Earnings Update: Philip Morris

Jul.17.14 | About: Philip Morris (PM)


Philip Morris is up modestly after reporting an earnings beat of $0.17.

As I predicted in a previous article, the company continues to face stiff forex headwinds, but volumes declines did moderate.

I remain bullish Philip Morris, but my conviction is waning, as guidance came in weak.

Philip Morris (NYSE:PM) likely posted one of its better quarters in quite some time. Reported EPS came in at $1.17. However, when factoring for forex, EPS was $1.41, beating estimates by $0.17. On an adjusted basis, Philip Morris posted EPS growth of 8.5%, in line with what I was expecting. Revenues paint a similar story, down 1.5% reported, but up 4.5% when adjusted. Disappointingly, Philip Morris also reaffirmed its lowered FY EPS range of $4.87 to $4.97, highlighting the continued currency headwinds facing the company.

The best news in the report has to do with cigarette volumes, down 2.7% Y/Y. However, this is actually an improvement from the 4.4% decline suffered last quarter. The company saw much improved volumes in Europe and the "EEMEA" segments, with certain Western European and Middle Eastern markets actually posting volume increases.

Share repurchases, a key component in shareholder returns, were $1.0 billion in the quarter, down from $1.25 billion last quarter and $1.5 billion last year. Philip Morris has clearly slowed down the pace of share buybacks, largely to deploy cash to fund its investments into reduced-risk products. Given this trend, Philip Morris may slow down the pace of its dividend growth. I expect only a modest (1% to 5%) dividend increase for the year, down from the double-digit levels posted in recent years.

Disclosure: The author is long PM. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.