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

+17.53%
Upside
91.97
Market
108
Trefis
PM: Philip Morris logo
PM
Philip Morris

PMI Q2 2016 Earnings 1 PMI Q2 2016 Earnings 2

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.

PMI Market Share

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.

PMI iQOS

Relevant Articles
  1. Should You Pick Philip Morris Stock After 7% Fall This Year And Q4 Miss?
  2. Will Philip Morris Stock Rebound After A 10% Fall This Year?
  3. After 8% Drop This Year, Pricing Growth To Bolster Philip Morris’ Q3
  4. Pricing Gains To Drive Philip Morris’ Q2?
  5. Does Philip Morris Stock Have Upside Potential To Its Pre-Inflation Peak?
  6. Here’s What To Expect From Philip Morris’ Q1

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

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Philip Morris International.
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