Philip Morris Continues Fight Against Anti-Tobacco Crowd
With a trailing 12-month operating margin of 44.1 percent and EPS for the same period of $5.03, Philip Morris International Inc. (NYSE: PM) sits in the No. 3 spot among consumer goods companies.
Philip Morris generated $80 billion in revenue in 2013 and holds about 15 percent of the international tobacco market.
Those factors, along with exceptional brand recognition and deep financial pockets all constitute good news for the company's bottom line.
Other issues and trends are less positive.
Declining Sales & Anti-Smoking Campaigns
Depressed demand has been driven, primarily, by global anti-smoking campaigns. Simply put, governments around the world don't want their citizens to use tobacco and they have gone to great lengths to make that point.
Regulation & Taxes
Anti-tobacco campaigns have been accompanied by government regulations and taxes designed to make smoking less attractive and more costly.
Recent regulatory attempts include an Australian mandate that all cigarette packages bear a nondescript black and white wrapping; such a move makes branding nearly impossible.
In general, governments around the world have also continued to raise excise taxes. The net effect has reduced margins as tobacco companies, including Philip Morris, have become more competitive in order to maintain sales volume.
Seeking Tobacco Friendly Markets
Philip Morris has responded to growing regulation and increased taxation by seeking out new opportunities for growth in areas of the world proving to be more "tobacco friendly."
So far this has included Eastern Europe, Africa and the Middle East where GuruFocus said company-wide revenue from those regions grew from 23.7 percent in 2011 to 27.4 percent by 2013.
The Healthy Alternative
One unique answer to declining tobacco sales and the purported eventual "death" of traditional cigarettes has Philip Morris' development of what some have called the "cigarette of the future."
Called the IQOS, it's a smokeless, ashless cigarette that the company said would deliver a nicotine hit with no tar.
IQOS consists of a holder or filter that would heat the tobacco without burning it along with the actual tobacco cigarette.
According to Philip Morris, IQOS would have "no negative health effects."
Full rollout of the cigarette and holder combination is expected to occur sometime in 2015.
At the time of this writing, Jim Probasco had no position in any mentioned securities.
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