Philip Morris International Inc.’s (PM) fourth-quarter earnings and revenues missed their respective Zacks Consensus Estimates. Revenues and earnings declined year over year as well due to lower volume. Philip Morris expects currency headwinds to continue in fiscal 2015 and issued cautious guidance for the year.
Philip Morris’ adjusted earnings per share of $1.03 missed the Zacks Consensus Estimate of $1.06 by 2.8%. Earnings plunged 24.8% from the prior-year quarter figure of $1.37 due to soft sales and currency headwinds. Moreover, several brand-building investments that were skewed towards the end of fiscal 2014 also affected profits negatively.
Excluding an unfavorable currency impact of 28 cents, earnings missed the prior-year quarter figures by 4.4%.
Revenues and Margin
Net revenue (excluding excise taxes) went down 7.6% to $7.2 billion and missed the Zacks Consensus Estimate of $7.1 billion by 1.4%. Revenues declined from the year-ago level due difficult operating environment and currency headwinds. Excluding currency, revenue went up 1.1% during the quarter. Cigarette shipment volume decreased 3.8% to 214.9 billion units mainly due to a decline in total market share.
Philip Morris' quarterly gross profit declined 12% from the prior-year quarter to $4.6 billion as a result of higher cost of sales and excise tax. Operating income slipped 24.9% year over year to $2.7 billion as the timing of key investments in 2014 were skewed toward the fourth quarter.
Segment Details
Net revenue in the European Union region slipped 2.9% to $2.1 billion due to currency headwinds. Excluding currency, revenues climbed 2.7% from the prior-year quarter predominantly reflecting positive pricing, which was partially offset by unfavorable volume/mix and price repositioning of the Chesterfield brand in Italy.
Net revenue in the Eastern Europe, the Middle East & Africa (EMEA) region slipped 2.7% to $2.2 billion due to unfavorable currency effect. Excluding currency, revenues went up 9.9% year over year to $2.4 billion. Revenues improved due to favorable pricing in Russia, as well as the impact of the change to Philip Morris’ new business structure in Egypt.
Asia recorded net revenue of $2.0 billion, down 19.1% due to currency headwind. Excluding currency, revenues slipped 12.6% from the prior-year period due to unfavorable volume/mix and lower market share, primarily in Japan and Australia.
In Latin America and Canada, revenues gained 0.5% to $922 million. Excluding currency, revenues went up 13.1% mainly due to favorable pricing in Argentina, Mexico and Canada.
Fiscal Results
For fiscal 2014, adjusted earnings per share came in at $5.02, which missed the Zacks Consensus Estimate of $5.06 by 1%. Earnings, also, slipped 7% from the prior-year quarter figure of $5.40 due to soft sales and currency headwinds.
Excluding an unfavorable currency impact of 80 cents, earnings exceeded the prior-year quarter figures by 7.8%.
Net revenue went down 4.6% to $29.8 billion but beat the Zacks Consensus Estimate of $29.7 billion by 0.4%. Excluding currency and acquisitions, revenue went up 2% during fiscal 2014. Cigarette shipment volume decreased 2.8% to 856.0 billion units mainly due to a decline in total market share.
Financial Update
During the quarter, Philip Morris spent $800.0 billion to repurchase 9.3 million shares.
In 2014, Philip Morris increased its dividend to $1.00, up 6.4% from 94 cents, which represents an annualized rate of $4.00 per common share.
Guidance
Philip Morris expects fiscal 2015 earnings to increase by 8% to 10% compared to $5.02 in fiscal 2014. The company expects currency impact of $1.15 per share.
Philip Morris carries a Zacks Rank #5 (Strong Sell). In order to combat macro difficulties, Philip Morris, like tobacco majors Reynolds American Inc. (RAI), Lorillard Inc. (LO) and Altria Group Inc. (MO), is putting greater focus on the growing alternative tobacco product category.
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