Shares of Philip Morris International (NYSE: PM) were sliding today after the tobacco company missed estimates on the bottom line in its fourth-quarter earnings report and offered guidance that also missed the mark.
As a result, the stock was down 2.6% at 1:44 p.m. Thursday after trading as far down as 3.4% earlier in the session.
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Iqos spoils Philip Morris' quarter
Philip Morris has spent much of the past decade trying to pivot to its next-gen Iqos heat-not-burn product, but results from that transformation were disappointing in the fourth quarter.
Shipments of heated tobacco units (HTUs) were up just 6.1% in the quarter, well below the 11.6% growth that rival British American Tobacco posted in heated units in its quarter, and the 18% growth that Philip Morris delivered in the third quarter, though the latter has higher volume in the category.
Overall, Philip Morris, the seller of Marlboro, reported that shipments across cigarettes and HTUs were down 0.5%, though organic revenue jumped 8.3% to $9.05 billion, which edged out estimates at $9.01 billion.
Smoke-free products accounted for 39.3% of total revenue in the business, and Iqos gained 1.3 percentage points of market share in its markets where it's available, reaching 9.7%. Revenue for smokable tobacco revenue rose 5.3% due to a 9.9% increase in price and a 1.9% decline in shipments.
On the bottom line, adjusted operating income rose 8% to $2.9 billion, driving adjusted earnings per share (EPS) up 12% to $1.36, but that was short of the consensus at $1.45.
CEO Jacek Olczak said the company delivered a strong finish to 2023 and added: "We are pleased that smoke-free products reached nearly 40% of our total net revenues and over 40% of our gross profit in the fourth quarter. This was led by the continued growth of Iqos, which has now surpassed Marlboro in terms of net revenues, confirming its position as the leading premium nicotine brand less than 10 years from launch."
What's next for Philip Morris?
For 2024, Philip Morris sees another solid year, with adjusted EPS expected to hit $6.30 to $6.44, or $6.43 to $6.55 on a currency-neutral basis, reflecting 7% to 9% growth. But both ranges are below the analyst consensus at $6.60.
Philip Morris also forecast adjusted 14% to 16% growth in HTUs, indicating it would recover from the slow growth in the fourth quarter. With a strong dividend yield at 5.7%, today's pullback looks like a buying opportunity for income investors.
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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool recommends British American Tobacco P.l.c. and Philip Morris International and recommends the following options: long January 2026 $40 calls on British American Tobacco P.l.c. and short January 2026 $40 puts on British American Tobacco P.l.c. The Motley Fool has a disclosure policy.
