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ETFs in Focus After Phillip Morris's Downbeat Q2 Results

Shares of Philip Morris International Inc. PM declined 1.45% at market close on Thursday, July 20, 2017. The company reported a year-over-year growth of 1.5% in total quarterly revenues, as it increased to $19.319 billion from $19.041 billion. Excluding excise taxes, it reported a $6.917 billion revenue figure in the second quarter of 2017 compared with $6.064 billion in the first quarter of 2017 and $6.641 billion a year ago.


The company’s shares failed to beat the Zacks Consensus Estimate on both earnings and sales in the second quarter of 2017. Increased regulation and poor demand weighed on the company’s performance.


Q2 Results in Focus


Philip Morris reported non-GAAP earnings per share of $1.14, missing the Zacks Consensus Estimate of $1.23. Moreover, Philip Morris’ second-quarter revenue of $6.917 billion fell short of the Zacks Consensus estimate of $7.088 billion. The tobacco company reported operating income of $2.7 billion, down 1.2% year over year.


Shipment Volume


The company’s total shipment volume came in at 199.89 billion units, declining 5% from second-quarter 2016 figure of 210.45 billion units. The decline was due to a sharp fall in shipment volume of cigarettes, which decreased 7.5% to 193.54 billion compared with 209.29 billion units in the prior-year quarter. Some respite was provided due to an increase in shipment volume of heated tobacco units. Shipment volume of heated tobacco units increased to 6.35 billion units from 1.15 billion units in the year-ago quarter.


Outlook


Philip Morris expects its full year 2017 diluted earnings per share to be in the range of $4.78—$4.93 compared with $4.48 in 2016. This forecast band represents 9—12% growth over the 2016 figure, excluding impact of adverse currency movement of $0.14 for the full year and a tax item in the first quarter of $0.04.


In the current scenario, we believe it is prudent to discuss the following ETFs that have a relatively high exposure to Philip Morris.


Consumer Staples Select Sector SPDR Fund XLP


This fund offers exposure to the Consumer Staples sector of the U.S. It has AUM of $9.46 billion and charges a fee of 14 basis points a year. From a sector look, Food & Staples Retailing, Beverages and Tobacco have the highest exposure to the fund, with 21.63%, 20.75% and 19.80% allocation, respectively (as of June 30, 2017). It has a 9.70% exposure to Philip Morris (as of June 30, 2017). The fund has lost 0.92% in the last one year but has gained 6.34% year to date (as of July 20, 2017). The fund was relatively flat at market close on July 20, 2017, as it was up 0.02%. XLP currently has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook (read: Tough Time Ahead for Grocery Stocks and ETFs?).


Vanguard Consumer Staples ETF VDC


This fund is one of the most popular funds in the Consumer Staples sector of the U.S. It has AUM of $4.5 billion and charges a fee of 10 basis points a year. From a sector look, Household products, Soft drinks and Tobacco have the highest exposure to the fund, with 18.2%, 17.8% and 17.7% allocation, respectively (as of June 30, 2017). It has an 8.3% exposure to Philip Morris (as of June 30, 2017). The fund has lost 0.92% in the last one year and 5.35% year to date (as of July 20, 2017). The fund was relatively flat at market close on July 20, 2017, as it was up 0.06%. VDC currently has a Zacks ETF Rank #3 with a Medium risk outlook.


Fidelity MSCI Consumer Staples Index ETF FSTA


This fund offers exposure to the Consumer Staples sector of the U.S. at a very cheap expense ratio. It has AUM of $307.6 million and charges a fee of 8 basis points a year. From a sector look, Beverages, Food & Staples Retailing and Tobacco have the highest exposure to the fund, with 22.00%, 20.59% and 19.12% allocation, respectively (as of July 19, 2017). It has a 9.22% exposure to Philip Morris (as of July 19, 2017). The fund has lost 0.42% in the past one year but has returned 6.03% year to date (as of July 20, 2017). The fund was relatively flat at market close on July 20, 2017, as it was up 0.05%. FSTA currently has a Zacks ETF Rank #3 with a Medium risk outlook.
Given below is a chart for comparing the year-to-date performance of the funds and Philip Morris.


 
Source: Yahoo Finance


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SPDR-CONS STPL (XLP): ETF Research Reports
 
VIPERS-CONS STA (VDC): ETF Research Reports
 
FID-STAPLES (FSTA): ETF Research Reports
 
Philip Morris International Inc (PM): Free Stock Analysis Report
 
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