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High Yielding Dividends From Altria and Philip Morris

Dividend paying companies have gaining popularity in the markets in 2012. With interest rates as low as they are investors are looking at dividend paying stocks for investment income, where returns currently far exceed those of bonds. The Cigarette Industry has been home to some of the safest dividend investments in the market. Even during the recession, when many companies slashed dividend payments, cigarette manufacturers did not. Five Star Equities examines the outlook for companies in the Cigarettes Industry and provides equity research on Altria Group, Inc. (NYSE: MO) and Philip Morris International Inc. (NYSE: PM).

Altria PMI
Logos of Altria and Philip Morris International

Tobacco companies have been experts in dealing with adverse conditions. Negative publicity in the U.S. has sent demand for tobacco down in recent years; however, companies have been able to maintain stable revenues by merely raising the price of cigarettes. With stable profits cigarette companies have been able to keep their high yielding dividends intact.

A proposed law in Australia may prevent a new challenge for the tobacco industry. The Australian government wants impose the first ever ban of logos on cigarette packs. The proposed law would see cigarettes sold in dark olive-brown packages, with graphic images of diseases caused by smoking replacing corporate logos. Countries such as New Zealand, Canada, Belgium, Iceland, and France have all expressed interest in adopting a packaging law like Australia.

In April 20, 2012, Altria‘s annualized dividend yield was 5.1%. Altria expects to continue to return a large amount of cash to shareholders in the form of dividends by maintaining a dividend payout ratio target of approximately 80% of its adjusted diluted EPS.

Phillip Morris currently offers investors a dividend yield of 3.4 percent. The company recently reported first quarter results: Net revenues, excluding excise taxes, were up by 9.7% to $7.4 billion, or by 10.9% excluding currency and acquisitions. The company reported earnings per share of $1.25, up by 17.9%, or by 19.8% excluding currency, versus $1.06 in 2011.

 
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Posted by on May 8, 2012 in Tobacco News

 

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Philip Morris Names Jacek Olczak CFO, Succeeding Hermann Waldemer

Tobacco firm Philip Morris International  on Monday said its Chief Financial Officer Hermann Waldemer has elected to take early retirement effective July 31. Waldemer will be succeeded by Jacek Olczak, with effect from August 1.

PMI Brands
Philip Morris International Brand portfolio

Olczak is currently President, European Union Region. He will be succeeded by Drago Azinovic, currently President, Philip Morris Japan.

Commenting on Waldemer’s retirement, Louis Camilleri, Chairman and CEO, said, “His crowning achievement is undoubtedly his invaluable contribution as CFO to our company’s tremendous performance since our spin off from Altria Group, Inc., in March 2008.”

Olczak has been in his present role since April 2009. Since joining the tobacco company in 1993, Jacek has held several increasingly senior positions in Finance, Sales and Operations, including General Manager Romania, Managing Director Poland and the Baltic States.

Azinovic joined the company in 2009 as Vice President Marketing and Sales for the Asia Region. In July 2011, he was appointed to his current position as President of the company’s affiliate in Japan.

PM closed on Friday at $89.13, down $0.83 or 0.92 percent, on 3.71 million shares.

 
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Posted by on May 8, 2012 in Tobacco News

 

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Philip Morris Names Threats to Cigarette Market

Philip Morris International Tobacco Company is more concerned about the influence on tobacco sales of Russia’s recent acceptance into the WTO than it is about the warning labels the company is required to put on its cigarette packs and about anti-tobacco campaigns.

Philip Morris Izhora, one of the company’s two full cigarette production plants in Russia, decreased production by 2 percent last year — to 70 billion cigarettes per year — while still managing to increase its share of the market by 0.8 percent to 26.2 percent.

Philip Morris Izhora
Philip Morris Izhora tobacco factory

“The number of cigarettes produced by the plants won’t go up soon, it is decreasing all over the world,” said Alexei Kim, director of corporate issues for Philip Morris International affiliated companies in Russia and Belarus.

“Russia has the second biggest tobacco market in the world and its market volume decreased by 2 percent last year, totaling 375 billion cigarettes.”

