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Philip Morris International cited a potential 8% to 9.5% currency impact on the company’s earnings for the year.
Fabrice Coffrini/AFP via Getty Images
Philip Morris International
posted higher-than-expected earnings for the quarter, but its outlook for the year fell slightly short of projections due to currency fluctuations. However, its CFO told Barron’s that challenge may be fading as the tobacco company moves quickly to capitalize on its new presence in the U.S.
The company has regained a U.S. foothold via its 2022 acquisition of Swedish Match following an absence that dates back to its split with
Altria Group
(MO) 15 years ago. Under that deal, Altria marketed brands such as Marlboro in the U.S., while international sales belonged to Philip Morris.
Philip Morris delivered $1.60 per share in adjusted profit for the second quarter. Analysts tracked by FactSet had penciled in $1.50 per share. Revenue of $9 billion was also ahead of the $8.8 billion analysts projected.
Philip Morris (ticker: PM) stock got an early boost from the earnings news but slipped back for a gain of 0.2% by early afternoon, partly because of management’s outlook for the year ahead.
The company projects adjusted earnings between $6.13 to $6.22 per share for the full year, while the consensus call among analysts is for $6.24.
Currencies, based on present exchange rates, are estimated to be a roughly 5% hit on the company’s earnings for the year, but Chief Financial Officer Emmanuel Babeau told Barron’s that for the moment at least, the worst of the currency effects appear to be over. Foreign-exchange rates are expected to be less of a problem in the second half of the year, he said.
He said that while the quarter was a strong one, he is equally pleased because recent trends bode well for Philip Morris’s positioning in fast-growing categories and its expanded presence in the U.S.
Not only did Philip Morris’s Iqos, its heat-not-burn banner product, acquire 1.4 million new users in the quarter, but it managed to maintain its share of the growing market, “despite the fact that the competition has been aggressive in its price positioning,” he said. “Heat-not-burn is the category of the future, and we’re taking the lion’s share of that.”
Higher prices likewise didn’t discourage consumers from buying Philip Morris’s traditional combustible cigarettes. The company’s market share increased in that segment, which Babeau said was a key victory. If “we want to convert smokers to new products, to Iqos or Zyn [a nicotine pouch product from Swedish Match], we have to maintain our connection with them,” the CFO said.
Babeau was also upbeat about Zyn, calling it “the most dynamic brand in the nicotine space today.” The product, which people can use when they can’t smoke or vape, is seeing rapid growth in the U.S., he said.
Moreover, Zyn, and more broadly Swedish Match’s American distribution network, paves the way for Philip Morris’s long-anticipated introduction of Iqos to the U.S., which many hope will happen in the coming quarters.
“Six months ago, we weren’t in the U.S.; now we want to move as fast as possible,” Babeau said. The company is on track to submit a premarket application for Iqos Iluma, an iteration of the product that produces less residue and smell, to the Food and Drug Administration in the fourth quarter, he said.
“We’re building the new Marlboro,” he said of Iqos, “an iconic premium aspirational brand that [consumers] want to be associated with.”
Corrections & Amplifications: Philip Morris’s assumed currency impact is estimated to be about 5%. A previous version of this story included an incorrect number.
Write to Karishma Vanjani at [email protected].
Source: https://www.barrons.com/articles/philip-morris-stock-price-earnings-e7236750?siteid=yhoof2&yptr=yahoo