Philip Morris International Inc. (PM) is set to report third-quarter fiscal 2014 results on Oct 16. Last quarter, the company delivered a positive surprise of 8.5%. Let us see how things are shaping up for this announcement.
Factors to Be Considered This Quarter
We believe that Philip Morris will have to struggle to surpass the estimates in the third quarter of fiscal 2014. The company is facing several difficulties in its core business segments mainly due to declining tobacco sales, rising anti-tobacco regulations throughout the world and pressurized margins due to higher taxes levied by governments on tobacco companies.
Philip Morris has been facing dwindling volumes due to declining demand as a result of the ongoing anti-tobacco campaigns. We expect the declining trend to continue in the third quarter as well thus putting pressure on both the top and bottom line of the company.
Moreover, governments around the world are levying higher excise taxes on cigarettes and imposing packaging and advertising restrictions on cigarette makers. This has resulted in a pricing war among tobacco companies and significant cut in prices of low and mid-range cigarettes.
The ongoing currency headwinds and difficult pricing environment prompted Philip Morris to cut the fiscal 2014 outlook on Jun 27. Weak macroeconomic environment in the European Union and rising illicit trade in Asia coupled with higher excise taxes also prompted the outlook cut.
Earnings Whispers?
Our proven model does not conclusively show that Philip Morris International is likely to beat earnings this quarter. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 to surpass earnings estimate. However, that is not the case here due to the following factors:
Zacks ESP: The company’s Earnings ESP stands at -2.24%. This is because the Most Accurate estimate is $1.31, while the Zacks Consensus Estimate is pegged at $1.34.
Zacks Rank: Philip Morris has a Zacks Rank #4 (Sell).
We caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Other Stocks to Consider
Here are some other companies that investors may want to consider as our model shows that they have the right combination of elements to post an earnings beat this quarter:
Keurig Green Mountain, Inc. (GMCR), with an Earnings ESP of +10.26% and a Zacks Rank #3.
Dunkin' Brands Group, Inc. (DNKN), with an Earnings ESP of +2.13% and a Zacks Rank #3.
Domino's Pizza, Inc. (DPZ), with an Earnings ESP of +1.64% and a Zacks Rank #3.
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