Philip Morris chokes as cigarette volumes shrink

Billy Bambrough
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Philip Morris is trying to diversify its business away from traditional cigarettes with fewer health risks
Philip Morris is trying to diversify its business away from traditional cigarettes with fewer health risks (Source: Getty)

Cigarette firm Philip Morris has beaten bottom line Wall Street expectations in its third quarter, posting a profit of profit of $1.94bn (£1.57bn).

However, cigarette volumes choked, dropping by more than five per cent.

The numbers

The firm reported diluted earnings per share of $1.25 for the third quarter, which were flat versus 2015.

Net revenues hit $19.9bn, up by 2.6 per cent, while operating income climbed by 0.6 per cent to $3bn.

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Cigarette shipment volumes fell by 5.4 per cent to 207.1bn units.

Shipment volume declined by eight per cent in Latin America and Canada, slid nine per cent in Asia, and fell 5.4 per cent in the Eastern Europe, Middle East and Africa unit. Volume edged up 0.4 per cent in the European Union, where the company gets about one-third of its revenue.

Philip Morris hiked its regular quarterly dividend by two per cent to an annualised rate of $4.16 per common share.

The company reaffirmed its 2016 full-year reported diluted earnings per share forecast to be in a range of $4.53 to $4.58, as previously announced on September 29, 2016, versus $4.42 in 2015.

Why it's interesting

Shipment volumes declined over the quarter in all geographic segments except Europe, where shipments recorded a small increase.

In May, the European Union’s highest court rejected a challenge by Philip Morris and other tobacco companies against tough new antismoking laws that were introduced in the 2014 tobacco directive. The law banned menthol cigarettes, mandates bigger warning labels on cigarette packaging and, for the first time, sets limits on electronic cigarettes.

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As a result Philip Morris has spent more than $3bn dollars developing a potentially reduced-risk portfolio. The first of four platforms – an electronic product called iQOS that heats tobacco rather than burning it – is currently in stores in 10 markets.

If traditional cigarette volumes continue to decline Philip Morris will be relying heavily on its investment in alternative smoking devices paying off.

What the company said

André Calantzopoulos, Philip Morris chief executive, was keen to stress the company would hit its full year forcasts.

In a statement he said:

We are confident that we will achieve our full-year reported diluted EPS forecast. We continue to anticipate annual volume in line with the September year-to-date decline of 3.9 per cent, despite temporary volume weakness this quarter.

We are particularly encouraged by the strong performance of iQOS across all of its launch geographies, particularly in Japan where HeatSticks recorded a quarterly share of 3.5 per cent.

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