Tobacco companies have long been known for their legacy of offering rich dividends. Philip Morris International (PM, Financial) is one such company. It is the leading international tobacco company, with six of the world's top 15 international brands, including Marlboro, the No. 1 cigarette brand worldwide. Philip Morris' products are sold in more than 200 markets. In 2014, the company held an estimated 15.6% share of the total international cigarette market outside of the U.S., or 28.6% excluding China and the U.S.
It has the industry’s strongest and most diverse brand portfolio, led by Marlboro and L&M, the third-most popular brand. Marlboro’s volume outside the U.S. was 291.1 billion cigarettes, which makes it bigger than the next two largest brands combined.
It recently posted fourth-quarter results and is poised to grow. It missed on revenues, but considering its potential, it still has plenty of growth opportunities. The company had an enhanced commercial approach, and investments made in both 2014 and 2015 to support the business. The company is progressing on the development, assessment and commercialization of the Reduced-Risk Products.
Fourth-quarter results
Reported diluted earnings per share were 80 cents (a decrease of 23 cents or 22.3% from the prior-year quarter).
Adjusted diluted earnings per share were 81 cents (a decrease of 22 cents or 21.4% from the prior-year quarter).
Cigarette shipment volume was 209.8 billion units (a decrease of 2.4% excluding acquisitions).
Reported net revenues, excluding excise taxes, were $6.4 billion (a decline of 11.2% from the prior-year quarter).
Excluding unfavorable currency of $1.1 billion and the impact of acquisitions, reported net revenues,Ă‚ excluding excise taxes, increased by 4.0%.
Reported operating companies income was $2.0 billion, a decrease of 23.6%.
2015 full-year result
- Reported diluted earnings per share were $4.42 (a decrease of 34 cents or 7.1% from the prior-year period).
- Adjusted diluted earnings per share was $4.42 (a decrease of 60 cents or 12.0% from the prior-year period).
- Cigarette shipment volume was 847.3 billion units (a decrease of 1.0% excluding acquisitions).
- Reported net revenues, excluding excise taxes, were $26.8 billion, down by 10.0%.
- Reported operating companies income was $11.0 billion (a decrease of 9.1% from the prior-year period).
- Reported operating income of $10.6 billion, down by 9.2%.
- Increased the regular quarterly dividend by 2.0% to an annualized rate of $4.08 per common share.
(Source: Company's website)
Expectations from 2016
The company expects the following:
- Full-year reported diluted earnings per share to be in a range of $4.25 to $4.35.
- Estimates 2016 international cigarette volume, excluding the People's Republic of China and the U.S., to decline by approximately 2.0% to 2.5%.
Factors that contributed to the fourth-quarter success
- Strong business momentum.
- Organic volume trends.
- Market share growth.
- Robust pricing.
- Strong business fundamentals.
- Organic volume, market share and pricing trends remain robust against the backdrop of an improved macroeconomic environment.
Future prospects
The company has good potential in the near future since it has created a niche for itself in the ecigarette industry. Philip Morris is taking continual steps to improve its market position. It is concentrating on building up a solid international presence. Regular price hikes are going to add to its earnings in the future. In 2015, the company has decided to enhance production processes and make improvements in the supply chain management. It is also initiating cost curtailment efforts
On a concluding note
Philip Morris is a dividend aristocrat. Despite hailing from an unhealthy industry, this company has a huge customer base. This company is known for becoming investors’ staple. It competes with premium brands and boasts of higher margins than most of them. Many have thought that the cigarette industry is a sunset industry because of the social stigma attached to it. But there is a silver lining to it since people are increasingly moving toward ecigarettes. Out of the global $169 billion tobacco industry, about $6 billion comes from ecigs. The U.S. is the largest ecig market worth $1.7 billion as of 2014. This company has plenty of room for growth and to offer to its shareholders.
Philip Morris is a strong company, but since the tobacco industry is currently facing a lot of headwinds, this company has to overcome a lot of obstacles. But there is good news. Since the company is focusing on international markets, it does not have to comply with a lot of restrictions because the U.S. is mostly posing these regulations to the tobacco companies.
The company reinforced a great start with solid third-quarter results. While currency headwinds remain stubbornly high, the company is ever focused on the prudent management of cash flow. It is committed to returning around 100% of free cash flow to shareholders.
Disclosure: I do not hold any position in the company.
