- Philip Morris International (PMI) posted Q2 results with both the top and bottom-lines beating consensus estimates.
- Net revenues of $9 billion increased by 10.5% on an organic basis which was above estimates of R8.7 billion. Adjusted earnings per share for the quarter was $1.60, an increase of 16.9% year-over-year on a currency-neutral basis and above consensus of $1.28.
- Following cost pressures, the operating margin declined to 46.2% from 48%. PMI declared regular quarterly dividend of $1.27 per share, or an annualised rate of $5.08 per share implying dividend yield of 5.6%.
- On a positive note, Philip Morris raised its full-year revenue growth guidance to 8% and EPS growth to 8.75% due to increasing profitability and easing supply chain disruptions.
- Total cigarette and heated tobacco unit (HTU) shipment volumes increased by 3.3% to 188 billion units.
Cigarette shipment volumes dropped 0.4% to 157 billion units in the quarter, while on a positive note heated tobacco unit shipment volumes of 31.4 billion units rose 27% year-on-year. - HTU now accounts for 32% of Philip Morris revenue with the company targeting smokeless revenue of 50% by 2025. To this end its PMI recently acquired Swedish Match, a global leader in several smokeless products such as nicotine pouches and chewing products. Shipment volume of oral products increased by 13.8% to 197.4 million cans. Swedish Match also provides Philip Morris with access to the lucrative US market. In fact, the Swedish Match’s ZYN nicotine pouch shipment to the US totaled 89.9 million cans in Q2, representing growth of 53.1%.
Philip Morris is also in the process of applying to distribute its exceptionally successful heated tobacco product IQOS in the US. However, there is no guarantee that the application will be successful. - Philip Morris currently trades on dividend yield of 5.6% 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. On a PE of 15x we also feel the share is fairly valued. PMI is held in both global managed portfolios as well as the Cratos BCI Worldwide Flexible Fund.
By Desmond Eskov