Dividend Champion Doing Gymnastics, Watch Out For A Buy Opportunity

Summary

  • Philip Morris missed earnings by $0.11 under consensus estimates.
  • PM’s cash flows have been lower because they had massive capital expenditures.
  • IQOS sales are growing exceptionally.
  • Negative currency impacts are weighing on results.
  • Total industry volume is in line with management’s prior guidance.

Philip Morris International (NYSE:PM) missed on earnings. To be exact, by $0.11 under consensus estimates. Well, the market had a mini-freak-out:

Should the price have dropped this far? That’s up for debate. However, on the pessimistic side, PM has had two bad misses in a row. In Q2 2017, Philip Morris missed consensus estimates by $0.09.

So what’s up?

This is from Jacek Olczak, the CFO, on the Q3 2017 earnings call:

“Thank you, Nick and welcome ladies and gentlemen. We’re pleased by our third quarter performance, notably reflecting very strong currency and financial result, including growth in adjusted diluted EPS of 11.2%; sequential improvement in our total shipment volume performance supported by both cigarettes and heated tobacco units; higher total international market, excluding China and the U. S., and the continued positive momentum for IQOS in all geographies, particularly Japan and Korea.

Well, that doesn’t exactly sound pessimistic. Management wasn’t too down about this quarter, and for good reason.

Ex-currency results were fantastic. Additionally, IQOS continues to see positive momentum. The primary reason I believe PM to be such a good investment is their new IQOS technology.

Jacek Olczak talks about the red box:

“However, industry wide dynamics in Saudi Arabia and Russia that we have flagged previously are putting pressure on our results and moderating our growth outlook for the year. In Saudi Arabia, the significant excise tax increase in June, which resulted in the doubling of retail prices, is currently driving higher than anticipated declines in cigarette industry volume, especially in the highly profitable premium segment where Marlboro is the leading brand.

In Russia, cigarette industry volume is also softer than expected, while net pricing in the market remains constrained by the competitive environment. We are therefore revising our 2017 reported continue reported diluted EPS guidance to a range $4.75 to $4.80

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