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Will Philip Morris (PM) Surprise this Earnings Season?

Philip Morris International Inc. PM is set to report first-quarter 2016 results on Apr 19. Last quarter, the company delivered in-line results.

However, the tobacco major delivered positive surprises in three of the four previous quarters, with an average earnings beat of 8.37%.

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

Factors at Play

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

The company is focusing on its unconventional tobacco products. It has entered into a strategic agreement with Altria Group, Inc. MO to market the latter’s MarkTen e-cigarettes internationally. Altria in turn will distribute two of Philip Morris’ heated tobacco products in the U.S. The companies have also decided to partner in a regulatory engagement related to the products. The companies will also work toward gaining shares as well as improving the existing versions for the products.

Further, during fiscal 2015, Philip Morris expanded the geographic presence of iQOS with the first wave of expansion in Japan reaching over 60% of the adult smoker population and initial expansion in Italy beyond Milan to Modena, Rome and Turin. It also launched the product in major cities across Switzerland and commenced city launches in Bucharest, Lisbon and Moscow at the end of fiscal 2015. These initiatives are expected to boost e-cigarette sales in the 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 first quarter as well, thus putting pressure on both the top and the 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 $1.11.

Zacks Rank: Philip Morris has 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:

Kellogg Company. K, with an Earnings ESP of +3.23% and a Zacks Rank #3 (Hold).

Pepsico, Inc. PEP, with an Earnings ESP of +2.47% and a Zacks Rank #3.

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PEPSICO INC (PEP): Free Stock Analysis Report
 
KELLOGG CO (K): Free Stock Analysis Report
 
ALTRIA GROUP (MO): Free Stock Analysis Report
 
PHILIP MORRIS (PM): Free Stock Analysis Report
 
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