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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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Ratings Rationale in Tobacco Industry

Standard and Poor’s rates the securities maturing in 2016 through 2023 A, or five steps below top grade; those due in 2024 through 2033 A-, one level lower; and the 2035 maturity BBB+. The ratings reflect the likelihood of timely payments, tobacco company credit quality, the deal’s structure and the presence of about $57.3 million in a liquidity reserve account, S&P said.

The 1998 accord that 46 states struck with Phillip Morris USA (PM), Reynolds American Inc. (RAI) and Lorillard Inc. (LO) required the companies to pay more than $200 billion to resolve their liability in litigation over health costs related to smoking cheap cigarettes. About $101 billion of municipal debt is backed by the payments, which are based on cigarette shipments.

Tobacco munis produced a 0.48 percent year-to-date total return through June 20, compared with a 2.13 percent loss for the broad muni market, according to Barclays Capital indexes.

A Louisiana tobacco bond maturing in May 2039 traded June 21 at an average yield of 5.88 percent, with the spread averaging 2.16 percentage points over benchmark munis of the same maturity, according to data compiled by Bloomberg. On Jan. 2, the tobacco bond had an average yield of 3.73 percent, a risk premium of 1.03 percentage points.

 
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Posted by on June 25, 2013 in Tobacco Facts

 

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