In this article let's take a look at Philip Morris International Inc. (PM, Financial), the global tobacco giant that sells cigarettes in over 200 countries, which manufactures and markets the number one cigarette brand: Marlboro.
Next generation of ecigarettes
Philip Morris and Altria Group (MO, Financial) have reached agreements to sell electronic cigarettes and other smokeless products. While Philip Morris has exclusive rights to sell Altria's ecigarettes (battery-powered devices that heats a liquid nicotine solution in a disposable cartridge and create a vapor that is inhaled) outside the U.S., Altria gains exclusive rights in the U.S. to other tobacco products developed by Philip Morris.
As a result of both companies working together to improve existing products, yesterday the company announced a new agreement on ecigarettes to include research and development via a joint agreement.
Altria and Philip Morris produce and distribute the world's leading cigarette brand, Marlboro. Altria sells Marlboro and an ecigarette called MarkTen in the U.S. and Philip Morris sells Marlboro outside the U.S. and sells the ecigarette in Spain under the brand name Solaris.
Q2 results
The company reported its results, with second-quarter earnings and revenues beating estimates. Reported adjusted earnings per share of $1.21 beat estimates of $1.12 and were up from $1.17 last year. However, earnings declined when compared to the same quarter the previous year of $1.41, principally for the currency headwinds and lower sales. Excluding an unfavorable currency impact of $0.33, EPS was up $0.37 to $1.54, versus $1.17 last year.
Net revenue, excluding excise taxes, experienced a 12.0% decline to $6.9 billion, a 12% year over year decline. Among the reasons, we found difficulties in the operating environment and the effects of currency movements. Excluding this last effect, revenues went up 4.5%. The drop in sales brought the fall in margins, gross profit declined 12.2% and operating income 11.5%.
In emerging markets, which were considered strategic markets due to the increase in customer´s disposable incomes, the firm was able to increase its market share in Algeria, Argentina, Austria, Belgium, Brazil, Egypt, France, Germany, Hong Kong, Indonesia, Korea, Poland, Russia, Saudi Arabia, Singapore, Spain and Switzerland.
Cash machine
Dividends have been paid since 2008 and consistently increased dividends every year. Since 2012, the company has averaged a 11.2% dividend growth rate. Philip Morris pays a dividend yield of 4.69% and is close to a 5-year high.
Final comment
The share price has surged only by 1.2% when compared to its closing price of one year ago, but the year-to-date return for the stock is 5% versus a 3.2% return for the SPDR S&P 500 ETF (SPY, Financial). Due to the discussed results, shares were higher by 3%. Philip Morris has several drivers such as the strategic and licensing partnership, strong marketing campaigns and the strategic plans on key growth driving regions. Further, it is consistently buying back stock and it pays huge dividends to shareholders. The attractive dividend yield makes the company a perfect fit for any portfolio.
In this opportunity, I would recommend investors to consider adding the stock for their long-term portfolios.
Ray Dalio (Trades, Portfolio) opened a new position with 9,600 shares in Q1, while John Rogers (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio), Charles Brandes (Trades, Portfolio) and Tom Russo (Trades, Portfolio) have taken long positions on it, as well as Diamond Hill Capital (Trades, Portfolio) and HOTCHKIS & WILEY.
Disclosure: Omar Venerio holds no position in any stocks mentioned.
