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Key Takeaways from Philip Morris’ Second Quarter

August 06, 2014 | About:

Philip Morris International (NYSE:PM) reported earnings for its second quarter, which, much to the pleasure of the company, turned out to be impressive. Despite challenges from myriad quarters, top line surged by a considerable degree to $7.8 billion. With 12.7% growth in revenues, Philip Morris had an overall successful quarter. Let’s zoom into the highlights of the results.

Earnings show a positive trend

For the quarter, earnings saw a solid growth as the company earned $1.41 a share, a good 13.7% leap from the estimated $1.24 per share. This growth was on account of brisk business across the world, and relaxed comparison with the corresponding period of last year. Not only that, bottom line also bettered vis-à-vis last quarter, recording 18.5% increase.

The company performed impressively in Latin America and Canada regions, with adjusted operating companies income (OCI) rising 27.1%, while the EEMA region pulled off a 28.8%, both primarily determined by pricing. Results in the European Union region, where it picked up a 3.3% increase on the back of higher volumes, was also heartening.

Marlboro, one of the driving forces behind the company’s success, put up a great show in the quarter. With strong presence in the EEMA region, and share gains in three out of four regions, its international market share excluding China became 9.2%.

Asia market remained down

Asia was the biggest reason for concern for Philip Morris as the overall cigarette industry volume in Japan plummeted by 14.4% in April because of tax-driven price hikes. The decline played a crucial role in dipping Philip Morris’ shipment volume by a staggering 16.4%. However, things looked up a little for the company in the second quarter, pointing to the fact that there’s a huge scope of improvement in this particular market.

The company garnered revenue of $2.3 million from Asia, 14.2% drop from the year-ago quarter, owing to discouraging volume and market share. Nevertheless, improvements in the Indonesian market, with a rise of 4.9% in shipment volume, should also come as a heartening indicator for Philip Morris, and retain its trust on the region’s growth capacities.

According to the company’s estimate, it had a share of 25.8% in the quarter and is likely to have a better future in Japan as it’s already prepared to launch several new products that include Marlboro Clear Hybrid, resulting in a better hold over the market.

What does the future have in store?

The cigarette maker had a good quarter as far as the earnings figures are concerned. As the cigarette volume decline was checked and recorded at 2.7%, and pricing variance climbed to $494 million, bottom line surpassed analyst predictions. However, given the fact that the company has a few expenditure programs up its sleeve in the latter half of the year, including the launch of Marlboro Red 2.0, commercializing reduced-risk products and developments in the area of manufacturing, it could negatively affect the company’s earnings score-sheet. Serious price discounting and down-trading in Australia could also bring down the company’s top line, which is why analysts expect the full-year guidance to be $5.17 a share.

Parting thoughts

Though it seems likely for the investors to get disheartened by the company’s outlook, the recovering conditions in Asia could give a boost to Philip Morris’ business in the third quarter. At the same time, the company should think of strategies in order to counter the dipping sales volume of cigarettes across the globe.

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