Tobacco and related stocks are underwater in sympathy with a sell-off in shares of Philip Morris (NYSE:PM) on the heels of the tobacco giant’s third quarter results.
Shares were launched higher on the top- and bottom-line beat but surrendered early gains and drifted into the red as the underwhelming hike in profit guidance missed expectations at the midpoint.
Philip Morris (NYSE:PM) now expects to earn an adjusted profit of $7.46 to $7.56 per share, raising the lower end from $7.43 per share. Additionally, revenue is expected to increase by 6% to 8% versus +7.7% estimates, both of which apparently disappointed investors.
And despite the growth potential for its smoke-free products, the company’s guidance assumes organic operating income to increase by 10%-11.5%, down from +11%-12.5% previously, on a higher U.S. Zyn reinvestment. The company also cautioned that it expects a 20M to 30M Zyn can inventory reduction in the coming months due to increased promotions in the third quarter.
“Overall, we don’t expect third quarter results to ally market concerns about soft Zyn takeaway trends and Philip Morris’ promotions,” Morgan Stanley’s Eric Serotta said in a note to clients.
“The expectations were very high,” conceded CEO Jacek Olczak on the market’s reaction to the results, assuring investors that the company remains on a strong growth trajectory thanks to robust demand for its Zyn pouches and other smoke-free offerings.
The market reaction failed to put a dent in Wall Street analysts’ view of the company with both BofA Securities and Morgan Stanley holding onto a Buy rating.
“We believe PM has one of the strongest growth profiles in staples, with the potential for upside driven by its commitment of shifting smokers to potentially less harmful alternatives, and commitment to shareholder returns,” BofA’s Lisa Lewandowski said.
Nonetheless, the pressure on Philip Morris (NYSE:PM) is weighing on other names within the sector with Greenlane Holdings (GNLN) down 5.5%, Turning Point Brands (TPB) down 3.7%, British Tobacco (NYSE:BTI) down more than 2%, and Altria Group (NYSE:MO) lower by 1.5%.
Altria (NYSE:MO) will report third quarter results before the open on October 30, expected to have earned an adjusted profit of $1.45 per share on $5.31B in revenue.