Philip Morris International (
) announced its fourth quarter earnings on February 7. The global
tobacco giant reported a strong quarter and full year results as
volume growth from Eastern Europe, Middle East & Africa (
) and Asia more than offset the declining cigarette market in the
European Union. Excluding excise taxes, revenues for the full year,
which exclude the impact of currency movements and acquisitions,
grew 5.6% y-o-y driven by favorable pricing across regions.
Cigarette shipment volume grew 1.3% for the full year led by EEMA
(up 4.7%) and Asia (up 4.2%), partially offset by European Union
(down 6.4%) and Latin America (down 1.6%).
See our full analysis for Philip Morris
Russia, Turkey Drive EEMA Volumes Higher
In EEMA, Philip Morris reported a sharp 11.3% increase in net
revenues, excluding the impact of currency and acquisitions, driven
by higher pricing and a favorable volume mix as the premium brands
volume grew almost 7% led by
. Cigarette shipment volume in the region increased by 4.7%,
reflecting market growth in Turkey and higher market share in
Russia. Volume in Turkey grew 8.8% for the full year fueled by
inventory build up during the fourth quarter before the planned
hike in special consumption tax implemented on December 31, 2012.
In the long run, we expect cigarette volumes in Turkey to decline
led by higher prices.
In Russia, the company saw an almost 4% increase in shipment
volume even as the total market is estimated to have declined by
around 1.3% during the year. Volume growth came in with a 0.5% gain
in market share in Russia led by
. However, it will be interesting to see how Philip Morris fares in
Russia this year as the road ahead for tobacco companies in the
country is not going to be easy with the proposed anti-tobacco
legislation on track for phased implementation starting June 2013.
What's The Impact of Russia's Anti-Smoking Law On
) The law aims at bringing down smoking rates in the country
drastically by banning smoking in public places, including
hospitals, government offices and public transport, restricting
marketing and sales of tobacco products and increasing excise
Indonesia Leads Volumes Growth in Asia
Excluding the negative impact of currency, Philip Morris
reported 5.7% growth in net revenues for the full year in Asia.
Shipment volume in Asia grew by 4.2% during 2012 compared to the
previous year led by Indonesia, where the total cigarette market
was up by 8.2%, primarily driven by growth in premium and mid-price
The company reported a sharp 17.5% volume growth in Indonesia,
taking its market share to 35.6% in the country led by
brands. The world's fifth largest tobacco market is expected to
continue to grow driven by a high smoking rate, rampant tobacco
advertising and relatively lax anti-tobacco legislation. (Read:
Key Earning Drivers For Philip Morris
Volume growth in Asia was dampened by exceptionally large
shipments made by the company in Japan during 2011. Following the
natural disaster in March 2011, Japan Tobacco witnessed huge supply
disruptions that resulted in distorted volume growth for Philip
Morris during the year. Excluding the impact of additional
cigarettes sold by the company in 2011, shipment volume in Asia for
2012 increased by 6.4%.
EU Cigarette Volumes Continue to Decline
The total cigarette market in the EU declined by 6.3% on
tax-driven higher prices, uncertain economic environment, and
increasing illicit trading of cigarettes. The market decline
was led by Spain (down 11.7%), Italy (down 7.9%) and France (down
4.9%). Philip Morris reported a 6.4% decline in cigarette
shipment volume in the EU during 2012 primarily due to lower market
while maintaining its market share at 38.1% in the region.
The growth of lower priced other tobacco products (OTP) is also
a factor driving cigarette volumes lower in the EU. In most
countries, excise taxes on tobacco products other than
cigarettes (cigars, cigarillos, fine-cut tobacco for hand-rolling
cigarettes, pipe tobacco, snus, chewing tobacco and so on) are
subject to much lower excise tax levels compared to manufactured
cigarettes which makes them relatively cheaper. Philip Morris'
shipments of OTP in cigarette equivalent units grew by 16.1%,
reflecting a higher total market and share. We expect the declining
cigarette volume trend in the EU region to impact the company's
performance in 2013 as well.
We will update our $87 price estimate for Philip Morris
based on the recent developments.
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