PM – Getting Smoked

Philip Morris International reported Q2 2013 results this morning and as we expected volumes were heavily impacted, down -3.9% Y/Y, contributing to top and bottom line misses versus consensus. FY 2013 EPS guidance was revised down to $5.43-5.53 versus prior guidance of $5.55-5.65, and FX was a $0.07 headwind to earnings.


CFO Jacek Olczak described today’s results as a “surprise”, despite being foreseen as a challenged quarter. Volumes were down across all four of its regions (EU, EEMA, Asia, and LA), with only Asia outperforming expectations with a result of -3.5%.


We think PM will be challenged to meet its full-year guidance, given a weak macro environment, dampened consumer spending across many of its regions, a persistent FX headwind with our #StrongDollar call, and the company’s only main lever against volume declines: taking up price.  


Our quantitative levels are flashing bearish across the immediate and intermediate term TRADE and TREND durations.


PM – Getting Smoked - VV. PMI



What we liked:

  • CFO’s belief that Russia’s excise tax increase will be passed on to consumer and outlook for a reasonable tax environment in 2H
  • Japan - expected FY 2013 volume down only  2% 
  • In the EU, PM cited slight optimism in the reduction of government austerity measures throughout the region as a tailwind for discretionary spending and was optimistic that the region’s volume results, at -5.9% Y/Y this quarter (versus -10.1% last quarter), would improve in 2H

What we didn’t like:

  • Q2 adjusted EPS $1.30 vs consensus $1.41
  • Revenue $7.92B vs consensus $8.17B, and down -4.4% Y/Y
  • Devaluation of the Australian Dollar, Indonesian Rupiah, Mexican Peso, Russian Ruble, and Turkish Lira cost 7 cents to the bottom line
  • EU volume -7% for FY 2013 vs 6.5% previously
  • Russia - impacted by higher excise taxes (9-22%) implemented in the beginning of the year, expect FY 2013 volumes down 6-7%
  • The CFO cited the impact of higher excise taxes in Russia and macro headwinds on discretionary income: Lower wage dynamic, as utilities prices up 10% this quarter (vs 5% last year), with broader inflation running at 7%
  • Turkey - resurgence of illicit trade. Expect FY 2013 volumes down by 7-9%
  • Philippines weak on tax increases


Other: On E-cigs

On the Q&A there were a couple questions on E-cigs. CFO Olczak kept his words brief but said that the market is difficult to estimate, and he doesn’t think it is more than 1% of the industry, which itself might be a high estimate. He believes demand and interest overall is much stronger in the U.S. than in Europe and that what’s distinguishing the category is its lower price points versus traditional cigs, and that the taste profiles don’t compare. He cannot size up if the category will be one with staying power, or one that is a fad. Finally, he hinted that PM could get involved in the market in 2016/7.  


Matthew Hedrick

Senior Analyst

Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more

Got Process? Zero Hedge Sells Fear, Not Truth

Fear sells. Always has. Look no further than Zero Hedge.

read more

REPLAY: Review of $EXAS Earnings Call (A Hedgeye Best Idea Long)

Our Healthcare Team made a monster call to be long EXAS - hear their updated thoughts.

read more

Capital Brief: 5 Things to Watch Right Now In Washington

Here's a quick look at some key issues investors should keep an eye on from Hedgeye's JT Taylor and our team of Washington Policy analysts in D.C.

read more

Premium insight

[UNLOCKED] Today's Daily Trading Ranges

“If I could only have one thing of the many things we have it would be my daily ranges." Hedgeye CEO Keith McCullough said recently.

read more

We'll Say It Again: Leave Your Politics Out of Your Portfolio

If your politics dictates your portfolio positioning, the Democrats and #NeverTrump crowd out there have had a hell of a week.

read more

Cartoon of the Day: 'Biggest Tax Cut Ever'

President Donald Trump's economic team unveiled what he called last week, "the biggest tax cut we’ve ever had.” Before you get too excited about that hang on a sec. "Trump Tax Reform ain’t gettin’ done anytime soon," Hedgeye CEO Keith McCullough wrote in today's Early Look.

read more