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Monthly Archives: January 2012

Tobacco monopoly looks to raise market share

The state-owned Thailand Tobacco Monopoly (TTM) remains the single largest buyer of tobacco produced locally.

Thailand Tobacco
Thailand-Tobacco-Monopoly building

The agency bought 21,970 tonnes of leaf in 2010, 36% of an estimated 60,500 tonnes of leaf grown that year.

TTM also imported 3,470 tonnes of leaf to make 28.9 billion cigarettes for domestic sale and export.

Domestic brands control a 75% share of the market, with the balance imported brands.

But sales in recent years have been decreasing due to an amendment to the excise tariff in 2009 that raised cigarette prices.

In addition, some consumers have switched to low-priced imports or roll-your-own tobacco.

Anti-smoking campaigns launched by government agencies and the private sector have also affected sales volume.

These developments have prompted the state enterprise to outline its strategic plans to improve performance and stay competitive.

Based on TTM’s five-year plan, it vows to increase its market share by 0.25 percentage points each year to 77.5% by 2015, with sales revenue of 60 billion baht for a net profit of 5 billion over the period.

A total of 63 projects have been planned to improve operational efficiency and marketing, allow research and development to produce better-quality products, and support more tobacco farmers qualifying for Good Agricultural Practice (GAP) criteria.

TTM received cabinet approval in 2007 to build a second tobacco production plant for 16.2 billion baht.

To be located in an industrial estate for more effective control of its environment, TTM decided on Rojana Industrial Park in Ayutthaya.

However, last year’s massive flooding made the government nervous, and Chiang Mai has emerged as a new choice.

PMI
Philip Morris International Cooperation

Besides TTM, there are several other suppliers that purchase tobacco for export. Many of them supply tobacco to Philip Morris International Co (PMI), which purchased one billion baht worth of tobacco from Thailand in 2010 or 30% of total Thai tobacco exports.

Like other makers, PMI buys all types of tobacco grown locally – Virginia, Oriental and Burley are mixed for its American blend, the most popular of blended cigarettes.

Philip Morris (Thailand) works closely with growers to promote GAP standards.

The Thai subsidiary commands a 20% share of the domestic market.

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Posted by on January 31, 2012 in Tobacco News

 

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Altria reports cigarette sales down but smokeless up

Philip Morris USA’s reported domestic cigarette shipment volume for the whole of 2011, at 135.1 billion, was down by four per cent on that of 2010, primarily due to retail share losses and one less shipping day, partially offset by changes in trade inventories.

Marlboro’s volume, at 117.2 billion, was down by 3.8 per cent, while the volume of the company’s other premium brands fell by 9.1 per cent to 9.4 billion and its discount brands volume fell by 0.9 per cent to 8.5 billion.

Philip Morris
Philip Morris USA, a property of Altria Group.

PM USA’s fourth quarter volume, at 33.7 billion, was up by 0.2 per cent on that of the last quarter of 2010, primarily due to trade inventory dynamics, partially offset by retail share losses and one less shipping day.

Marlboro’s volume during the fourth quarter of 2011 was down by 0.6 per cent to 29.0 billion and the volume of the company’s other premium brands was down by 7.2 per cent to 2.3 billion, but its discount brands volume was increased by 19.7 per cent to 2.4 billion.

After adjusting for changes in trade inventories and one less shipping day, PM USA’s 2011 fourth-quarter and full-year volumes were estimated to be down about three per cent and four per cent respectively.

Total cigarette market volume for the fourth quarter and full year of 2011 was estimated to be down about 3 per cent and 3.5 per cent respectively, when adjusted primarily for changes in trade inventories and one less shipping day.

PM USA’s retail share of the cigarette market during 2011 was down by 0.8 of a percentage point to 49.0 per cent.

Marlboro’s share was down by 0.6 of a percentage point to 42.0 per cent, while the share of its other premium brands was down by 0.2 of a percentage point to 3.7 per cent and its discount brands’ share was unchanged at 3.3 per cent.

Altria reported its fourth quarter and full-year results on Friday. The tobacco company’s 2011 reported diluted earnings per share (EPS) were down by 6.8 per cent to $0.41 for the fourth quarter and down by 12.3 per cent to $1.64 for the full year, primarily due to the impact of special items, including a 2011 second-quarter charge related to certain leveraged lease transactions, 2011 fourth-quarter restructuring charges related to a cost reduction program announced in October 2011, and charges related to tobacco and health judgments.

Marlboro Filter Plus
Marlboro Filter Plus cigarettes

Altria’s 2011 adjusted diluted EPS, which excludes the impact of special items, including charges related to tobacco and health judgments, were up by 13.6 per cent to $0.50 for the fourth quarter and up by 7.9 per cent to $2.05 for the full year.

