Things To Note As Philip Morris (PM) Lines Up For Q2 Earnings

Philip Morris International Inc. PM is likely to register a top and bottom-line decline when it reports second-quarter 2022 earnings on Jul 21. The Zacks Consensus Estimate for quarterly revenues is pegged at $6,532 million, suggesting a drop of around 14% from the prior-year quarter's reported figure.

The Zacks Consensus Estimate for quarterly earnings has risen by a penny to $1.23 in the past 30 days, suggesting a decrease of 21.7% from the figure reported in the prior-year quarter. This tobacco giant has a trailing four-quarter earnings surprise of 3.5%, on average. PM delivered an earnings surprise of 5.4% in the last reported quarter.

Things to Note

Philip Morris is gaining from its focus on reduced risk products (RRPs), given consumers' rising preference for the same. To this end, its IQOS counts among one of the leading RRPs in the industry. However, on Nov 29, 2021, an importation ban and a cease-and-desist order were imposed by the U.S. International Trade Commission concerning IQOS Platform 1 products. These include consumables and infringing components.

On its first-quarter 2022 earnings call, management highlighted that in 2022, it expects continued uncertainty concerning the recovery pace from the pandemic-led operating landscape, especially in the South & Southeast Asia Region.  Management expects continued gradual recovery in the duty-free business outside Asia and no meaningful recovery in Asia.

Apart from this, escalated costs are a concerning factor. In the first quarter of 2022, the adjusted operating income margin fell 30 basis points on an organic basis. The decline can be attributed to comparisons with the solid margin performance in the year-ago period, the increased initial cost of IQOS ILUMA devices and inflation across some key supply-chain elements like wage, energy and direct materials and higher air freight (which, in turn, was aggravated by the Ukraine war). In 2022, the gross margin is expected to be moderately low due to the increased initial cost of IQOS ILUMA, elevated logistic costs, growth-oriented investments in the smoke-free space and inflation related to supply-chain elements. Also, in the second quarter of 2022, the proforma operating margin is likely to have declined further on an organic basis.

That said, Philip Morris has been benefiting from its strong pricing actions. Though higher pricing might lead to a possible decline in cigarette consumption, it is seen that smokers tend to absorb price increases due to the addictive quality of cigarettes. Higher pricing variance was an upside to the company's performance across most regions in the first quarter of 2022. The continuation of such trends remains an upside.

What the Zacks Model Unveils

Our proven model predicts an earnings beat for PM this time. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat, which is the case here.

Philip Morris carries a Zacks Rank #3 and an Earnings ESP of +0.95%. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter.

Other Stocks With the Favorable Combination

Here are some companies you may want to consider as our model shows that these also have the right combination of elements to post an earnings beat.

Corteva CTVA currently has an Earnings ESP of +8.12% and a Zacks Rank of 2. The company is likely to register an increase in the bottom line when it reports second-quarter 2022 results. The Zacks Consensus Estimate for quarterly earnings has been unchanged at $1.46 per share in the past 30 days. The consensus mark for CTVA's earnings suggests 4.3% growth from the year-ago quarter's reported number.

Corteva's top line is expected to rise year over year. The Zacks Consensus Estimate for quarterly revenues is pegged at $6.2 billion, which suggests a rise of 9.4% from the figure reported in the prior-year quarter. CTVA delivered an earnings beat of 22.3%, on average, in the trailing four quarters.

Archer Daniels ADM currently has an Earnings ESP of +2.59% and a Zacks Rank of 3. The company is likely to register an increase in the bottom line when it reports second-quarter 2022 results. The Zacks Consensus Estimate for ADM's quarterly earnings has moved up by almost 3% in the past seven days to $1.74 per share. The consensus mark indicates 30.8% growth from the year-ago quarter's reported number.

Archer Daniels' top line is expected to rise year over year. The Zacks Consensus Estimate for quarterly revenues is pegged at $25.3 billion, which suggests a rise of 10.2% from the figure reported in the prior-year quarter. ADM delivered an earnings beat of 22.3%, on average, in the trailing four quarters.

Altria Group MO currently has an Earnings ESP of +0.27% and a Zacks Rank of 3. The company is likely to register a decline in the top line when it reports second-quarter 2022 results. The consensus mark for MO's quarterly revenues is pegged at $5.4 billion, which suggests a decline of 3.9% from the figure reported in the prior-year quarter.

The consensus mark for Altria's quarterly earnings has moved up by a penny in the past 30 days to $1.25 per share. The consensus estimate for MO's second-quarter earnings suggests a decline of 1.6% from the year-ago quarter's reported figure. Altria delivered an earnings beat of 1.2%, on average, in the trailing four quarters.
 
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