Philip Morris delivers Q3 beat but warns of conflicts that will impact bottom line

Philip Morris International (PM) beat on both the top- and bottom-line in the third quarter and realized gains in both its combustible and smoke-free segments but reported a decline in organic sales in the U.S. and a modest drop in third unadjusted quarter profits as a result of increased equity investments.

Moreover, the company warned that the ongoing conflict in the Middle East and the energy-related impact on inflation will have a slightly greater impact in the fourth quarter as a larger proportion of input price increases take effect, while the conflict in Ukraine will continue to impact the company’s bottom-line due to disruptions on its supply chain and logistics infrastructure.

Shares are down 3.5% into Wednesday’s open.

For its most recent quarter, Philip Morris (PM) combined sales were up 5.4% and up 7.1% organically with combustible sales up 6.4% and smoke-free sales increasing 4.1%, now accounting for more than 40% of the company’s total sales.

Led by the growing popularity of its smoke-free products and resilience in combustibles, shipments were up 0.6%.

But while increased sales fueled a 6.7% increase in gross profit, earnings per share were weighed down by a non-cash adjustment for equity investments, resulting in a 5% decline in unadjusted EPS. On an adjusted basis, however, the company’s earnings were up 5.4% to $2.36 per share, 4 cents better than anticipated.

To capitalize on the popularity of its ZYN tobacco pouches (which saw a 4.2% increase in shipments in Q3), Philip Morris (PM) plans to increase investments, including further transitions from a 15-pouch can to a 20-pouch can to “align the value proposition across the portfolio and optimize ZYN’s price premium to support future growth in the nicotine pouch category.”

Looking ahead to the remainder of the year, Philip Morris (PM) continues to expect adjusted earnings excluding any impact from currency fluctuations to be within a range of $8.11 and $8.26 per share and within a range of $8.29 and $8.44 per share without this adjustment. This is an increase from the prior range of $8.26 and $8.41 per share and compares to the consensus estimate of $8.41 per share.