Meanwhile, smokeless tobacco volume during the full year 2011, at 734.6 million (cans and packs), was up by 1.4 per cent on that of the full year 2010.

Copenhagen’s volume rose by 8.2 per cent to 354.2 million and Skoal’s volume was up by 4.5 per cent to 286.8 million, but the volume of other brands taken together was down by 23.6 per cent to 93.6 million.

During the fourth quarter of 2011, total smokeless product volume was up by 9.7 per cent to 189.3 million.

Copenhagen’s volume was increased by 15.9 per cent to 95.7 million, Skoal’s volume was up by 9.4 per cent to 71.9 million, but the volume of other products was down by 10.4 per cent to 21.7 million.

During the full year 2011, the company’s share of the smokeless market fell by 0.1 of a percentage point to 55.1 per cent.

Copenhagen’s share was up by 1.5 percentage points to 26.2 per cent, while Skoal’s share was down by 0.5 of a percentage point to 22.8 per cent and the share of the company’s other smokeless products fell by 1.1 percentage points to 6.1 per cent.

Cigar volume during the full year 2011 was unchanged at 1,246 million, though the volume of Black & Mild cigars, at 1,226 million, was up by 0.3 per cent.

The fourth quarter saw cigar volume down by 5.6 per cent to 286 million, with Black & Mild’s volume down 5.5 per cent to 281 million.

The company’s cigar share during the full year was up by 0.4 of a percentage point to 29.8 per cent, with Black & Mild’s share up by 0.5of a percentage point to 29.5 per cent.

“Altria delivered strong returns for its shareholders in 2011 in a challenging business environment while taking steps to continue creating shareholder value into the future,” said Michael E. Szymanczyk, chairman and CEO of Altria. “Altria grew its redefined adjusted diluted EPS by 7.9 per cent behind the strength of our tobacco and wine businesses.

“Altria outperformed the S&P 500 Index for the twelfth consecutive year and delivered total shareholder return of 26.9 per cent. In 2011, Altria created shareholder value by increasing its dividend by 7.9 per cent, repurchasing $1.3 billion of its shares, completing a $1.5 billion 2007 to 2011 cost reduction program and announcing a new cost reduction program for its tobacco and services companies in October.”

Szymanczyk then turned to lower risk products. “Altria continues to focus on developing lower risk products that appeal to adult tobacco consumers,” he said. “To support this goal, I am pleased to announce that Altria Client Services has entered into an agreement with Okono A/S, an affiliate of Fertin Pharma A/S, to develop innovative, non-combustible nicotine-containing products for adult tobacco consumers. This new product initiative combines the expertise of the Altria family of companies with Okono and its affiliates’ product development and manufacturing capabilities.”

Szymanczyk is to retire after 23 years with the company, including four years as chairman and CEO of Altria.

The board has elected Martin J. Barrington to serve as chairman and CEO, effective upon Szymanczyk’s retirement following the annual meeting of shareholders on May 17. The board has elected Barrington to Altria’s board, effective immediately.

Additionally, the board elected David R. Beran, to serve as president and COO, effective May 17, and approved a consulting agreement with Szymanczyk for an initial period ending January 31, 2014.

 
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Posted by on January 31, 2012 in Tobacco News

 

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Earnings Preview: Altria Group Inc.

Altria Group Inc., parent of the biggest U.S. cigarette maker, Philip Morris USA, is expected to report higher fourth-quarter profit and revenue when it releases its results before the stock market opens Friday.

Altria
Tobacco company Altria Group Inc.

As Americans buy fewer cigarettes amid increasing health concerns and rising tobacco taxes, Altria’s volumes have fallen markedly, but the company has managed to maintain its profit by raising its prices.

WHAT TO WATCH FOR: Whether Marlboro, the top-selling U.S. cigarette brand, can retain its command of the market. Richmond-based Altria said its top-selling Marlboro brand lost almost 1 percentage point of market share in the third quarter to end up with 41.7 percent of the U.S. market. Its Virginia Slims, Parliament and Basic brands also lost retail market share.

Volume declines for Marlboro drove down the total number of cigarettes Altria sold by 9 percent to 33.3 billion cigarettes for the quarter compared with a year earlier, even though volume for its discount cigarette brands increased 9.5 percent.

Altria has introduced several new products with the Marlboro brand, often with lower promotional pricing. They include special blends of both menthol and non-menthol cigarettes to try to keep the brand growing and steal smokers from its competitors.

