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The Dividend Champion Roars Back – Philip Morris International Inc. (NYSE:PM)

The Dividend Champion Roars Back - Philip Morris International Inc. (NYSE:PM)

Philip Morris (PM) reported their 2nd quarter earnings this morning (observe: this was revealed noon on 7/19/2018). The quarterly end result was constructive, however the steerage was adverse. The outcome to date has been a dip in PM’s worth. It hit $77 in early buying and selling, although it has rebounded barely since then. At publication, shares have been simply over $79.00.

You possibly can entry the supply materials by clicking the hyperlinks under:

  1. PM’s Q2 2018 Press Launch

  2. PM’s Q2 2018 Earnings Slides

  3. PM’s Q2 2018 Script for Opening Remarks

Q2 Outcomes

Adjusted earnings for Q2 got here in at $1.41, smashing analyst estimates of $1.23.

Fiscal 2018 Steerage Revision

Previous Steerage: $5.15 to $5.30.

Previous Consensus Analyst Estimate: $5.14.

New Steerage: $5.02 to $5.12.

The discount in steerage represents about three% on the midpoint of the vary.

What’s Driving The Discount?

The earnings name script is damaged down a lot better than transcripts will probably be. We’ve added our commentary in colour:

We’re anticipating the bills, a lot of which ought to be assigned to the second half of fiscal yr 2018, to offer most of their advantages in 2019. That has a transparent destructive impression on earnings within the second half of 2018, however units up 2019 for an additional strong yr of earnings progress.

The subsequent era of IQOS units must be a cloth enchancment, however within the close to time period it ought to drive a discount in demand for the present product.

The fast impression of decrease IQOS gadget gross sales is damaging on revenues, however not on earnings. It the sale of HTUs (heated tobacco models) that’s essential to earnings, as demonstrated within the quote under:

The weakest interval for revenues yr over yr is predicted to be the fourth quarter:

They’ve additionally encountered a number of different challenges, such because the state of affairs in Korea:

Outlook

We stay bullish on PM right here. Their dividend stays solidly coated and the discount to steerage for 2018 seems to be partially pushed by the timing of accounting costs. The bills for his or her advertising enhancements are an actual money expense. These bills ought to be recorded and are rightly recorded. Nevertheless, analysts are targeted totally on what it means over the subsequent 6 months relatively than the subsequent 6 years. The timing of the bills appears immaterial once we look additional into the longer term.

Replace

The piece was initially despatched out on 7/19/2018 and it was early sufficient for buyers to catch the markets overreaction. On the morning of seven/20/2018, Cowen misplaced their bullish conviction. Nevertheless, shares roared again and as of noon 7/20/2018 have been already as much as $83.78. When Looking for Alpha rounded up some protection on the inventory, the right interpretation got here from Adam Spielman of Citigroup. Referencing the strong base for 2019 progress was the right approach to body this info. Out of the three analysis companies they checked out, he was the one one to acknowledge how it will almost certainly play out going ahead.

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Disclosure: I’m/we’re lengthy PM.

I wrote this text myself, and it expresses my very own opinions. I’m not receiving compensation for it (aside from from Looking for Alpha). I’ve no enterprise relationship with any firm whose inventory is talked about on this article.

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