Philip Morris Targeting Strong Adjusted Diluted EPS Growth

Image: Philip Morris’ stock has traded sideways for more than a year now.

By Brian Nelson, CFA

On April 23, Philip Morris (PM) reported solid first-quarter results that beat expectations on both the top and bottom lines. Net revenues increased 9.7% in the first quarter, while operating income advanced 11.5%. The company’s adjusted operating income increased 11.3% thanks to a 0.9 percentage point increase in its adjusted operating income margin, to 38.2%. Adjusted diluted earnings per share grew to $1.70, up 23.2% excluding currency. The company continues to work toward becoming a smoke-free company, with its smoke-free business now accounting for roughly 39% of its total net revenues.

Management had the following to say about the quarter:

The strength of our first-quarter results with excellent top-line growth and significant margin expansion gives us the confidence to raise our 2024 currency-neutral guidance. Strong smoke-free momentum continues with rapid underlying volume progression and accelerating organic net revenue and gross profit growth, fueled by the operating leverage of IQOS and the best-in-class economics of ZYN. We are executing efficiently and effectively in a dynamic operating environment of geopolitical and economic tensions that accentuate currency volatility. We are doing our utmost to mitigate these challenges and deliver robust growth and value creation. 

Looking ahead to full-year 2024 guidance, management is targeting net revenue growth of 7%-8.5% on an organic basis and reported diluted earnings per share in the range of $5.70-$5.82, which compares to $5.02 per share during 2023. Organic operating income growth is expected to be in the range of 10%-12% on the year. Adjusted diluted earnings per share is expected in the range of $6.55-$6.67, up 9%-11% when compared to 2023. Philip Morris is targeting free cash flow of $8.8-$9.8 billion, reflecting operating cash flow of $10-$11 billion and capital spending of $1.2 billion. We like Philip Morris’ free cash flow generation and its focus on continuing toward becoming a smoke-free company.