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 number one cigarette brand worldwide. PM's products are sold in more than 180 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 the People's Republic of China and the U.S.
First Quarter 2015
In the first quarter of 2015, PM declared a dividend of $1.00. Net revenues decreased from $6,917 in 2014 to $6,616. (Comparisons are of the first quarter of 2014 and 2015). Net revenues in the European Union were down by 6% and that of Eastern Europe, Middle East & Africa were down by 8.3%. Regions of Latin America and Canada witnessed an increase in revenues by 1.8%. Operating income of the company decreased by 2.2%. Adjusted operating companies income increased by 16.3%. Operating income of European Union decreased by 6.6% and that of Eastern Europe, Middle East & Africa decreased by 5.1%. Operating income of Asia witnessed a rise of 2.1% and that of Latin America & Canada increased by 13.9%. Cigarette shipment volume increased by 1.4% and was 198.8 billion units. Market share increased in the European Union, Eastern Europe, Middle East & Africa. Demand increased in Italy, Spain, parts of Eastern Europe, the Middle East and Africa.
2015 Full Year Forecast
PM increased its full year diluted earnings per share forecast to $4.42. There were no share repurchases in 2015 as of now. The reported diluted earnings per share range represent a projected increase of 9% to 11%. (Forecast excludes future acquisitions, exit cost charges, etc.)
Future Prospects
The company has good potential in the near future since it has created a niche for itself in the e-cigs industry. PM 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 in cost curtailment efforts. The company is going to launch iQOS heated cigarette products in the second half of 2015. It will start in Italy and Japan. This variant is less harmful than the traditional ones. It is a smokeless hybrid cigarette. It resembles a second generation vaporizer.
Positive Outlook
PM is currently working on mitigating its currency headwinds. This year it was named as the top employer in Europe for the third consecutive year. It is one of 27 companies who were contenting for this title. Employing more than 82,000 people across the world, PM is known for incorporating strong reward programs and robust training and development programs. It has good employee appraisal programs in place.
To End
It 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 stigmatization attached to it. But there is a silver lining to it since an increasing number of people are moving towards e-cigarettes. Out of the global $169 billion tobacco industry, about $6 billion comes from e-cigs. The U.S. is the largest e-cig market worth $1.7 billion as of 2014. This company has plenty of room for growth and to offer to its shareholders.
PM 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 as because the U.S. is mostly posing these regulations to the tobacco companies.
I am bullish about this company since I perceive that the company has achieved notable progress in the first quarter of 2015. It is making aggressive efforts to gain a solid position. The company is already gaining momentum in key market regions. PM is one of the very few companies that provide high dividends at great price.
