Tag Archives: tobacco companies

Cigarettes Labeling Law in Australia

The new labeling law, which bans brand logos and requires health warnings to cover 75 percent of the front of cigarettes packages and 90 percent of the back, aims to remove the allure of well-known brands. Last year, a challenge to the law brought by British American Tobacco, Imperial Tobacco, Japan Tobacco and Philip Morris Australia — arguing that it was a violation of their intellectual property rights — was dismissed by the Australian High Court.

The packaging law is quickly becoming an international trade issue. Philip Morris Asia, whose headquarters are in Hong Kong, is challenging the legislation under a broad 1993 bilateral trade agreement aimed at promoting and protecting trade between Australia and Hong Kong. Philip Morris argues that by stripping its products of their brand identity, the law hurts its intellectual property in violation of that agreement.

Cuba, the world’s dominant producer of fine cigars, filed a “request for consultations” in May with Australia through the World Trade Organization, the first time the country has used the forum to confront another nation directly over its commercial laws. The Dominican Republic, Honduras and Ukraine have already challenged Australia over the issue at the W.T.O., citing “technical barriers” to trade and violations of intellectual property rights.

In another closely followed move, Japan Tobacco, Asia’s biggest publicly listed cigarette maker, said at the end of June that it had filed suit against the Thai government over its plan, announced in April, to increase the size of graphic health warnings to 85 percent of the cigarette pack cover, from 55 percent.

The taste issue comes into sharp focus at Sol Levy Tobacconist. Evelyn Platus, whose grandfather was the founding Mr. Levy, has managed the shop on a prime strip of real estate in what is now Sydney’s booming Chinatown for more than 20 years. On a recent afternoon, it was nearly empty. Her business, she said, has been hurt by high taxes and restrictive rules governing tobacco. But when it comes to plain packaging, the ire she normally reserves for the “nanny state” is pointed at Big Tobacco.

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Posted by on July 16, 2013 in Tobacco News


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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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Tobacco companies will battle branding ban through courts

Alison Cooper, chief executive of the FTSE 100 tobacco giant, which owns labels such as Davidoff, said the industry in the UK would “absolutely” challenge through the courts efforts by the Government to introduce plain packaging for cigarettes and other products.

Health Secretary, Andrew Lansley, last month published a consultation on plans to strip cigarette packets of their colourful logos and branding, which tobacco companies argue will do little to curb smoking and make it easier for criminals to gain a bigger slice of the market.

Plain Marlboro Pack
Plain Marlboro cigarettes pack

Tobacco companies mounted a legal challenge against similar plans in Australia, the result of which is expected within the next few months.

When asked if the industry would do the same in the UK, Ms Cooper said: “It’s absolutely something we would challenge but I’m really hoping we don’t get to that.”

Vince Cable is under mounting pressure to intervene in the bitter face-off between the tobacco industry and the Department of Health. Cigarette companies are pressing the Business Secretary to take charge of the consultation on plain packaging amid claims Mr Lansley has demonstrated a lack of “objectivity”.

Ms Cooper has written to Mr Cable and the Prime Minister expressing concern about Mr Lansley’s stance after he said last month the Government wants tobacco companies to have “no business” in the UK. Imperial Tobacco and other manufacturers such as Silk Cut-owner JTI want Cable’s Department for Business, Innovation and Skills (BIS) to step in to ensure that issues such as the potential impact on jobs will not be lost amid the health debate.

It is estimated that 70,000 Britons are directly or indirectly employed by the tobacco industry and it contributes between £10.5bn and £12.5bn per annum to the Treasury’s coffers.

The industry calculates one in four cigarettes smoked in the UK is bought from smugglers or counterfeiters – a figure that is expected to rise if the industry is regulated more tightly.

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Posted by on May 8, 2012 in Tobacco News


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Tobacco firms celebrate as judge rules against graphic images on packets

Judge rules mandate to put images, including a sewn-up corpse of a smoker, on cigarette packets violates free speech.

Tobacco Companies
Cigarette manufacturers

A judge has blocked a federal requirement that would have forced US tobacco companies to put large graphic images on their cigarette packages later this year to show the dangers of smoking.

US District Judge Richard Leon in Washington ruled that the mandate to put the images, which include a sewn-up corpse of a smoker and a picture of diseased lungs, on cigarette packets violated the free speech amendment to the constitution.

He had temporarily blocked the requirement in November, saying it was likely cigarette makers would succeed in a lawsuit, which could take years to resolve. That decision already is being appealed by the government.

Some of the largest US tobacco companies, including RJ Reynolds Tobacco Co and Lorillard Tobacco Co, had questioned the constitutionality of the labels, saying the warnings didn’t simply convey facts to inform people’s decision whether to smoke but instead forced the cigarette makers to display government anti-smoking advocacy more prominently than their own branding. They also said changing the packaging would cost millions of dollars.

The Food and Drug Administration said the public interest in conveying the dangers of smoking outweighed the companies’ free speech rights.

In his ruling on Wednesday, Leon wrote that the graphic images “were neither designed to protect the consumer from confusion or deception, nor to increase consumer awareness of smoking risks; rather, they were crafted to evoke a strong emotional response calculated to provoke the viewer to quit or never start smoking.”

“While the line between the constitutionally permissible dissemination of factual information and the impermissible expropriation of a company’s advertising space for government advocacy can be frustratingly blurry, here the line seems quite clear,” Leon wrote.

The FDA and the Justice Department declined to comment on the ruling, but the Department of Health and Human Services released a statement saying the administration was determined to do everything it could to warn people of smoking’s dangers.

“This public health initiative will be an effective tool in our efforts to stop teenagers from starting in the first place and taking up this deadly habit,” the statement said. “We are confident that efforts to stop these important warnings from going forward will ultimately fail.”

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Posted by on March 13, 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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