Philip Morris International Inc.PM started the third quarter of 2015 on a strong note backed by favorable cigarette volumes. In the recently held Barclays Global Consumer Staples Conference, the company announced that almost all its geographic regions have witnessed higher-than-expected cigarette volumes in the third quarter so far in spite of a highly unfavorable currency translation.
In the third quarter to-date, Philip Morris reported a volume decline of more than 0.2% (roughly 1% excluding inventory movements) thus reflecting a moderation in cigarette volume decline in the overall industry. For fiscal 2015, Philip Morris expects cigarette volume to decline in the range of 1% to 5%.
The company's international market share, excluding China and the U.S., increased 0.3 points to 28.6% backed by market share gains of its flagship brand, Marlboro.
Although Philip Morris concluded that its profitability mainly depends on the combustible products, the company is also focusing on the risk-free tobacco products. In order to maintain share in the developed countries, the tobacco biggies have resorted to innovation in the form of e-cigarettes and Reduced Risk Products (RRP) to mitigate the losses due to an increasing number of quitters.
Philip Morris expects to launch a set of Next Generation Products (NGPs) this year for adult consumers at reduced risks related to tobacco. The company launched another reduced-risk product - iQOS - in two pilot markets, Nagoya and Milan, in early 2015. The products received favorable response during the quarter so far. The company is further introducing the product in newer markets in the third quarter. In August, the company launched the product in test markets in Switzerland and commenced its national expansion in Japan in September.
The Zacks Rank #3 (Hold) stock reported better-than-expected sales and profits in the first and second quarters of 2015. Earnings and revenues also increased 16% and 7%, respectively, from the year-ago quarter. Improved volumes, a strong brand portfolio and product innovation offset the unfavorable foreign currency translation and drove the first-half results. Given the strong start to the year and solid figures, management raised the fiscal 2015 earnings growth outlook twice in two quarters. Philip Morris expects year-over-year growth at the higher end of the guided range of 9-11% for fiscal 2015.
Most of the tobacco companies like Reynolds American Inc. RAI and Altria Group Inc. MO and Vector Group Limited VGR posted decent first-half fiscal 2015 results backed by high pricing and volume gains.
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