Reasons for the decrease are the growing struggle between tobacco companies and global anti-smoking campaigns.

Philip Morris International owns two of the strongest segments and most popular brands — Parliament and L&M. This explains why the decrease in tobacco production hasn’t influenced its share of the market. What might influence it in the future, are legal measures now being discussed in the State Duma.

One of the legal measures under discussion is the obligatory placement of graphic images on cigarette packs. The project’s authors base their argument on the experience of other countries such as Thailand.

“After six years of using photo testimonials to the harm of smoking on cigarette packs, the number of smokers in Thailand has decreased by 20 percent,” Rossiyskaya Gazeta newspaper quoted from the explanatory note to the bill Thursday.

Excise tax on cigarettes is also to increase at the beginning of this July.

“Philip Morris Izhora is one of the biggest taxpayers already; in 2011 alone we paid 45 billion rubles ($1.5 billion) in taxes and customs payments to all different types of budget and non-budget funds in Russia,” said Kim.

The Philip Morris Izhora plant produces cigarettes under more than 50 names of international brands such as Marlboro, Parliament and Virginia S. The plant’s cigarettes are distributed in Russia and former Soviet republics and also exported to other countries. The Izhora plant also exports other tobacco-related products such as filters.

“The product we offer is very ambiguous and we try our best to inform our adult consumers about what risks they are taking [when they use it],” said Maria Kulakhmetova, corporate communication and public relations manager at Philip Morris Sales and Marketing in Moscow.

“Our company was the first to put warning labels on cigarette packs. In 2003, we started putting leaflets about the dangers of smoking inside the packs. Also, everyone can read about the risks of smoking on our web site.”

“Concerning the graphic images and warning labels, they won’t influence demand,” said Kim.

“When the warning labels first came out, people were curious and asked questions, but then just started to ignore them. The risks we have identified are connected with Russia joining the WTO and its relationship with the countries in the Customs Union,” he added. “Nevertheless, we are confident in our own brands and their quality.”

 
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Posted by on February 22, 2012 in Tobacco News

 

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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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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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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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Goldman Sachs (GS) Analysts Downgrade Philip Morris (PM) Shares to “Neutral”

Philip Morris (NYSE: PM) was downgraded by Goldman Sachs (NYSE: GS) to a “neutral” rating in a research note issued on Tuesday.

Philip Morris

Philip Morris logo

Separately, analysts at Bank of America (NYSE: BAC) raised their price target on shares of Philip Morris to $85.00 in a research note to investors on Wednesday, January 11st. Analysts at Davenport downgraded shares of Philip Morris from a “buy” rating to a “neutral” rating in a research note to investors on Friday, January 6th. Also, analysts at Nomura (NYSE: NMR) downgraded shares of Philip Morris from a “buy” rating to a “neutral” rating in a research note to investors on Thursday, December 8th.

Philip Morris International Inc. (PMI) is engaged in the manufacture and sale of cigarettes and other tobacco products through its subsidiaries and affiliates. The Company’s products are sold in approximately 160 countries. PMI’s portfolio comprises both international and local brands. Its portfolio comprises both international and local brands, which include Marlboro, Merit, Parliament, Virginia Slims, L&M, Chesterfield, Bond Street, Lark, Muratti, Next, Philip Morris and Red & White. The Company divides its markets into four geographic regions: The European Union (EU); The Eastern Europe, Middle East and Africa (EEMA); The Asia Region, and The Latin America and Canada Region. As of December 31, 2009, PMI operated and owned 58 manufacturing facilities, operated two leased manufacturing facilities, one in Korea and one in Mexico, and maintained 30 contract manufacturing relationships with third parties. In September 2009, PMI acquired Swedish Match South Africa (Proprietary) Limited.

Philip Morris opened at 77.32 on Tuesday. Philip Morris has a 52-week low of $55.98 and a 52-week of $79.96. The stock has a 50-day moving average of $76.62 and a 200-day moving average of $70.40. The company has a market cap of $134.3 billion and a price-to-earnings ratio of 16.40.

 
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Posted by on January 19, 2012 in Tobacco Articles

 

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