Asia Still Loves to Light Up Driving Philip Morris’ Growth

by Trefis Team
-3.54%
Downside
81.90
Market
79.00
Trefis
PM
Philip Morris International
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Philip Morris International (NYSE:PM), the world’s leading international tobacco company outside of the U.S. and China, recently released its Q3 earnings. The quarter was marked with impressive volume growth trends, particularly in Asia, which continues to be PMI’s growth engine. Although European sales volume continued to decline, its dominant market share in the premium segment with trends of higher pricing ensured robust operating income. The performance was also broad-based across PMI’s strong product portfolio that boasts 8 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. 

See our complete analysis of Philip Morris International

Expanding volume in Asian market provides upside

PMI’s business outlook turned more impressive in the third quarter with exceptionally strong volume growth of 4.4%, fully compensating for the recent unfavorable currency movements. It was led by the Asia region with an increase of 12.6% and EEMA with 5% volume growth. As a result, over the three quarters this year, PMI has achieved organic volume growth of 0.5% despite 3.5% decline in Europe’s sales volume due to falling market size and weak macroeconomics. It is noteworthy that while Japanese market provided a significant part of this upside, PMI achieved organic volume growth of 2.3% excluding Japan. Particularly, this year’s PMI’s volume growth in Indonesia and Korea was nearly double that of Japan, followed by Philippines (post PMI-FTC merger).

This growth was broad-based across PMI’s portfolio with almost each of the top 10 brands achieving volume growth, led by international brands like Marlboro, L&M and Parliament and leading local brands such as Fortune (Philippines) and Sampoerna A (Indonesia). This has also resulted in strong market share performance. Year-to-date, PMI’s market share in its top 30 markets has increased by 1.4 share points, crossing 36%.

Pricing remains key driver in Europe

While the expanding market volume provided upside in Asia, pricing continues to remain the key growth driver in Europe. With declining sales volume in Europe, operating income remained stable with strong market share in the premium cigarettes segment that allowed higher pricing. Further, PMI has recently announced price increase of EUR 0.30 per pack across its cigarette portfolio in Europe which will definitely boost profitability going forward despite the expected 2-4% decline in cigarette sales volume.

We have a revised $75.31 price estimate for Philip Morris International, 5% ahead of the market price.

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