SINGAPORE (July 23): Philip Morris International has significantly cut its full-year guidance as it prepares for the next generation of IQOS (I quit original smoking) devices.
The worldwide introduction of the next generation of IQOS devices towards the end of 2018 will require the reduction of current generation device inventories while the ramp-up of new devices is expected to occur in 2019, said Philip Morris.
Investors will likely view Philip Morris’ 2Q earnings read-through as a negative sign for Venture Corp’s FY18 performance.
Philip Morris also intends to launch in October, a new heated tobacco mainstream-price product line for more price-sensitive consumers.
Philip Morris expects heated tobacco unit shipments of 41-42 billion, including an anticipated net inventory reduction of 3 billion units. Philip Morris also expects lower IQOS shipments.
On the positive side, Philip Morris said the new IQOS to be launched in 2019 will be very exciting. If the replacement demand is high, new users are converted, and Venture continues to engage with PM as a customer, some benefits will accrue to Venture in FY19, in our view.
Venture Corp will report its 2Q18 results on Aug 3 and CGS-CIMB expects earnings of around $87.6 million.
CGS-CIMB recently downgraded its call to “hold” with a target price $17.83.
“Although difficult to quantify, the current macro uncertainties have already led to downward earnings revisions amongst brokers (including us) covering this name,” says analyst William Tng in a Friday report.
As at 2.46pm, shares in Venture are up $1.46 at $17.76 or 13.3 times FY18F core earnings.
