Philip Morris International
Philip Morris International reported robust Q1 2021 results on Tuesday with both earnings and revenues topping analysts’ estimates.
Net revenues increased by 6% to $7.6 billion in Q1 and was above consensus estimates of $7.3 billion. Net revenues, on a constant currency basis, increased by 2.9%. The growth in the top line was primarily driven by continued strong growth in heated tobacco or IQOS shipment volumes. Net revenues from these smoke-free products accounted for 28% of total net revenues. Adjusted operating profit rose 18.5% to $3.5 billion. Significantly the adjusted operating margin expanded 590 basis points to 46%.
Adjusted EPS came in at $1.57, which was ahead of estimates of $1.96. During the quarter, PMI declared a regular quarterly dividend of $1.20 per common share, representing an annualised rate of $4.80.
Operating cash flow remained robust with the company projecting operating cash flow of around $11 billion for the year on the back of capital expenditure of just $800mn. Philip Morris remains conservatively geared with net debt to EBITDA of 1.9x and this ratio is likely to decrease further on the back of this healthy cash flow generation.
On a regional basis, the European Union area reported robust results with revenue increasing by 14.8% to $2.9 billion. This strong performance was however offset by soft sales in the Middle East & Africa and South & Southeast Asia which declined by 9% ( to $800 million) and 6.2% ($1.2 billion), respectively.
The current share price of Philip Morris International places the share on an annual dividend yield of approximately 5%. Looking ahead, the company's mature cigarette business continues to generate significant amounts of cash that that will help maintain the company’s large dividend pay-out ratio. Earnings growth should however be boosted by the heated reduced-risk tobacco products, which grew by 30% year-on-year in Q1. As of Q1 these products accounted for 28% of Philip Morris revenues, with the company targeting 50% of revenues by 2025. Management expects net revenue to grow up to 7% in 2021 and adjusted EPS growth of up to 11% to $5.75. The projection assumes a gradual easing of some pandemic-related headwinds and heated tobacco unit shipment volume of 90 billion to 100 billion units compared to 76 billion units in 2020.