Shares of Philip Morris International Inc. (PM, Financial), a cigarette and tobacco manufacturing company, fell over 5% between July 20 and Aug. 28. The company’s stock is down over 23% year-to-date.
The company released its second-quarter earnings for 2018 on July 19.
The tobacco giant’s shares are down after another round of disappointing earnings. Revenue increased by 11.7% to $7.7 billion, beating estimates of $7.5 billion in revenue. Net revenues, not including favorable currency of $237 million, rose by 8.3% on the quarter.
Operating income also rose 13%, up to $3.1 billion, with earnings per share rising 23.7% to $1.41 from $1.14 in the second quarter of 2017.
Investors remain concerned that cigarette sales outside of the U.S. have fallen, and sales of the company’s iQos continued to slow in Japan. The company’s iQos product is an attempt to compete in the vaporizer market. Japan is the product’s largest market, and a slowdown is expected through October.
Philip Morris plans to introduce a new model of its iQos product that is lower priced in October. A new generation of the product will be released worldwide by the end of the year.
Cigarette volume also remains a concern for the company, with volumes falling 1.5% on the quarter. Sales of heater tobacco units increased by 73%, still slower than in the past, with 11 billion tobacco units sold.
The company noted fundamental strength in its press release, but the stock continued to slide as the company slashed its forecast. Guidance was lowered, with earnings-per-share forecasts falling from between $5.25 and $5.40 to within $5.02 and $5.12.
Currency neutral revenue growth was halved from a target of 8% to expectations of 3-4%.
Weak primary and secondary markets are the main concern, as investors question whether the iQos device will be a popular item in the U.S. The company is awaiting approval from the Food & Drug Administration on whether it can market the product with a reduce-risk label.
The label will provide the company with a competitive edge when promoting its product, but many investors do not believe the product will be approved.
Philip Morris and other e-cigarette companies are also facing increased government control, with India’s health ministry calling for sales of smoking devices and e-cigarettes to stop. Philip Morris has been planning to launch its iQos in India, but the Health Ministry warns that the devices are a “great health risk.”
Disclosure: The author has no stake in the listed equities.