But the company still faces pressure in the current economy from less-expensive brands like Pall Mall from Reynolds American Inc. and Maverick from Lorillard Inc. Even so, Altria has raised prices on some brands and maintained its profit per pack. Marlboro sold for an average of $5.74 per pack during the third quarter, compared with an average of $4.22 per pack for the cheapest brand, Altria said.

Marlboro Gold Touch
Marlboro Gold Touch and Marlboro Gold Fine Touch cigarettes

Altria and other tobacco companies also are looking to cigarette alternatives — such as cigars, snuff and chewing tobacco — for growth. So analysts will want to see how Altria’s Black & Mild cigars and Copenhagen and Skoal smokeless tobacco products, as well as Marlboro Snus, perform. It also owns a wine business, which saw gains in the quarter, holds a voting stake in brewer SABMiller, and has a financial services division.

Smokeless tobacco volumes were essentially flat in the third quarter and had 55.2 percent of the market, which is tiny compared with cigarettes. Volume for cigars grew about 4 percent during the period.

Altria, the first of the nation’s largest tobacco companies to report its fourth-quarter and full-year earnings, continues to work on cutting general and manufacturing costs. Last quarter the company announced plans for an additional $400 million in cost savings by the end of 2013 in advance of anticipated cigarette volume declines industrywide. It said the restructuring charges will total 11 cents per share in the fourth quarter.

WHY IT MATTERS: Increased spending on premium brands like Marlboro could signal consumers are adjusting to paying more for cigarettes following federal and state tax increases. Consumer spending continues to be critical to a strong rebound from the worst economic downturn since the Great Depression.

WHAT’S EXPECTED: Analysts expect Altria to earn 49 cents per share on sales of $4.23 billion, according to FactSet.

LAST YEAR’S QUARTER: Altria reported net income of 44 cents per share on revenue of $4.14 billion. Figures for both periods exclude excise taxes the company passes through to the government.

 
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Posted by on January 26, 2012 in Tobacco Facts

 

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Workplaces ban not only smoking, but smokers themselves

As bans on smoking sweep the USA, an increasing number of employers — primarily hospitals — are also imposing bans on smokers. They won’t hire applicants whose urine tests positive for nicotine use, whether cigarettes, smokeless tobacco or even patches.

Such tobacco-free hiring policies, designed to promote health and reduce insurance premiums, took effect this month at the Baylor Health Care System in Texas and will apply at the Hollywood Casino in Toledo, Ohio, when it opens this year.

“We have to walk the walk if we talk the talk,” says Dave Fotsch of Idaho’s Central District Health Department, which voted last month to stop hiring smokers.

Smokers' Rights Map
Twenty-nine states and the District of Columbia have laws that protect smokers’ rights (in blue).

Each year, smoking or exposure to secondhand smoke causes 443,000 premature deaths and costs the nation $193 billion in health bills and lost productivity, according to the Centers for Disease Control and Prevention. The CDC says 19.3% of U.S. adults smoked last year, down from 42.4% in 1965.

“We’re trying to promote a complete culture of wellness,” says Marcy Marshall of the Geisinger Health System in Danville, Pa., which begins its nicotine-free hiring next month. “We’re not denying smokers their right to tobacco products. We’re just choosing not to hire them.”

The policies stir outrage, even in the public health community.

“These policies represent employment discrimination. It’s a very dangerous precedent,” says Michael Siegel, a professor at Boston University’s School of Public Health. He says the restrictions punish smokers rather than helping them quit.

“What’s next? Are you not going to hire overly-caffeinated people?” asks Nate Shelman, a smoker and Boise’s KBOI radio talk show host whose listeners debated the topic last month. “I’m tired of people seeing smokers as an easy piñata.”

After several companies, including Alaska Airlines, adopted smoker-hiring bans a couple of decades ago, the tobacco industry and the American Civil Liberties Union lobbied for smoker rights. As a result, 29 states and the District of Columbia passed smoker-protection laws.

Some laws exempt non-profit groups and the health care industry, and 21 states have no rules against nicotine-free hiring.

Federal laws allow nicotine-free hiring because they don’t recognize smokers as a protected class, says Chris Kuzynski with the U.S. Equal Employment Opportunity Commission.

There’s no data on how many U.S. businesses won’t hire smokers, but the trend appears strongest with hospitals, says Lewis Maltby, president of the National Workrights Institute, a non-profit offshoot of the ACLU that opposes the hiring bans.

Many of the new policies expand on smoke-free workplace rules. At Bon Secours Virginia Health System, more than 300 employees have kicked the habit since its campuses went smoke-free in 2009, and one applicant did so since it began nicotine-free hiring Nov. 30, says administrative director Kim Coleman.

