Philip Morris International Inc. (NYSE:PM) is likely to record a top-line increase when it releases its results for the first fiscal quarter of 2023 on April 20. This is because the reading for the relevant year-ago fiscal quarter was lower. The current Consensus Estimate for quarterly revenues is set at $8,065 million, which indicates an increase of 4.1% over the reported amount for the same period in the preceding fiscal year.

Over the past 30 days, there has been no movement in the consensus earnings forecast, which is currently set at $1.33 per share. However, when compared to the figure that was published in the same fiscal quarter the year before, this statistic implies a decrease of 14.7%. This multinational tobacco conglomerate has an average profit surprise for the preceding four quarters of 10.9%. In the most recent quarter that was reported, PM exceeded expectations with regard to its earnings by 7.8%.

We anticipate that first-quarter revenues will be down by 5.5% year over year, coming in at $7,319.2 million, and that adjusted earnings per share (EPS) will be lower by 15.4%, coming in at $1.32.

Variables to Consider

The robust pricing power that Philip Morris possesses has worked to the company’s advantage. It has been observed that smokers have a tendency to accept price rises due to the addictive quality of cigarettes, despite the fact that higher prices can result in a possible decrease in the use of cigarettes. A higher pricing variance was a positive contributor to the company’s performance in the fourth quarter of 2022 (mostly owing to increased pricing for combustible tobacco), as this was the case. The fact that this pattern has been persisting is encouraging.

The emphasis placed by Philip Morris on smoke-free products has also been quite successful. The corporation is making great strides in the process of transforming its business; during the fourth quarter of 2022, smoke-free items were responsible for 36% of the company’s net revenues. PM is in a strong position to meet its goal of being a smoke-free organization in the majority by the year 2025. Because of this, the company’s IQOS product, which is a device that heats rather than burns tobacco, is regarded as one of the most successful reduced-risk products (RRPs) in the sector.

During the final three months of 2022, sales of smoke-free products reached an all-time high of $2,866 million, representing a 23% increase over the previous period. At the end of the fourth quarter, it was projected that the total number of IQOS users was at approximately 24.9 million (including approximately 17.8 million people who converted to IQOS and quit smoking).

On an organic basis, PM anticipates that its net revenues will increase by about 7-8.5% in 2023. This growth will be driven by increasing prices for combustibles and the continuous development of IQOS. This is also a positive sign for the quarter that will be under consideration.

However, the company has been facing headwinds linked to costs for a considerable amount of time now. The adjusted operating income margin took a hit during the fourth quarter of 2022 as a result of increasing production expenses (mostly as a result of rising logistics costs and other inflationary impacts).

The management anticipates that there will be some pressures on margins during the first half of 2023. It forecasts that the first quarter will be the most challenging, with earnings per share in the range of $1.28 and $1.33, despite the negative effects of currency headwinds. This means that heated tobacco unit sales volumes will be between between 26 and 28 billion units, organic top-line growth will be in the low single digits, and margins will be lower. These things give rise to concerns over the bottom line for the first quarter.

Featured Image: Freepik @ xvector

Please See Disclaimer