Philip Morris International Inc. (PM, Financial) saw profits drop in the first quarter of 2022, although sales rose, as the tobacco giant continues to grapple with the disruption caused by Russia’s war on Ukraine. Management cut adjusted earnings per share guidance for the full year.
Shares gained 1% in premarket trading on Thursday before rising to around $105 near midday, despite the negative news.
Net income was $2.331 billion, or $1.50 a share, for the quarter, down from $2.418 billion, or $1.55 a share, in the previous year’s quarter. Adjusted per-share earnings were $1.56, better than the $1.49 FactSet consensus estimate. Revenue climbed by 2.1% to $7.746 billion from $7.585 billion, once again surpassing estimates. Net sales were $7.75 billion compared with $7.59 billion in the year-ago quarter. Analysts had expected sales of $7.43 billion.
Pro-forma adjusted EPS was $1.46 due to a 10 cents charge related to destruction wrought by Russia’s war on Ukraine. Officials said they aren’t looking for either of those nations to contribute to its earnings in 2022 beyond the first quarter. The pain is also being felt by competitors like British American Tobacco p.l.c. (BTI, Financial), Altria Group, Inc. (MO, Financial) and Reynolds American (RAI, Financial); it seems like Russia and Ukraine won't be getting any tobacco products from these companies due to the war, so I'm not worried about Philip Morris losing market share.
In 2021, 10% of Philip Morris' total cigarette and heated tobacco unit shipment volume, and roughly 6% of its revenue, came from Russia. Management said it was targeting 2022 full-year diluted EPS of $5.39 to $5.50, and pro-forma (excluding Russia and Ukraine for all of 2022) adjusted diluted EPS of $5.35 to $5.46, representing currency-neutral growth of 9% to 11%.
The Swiss-based distributor of Marlboro cigarettes and tobacco products and other popular brands declared a regular quarterly dividend of $1.25 per common share, representing an annualized rate of $5.00. It also repurchased approximately 2.0 million shares of common stock for $199 million, at an average price of $100.95 per share, representing total repurchases of approximately $1 billion since the start of the current three-year program in July 2021.
"The recent months have been an extremely challenging time for many in the PMI family given the war in Ukraine," said CEO Jacek Olczak. "Despite this tragic situation, we were able to deliver a very strong performance in the first quarter -- reflecting the hard work and dedication of our employees globally -- with organic net revenue and currency-neutral adjusted diluted EPS growth coming ahead of our expectations." As of year-end 2021, total IQOS users in Russia and Ukraine were estimated at approximately 4.8 million.
What Olczak called the “re-acceleration” of his company’s IQOS business continued in the quarter, highlighted by a sequential increase of over 1 million total IQOS users, excluding Russia and Ukraine, and the strong performance of ILUMA in initial launch markets. This was complemented by the robust performance of PMI’s combustible business, which exceeded its objective of stable category share in the quarter and delivered positive shipment volume and organic net revenue growth.
Looking ahead, Olczak said Philip Morris' top executives expect to deliver “robust” top- and bottom-line growth this year on a pro-forma adjusted basis, including full-year adjusted diluted EPS growth of 9% to 11%, excluding currency.
Net revenues increased by 9.0% on an organic basis in the first quarter, reflecting total volume growth driven by the underlying strength of IQOS, the ongoing recovery of the combustible business in many markets against a pandemic-affected comparison and some positive timing impacts, including inventory movements. The easing of device supply constraints allowed the replenishment of channel inventories, which is expected to continue in the second quarter.
Despite margin pressures, some of which are expected to be temporary, the company’s strong net revenue growth, coupled with the positive effects from the increasing size of IQOS, higher pricing and cost efficiencies, drove adjusted diluted EPS of $1.56 and pro-forma adjusted diluted EPS of $1.46, reflecting currency-neutral growth of 14.0% and 16.0%, respectively.