The bottom line will benefit because health care costs for tobacco users are $3,000 to $4,000 more each year than for non-smokers, says Bon Secours’ Cindy Stutts. “There’s also an impact on productivity,” she says, because smokers take more breaks.

Paul Billings of the American Lung Association says he’s seen no data that prove nicotine-free hiring gets people to quit. He says smoking cessation programs are a better bet. Still, his group won’t hire smokers: “We’re non-smoking exemplars.”

 
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Posted by on January 26, 2012 in Tobacco News

 

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Philip Morris International Is Still Looking Like A Good Investment

Shareholders of Philip Morris International (PM) have had a lot to be happy about over the last year. In the latest reported quarter, Q3 2011, the company’s net income surged by 30.5% from the prior-year quarter. The company’s operating income and free cash flow showed similar increases, climbing 29.7% and 25.6% respectively. Free cash flow for the first nine months of the year surged by 22.1% over the prior year period. The company also raised its quarterly dividend by 20.3% to an annualized rate of $3.08 per share.

Philip Morris International
Philip Morris International logo

Philip Morris stock has significantly outperformed the S&P 500 (SPY) index over the last year. The S&P 500 has been relatively flat over the period but Philip Morris International has returned approximately 30% over the 52-week period.

The chart above shows only capital gains and excludes the returns generated in the form of dividends. Philip Morris International has proven itself to be an excellent holding for dividend growth investors in addition to delivering capital gains. Since the company was spun-off from Altria Group (MO) in March 2008, Philip Morris International has raised its dividend by a total of 67.4%. At the time of the spin-off, Philip Morris International paid an annualized dividend of $1.84. The company has raised its dividend every year since then until it reached today’s rate of $3.08 per share annualized.

The company’s comparatively low yield (relative to its peers) is not a bad thing in this case. As the chart above shows, Philip Morris International has a lower dividend payout ratio than its peers. This means that the company is paying out a lower percentage of its net income than its peers. This could indicate that the dividend is more sustainable. It is certainly safer. For example, if Philip Morris suffered a 30% decline in net income (unlikely, but this is only an example) then the company could still afford to pay its dividend. Contrast this with Altria Group, which would not have the income to pay the dividend in the same situation. A lower dividend payout also provides the company with increased flexibility. This is because the company keeps the money that it does not spend on dividends. This money can be used for other purposes and is preferable to funding projects with debt or equity issuance.

Despite the company’s and the stock’s very strong performance over the last year, the stock still appears to be priced at a level that could prove profitable for new investors. To reiterate, the stock has substantially outperformed the Standard and Poor’s 500 index over the last year but it still does not appear to be overbought. The company actually appears to be undervalued relative to its peers.

Zack’s Investment Research estimates that Philip Morris International will earn $4.85 in 2011 (the company will announce its fourth-quarter and full-year 2011 results on February 9) and $5.18 per share in 2012. This would imply that it expects the company to grow earnings by 6.80% year over year. There is some discrepancy over this number though since the site also predicts 10% earnings growth on the same page. The 10% earnings estimate is more in line with the company’s historical growth. This tells us that the tobacco company‘s growth rate is expected to slow but Philip Morris is continuing to show growth potential. This compares favorably with some other tobacco companies such as Altria, which are expected to have declining sales (but still show earnings growth.

Philip Morris International has a PEG ratio of 1.44, which is one of the lowest of its peers.

Philip Morris International looks to be undervalued relative to its peers. The company has already been richly rewarding long-term investors but it looks like it could be poised to continue to deliver strong returns for years to come.

 
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Posted by on January 26, 2012 in Tobacco Articles

 

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Behind Cigarettes’ Brands

Newport Non-Menthol continues to hang in, Marlboro’s promotions will keep building share and Pall Mall’s performance is increasing, according to retailers in the latest UBS-CSP Tobacco Survey.

Marlboro Cigarettes
Packs of Marlboro cigarettes

As revealed in last week’s CSP/Tobacco E-News, retailers in the survey, representing 50 chains and nearly 8,000 stores, expect Philip Morris USA‘s Marlboro to take the lead in gaining market share in the upcoming year.

When asked, however, if they thought the company’s Marlboro Leadership Price (MLP) promotion helped the brand’s share trends in 2011, there was a pretty even mix of yes (48%) and no (51%) answers. (The program, implemented last year, in essence, asks operators to forgo part of their typical markup in exchange for incentives).

Retailer responses included:

“I’m in a fair trade state and was already selling at state minimum. Made zero impact on my numbers.”

“The price strategy of closing the gap of the premium to discount encourages trade-up by consumers.”

