to improved pricing variance and a positive volume/mix, somewhat negated by increased manufacturing costs, mainly associated with tobacco leaf, as well as higher marketing, administration and research costs. The adjusted operating margin grew 1.1 percentage points or pp (up 0.9 pp organically) to 41.9%.

Decoding PM’s Region-Wise Performance

Net revenues in the European region grew 8.7% on an organic basis to $4,121 million. This was a result of favorable pricing and volume/mix. Total HTU and cigarette shipment volumes in the region increased 2.5% to 57.9 billion units. In the SSEA, CIS & MEA regions, net revenues increased 12.1% organically to $2,964 million on improved pricing variance and a favorable volume/mix. Total shipment volumes rose by 3.2% to 98.6 billion units.

In the EA, AU & PMI DF regions, net revenues grew 7.4% organically to $1,602 million on favorable volume/mix and pricing variance. Total shipment volumes in the region climbed 2.4% to 26.7 billion units. Revenues in the Americas surged 30.5% on an organic basis to $1,148 million. This was a result of the positive volume/mix and pricing. Total cigarette and HTU shipment volumes in the Americas dipped 1.1% to 15.4 billion units.

Philip Morris: Other Updates

In September 2024, Philip Morris unveiled the sale of its subsidiary, Vectura Group Ltd. (Vectura), to Molex Asia Holdings Ltd., along with the creation of master service agreements to advance Vectura Fertin Pharma’s proprietary inhaled therapeutics pipeline. The deal is expected to conclude by the end of 2024. The remaining divisions of Vectura Fertin Pharma will continue to operate independently under Philip Morris’ ownership, adopting a new corporate identity.

Revenues from the Wellness and Healthcare unit improved 2.7% year over year on an organic basis to $76 million. Management expects 2024 net revenues and the adjusted operating loss in the Wellness and Healthcare segment to remain mostly unchanged from 2023.

Philip Morris ended the quarter with cash and cash equivalents of $4,258 million, long-term debt of $44,237 million and a total shareholder deficit of $7,713 million. Philip Morris raised its quarterly dividend by 3.8% to $1.35 per share. However, the company stated that it would not make share repurchases in 2024.

What to Expect From PM in 2024?

Adjusted EPS for 2024 is now envisioned in the $6.45-$6.51 range, suggesting 7.3-8.3% growth. Adjusted EPS, excluding currency, is likely to be in the $6.85-$6.91 band, indicating a year-over-year increase of 14-15%. For full-year 2024, PM expects reported EPS in the band of $6.20-$6.26 compared with the $5.02 reported in 2023. Adjusted EPS for 2024 was earlier anticipated in the $6.33-$6.45 range, suggesting 5.3-7.3% growth. Adjusted EPS, excluding currency, was expected to be in the $6.67-$6.79 band, indicating a year-over-year increase of 11-13%. For full-year 2024, PM earlier projected reported EPS in the band of $5.89-$6.01.

The total international industry volume for cigarettes and HTUs (excluding China and the United States) is likely to grow up to 1% in 2024. This compares with the prior view of mostly stable. The total cigarette, HTU and oral smoke-free product shipment volume for Philip Morris is likely to rise 2-3% now, driven by smoke-free product strength compared with the previous view of 1-2% growth. Nicotine pouch shipment volumes in the United States are now expected between 570 and 580 million cans for 2024 compared with 560 and 580 cans guided before.

For 2024, PM now expects net revenues to increase 9.5% on an organic basis compared with 7.5-9% growth expected before. The operating income on an organic basis is likely to rise 14-14.5%, up from the 11-13% growth forecasted earlier. Management expects an acceleration in organic smoke-free net revenue and gross profit increase from 2023. Management expects operating cash flow of around $11 billion in 2024. Capital expenditures are likely to be $1.4 billion, including additional investments in ZYN.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month.

VGM Scores

Currently, Philip Morris has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions looks promising. Notably, Philip Morris has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Zacks Investment Research

Philip Morris International Inc.’s PM shares have surged 30.1% in the past six months as the company continues to benefit from its transition into the smoke-free market in response to increasing health awareness and tougher anti-smoking laws. PM's stock has surpassed the industry’s growth of 24.5% during this period.

Philip Morris is trading above its peers, including Altria Group, Inc. MO and British American Tobacco p.l.c. BTI, which have seen gains of 20.9% and 17.9%, respectively, over the same period. The company's commitment to driving innovation, implementing cost-saving strategies, and leveraging strong pricing power has also helped it to outperform the Zacks Consumer Staples sector, which dropped 2.6%, and the S&P 500, which grew 11% in the past six months.

PM’s Price Performance vs. Industry, S&P 500 & Sector

Closing at $130.39 on yesterday, PM stock is moving toward its 52-week high of $134.15 attained on Oct. 31, 2024. Philip Morris has shown solid upward momentum, currently trading above both its 200-day and 50-day simple moving averages (SMA), which are key indicators of price stability and long-term bullish trends. This technical strength, coupled with continued momentum, signals positive market sentiment and growing investor confidence in the company's financial health and growth potential.

PM Trades Above 50 & 200-Day Moving Average

Smoke-Free Products Push PM to New Heights

Given consumers’ rising inclination toward reduced-risk products (RRPs), Philip Morris is progressing well with its business transformation. The company’s smoke-free products segment demonstrated exceptional performance in the third quarter of 2024, wherein net revenues surged by 16.8% organically, while gross profit jumped by 20.2%, contributing to a 200 basis-point increase in gross margin expansion. This growth was fueled by strong momentum across the IQOS, ZYN, and VEEV brands, supported by innovation, capacity enhancements, and global market expansion.

