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Philip Morris excited by potential of reduced-risk products

Last updated: 09:08 02 Feb 2017 EST, First published: 04:08 02 Feb 2017 EST

Vapeing
No smoke without fire?

Cigarettes maker Philip Morris International Inc (NYSE:PM) topped expectations on the sales front in its fourth quarter update, in defiance of unhelpful exchange rate movements.

Net revenues, excluding excise taxes, in the final three months of 2016 clocked in at US$7bn, up 9.1% on a year earlier, though they would have been up 10.5% had exchange rates stayed the same.

Analysts following the stock had expected revenue of US$6.7bn.

Revenue increased despite shipments of cigarettes falling 4.4% from a year earlier to 200.6bn units.

Net income in the fourth quarter rose to US$1.10 from US$0.80 the year before, a couple of cents below the consensus forecast.

The company said that for the current year it expects diluted earnings per share to fall between US$4.70 and US$4.85 on a constant currency basis, up from US$4.48 in 2016.

The guidance suggests analysts will be ratcheting up their forecasts, because the median estimate among analysts studying the stock is currently US$4.73.

“Our results last year underscore the strength of our existing business, driven by our world-class brand portfolio, the enormous promise of our Reduced-Risk Products and the tremendous commitment of our talented employees," said André Calantzopoulos, chief executive officer of Philip Morris.

After decades of bare-faced denial of the health risks of smoking, tobacco companies are now enthusiastically embracing what Morris calls “reduced-risk products” (RRP).

“We have entered 2017 confident that our base business fundamentals are in robust shape, and increasingly excited by the tremendous potential of our RRP portfolio to materially accelerate our overall business and contribute significantly to our commitment to generously reward our shareholders in the years to come," Calantzopoulos said.

Shares in Philip Morris were up 2.5% in pre-market trading.

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