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Philip Morris Earnings Preview

Philip Morris International is set to report its 2014 first quarter earnings on April 17. We expect the company’s deteriorating market share in the Philippines, where a sharp hike in indirect taxes implemented last year disrupted an otherwise flourishing tobacco industry, to negatively impact its results. We also expect Philip Morris’ weak performance in the European Union to continue, primarily because of the growing prevalence of illegal trading of cigarettes in the region. Furthermore, the company’s performance in the Eastern Europe, Middle East and Africa region is not expected to be great either because of the tightening of anti-tobacco regulations in Russia, one of the biggest tobacco markets in the region.

Philip Morris International is a leading international tobacco company with its products sold in more than 180 countries worldwide. Until its spin-off in March 2008, Philip Morris International was an operating company of Altria Group. Excluding the U.S. and China, the company holds more than 28% of the total international cigarette market, led by its cheap Marlboro.

We currently have a $80 price estimate for Philip Morris International, which is almost in line with its current market price.

Almost 47% of the total volume decline reported by Philip Morris International last year can be attributed to its operations in the Philippines. Following a sharp hike in indirect taxes in the country, the company raised the prices of its Marlboro and Fortune brands by around 60% and 70% respectively. However, a local competitor, Mighty Corp., held back its pricing in the lower price segment, which allowed it to gain significant market share during the year. From mid-single digits in 2012, Mighty’s market share zoomed to over 20% last year.

 
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Posted by on April 15, 2014 in Tobacco Articles

 

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Camel Cigarettes Is Gaining Market Share Among 12 Year Olds

Camel Cigarettes Is Gaining Market Share Among 12 Year Olds

Analyst Vivien Azer notes that “young smoking brand preferences drive long-term market shares.”

Camel Crush Cigs

Camel Crush Kool Boost cigarettes

In this regard, investors might want to consider Camel, which has increased its market share among 12-17 year olds by 21 percent—a gain attributed to the Camel Crush cigarette which switches from plain to menthol when you squeeze it.

And, of course, kids love Joe Camel.

Newport is also gaining ground among young people.

While Marlboro is losing share among younger smokers, Azer says it may stabilize this trend with new products. Despite losing ground, Marlboro remains the biggest cigarette brand among kids and all ages.

Kids tend toward premium cigarettes because they smoke less, and they have a strong and growing preference for menthol.

Overall youth smoking rates are declining, which Azer says is “good.”

 
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Posted by on May 31, 2012 in Tobacco News

 

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And the No. 1 New Cigarette Is …

For the second consecutive year, the same cigarette brand has been named best new product by convenience store and tobacco shop operators.

Marlboro special blend
Marlboro Special Blend

Philip Morris USA‘s Marlboro Special Blend scored top honors, based on the 2nd annual NATO-CSP Tobacco Survey, which asked voters what was their most significant new cigarette product of the past 12 months (calendar year 2011).

With more than 100 respondents, Marlboro Special Blend finished with more than 19% of the vote, equally popular in both tobacco outlets and c-stores. The cigarette finished first last year, scoring even higher with nearly 28% of the total vote. [the surveys may feature different respondents.]

Lorillard‘s investment into the non-menthol arena continues to pay off. The company’s Newport Non-Menthol finished second in the overall tally, scoring nearly 16% in the c-stores channel. In t-shops, Newport Non-Menthol was less popular, landing fourth with nearly 9% voting share. The performance in tobacco stores, however, is markedly better than last year when it finished with a 2% score, possibly because of its arrival, which occurred in late 2010.

UBS tobacco analyst Nik Modi is not surprised by the continued strong performance by Marlboro Special Blend and Newport Non-Menthol.

“Both Marlboro Special Blends and Newport Non Menthol are line extensions of well know premium brands at a good price point–given introductory pricing on Newport Non Menthol and buy downs on Special Blends,” Modi told Tobacco E-News . “This speaks to the consumers’ desire for premium brands at a good value.”

PM USA, the cigarette arm of Altria, touted the success of its Special Blend family of products. “In 2010,” said spokesperson Ken Garcia, “Marlboro gained 0.8 share points behind an attractive introductory offer on Marlboro Special Blend, achieving a record 42.6% retail share for Marlboro for the year.”

 
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Posted by on March 9, 2012 in Tobacco News

 

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And the No. 1 New Cigarette Is …

For the second consecutive year, the same cigarette brand has been named best new product by convenience store and tobacco shop operators.

Marlboro special blend
Marlboro Special Blend

Philip Morris USA‘s Marlboro Special Blend scored top honors, based on the 2nd annual NATO-CSP Tobacco Survey, which asked voters what was their most significant new cigarette product of the past 12 months (calendar year 2011).

