Philip Morris Q2 2016 Earnings: Currency Headwinds Leave The Company Flat

Key Takeaways:

1. Guidance Raised, Driven By Currency

• Reported diluted EPS guidance for 2016 revision driven solely by currency.
• A 10% to 12% increase over the 2015 EPS of $4.42, excluding currency.
• Guidance now includes 40 cents of unfavorable currency, at prevailing exchange rates, versus 45 cents previously.
• Q3 is expected to be similar to Q2, heavily skewing the results toward Q4, implying a massive turnaround in Q4.

2. Decline In Organic Cigarette Volume

• Volume reduced by 4.8%, or 4.3% excluding inventory movements.
• Of the 4%, two percentage points are attributable to decreases in Pakistan and the Philippines.

3. Favorable Pricing In All Regions

• Pricing variance of $344 million, reflecting positive contributions for all segments, particularly EU and EEMA.
• Asian variance was driven by Indonesia and the Philippines, offset by Japan and Korea.
• Prices increased in the quarter in numerous markets, notably Argentina, Canada, Indonesia, Italy, Russia, and Ukraine.
• Pricing variance is expected to be 6% of 2015 net revenues.

4. Decline In Market Share

• The company’s market share, excluding China, declined by 0.4 points, mainly due to Asia.
• Marlboro’s share increased marginally, with improvement seen in the EU, Asia, and Latin America and Canada regions, offset by a decline in EEMA.

5. Strong Growth Of iQOS

• Exceptional growth seen in Japan, the only region where a national rollout has occurred.
• HeatSticks market share increased steadily to reach 2.7% for the last week of June; 5% share witnessed in Tokyo, and for the quarter it is estimated at 2.2% for the country, more than double the share in Q1.
• Volume growth of 20% seen on a monthly basis.
• 70% of iQOS purchasers have either fully or predominantly converted to it.
• Level of cannibalization of the company’s cigarettes reduced to 35%, from 40% earlier.
• This growth is also resulting in uptrading by consumers, as smokers across all price segments have been converting to this, which is a premium priced product.
• Across all regions, the total shipment volume was 1.6 billion, four times the figure in Q1.
• iQOS launch in around 20 markets around the world remains on track.
• While capacity was initially targeted at 5 billion units for the year, efforts are being made to increase it by another billion.
• A 30 billion capacity plant is being built in Italy, in anticipation of future demand.

Have more questions on Philip Morris? See the links below:

• How Will Philip Morris Perform In Q2 2016?
• Which Is A Better Dividend Bet – Altria Or Philip Morris?
• What Is The State Of The Illicit Cigarette Market In The European Union?
• How Will The Brexit Impact Philip Morris?
• What Effect Will The Plain Packaging Ruling In Canada Have On Philip Morris?
• What Effect Will A Tobacco Tax Hike Have In New Zealand?
• How Will Philip Morris Perform In 2016?
• Why Has Philip Morris’ Price Risen ~17% This Year Despite An Earnings Miss?
• How Did The Market Share For Philip Morris Change in Q1 2016 In EU And Its Key Markets, As Compared To Q1 2015?
• How Did The Revenue And Operating Companies Income In Each Region Change In Q1 2016, As Compared To Q1 2015?
• Philip Morris Misses Q1 Revenue And EPS Estimates
• Will Philip Morris Beat Expectations This Earnings Season?
• How Did Philip Morris Perform In The European Union, And Its Key Markets There, In 2015?
• How Did Philip Morris Perform In Russia, Given The Currency Headwinds And Excise Tax Rise?
• How Has Philip Morris Fared In Comparison To Its Peers?
• How Has Philip Morris’ Shipment Volume, By Brand, Changed Over The Past 3 Years?
• How Has Philip Morris’ Revenue And EBITDA Composition Changed In The Last 5 Years?
• How Will Philip Morris’ Revenue And EBITDA Change In The Next 3 Years?
• Philip Morris: Year 2015 In Review
• By What Percentage Did Philip Morris’ Revenue & EBITDA Change In The Last 5 Years?
• What is Philip Morris’ Fundamental Value Based On Expected 2016 Results?
• What is Philip Morris’ Revenue And EBITDA Breakdown?

Notes: