Here's Why Philip Morris (PM) Stock is Down 4.7% in 3 Months

Investors seem to lay low when it comes to Philip Morris International Inc. PM. The tobacco giant’s shares have declined 4.7% in the past three months compared to the industry’s decline of 2.4%. Moreover, the stock fell nearly 4.3% in yesterday’s trading session, on market speculations of a merger between Philip Morris and tobacco giant Altria MO.

Well, matters have not been very rosy for Philip Morris, thanks to sluggish cigarette sales volumes. This has been exerting pressure on the company’s top line performance for a while. Let’s delve deeper and also discuss the company’s efforts to cushion the same.

Declining Cigarettes Sales

Philip Morris’s cigarette shipment volumes declined 2.1% in 2018. The metric declined almost 3.6% in the second quarter, while revenues from overall combustible products declined 7.1%. The decline in cigarette consumption is largely attributable to consumers growing awareness toward the harmful impacts of nicotine.

Moreover, several regulatory impositions on cigarette manufacturing and its marketing have acted as a deterrent. This includes mandatory use of precautionary labels and issuing self-critical advertisements. Moreover, the FDA is inclined to drastically reduce nicotine in cigarettes to minimally-addictive levels. The initiative was proposed in 2017 but was delayed due to ongoing research.

Other tobacco firms such as British American Tobacco BTI and Vector Group VGR are reeling under declining cigarette sales volumes.  

Are RRPs a Safe Haven?

With radical investments for research and development in the reduced-risk products (RRPs) category, Philip Morris is pioneering the radical shift from harmful tobacco products to scientific and low-risk alternatives. In fact, the company’s IQOS, a smokeless cigarette, is among one of the leading RRPs in the industry. IQOS users at the end of second-quarter 2019 totaled more than 11 million, marking an important milestone. In fact, strong growth in IQOS boosted revenues in the RRPs unit, which increased almost 43.7% in the second quarter. Moreover, heated tobacco unit’s shipment volumes improved 37% in the said period

The company expects RRPs to continue aiding adult smokers to switch from traditional cigarettes to smoke-free options. It is therefore investing toward bolstering the unit through new product launches across different market regions. This along with higher cigarette pricing strategies is likely to remain as upsides for this Zacks Rank #3 (Hold) company.

Although the RRPs portfolio is expanding, they are yet to become significant enough to mitigate declines in the larger cigarette units.  Also, things are seemingly unclear surrounding rumors regarding Philip Morris’s merger with Altria.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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