The company’s IQOS, a heat-not-burn device, counts as one of the leading RRPs in the industry. IQOS, celebrating its 10th anniversary, generated over $10 billion in annual net revenues. IQOS's global expansion is driven by strong performance in key markets like Japan and Europe, supported by innovative product launches, alongside significant growth in emerging markets such as Indonesia, Saudi Arabia, and Egypt. ZYN, PM’s leading smoke-free brand in the United States, has grown to 30 international markets, including the Philippines, Mexico, and the U.K. With plans to boost U.S. production capacity to 900 million cans by 2025 and further expand through a new Colorado facility, ZYN is poised for significant growth in the coming years.

Philip Morris’ smoke-free products are now available in 92 markets, progressing toward the goal of reaching 100 markets by 2025. This expansion strategy underscores the company’s commitment to transforming the tobacco industry by offering reduced-risk products.

Cost Efficiencies and Pricing Propel PM’s Growth

Philip Morris continues to capitalize on its strong pricing power, significantly boosting revenues and adjusted operating income. In the last reported quarter, pricing played a pivotal role, contributing 7.5 percentage points to revenue growth, driven by 9.7% pricing gains in combustibles. For 2024, combustible pricing is expected to rise 8-9%, reinforcing its positive impact on its performance.

The company has implemented significant cost-saving measures and strategic initiatives to enhance its margins and achieve its long-term financial goals. With cumulative gross cost efficiencies reaching $490 million year to date, it is on track to achieve its 2024-2026 target of $2 billion in savings. This disciplined cost management approach strengthens Philip Morris’ profitability and competitive positioning while supporting future growth initiatives.

Philip Morris Projects Strong 2024 Growth

The strong business momentum led management to raise its full-year 2024 outlook yet again at its third-quarter earnings call. For 2024, management now expects net revenues to increase 9.5% on an organic basis compared with 7.5-9% growth expected before. The operating income on an organic basis is likely to rise 14-14.5%, up from 11-13% growth forecasted earlier.

Philip Morris now projects its 2024 adjusted earnings per share (EPS) to range between $6.45 and $6.51, reflecting a growth of 7.3% to 8.3%, up from its previous forecast of $6.33 to $6.45 (5.3% to 7.3% growth). Excluding currency impacts, adjusted EPS is expected to rise 14% to 15% year-over-year, reaching $6.85 to $6.91, compared to the earlier projection of $6.67 to $6.79 (11% to 13% growth). This upward revision underscores the company’s confidence in maintaining growth momentum, a positive signal for investors seeking reliable performance amid broader market volatility.

Estimate Revisions Favoring PM Stock

Analysts have responded positively to Philip Morris’ prospects, reflected in upward revisions in the Zacks Consensus Estimate for EPS. In the past 30 days, analysts have increased their estimates for the current fiscal year by 9 cents. The consensus estimate for earnings is pegged at $6.51 per share.

The consensus estimate for the next fiscal year has also been raised 8 cents to $7.17 per share. The Zacks Consensus Estimate for the current and next fiscal year’s sales is pegged at $37.6 billion and $40.1 billion, indicating year-over-year growth of 6.7% each year.

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

Has the Recent Jump in Stock Price Made PM Expensive?

Philip Morris’ current market valuation is stretched compared to its industry peers like Turning Point Brands, Inc. TPB. The company’s forward 12-month price-to-sales (P/S) ratio is 5.09, surpassing the industry average of 3.99. This higher ratio implies that investors are potentially paying a premium for Philip Morris’ stock relative to its anticipated sales performance. Furthermore, the company’s Value Score of D adds to the concern, highlighting that the stock might be overvalued based on its current financial metrics.

Roadblocks for Philip Morris

Philip Morris continues to grapple with challenges that could hinder its growth trajectory. In the third quarter of 2024, the company saw a boost in the cigarette business in markets like Turkey, India, and Brazil, where smoke-free products are not yet permitted. While this has temporarily boosted cigarette volumes, these markets face persistent regulatory pressures that could restrict future growth. Dependence on traditional tobacco in such markets exposes Philip Morris to potential regulatory crackdowns, posing a significant hurdle to its long-term strategy.

Currency volatility adds another layer of complexity. Adverse foreign exchange movements negatively impacted the company’s quarterly adjusted EPS by 6 cents and are projected to have a full-year adverse impact of 40 cents. To overcome these roadblocks, Philip Morris must accelerate the adoption of its smoke-free products and implement strategies to mitigate currency impacts, ensuring it can maintain stability while adapting to evolving market and regulatory conditions.

Investors’ Guide to Philip Morris Stock

Philip Morris’ impressive stock rally reflects strong momentum, driven by its smoke-free transformation, robust pricing power, and disciplined cost management. While its innovation and market expansion efforts position the company well for continued growth, challenges like currency fluctuations, regulatory risks, and valuation concerns warrant caution. For those with a long-term outlook, PM’s strong fundamentals and upward revisions in guidance make it a solid hold. At the same time, prospective investors may consider waiting for a better valuation entry point. At present, Philip Morris carries a Zacks Rank #3 (Hold).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Zacks Investment Research