Philip Morris Profit Misses Estimates, Hurt by Strong Dollarby
Company says currency headwinds may lessen over course of year
Cigarette maker is spending to develop `reduced-risk' products
Philip Morris International Inc., the world’s largest publicly traded tobacco company, posted first-quarter profit that fell short of analysts’ estimates, hurt by the strong U.S. dollar and increased spending to develop e-cigarette products.
First-quarter earnings were 98 cents a share, the New York-based company said in a statement Tuesday. That missed the analyst consensus of $1.11. Sales excluding excise taxes fell 8.1 percent to about $6.08 billion, trailing analysts’ $6.28 billion average projection.
Philip Morris, which only sells its products outside of the U.S., faces headwinds as the dollar’s gains over the past two years reduce the value of sales generated abroad. Chief Executive Officer Andre Calantzopoulos has said he expects better sales growth in the second half of the year based on currency changes and higher spending on “reduced risk” products in the first half of 2016.
“Business is chugging along quite nicely, but there’s been something of a downward surprise on sales,” said Philip Gorham, an analyst at Morningstar Inc. Even with expectations for a stronger second half, investors still want to see top-line percentage growth in the mid-single digits, he said.
The shares fell 1.9 percent to $98.68 at 9:40 a.m. in New York. The stock had gained 14 percent this year through Monday.
With the dollar weakening against major currencies this year, Philip Morris increased its full year guidance. Earnings will reach $4.40 to $4.50 per share, based on current exchange rates, the company said. The forecast doesn’t include any share repurchases. The company previously projected $4.25 to $4.35 per share. Analysts’ average estimate was $4.49 before the announcement, according to data compiled by Bloomberg.
Tobacco companies have long faced declining demand as consumers increasingly turn away from cigarettes due to health concerns. Governments around the world are working to accelerate that trend with plain-packaging initiatives.
In response, Philip Morris has spent more than $2 billion developing smoking alternatives. The company is partnering with Altria Group Inc., which sells Marlboros in the U.S., to create and sell products that reduce the risks associated with smoking. The companies are working together on the iQOS, an electronic cigarette that heats tobacco without igniting it.
Philip Morris has begun selling the product in some markets, including Japan and Italy. It has previously announced that it plans to apply for a “modified risk” designation for the product from the U.S. Food and Drug Administration in the second half of 2016.