New Coverage: $69 Trefis Price Estimate for Philip Morris International

Philip Morris International (NYSE:PM) is the world’s leading international tobacco company with eight of the world’s top 15 international brands, including Marlboro, the number one cigarette brand worldwide. Until a spin-off in March 2008, Philip Morris International was an operating company of the Altria Group (NYSE:MO). The newly independent Philip Morris International sells tobacco products in the international markets while Altria maintains its operations in the US. Philip Morris International competes with British American Tobacco (AMEX:BTI), Japan Tobacco (PNK:JAPAF.PK) and Imperial Tobacco Group plc (LSE:IMT) in its various geographical segments.

After the spin-off, PMI has become the world’s largest international tobacco company and the third most profitable international consumer goods company. While the U.S. tobacco sales revenues have been in decline as Altria struggles to cope with higher state tobacco tariffs and the tobacco industry’s negative image in the US, the international sales continue to grow for Philip Morris International.

In 2010, Philip Morris International’s brands sold in approximately 180 countries, giving it an industry leading estimated share of 28% of the total international cigarette market, excluding China and the U.S., with number one or number two market position in many countries. Its portfolio has a wide range of premium, mid-price and low-price brands, which include both international and local brands.

We recently launched a coverage of Philip Morris International with a $69 Trefis price estimate.

PMI Consists of the Following Regional Segments:

1. Europe
2. East Europe, Middle East and Africa
3. Asia
4. Latin America & Canada

Philip Morris International Benefits from the Geographical Mix

Philip Morris International benefits from its significant geographic diversification with good exposure to the higher growth emerging markets and the high margin developed markets. With the emerging markets like South East Asia, Africa, Middle East and Eastern Europe witnessing industry volume growth or stability, Philip Morris International has been expanding its market share in these segments through organic and inorganic growth. At the same time, even though the developed markets like Western Europe, Russia, Australia, Japan, South Korea, etc. have been undergoing industry volume decline, they form strong markets for Philip Morris International’s premium brands like Malboro and Parliament that provide it with higher operating margins through higher pricing.

Broad and Deep Product Portfolio

PMI largely serves the “discriminatory consumers”, who are concerned with where the tobacco was grown and the quality of the product they are purchasing with brands like Marlboro, L&M, Parliament, Philip Morris, and Chesterfield but does maintain a portfolio of three value company brands (Bond Street, Red and White and Next) for the “value consumers” who are more concerned with the price of the tobacco products. It also owns local brands such as A Mild and Diji Sam in Indonesia, Diana in Italy, and Assos in Greece to take advantage of established brands as opposed to marketing new brands in some regions.

Strong Cash flows are Leading to Share Repurchases

PMI’s strong cash flow has led to the firm to conduct share repurchases. The firm has so far repurchased 355 million shares using $17.3 billion from 2008 through the first quarter of 2011. In April 2010, it completed its 2008–2010 share repurchase program of $13 billion and, it initiated a new three-year share repurchase program of $12 billion in May 2010. Through combination of dividends and the share repurchase programs, Philip Morris International has returned $26.7 billion to its shareholders since the spin-off in 2008 through 2010, which is more than 25% of its market capitalization at year-end 2010.

See our full analysis for Philip Morris International