Nik Modi, UBS analyst, pointed out that not everyone signed on to the program, estimating about 60% to 70% participation. So, he said, the 48% means “that almost anyone who has signed it is seeing some kind of market share progress.”

For Lorillard Inc.’s Newport Non-Menthol, retailers were also evenly split, with 50% on each side of whether the brand has shown year-over-year growth. “What’s interesting to me,” Modi said, “is the price increase and reductions in the buydown, and the brand is still kind of hanging in there. … It looks like it has more staying power than maybe some people predicted.”

Responses included:

“Newport N/M is being retailed as a fourth-tier product with a premium tier name badge. As we all know in this business, price sells.”

“It was growing steadily since launch. When they took pricing it dropped down two straight months. Since then it has gradually been increasing, but has not again reached its highest pre-increase level.”

Camel Cigarettes
Camel cigarettes packs

For R.J. Reynolds Tobacco Co., 25% of the retailers expect Camel to gain more market share than Marlboro or Newport. Meanwhile, the majority of the retailers (55%) said the company’s Pall Mall brand has shown an increase.

Modi said the Pall Mall responses were better than he expected, but added that he sensed the brand is “still under pressure,” as it makes most of its volume gains in lower-income regions, where PM USA has stepped up promotion of its L&M brands. To his point, one retailer said “L&M discounts have eaten into Pall Mall sales in the last quarter.” Meanwhile, another said RJRT is increasing share because “they are deep discounting Pall Mall and this brand has more awareness than L&M.”

Another retailer pointed out an additional reason for growth in the brand. “Due to the large decline in jobs in this area, there has been a large increase in lower price tobacco product sales. I expect this will continue until the economy improves.”

 
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Posted by on January 26, 2012 in Tobacco Facts

 

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Grandson of major tobacco company founder speaks out against smoking

Patrick Reynolds is the grandson of the late RJ Reynolds, whose company produces cigarette brands Camel, Monarch and Winston. Reynolds says his father’s death from emphysema caused by years of smoking is why he’s trying to help others through The Foundation for a Smokefree America.

Patrick Reynolds
Patrick Reynolds is the grandson of the late RJ Reynolds, whose company produces tobacco products.

“I started smoking myself at 17 and quitting was one of the hardest things I ever did. I failed eleven times. Finally got in a program,” explains Reynolds.

He’s an unlikely advocate for avoiding cigarettes, but his father’s death when he was 15 had a profound effect on him.

Although Reynolds says it wasn’t until he became an adult that he fully understood the impact.

“I remember him gasping for breath. And they say that you find your calling where you’ve been hurt the most deeply,” he says. “As a Reynolds I have a great platform to make a difference on this issue and for over 20 years I’ve been fighting for smoking bans, laws limiting smoking in the workplace when they were controversial and now they’re not.”

Reynolds says with mounting evidence showing the dangerous effects of smoking, it’s time states use more money generated from cigarette sales for tobacco prevention and cessation. “South Carolina is only spending $5 million dollars a year and they’re taking in over $250 million a year in revenue,” he adds.

Reynolds would also like to see a greater effort to protect non-smokers, “There’s an overwhelming body of scientific proof that secondhand smoke causes lung cancer causes heart disease banning it and protecting non-smokers is just an idea whose time has arrived.”

He also answers criticism that attacks on the tobacco industry hurts farmers, “The tobacco companies moved most of the tobacco farming overseas. And they’ve been paying the slave wages to workers in third world poor nations even in China. And it brought the price of tobacco down to the point where a lot of tobacco farmers are now making the transition to fruit and vegetable production profitably they’re planting things now that nourish people and don’t poison people.”

His message is in line with the non-profit Smoke Free Horry. Pauline Levesque serves as youth coordinator for the group. She’s also a former smoker and is now working to educate the community and help other kick the habit, “The message and the hope is that people will take advantage of resources that are available to them the youth that they will not start smoking to be cool and they’ll maintain their health throughout their life.”

Reynolds makes a special effort to reach out to the youth because, “The tobacco companies know that if they don’t get you to start smoking before the age of 19 they’re not going to get you as a customer.”

You might be wondering if Reynolds is living off “tobacco money.” He says he’s sold all his shares with the company and adds what little he did inherit he’s spent towards his efforts for a tobacco-free America.

Reynolds is speaking tonight at 6pm at an event at Horry Georgetown Technical College in the Burroughs and Chapin Auditorium.

In all, 40 cities have smoking bans in place. Next Monday the City of North Myrtle Beach will have a first reading of a smoking ban.

 
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Posted by on January 19, 2012 in Tobacco News

 

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