With more than 100 respondents, Marlboro Special Blend finished with more than 19% of the vote, equally popular in both tobacco outlets and c-stores. The cigarette finished first last year, scoring even higher with nearly 28% of the total vote. [the surveys may feature different respondents.]

Lorillard‘s investment into the non-menthol arena continues to pay off. The company’s Newport Non-Menthol finished second in the overall tally, scoring nearly 16% in the c-stores channel. In t-shops, Newport Non-Menthol was less popular, landing fourth with nearly 9% voting share. The performance in tobacco stores, however, is markedly better than last year when it finished with a 2% score, possibly because of its arrival, which occurred in late 2010.

UBS tobacco analyst Nik Modi is not surprised by the continued strong performance by Marlboro Special Blend and Newport Non-Menthol.

“Both Marlboro Special Blends and Newport Non Menthol are line extensions of well know premium brands at a good price point–given introductory pricing on Newport Non Menthol and buy downs on Special Blends,” Modi told Tobacco E-News . “This speaks to the consumers’ desire for premium brands at a good value.”

PM USA, the cigarette arm of Altria, touted the success of its Special Blend family of products. “In 2010,” said spokesperson Ken Garcia, “Marlboro gained 0.8 share points behind an attractive introductory offer on Marlboro Special Blend, achieving a record 42.6% retail share for Marlboro for the year.”

 
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Posted by on March 9, 2012 in Tobacco News

 

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History of Cigarettes and Smoking

Tobacco and smoking has a long and checkered history dating. The tobacco plant is believed to be widely spread in America since the 1st Century. Pictorial records of smoking date back to the 11th century. Below is a synopsis of the history of smoking: cigarettes, cigars and tobacco.

Smoking History
Man and woman sitting at the table and smoking with a cigarette holder

