- Philip Morris International (PMI) posted Q4 results with both the top and bottom-lines beating consensus estimates.
- Net revenues of $8.2 billion increased by 7.5% on an organic basis which was above estimates of R7.5billion. Adjusted earnings per share for the quarter was $1.39, an increase of 15% year-over-year on a currency-neutral basis and above consensus of $1.28.
- Despite cost pressures, the operating margin was flat at 40.8%. PMI increased its dividend by 1.6% to $1.27 per share representing an annualized rate of $5.08 per share.
- Total cigarette and heated tobacco unit (HTU) shipment volumes increased by 1.2% to 186 billion units. Cigarette shipment volumes dropped 2.8% to 154 billion units in the quarter, while heated tobacco unit shipment volumes of 32 billion units rose 26% year-on-year.
- HTU now accounts for 32% of Philip Morris revenue with the company targeting 40% by 2023 and 50% by 2025. To this end its PMI recently acquired Swedish Match, a global leader in a number of smokeless products such as nicotine pouches and chewing products. The Swedish Match should provide PMI with a vast distribution network into the US to sell its smokeless tobacco products such as the extraordinarily successful new generation product IQOS. PMI currently has no exposure to the US, which is largest market for smokeless products.
- Philip Morris currently trades on dividend yield of 5% and is likely to grow this dividend by mid-to-high single digits in the years to come which should provide investors with sound long-term returns. Even with all the current input cost inflation, PM is a rare company that is still expected to expand margins by 50 – 150bps per anum over the medium term, while HTU products are expected to provide healthy growth. PMI is held in both global managed portfolios as well as the Cratos BCI Worldwide Flexible Fund.
By Desmond Esakov