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Philip Morris (PM) Gains From Smoke-Free Focus, Key Priorities
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Philip Morris International Inc. (PM - Free Report) stands strong in the tobacco space due to its efforts to revolutionize products as per the evolving consumer patterns. Given consumers’ rising health consciousness, the company is progressing well with its business transformation, with smoke-free products generating 39% of its net revenues in the first quarter of 2024.
Strong pricing and a focus on strategic priorities are working well for this tobacco giant amid elevated costs and volatile currency movements.
Smoke-Free Focus – A Key Driver
Philip Morris aims to generate more than two-thirds of its total revenues from smoke-free products by 2030. Toward this end, the company’s IQOS, a heat-not-burn device, counts among one of the leading RRPs in the industry. These next-generation devices are backed by substantial scientific insights and research. The company expects such advanced and high-quality products to continue aiding adult smokers in switching from traditional cigarettes to smoke-free options.
Among other initiatives, Philip Morris became the majority owner of Swedish Match in November 2022, which has been delivering impressive performance due to ZYN.
Image Source: Zacks Investment Research
In the first quarter of 2024, revenues from the smoke-free business surged 21.1%, growing 24.8% on an organic basis, on continued strength in IQOS. Within inhalable smoke-free products (SFP), HTU-adjusted in-market sales volumes increased 12.5%. Oral SFP shipment volume soared 40% in cans, driven by ZYN nicotine pouch growth in the United States.
Within e-vapor, VEEV is performing well and is treading toward profitability. In 2024, management expects an acceleration in organic smoke-free net revenues (which is likely to reach about $15 billion) and an increase in the smoke-free gross profit from the 2023 levels.
Pricing Power & Key Strategies
The company has been benefiting from its strong pricing power, which has aided its revenues and adjusted operating income, even in the face of the unfavorable tax environment and declining cigarette volumes. Though higher pricing might lead to a possible decline in cigarette consumption, it is seen that smokers tend to absorb price increases owing to the addictive quality of cigarettes. Higher pricing variance was an upside to PM’s performance (mainly due to increased combustible tobacco pricing) in the first quarter of 2024, which, along with cost efforts, helped it amid increased currency pressure.
Philip Morris’ strategic priorities for 2024 revolve around driving sustained growth and innovation across key product lines. The company’s first priority is supporting the continued success of IQOS through regular innovation, focusing on maximizing user growth with the rollout of ILUMA and advancements in devices and consumables. The second priority is fueling the strong growth of ZYN in the U.S. market by investing strategically in commercial efforts, expanding capacity and enhancing organizational infrastructure. Additionally, management is dedicated to expanding Philip Morris’ multi-category offering for adult nicotine users globally with further launches of ZYN and VEEV.
Is All Rosy for PM?
The company witnessed continued cost pressures in the first quarter of 2024, though resilient volumes, solid pricing and manufacturing productivity made up for it. However, management continues to expect the increased cost of leaf, wages and certain other inputs to linger into 2024 before easing thereafter.
Philip Morris is also focused on making innovation-related investments to grow its smoke-free portfolio, especially the IQOS ILUMA. These investments may impact profits. The company expects an elevated organic SG&A increase in the rest of 2024 due to the phasing of investment expenditure.
Nonetheless, robust pricing, strength in smoke-free products and solid cost initiatives encouraged management to raise its guidance for 2024. In 2024, net revenues are expected to increase 7-8.5% on an organic basis. The operating income on an organic basis is likely to increase 10-12%.
For the full year 2024, PM expects reported EPS in the band of $5.70-$5.82 compared with the $5.02 reported in 2023. Excluding an adjustment of 49 cents and a currency headwind of 36 cents pertaining to 2024, management expects adjusted EPS in the band of $6.55-$6.67, which indicates a 9-11% increase from the adjusted EPS of $6.01 in 2023.
Shares of this Zacks Rank #3 (Hold) company have risen 10.4% in the past three months compared with the industry’s growth of 7.2%.
The Zacks Consensus Estimate for Vital Farms’ current financial-year sales and earnings indicates growth of 22.6% and 62.7%, respectively, from year-ago reported numbers.
Freshpet, Inc. (FRPT - Free Report) , a pet food company, has a trailing four-quarter earnings surprise of 118.2%, on average. FRPT currently sports a Zacks Rank #1.
The Zacks Consensus Estimate for Freshpet’s current financial-year sales and earnings indicates growth of 24.8% and 177.1%, respectively, from the prior-year reported level.
Utz Brands Inc. (UTZ - Free Report) , which manufactures a diverse range of salty snacks, currently carries a Zacks Rank #2 (Buy). UTZ has a trailing four-quarter earnings surprise of 2%, on average.
The consensus estimate for Utz Brands’ current financial-year earnings indicates growth of 26.3% from year-ago reported numbers.
