Philip Morris International
stock slipped after the cigarette maker’s quarterly earnings missed Wall Street estimates. But its CFO says the company’s smokeless strategy remains on track, and the market may finally reward it in 2024.
Philip Morris on Thursday posted fourth-quarter adjusted earnings of $1.36 a share, a decline of 2.2% from the year-ago period and below Wall Street’s estimates for $1.45, according to FactSet.
Quarterly revenue came at $9 billion, 11% higher than a year ago and in line with analysts’ estimates.
Speaking after the release, Chief Financial Officer Emmanuel Babeau told Barron’s that 2023 was “quite remarkable” in many respects. He cited the continued momentum for its smokeless portfolio, led by the IQOS device, which heats tobacco rather than burning it.
Smokeless products like heated tobacco and oral nicotine products drove much of the quarter’s revenue growth. Sales increased 21% over the past four quarters year over year—to $3.6 billion in the fourth quarter, now accounting for nearly 40% of total revenue.
Less than 10 years after IQOS’s launch, it has surpassed Marlboro—the company’s signature cigarette brand—in net revenue, Philip Morris said in its earnings statement.
Babeau said he is upbeat about the company’s planned launch of IQOS in the U.S. this year, which will see test runs in several cities before rolling out on a wider scale.
As for heated tobacco products, fourth-quarter shipments increased over 6% from a year ago, while oral products more than doubled.
The quarter marked the first anniversary of the tobacco maker’s ’ acquisition of oral nicotine company Swedish Match. The company’s Zyn, a nicotine pouch that users tuck under their lip, had strong growth in the U.S. More than 116 million cans of Zyn were shipped in the U.S. during the quarter, up 78% from a year earlier.
While foreign exchange has been a headwind for the firm, its fundamental business remains strong, Babeau says. That is reflected in the company’s expectation that organic growth and operating income will continue to notch high-single-digit percentage growth in 2024, he added.
The company said Thursday it expects adjusted earnings in 2024 to range between $6.32 and $6.44 a share—higher than the $6.01 recorded for 2023, but lower than analysts’ expectations of $6.60 a share.
Philip Morris stock was down 2.4% to $89.29 in Thursday trading.
Babeau also noted that while last year was difficult for most consumer staples companies, and Philip Morris shares took a hit, the stock still benefits from plenty of catalysts.
“There aren’t a lot of staples growing at the pace we’re growing at,” he says. The CFO highlighted that IQOS and other smokeless products are growing, in contrast for the expectation for combustible tobacco volumes to decline over time.
In addition, these products carry higher margins than traditional cigarettes, meaning Philip Morris is “growing nicely, in terms of volume and top line, with this high quality, high margin” smokeless portfolio, he added.
Analysts are bullish on Philip Morris, too. Three quarters of analysts tracked by FactSet have a Buy or equivalent rating on the stock, with an average target price of $108. That’s 18% above the Wednesday closing level of $91.44.
The stock has declined 10% over the past 12 months, and now trades at 13.7 times forward earnings—a much lower valuation than the average of 16.7 times over the past 10 years.
Regulatory scrutiny could be one thing on investors’ minds. Oral nicotine’s rapid growth has caught the attention of lawmakers.
Last month, Sen. Chuck Schumer alleged that nicotine pouches such as Zyn are being marketed to children and teenagers on social media. He called for federal regulators to probe the health effects of these products and how they are being marketed.
Write to Evie Liu at [email protected]
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