Philip Morris International Inc.
) has announced a restructuring plan for its Egyptian business as
part of an initiative to expand in the profitable and growing
North African and Middle Eastern markets.
Per the plan, Philip Morris plans to discontinue its existing
contractual arrangements and has tied up with its strategic
business partner, Eastern Company S.A.E. to create a new PMI
affiliate in Egypt. Eastern Company S.A.E. manufactures Philip
Morris' products on a contractual basis in Egypt.
The company also entered into a new distribution agreement
with Trans Business for Trading and Distribution LLC in order to
facilitate distribution of the company's products in Egypt. With
respect to this restructuring, Philip Morris will record a charge
of approximately 10 cents per share in full-year 2013 results,
which are scheduled to be released on Feb 6.
Philip Morris believes that the new business structure will
simplify operations in Egypt. Moreover, it will strengthen its
presence in the dynamic Middle East market, which is now a
flourishing economy with rapid urbanization. The company thus
foresees large untapped potential for expansion outside the
Philip Morris is the leading international tobacco company in
Egypt, with an estimated market share of 22.9% in 2013, up 4.7
points versus 2012, driven by its premium Marlboro and mid-price
The Egyptian restructuring plan comes on the heels of another
plan announce earlier this month to construct a manufacturing
facility in Bologna, Italy for 500 million euros. The production
plant will produce reduced risk tobacco products called 'Next
Generation Products' (NGPs).
The plant is expected to become operational by 2016 and employ
600 people. The investment in the facility marks Philip Morris'
initiative to shift focus toward the growing alternative tobacco
product category to counter dwindling cigarette shipments.
The tobacco industry is facing difficult conditions owing to
the ongoing anti-tobacco campaigns. Governments around the world
are hiking excise tax on cigarettes and imposing packaging and
We believe that initiatives such as expanding business in the
Middle East and construction of new facilities in the European
Union will help the company maintain market share amid declining
cigarette volumes. Philip Morris carries a Zacks Rank #4
However, some better-ranked tobacco companies include
Altria Group Inc.
Reynolds American Inc.
), all of them carrying a Zacks Rank #2 (Buy).
LORILLARD CO (LO): Free Stock Analysis Report
ALTRIA GROUP (MO): Free Stock Analysis Report
PHILIP MORRIS (PM): Free Stock Analysis
REYNOLDS AMER (RAI): Free Stock Analysis
To read this article on Zacks.com click here.