Philip Morris (PM) Misses Estimates Due to Sluggish Growth in Europe

Tobacco giant Philip Morris International (PM: Charts, News) slid last week after the company's third quarter earnings missed analyst estimates due to sluggish sales in the European Union. Philip Morris International, which was spun off from American tobacco company Altria (MO: Charts, News), consists of all of Altria's former international holdings and is currently the world's largest publicly traded tobacco company.

The company's earnings per share came in at $1.32 per share, or $2.23 billion, a 6.3% dip from the $1.35 per share, or $2.38 billion, it earned a year earlier. Excluding one-time charges, earnings came in at $1.38 per share, missing the average analyst forecast of $1.39 per share on the same basis. A strong U.S. dollar also crimped the company's bottom line. Philip Morris' net revenues before excise taxes came in at $7.92 billion, a 5.3% decline from the prior year quarter. Its top line was also hit by unfavorable foreign exchange rates, which cost an additional $731 million. Analysts had projected revenue of $8.25 billion. Daily Chart
Philip Morris attributed the disappointing miss on both top and bottom lines to the ongoing debt crisis in Europe, one of its largest markets, where high unemployment has forced smokers to either reduce tobacco consumption or switch to cheaper brands. Philip Morris had topped analyst profit estimates for seven consecutive quarters prior to Thursday's earnings. European sales slid 15% during the third quarter, while total shipments to the regions dropped 8.1%. However, Philip Morris posted growth in its other regions - with 3% growth in the EMEA (Eastern Europe, Middle East and Africa) region and 0.6% growth in Asia. Looking forward, Philip Morris narrowed its prior full-year profit guidance of $5.10 to $5.20 per share down to a range between $5.12 to $5.18 per share. This reduction in the high end disappointed analysts, who had on average expected $5.20 per share. Despite Philip Morris' lackluster earnings and lowered outlook, analysts remain divided over the stock. Analysts at Nomura were decidedly bearish, reiterating a "reduce" rating on shares with a price target of $83.70. Meanwhile, Deutsche Bank analysts reiterated a "buy" rating on the stock with a $95.00 price target on the stock. The stock has risen 34.8% over the past twelve months. Fundamentally, Philip Morris trades with a higher multiple compared to all of its main industry peers, including former parent company Altria Group, Reynolds American (RAI: Charts, News) as well as Lorillard (LO: Charts, News). However, Philip Morris has the strongest exposure to key emerging markets with its flagship brands, which include Marlboro, Parliament and Virginia Slims, while its peers are comparatively bound to their own American and British markets. Philip Morris trades at 15.4 times forward earnings, with a 5-year PEG ratio of 1.8. The stock pays a quarterly dividend of 85 cents per share, a 3.8% yield at current prices. The company has raised its dividend annually ever since going public four years ago. Other News About PM Philip Morris Profit Trails Estimates as Europe Slumps Philip Morris misses estimates on both top and bottom lines. Philip Morris Releases Quarterly Earnings Results, Misses Estimates By $0.01 EPS Philip Morris blames Europe for its weaker-than-expected earnings. Other Stocks in the News Pandit Ouster as CEO Was 3 Years Overdue Is this a new beginning for Citigroup? Sprint Nextel Assumes Majority Stake in Clearwire Sprint Nextel takes over the reins at Clearwire following its acquisition by Softbank. Copyright 2012 by InvestorGuide.com, Inc. InvestorGuide has no control over the sites we link to, is not affiliated with these sites, and cannot take responsibility for their quality or suitability. The news, analysis, commentary and profile information is not meant to be comprehensive, and the data provided is not guaranteed to be accurate. WebFinance Inc., the publisher of this newsletter, is not a registered investment advisor or a broker/dealer. This is not a stock recommendation newsletter but rather a source for investment ideas, and we encourage you to fully research any company before considering investing. The opinions expressed herein are those of the author and do not necessarily represent the views of nor are they endorsed by WebFinance Inc. No employee of WebFinance has owned or currently owns any shares in the company described above. The above is neither an offer nor solicitation to buy or sell any securities. The trading of securities may not be suitable for all potential readers of this newsletter, and the purchase of stocks mentioned in this newsletter may result in the loss of some or all of any investment made. We recommend that you consult a stockbroker or financial advisor before buying or selling securities or making investment decisions. We are not responsible for claims made by advertisers and sponsors. Anyone who makes decisions based on what they read here does so at their own risk and cannot hold WebFinance Inc. (DBA InvestorGuide.com, Inc.) or its employees responsible.

Published on Oct 22, 2012
By Leo Sun
Leo Sun
Leo Sun is a freelance finance writer and position trader. He focuses on a combination of value and momentum investing, with a strong interest in the trading philosophies of Warren Buffett and Peter Lynch. Leo also has experience writing articles to help small business owners acquire loans and manage their finances. He regularly contributes to the Stock of the Day analysis.

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