On April 22, 2011, cigarette manufacturer and marketer Phillip Morris International Inc. (PM) announced its financial results for the first-quarter of fiscal 2011.
Street analysts had more than a week to ponder on the news. In the paragraphs that follow, we cover the recent earnings announcement, subsequent analysts’ estimate revisions as well as the Zacks Rank and long-term recommendation for the stock.
Earnings Review
Phillip Morris reported first-quarter 2011 results earnings per share, excluding special items, came of $1.06 a share, 1.9% above the Zacks Consensus Estimate of $1.04.
However, compared to the prior-year period, Philip Morris’ earnings per share were up 17.8% attributable to price increase and strong volume growth in Asia.
During the quarter, Philip Morris’ net revenues recorded a growth of 4.5% year-over-year to $6.8 billion. The growth over the third quarter of 2009 was mainly driven by favorable pricing across all business segments/acquisitions, partly offset by unfavorable currency translations and volume mix. Excluding the impact of currency and acquisitions, organic revenues increased 4.3%. Cigarette shipment volume in the quarter grew by 1.6% year-over-year to 207.9 billion units, primarily driven by an impressive 14.0% growth in Asia as Philip Morris recorded strong gains in Indonesia and Philippines. However, volume in EEMA, European Union and Latin America and Canada (Eastern Europe, Middle East & Africa) decreased 0.8%, 7.3% and 5.5% respectively.
(Read our full coverage on this earnings report: Phillip Morris Beats; Lift Guidance)
Agreement of Estimate Revisions
The first-quarter 2011 outperformance has made 1 analyst to move up the estimates upward for the upcoming quarter and the next quarter over the past one week, with static estimate revision for fiscal 2011. For fiscal 2012, two analysts have revised their estimates in the upward direction with no downward movement in the last 7 days.
Magnitude of Estimate Revisions
However, with not too much of movement in estimates over the past one week, the Zacks Consensus Estimates, for the second quarter of fiscal 2011 has remained at $1.20. For the third quarter of fiscal 2011 and fiscal 2011, the estimates have moved up by a penny each to $1.22 and $4.62 per share, respectively. For fiscal 2012, the estimate has moved up by 3 cents to $5.07 per share.
Our Recommendation
Although the organic global cigarette volume growth is limited, declines in mature markets are expected to be offset by growth in emerging markets. Currently, Philip Morris has a low presence in these markets. The company recently reported better-than-expected first-quarter results, benefiting from price increases in some markets. Management’s top priority is to improve the performance of Marlboro through innovation and to reinforce its premium segments leadership. Our long-term recommendation on Phillip Morris is Neutral as we anticipate it to perform in line with the broader market. However, the company faces intense competition from companies like Altria Group and Reynolds America. In addition, cigarettes are subject to substantial taxes which undermine the company’s future growth prospects and profitability. This leaves limited space for above-market performance of the company.
Currently, Phillip Morris maintains a Zacks #2 Rank, which translates into a short-term 'Buy' rating.
About Earnings Estimate Scorecard
Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at: http://www.zacks.com/education/
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