Philip Morris Shows Smokin’ Growth in Asia
Philip Morris International (NYSE:PM), the world’s leading international tobacco company outside of the U.S. and China, recently announced its Q2 results. Higher pricing power and favorable currency exchange rates continued to support operating margins that increased despite overall flat cigarette shipment volume in the second quarter. PMI’s product portfolio boasts eight of the world’s top 15 brands including Marlboro, the number one cigarette brand worldwide. Until a spin-off in 2008, Philip Morris International was an operating company of the Altria Group (NYSE:MO). 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.
We have a $69.50 price estimate for Philip Morris International, which is just slightly below the market price.
Asian Markets Show Growth
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The Asian markets of Indonesia, Japan and Korea continue to drive PMI’s cigarette sales volume and all posted double digit revenue growth. Indonesia and South Korea offered PMI organic sales growth while Philippines continued to show growth after the 2010 merger with Fortune Tobacco Corporation (FTC). The Japanese market benefited from an increase in market share in the wake of supply disruptions for Japan Tobacco post-march earthquake and tsunami.
While the sales volume increased 8% in Asia, it declined by 3% in Europe, Africa and Middle East and by 5% in Latin America. This decline was led by declining market size in Russia, Ukraine, Spain, Poland and Greece and Mexico dealt with a disruptive January excise tax hike. Yet there was modest growth in Germany, Argentina, Algeria and Turkey.
Leading Brands Perform Well Giving Pricing Strength
PMI is known for its premium brands and global market share in the premium category. These premium products give the company pricing flexibility which helps its profitability. The flagship premium brand, Marlboro continues to see solid sales posting 6% growth in Asia led by Indonesia, Japan, Korea and Vietnam. These gains were offset by a 3% decline in Europe and Latin America.
Among its other premium brands, L&M sales volume grew 3%, Parliament’s sales grew 10% driven by Europe and Russia. Lark’s sales increased 10% mainly driven by Japan. However, Chesterfield saw decline in sales.