1492:Columbus Discovers Tobacco.
1518:
Juan De Grijalva lands in Yucatan, observes cigarette smoking by natives.
1531:
Santo Domingo: European cultivation of tobacco begins.
1556-1558:
Tobacco introduced to France, Spain and Portugal.
1564-1565:
Tobacco introduced to England.
1600:
– Sir Walter Raleigh persuades Queen Elizabeth to try smoking.
1683:– Massachusetts passes the nation’s first no-smoking law. It forbids the smoking of tobacco outdoors, because of the fire danger. Soon after, Philadelphia lawmakers approve a ban on “smoking seegars on the street.” Fines are used to buy fire-fighting equipment.
1794:– The U.S. Congress passes the first federal excise tax on tobacco products.
1860:– Manufactured cigarettes first appear in the United States. A popular early brand, Bull Durham, commanded 90% of the market.
1864:– First American cigarette factory opens and produces almost 20 million cigarettes annually.
1875:– Allen & Ginter cigarette brands, Richmond Straight Cut No. 1 and Pet, begin using picture cards to stiffen the pack and protect the cigarettes. The cards, with photos of actresses, baseball players, Indian Chiefs, and boxers are enormously successful and represent the first modern promotion scheme for a manufactured product.
1900:– Washington, Iowa, Tennessee and North Dakota outlaw the sale of cigarettes.
1901:– 3.5 billion cigarettes and 6 billion cigars are sold. Four in five American men smoke at least one cigar a day.
1902:– Tiny Philip Morris sets up a corporation in New York to sell its British brands, including Philip Morris, Blues, Cambridge, Derby, and a cigarette named after Marlborough Street, where its London factory is located. Marlboro is one of the earliest woman’s cigarette, featuring a red tip to hide lipstick marks. It does not catch on with the public.
1910:– Most popular brands: Pall Mall, Sweet Caporals, Piedmont, Helmar and Fatima.
1913:– RJ Reynolds introduces Camel, considered by historians as the first ‘modern’ cigarette.
1917:– There are now 3 national brands of cigarettes on the US market: Lucky Strike, Camel and Chesterfield.
1921:– RJ Reynolds spends $8 million in advertising, mostly on Camel. Inaugurates the highly successful “I’d Walk a Mile for a Camel” slogan.
1923:Camel captures 45% of the US market.
1924:– Philip Morris re-introduces Marlboro with the slogan “Mild as May,” targeting “decent, respectable” women. “Has smoking any more to do with a woman’s morals than has the color of her hair?” the advertisement reads. “Marlboros now ride in so many limousines, attend so many bridge parties, and repose in so many handbags.”
1927:– A sensation is created when George Washington Hill blatantly aims Lucky Strike advertising campaign at women, urging them to “reach for a Lucky instead of a sweet.” Smoking initiation rates among adolescent females triple between 1925-1935, and Lucky Strike captures 38% of the American market.
1930:– Most popular brands: Lucky Strike, Camel, Chesterfield, Old Gold and Raleigh.
1936:– Brown and Williamson introduces Viceroy, the first national brand to feature a filter of cellulose acetate. Advertising increases the use of physicians to counter the claims that cigarettes are a major health problem.
1940:– Most popular brands: Camel, Lucky Strike, Chesterfield, Raleigh and Old Gold.
1950:– Most popular brands: Camel, Lucky Strike, Chesterfield, Commander and Old Gold.
1952:Kent introduces the ‘Micronite’ filter, which Lorillard claims “offers the greatest health protection in cigarette history.” It turns out to be made of asbestos. Kent discontinues use of the Micronite filter four years later.
1954:– RJ Reynolds:- introduces:- Winston:- filter cigarettes, but promotes the taste benefit, not health. Winston dominates the US market for the next 15 years.
1954:– Marlboro advertising taken over by the Chicago ad agency Leo Burnett. “Delivers the Goods on Flavor” ran the new slogan in newspaper ads. Design of the campaign, which features ‘Marlboro Men,’ is credited to John Landry of Philip Morris. Prior to initiating this campaign, Marlboro had <1% of the US market.
1963:– Marlboro:- dispenses with tattooed sailors and athletes as the Marlboro Man and settles on the exclusive use of cowboys. For several years, Philip Morris research had shown that sales increased whenever they cowboys appeared in their campaigns.
1964:– Marlboro Country ad campaign is launched. “Come to where the flavor is. Come to Marlboro Country.” Marlboro sales begin growing at 10% a year.
1968:– Philip Morris introduces Virginia Slims with the slogan, “You’ve come a long way, baby.” Five yeas later, Billy Jean King, wearing Virginia Slims colors, defeats Bobby Riggs in the televised ‘Battle of the Sexes.’ Virginia Slims continues to promote tennis matches to this day.
1970:– Most popular brands: Winston, Pall Mall, Marlboro, Salem and Kool.
1971:– TV cigarette advertising banned. The ban was scheduled to begin on January 1, but was delayed for one day to allow a final glut of Super Bowl ads. Fairness Doctrine anti-smoking ads also disappear. Cigarette sales begin rebounding from their four year decline. RJ Reynolds’ top-selling Winston brand, which had been challenged by Philip Morris’ Marlboro for most of the 60s, is particularly hard-hit. While the Marlboro cowboy translates into print advertising beautifully, Winston’s only identifier was the jingle, “Winston tastes good, like a cigarette should.” Winston focuses on promoting car racing, but steadily loses market share to Marlboro.
1972:– Marlboro becomes the best-selling cigarette in the world. It remains so today by a wide margin.
1980:– Most popular brands: Marlboro, Winston, Kool, Salem, and Pall Mall.
1987:– Joe Camel’s USA Debut. A North Carolina advertising agency uses Joe Camel to celebrate “Old Joe’s” 75th anniversary. Four years later, the Journal of the American Medical Association publishes two reports on Joe Camel and kids. One study finds that 91% of 6 year olds recognize Joe Camel, similar to the percent who recognize Mickey Mouse. The other study finds that since the inception of the Joe Camel campaign in 1987, Camel’s share of the under-18 (illegal) market has risen from 0.5% to 32.8%, worth >$400 million per year.
1990:– Most popular brands: Marlboro, Winston, Salem, Kool and Newport. However, Marlboro actually outsells Winston by a 3 to 1 margin.
1990:– The US realizes a $4.2 billion trade surplus from tobacco products. Despite 2.5 million deaths worldwide due to smoking, Vice President Quayle remarks, “We ought to think about opening up markets.”
1999:– About 10 million Americans smoke cigars.
1999:– Britain’s royal family orders the removal of its seal of approval from Gallaher’s Benson and Hedges cigarettes.

 
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Posted by on February 22, 2012 in Tobacco Facts

 

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PMI leads the way with volume increase

Philip Morris International‘s shipment volumes during the 12 months to the end of December, at 915,266 million, were increased by 1.7 per cent on those of the 12 months to the end of December 2010.

Excluding acquisitions, volumes were up by 0.5 per cent.

PMI Cigarette Brands
Philip Morris International cigarette brands

Volumes were up by 11.0 per cent to 313,282 million in Asia, because of a higher total market in Indonesia, higher shares in Japan and Korea, and the impact of a business combination in the Philippines.

And they were up by 0.3 per cent to 290,250 million in PMI’s Eastern Europe, Middle East and Africa (EEMA) region driven by higher total markets in Algeria and Saudi Arabia, and higher shares in Algeria and Turkey.

But volumes were down by 4.8 per cent to 100,241 million in Latin America and Canada because of a lower total market in Mexico, partly offset by a higher total market and share in Argentina, and a higher share in Canada.

Volumes were down also in the EU: by 5.1 per cent to 211,493 million. This drop was predominantly due to lower total markets and share, mainly in Italy, Portugal and Spain, and a lower total market in Greece.

