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What’s in Store for Philip Morris (PM) in Q3 Earnings?


Philip Morris International Inc. PM is slated to report third-quarter 2016 results on Oct 18. Last quarter, the company posted weaker-than-expected results.

The tobacco major delivered positive surprise in one of the four trailing quarters, negative surprises in two and in-line results in the remaining one quarter, with an average negative earnings surprise of 1.24%.

Let's see how things are shaping up prior to this announcement.

Factors at Play

Improved volumes, positive pricing, a strong brand portfolio and product innovation have been bolstering the company's results over the past few quarters. The company anticipates the trend to continue in the third quarter as well.

PHILIP MORRIS Price and EPS Surprise


Additionally, Philip Morris is focusing on less harmful tobacco products in order to cater to growing demand for low-risk, smokeless tobacco products. The company has considerable presence in the unconventional tobacco products category and several of its potentially less harmful products have gained popularity in the market.

In this regard, Philip Morris launched a set of Next Generation Products (NGPs) in early 2015 to attract adult consumers while reducing the risks related to tobacco products. The company has also enhanced investment in research and development for the category in 2016. These initiatives are expected to bode well in the yet-to-be-reported quarter.

However, Philip Morris is under pressure from the anti-tobacco campaigns that are rampant worldwide. Governments across the world have imposed higher excise taxes on cigarettes, forcing tobacco companies to raise prices which, in turn, are lowering volumes. Further, fake versions of top-branded cigarettes sold by local retailers are denting volumes. This trend is likely to continue in the third quarter as well, thus straining both top and bottom lines.

Earnings Whispers

Our proven model does not conclusively show that Philip Morris is likely to beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Zacks ESP: The Earnings ESP for Philip Morris is 0.00% as the Most Accurate estimate and the Zacks Consensus Estimate are both pegged at $1.22.

Zacks Rank: Philip Morris carries a Zacks Rank #2 (Buy). Although the company has a favorable Zacks Rank, its 0.00% makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement especially when the company is seeing a negative estimate revisions.

Stocks to Consider

Some stocks in the consumer staples sector that have both a positive Earnings ESP and a favorable Zacks Rank include:

Coty Inc. COTY, with an Earnings ESP of +2.94%. It sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Sanderson Farms Inc. SAFM, also sports a Zacks Rank #1 and has an Earnings ESP of +8.37%.

Tyson Foods Inc. TSN, also sports a Zacks Rank #2 and has an Earnings ESP of +9.48%.

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