Image: Bigstock
Philip Morris (PM) Gains From Smoke-Free Focus, Key Priorities
Philip Morris International Inc. (PM - Free Report) stands strong in the tobacco space due to its efforts to revolutionize products as per the evolving consumer patterns. Given consumers’ rising health consciousness, the company is progressing well with its business transformation, with smoke-free products generating 39% of its net revenues in the first quarter of 2024.
Strong pricing and a focus on strategic priorities are working well for this tobacco giant amid elevated costs and volatile currency movements.
Smoke-Free Focus – A Key Driver
Philip Morris aims to generate more than two-thirds of its total revenues from smoke-free products by 2030. Toward this end, the company’s IQOS, a heat-not-burn device, counts among one of the leading RRPs in the industry. These next-generation devices are backed by substantial scientific insights and research. The company expects such advanced and high-quality products to continue aiding adult smokers in switching from traditional cigarettes to smoke-free options.
Among other initiatives, Philip Morris became the majority owner of Swedish Match in November 2022, which has been delivering impressive performance due to ZYN.
Image Source: Zacks Investment Research
In the first quarter of 2024, revenues from the smoke-free business surged 21.1%, growing 24.8% on an organic basis, on continued strength in IQOS. Within inhalable smoke-free products (SFP), HTU-adjusted in-market sales volumes increased 12.5%. Oral SFP shipment volume soared 40% in cans, driven by ZYN nicotine pouch growth in the United States.
Within e-vapor, VEEV is performing well and is treading toward profitability. In 2024, management expects an acceleration in organic smoke-free net revenues (which is likely to reach about $15 billion) and an increase in the smoke-free gross profit from the 2023 levels.
Pricing Power & Key Strategies
The company has been benefiting from its strong pricing power, which has aided its revenues and adjusted operating income, even in the face of the unfavorable tax environment and declining cigarette volumes. Though higher pricing might lead to a possible decline in cigarette consumption, it is seen that smokers tend to absorb price increases owing to the addictive quality of cigarettes. Higher pricing variance was an upside to PM’s performance (mainly due to increased combustible tobacco pricing) in the first quarter of 2024, which, along with cost efforts, helped it amid increased currency pressure.
Philip Morris’ strategic priorities for 2024 revolve around driving sustained growth and innovation across key product lines. The company’s first priority is supporting the continued success of IQOS through regular innovation, focusing on maximizing user growth with the rollout of ILUMA and advancements in devices and consumables. The second priority is fueling the strong growth of ZYN in the U.S. market by investing strategically in commercial efforts, expanding capacity and enhancing organizational infrastructure. Additionally, management is dedicated to expanding Philip Morris’ multi-category offering for adult nicotine users globally with further launches of ZYN and VEEV.
Is All Rosy for PM?
The company witnessed continued cost pressures in the first quarter of 2024, though resilient volumes, solid pricing and manufacturing productivity made up for it. However, management continues to expect the increased cost of leaf, wages and certain other inputs to linger into 2024 before easing thereafter.
Philip Morris is also focused on making innovation-related investments to grow its smoke-free portfolio, especially the IQOS ILUMA. These investments may impact profits. The company expects an elevated organic SG&A increase in the rest of 2024 due to the phasing of investment expenditure.
Nonetheless, robust pricing, strength in smoke-free products and solid cost initiatives encouraged management to raise its guidance for 2024. In 2024, net revenues are expected to increase 7-8.5% on an organic basis. The operating income on an organic basis is likely to increase 10-12%.
For the full year 2024, PM expects reported EPS in the band of $5.70-$5.82 compared with the $5.02 reported in 2023. Excluding an adjustment of 49 cents and a currency headwind of 36 cents pertaining to 2024, management expects adjusted EPS in the band of $6.55-$6.67, which indicates a 9-11% increase from the adjusted EPS of $6.01 in 2023.
Shares of this Zacks Rank #3 (Hold) company have risen 10.4% in the past three months compared with the industry’s growth of 7.2%.
Key Staple Picks
Vital Farms Inc. (VITL - Free Report) offers a range of produced pasture-raised foods. It currently sports a Zacks Rank #1 (Strong Buy). VITL has a trailing four-quarter average earnings surprise of 102.1%. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Vital Farms’ current financial-year sales and earnings indicates growth of 22.6% and 62.7%, respectively, from year-ago reported numbers.
Freshpet, Inc. (FRPT - Free Report) , a pet food company, has a trailing four-quarter earnings surprise of 118.2%, on average. FRPT currently sports a Zacks Rank #1.
The Zacks Consensus Estimate for Freshpet’s current financial-year sales and earnings indicates growth of 24.8% and 177.1%, respectively, from the prior-year reported level.
Utz Brands Inc. (UTZ - Free Report) , which manufactures a diverse range of salty snacks, currently carries a Zacks Rank #2 (Buy). UTZ has a trailing four-quarter earnings surprise of 2%, on average.
The consensus estimate for Utz Brands’ current financial-year earnings indicates growth of 26.3% from year-ago reported numbers.