Total shipments of Marlboro cigarettes of 300.1 billion were up by 0.9 per cent, driven primarily by growth in the EEMA region of 5.3 per cent, in particular in the Middle East and North Africa, and by growth in Asia of 8.8 per cent, notably in Indonesia, Japan, Korea and Vietnam. The growth was partly offset by a 5.1 per cent fall in the EU and by a 5.8 per cent fall in the Latin America and Canada region.

Total L&M shipments of 90.1 billion were up by 1.7 per cent, total Bond Street shipments of 45.0 billion were increased by 2.0 per cent, total Parliament shipments were up by 12.1 per cent to 39.4 billion, total Philip Morris shipments increased by 1.4 per cent to 39.3 billion, total Chesterfield shipments of 36.7 billion were up by 0.6 per cent, and total Lark shipments of 33.7 billion were increased by 17.5 per cent.

Total shipments of other tobacco products (OTP), in cigarette equivalent units, excluding acquisitions, grew by 7.2 per cent, notably in the Benelux countries, France, Italy and Germany.

Total shipments for cigarettes and OTP combined were up by 0.7 per cent, excluding the effects of acquisitions.

Meanwhile, during the fourth quarter of last year, PMI’s cigarette shipments, at 226,622 million, were up by 0.7 per cent on those of the three months to the end of December 2010.

Asia region shipments were up by 10.5 per cent to 78,095 million, and EEMA shipments were up by 0.2 per cent to 72,218 million.

EU shipments were down by 7.1 per cent to 49,580 million, while Latin America and Canada shipments were down by 7.4 per cent to 26,729 million.

In announcing the results, Louis C. Camilleri, chairman and CEO, said that while PMI’s 2011 results had been lifted by its performance in Japan, they had been “simply superb in each and every aspect”.

“Every single one of our top 10 brands recorded volume growth, we surpassed all of our key financial performance measures and grew our global market share for the fourth year in a row.

“Our total shareholder return in 2011 was an impressive 39.8 per cent, substantially outperforming the broader market indices.”

Looking to the future, Camilleri said that economic uncertainty, currency volatility and the year-on-year comparison of PMI’s business performance in Japan are obvious challenges in 2012. [Japan Tobacco Inc is gradually regaining market share lost when its production and distribution operations were heavily disrupted by the earthquake and tsunami of March 11.]

“We nevertheless begin the year with solid business momentum, confident in our ability to meet our constant currency financial growth targets, and as steadfast as ever in our commitment to reward shareholders with superior returns over the long term.”

For the full year 2011, PMI reported diluted earnings per share up by 23.7 per cent (18.9 per cent excluding currency factors) and adjusted diluted earnings per share up 26.1 per cent (21.2 per cent) to $4.88.

Reported net revenues, excluding excise taxes, were up by 14.3 per cent (9.2 per cent excluding currency factors and acquisitions) to $31.1 billion.

Reported operating companies’ income was up by 18.7 per cent (13.6 per cent excluding currency factors and acquisitions) to $13.6 billion, and adjusted operating companies’ income was up by 19.2 per cent (14.0 per cent) to $13.7 billion.

Operating income was up by 19.0 per cent to $13.3 billion.

 
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Posted by on February 14, 2012 in Tobacco News

 

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How Philip Morris built Marlboro into a global brand for young adults

Philip Morris pursued standardised market research and strategic marketing plans in different regions throughout the world using research on young adults with three principle foci: lifestyle/ psychographic research, brand studies, and advertising/communication effectiveness.

Philip Morris
The American cigarette-maker Philip Morris

Philip Morris identified core similarities in the lifestyles and needs of young consumers worldwide, such as independence, hedonism, freedom, and comfort.

In the early 1990s Philip Morris adopted standardised global marketing efforts, creating a central advertising production bank and guidelines for brand images and promotions, but allowing regional managers to create regionally appropriate individual advertisements.

Prior studies describe the emergence of new markets for tobacco products and the exportation of successful marketing strategies from developed countries to the developing world. However, much of the research to date has been region specific, highlighting the marketing efforts and strategies in specific countries such as Sri Lanka, China, Hungary, Myanmar, or Indonesia.

While some international cigarette brands are concentrated in certain regions, others, such as Marlboro and Camel, are recognised all over the world, particularly among the young.

Values and lifestyles play a central role in the global marketing of tobacco to young adults. Worldwide counter marketing initiatives, coupled with strong, coherent global marketing policies such as the Framework Convention on Tobacco Control, are needed to break associations between young adult values and tobacco brands.

As globalisation promotes the homogenisation of values and lifestyles, tobacco control messages that resonate with young adults in one part of the world may appeal to young adults in other countries. Successful tobacco control messages that appeal to young people, such as industry denormalisation, may be expanded globally with appropriate tailoring to appeal to regional values.

 
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Posted by on February 14, 2012 in Tobacco News

 

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