After missing earnings estimates five straight times, Philip Morris International Inc. (PM - Free Report) delivered a beat in first-quarter 2018. Moreover, top and bottom lines grew year over year and management also raised its bottom-line view for 2018, courtesy of the tax reforms. However, these factors were not enough to placate investors, who were let down by the fifth consecutive sales miss and drop in constant currency (cc) earnings. This could be largely accountable to soft volumes.

Evidently, shares of the Zacks Rank #3 (Hold) company are down about 5% in the pre-market trading session. In fact, Philip Morris’ shares have gone down 6.2% in the past six months, wider than the industry’s decline of 4.8%. This can primarily be attributable to the company’s dismal past record.

Coming back to the earnings announcement, management stated that from Jan 1, 2018, it started operating through the following six reporting segments: the European Union Region (EU); the Eastern Europe Region (EE); the Middle East & Africa Region (ME&A); the South & Southeast Asia Region (S&SA); the East Asia & Australia Region (EA&A); and the Latin America & Canada Region (LA&C). Notably, the ME&A region also include PMI Duty Free.

Quarter in Detail

Adjusted earnings of $1.00 per share rose 2% year over year and it came ahead of the Zacks Consensus Estimate of 88 cents. Excluding the positive impact from currency fluctuations, the bottom line dipped 1% from 98 cents reported in the year-ago period.

Net revenues were $6,896 million, which increased 13.7% (up 8.3% on a constant currency basis) in the quarter. However, net revenues lagged the Zacks Consensus Estimate of $7,024 million. Favorable pricing of combustible products and greater volumes of heated tobacco units and IQOS devices drove currency-neutral revenues.

During the quarter, revenues from combustible products inched up 2.5% (down 2.5% in cc) to $5,769 million. Revenues from Reduced Risk Products (RRPs) doubled (also on a cc basis) to $1,127 million, largely driven by increased sales of IQOS devices.

Total cigarette and heated tobacco unit shipment volume fell2.3% to 173.8 billion units, owing to declines across most regions other than S&SA and EA&A. While cigarette shipment volume declined 5.3% to 164.3 billion units in the quarter, heated tobacco unit shipment volume of 9.6 billion units, increased 5.1 billion units year over year.

Adjusted operating income inched higher by 0.4% year over year to $2,426 million, while it slipped 2.7% (on a cc basis)due to adverse volume/mix (especially in GCC) and escalated marketing, research and administration expenses. These hurdles couldn’t be fully compensated by favorable pricing. Adjusted operating margin (on a cc basis) fell 4.0 points to 35.8%.

Also, during the quarter, Phillip Morris announced a quarterly dividend of $1.07.

Region-Wise Performance

Net revenues in EU climbed 0.2% (on a cc basis) to $1,988 million, courtesy of favorable pricing, somewhat offset by adverse volume/mix. Total shipment volume fell 5% to 40,599 million units.

In EE, net revenues jumped 4.3% to $567 million, stemming from the same factors that drove EU revenues. Total shipment volumes tumbled 8.3% to 22,603 million units.

Net revenues slipped 1.5% to $961 million in ME&A region as adverse volume/mix more than offset gains from pricing. Total shipment volumes dropped 6.5% to 29,957 million units.

Moving to S&SA, a 5.6% rise in revenues to $1,081 million was witnessed, which was backed by improved pricing, though it was also somewhat countered by unfavorable volume/mix. Shipment volumes grew 6.1% to 40,218 million units.

EA&A saw its revenues surge 27.5% to $1,591 million, owing to solid pricing. Total shipment volumes climbed 0.2% to 21,433 million units.

Finally, revenues at LA&C advanced 17% to $708 million, on the back of favorable pricing. However, total shipment volumes were down 1.4% at 19,036 million units.

Guidance

Management remains confident about delivering solid results in 2018, alongside remaining committed toward making shareholder-friendly moves. The company remains encouraged about strength of its IQOS devices and favorable pricing of combustible products. While soft volumes in GCC, difficult pricing in Russia and sluggish sales in Japan pose hurdles, the company remains well placed to double its worldwide in-market heated tobacco unit sales from 2017.

That said, management projects revenues in 2018 to grow about 8% (on a cc basis). Also, it expects the recent tax reforms to boost bottom-line growth. Incidentally, management now expects effective tax rate for 2018 to be roughly 26%, down from 28% projected in February.

Consequently, earnings are envisioned in the range of $5.25-$5.40, in comparison to $5.20-$5.35 forecasted earlier. The updated guidance reflects year-over-year growth of 35-39%, up from 34-38% expected earlier. Excluding a favorable currency impact, the company anticipates adjusted earnings growth of nearly 8-11%, better than the previous forecast of 7-10%.The Zacks Consensus Estimate for 2018 is currently pegged at $5.28.

Additionally, management expects capital expenditures of roughly $1.7 billion in 2018, while operating cash flow is envisioned to be more than $9 billion.

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