Philip Morris warns conflicts are raising costs, hurting earnings (updated)

British American Tobacco

Yesterday 12:35

Philip Morris beats Wall St estimates in Q3
Warns on impact of Middle East, Ukraine wars 
Flags investments to support Zyn in the US
Shares fall 2% 
Recasts with analyst quote, detail, background, shares
By Shania S  Thomas and Emma Rumney
Oct 21 (Reuters) - Philip Morris International PM.N flagged growing pressure from conflicts in the Middle East and Ukraine on Wednesday and said it now expects to land in the middle to lower half of its full-year profit forecast range, sending its shares down about 2%.
The tobacco company beat Wall Street estimates for third-quarter sales and profit, but said higher energy costs linked to the Iran war were weighing on its cost base and would have a bigger impact in the fourth quarter. 
"The long-term situation remains unpredictable, and it is difficult to assess the broader implications for consumers or the global cost environment," it said, adding the impact remained manageable for now.
The war in Ukraine has also caused "certain disruptions" to operations, including damage from strikes on infrastructure, the company said. It expects those pressures to continue weighing on operating income this year.
Philip Morris said it now expected full-year adjusted earnings per share to come in around the middle to lower half of its $8.29 to $8.44 guidance range, citing the impact of conflicts and higher investments in the US. Its forecast was unchanged excluding currency effects.
Third-quarter results were helped by what the company described as an "exceptional" performance from its cigarette business, driven by strong demand in markets such as Turkey and further tobacco price increases.
The company also reported another quarter of growth for its Zyn nicotine pouches in the US, where it remains the market leader, though the 4.2% increase in shipments was well below levels seen previously as competition from rivals including British American Tobacco's BATS.L Velo intensifies.
Philip Morris said it would step up investment in Zyn, including increasing the number of pouches in most cans to 20 from 15, a move that would reduce revenue per pouch by roughly 25%.
"The cigarette business appears to be doing most of the heavy lifting, with faster profit growth in legacy combustibles than the 'smoke-free' future of the company," Bernstein analyst Callum Elliott wrote in a note, adding that cost pressures were also likely to weigh on full-year earnings.
     

 (Reporting by Shania S Thomas in Bengaluru and Emma Rumney in London; Editing by Tasim Zahid, Louise Heavens and Mark Potter)
 ((shanias.thomas@thomsonreuters.com))