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Oct 17, 2019

Philip Morris earnings beat estimates as IQOS gains market share

A pack of Philip Morris Marlboro brand cigarettes

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Philip Morris International Inc. reported third-quarter earnings that exceeded analysts’ estimates as the Marlboro maker’s IQOS smoking alternative gained market share.

  • Adjusted earnings per share amounted to US$1.43 in the third quarter, the company said. Analysts had expected US$1.36.

Key Insights

  • Heated tobacco shipments rose 85 per cent, ahead of estimates. That business is now gaining a new major market as sister company Altria Group Inc. started marketing IQOS in the U.S., beginning in Atlanta. Incoming bans of flavored e-cigarettes are likely to give IQOS a competitive advantage, according Wells Fargo analyst Bonnie Herzog.
  • While investors pin their hopes on the future growth potential of IQOS, traditional cigarette volumes continued their decline with a worse-than-expected 5.9 per cent slide.
  • Philip Morris lowered its forecast for full-year diluted earnings per share to at least US$4.73 at current exchange rates. That’s partially due to a tax issue in Russia, where authorities said Philip Morris underpaid excise taxes and VAT by some US$374 million. The company has paid the amount in full and said it may mount a legal challenge.
  • The decline in cigarette consumption translates into excess production capacity. Philip Morris may cut some 950 jobs as it considers ending cigarette production at a plant in Berlin by January, which is expected to lead to significant costs, which aren’t yet included in the forecasts.

Market Reaction

  • Philip Morris shares have gained 18 per cent this year. The shares are up 1.2 per cent in early trading in New York.