Philip Morris International Inc. PMis slated to release first-quarter 2018 results on Apr 19, before the opening bell. The company’s earnings have lagged estimates in each of the past four quarters, with an average miss of 6.1%. Lately, Philip Morris has been treading on shaky grounds, thanks to the jolts from receding cigarette consumption stemming from strict government regulations and rising consumer awareness regarding the harmful impacts of tobacco.
However, the company has been combating such challenges with strength in Reduced Risk Products (RRPs). That said, let’s see what this earnings season has in store for this tobacco giant.Cigarette Segment to Stay a Worry
Government authorities have been brandishing the whip on tobacco players as smoking has become one of the primary causes of heart diseases and cancer. Apart from seeking authorization for any new tobacco product, the FDA has made it mandatory for tobacco companies to use precautionary labels on cigarette packets. Additionally, these companies have been directed to put self-critical advertisements on television and newspapers, particularly emphasizing on the addictive nature of cigarettes. To add to the woes, the FDA is bent on drastically reducing nicotine in cigarettes to minimally addictive levels. The initiative was proposed in 2017 but was delayed due to ongoing research. If enacted, low nicotine levels will prove to be disastrous for cigarette manufacturing companies. Moreover, increasing regulatory moves have raised awareness amongst consumers regarding the detrimental effects of tobacco consumption, motivating them to quit smoking.
The impacts of such initiatives are clearly visible on Philip Morris’s receding cigarette shipment volumes. Shipment volume in this category declined 2.1%, 4,1%, 7.5% and 11.5% during the fourth, third, second and the first quarters of 2017, respectively. The decline is expected to continue in the forthcoming quarters as well. Analysts polled by Zacks anticipate total cigarette shipment volumes to dip 0.16% in first-quarter 2018.
Further, the effect of such headwinds is visible on Philip Morris’s shares that have declined 10.3% in the past six months, compared with the industry’s fall of 7%. Well, apart from Philip Morris, performances of other industry majors such as Altria Group MO, British American Tobacco BTIand Vector Group VGRhave been negatively impacted by such factors as well.