Philip Morris International's sales aren't smokin'

In addition to sliding shipments at the tobacco giant, it's not joining the rush to develop e-cigarettes.

By Jonathan Berr Jul 19, 2013 9:30AM
Shares of Philip Morris International (PM) sold down Thursday after the world's largest publicly traded tobacco company reported disappointing quarterly earnings and said it's taking a pass on the fast-growing e-cigarette market.

Net income at the company, which has dual headquarters in New York and Switzerland, fell 8.3% to $2.12 billion, or $1.30 a share, from $2.32 billion, or $1.36 a share, a year earlier, as the strength of the U.S. dollar hurt profits. That was below the $1.41 a share analysts had expected. Sales fell 2.9% to $7.9 billion, below estimates of $8.17 billion. It also slashed its profit forecast for the year.
When the effects of currencies are excluded, Philip Morris International -- which sells only outside the U.S. after being spun off by Altria (MO) in 2008 -- reported operating profit gains of 2.6% in Eastern Europe, the Middle East and Africa, and a 5.6% jump in business in Latin America and Canada. The European Union and Asia saw declines of 2.6% and 5.6%, respectively.

Pack of cigarettes (© Dan Brandenburg/Getty Images)Overall, global shipments fell 3.9% to 228.9 billion units, indicating that the public continues to take messages about the health dangers of smoking to heart. Fewer young people are taking up the habit as well. The percentage of 8th, 10th and 12th graders in a recent U.S. government survey who reported they started smoking was at its lowest recorded level.

Philip Morris is sitting on the sidelines of the e-cigarette market, which is attracting other companies, including former parent Altria. E-cigarette supporters argue that they're healthier than conventional smokes, a claim that public health advocates dispute.

"Years from now, the situation may be different. But today I don't think that the product is performing well on the taste side," said Philip Morris chief financial officer Jacek Olczak during the company's earnings conference call.

Investors may find Philip Morris' stock more satisfying than its smokes. Although it trades at a five-year-high price-to-earnings multiple of 17.23, Wall Street thinks the stock has room to run. Analysts' average 52-week price target on the stock is $98.80, about 10% higher than where it currently trades. The company also pays a fat dividend yielding 3.8%, which may interest investors who have no qualms about owning a "sin" stock.

Jonathan Berr does not own shares of the listed stocks. Follow him on Twitter @jdberr.

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26Comments
Jul 19, 2013 10:34AM
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"Truth" people must be jumping up and down in joy.  I cannot defend the tobacco industry for decades of lying about health problems caused by its products.  But people have been warned for years about the dangers of smoking - if they still choose to smoke then the consequences are their own responsibility.  Meanwhile many government officials and bureaucrats act surprised that they are collecting less and less sin taxes from an industry that they are working so hard to kill.  It's insane how people seem to want it both ways.
Jul 19, 2013 10:16AM
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Cost 1 cent to make?  Yeah, right.  The reason a pack of smokes is through the roof is because of the massive sin taxes the government takes in.  I don't smoke (never have), but it irritates me that the anti-smoking people rely on hysteria rather than an honest discussion of the facts.  You don't dispute the lies of Big Tobacco with lies of your own.
Jul 19, 2013 12:04PM
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If they stick to the plan of handing out packs of cigs to 12 year olds in Asia to create new customers, maybe this will turn around for them soon and shareholders can heave a sigh of relief.
Jul 19, 2013 1:01PM
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I finally realized and admitted my ignorance more than a dozen years ago and bought the old cash cow, Phillip Morris .

Since then it is spun of several pups that leave me with a total of five companies in my portfolio from one original purchase. What a great world it is to live in.

If people want to smoke, so be it. When you get a grip and realize that idiots will be idiots, why not profit from their mindset.

PM is a great asset.

Jul 19, 2013 2:10PM
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Actually this is wonderful news !!  Hopefully big tobacco will continue to loose sales and stop poisoning us with tobacco! Its sad to see kids smoking and making the same mistakes I made when I started to smoke. Once I started I couldn't quit and was a slave to these big tobacco companies giving my hard earned money away. I smoked these cancer sticks for many years until I tried an electronic cigarette. The day I used an e-cig was the last I ever smoked a real cigarette. YAE!! Its been 3 years now and love my Joyetech e-cigs (They are the best in the industry). Route66Vapor is where I got mine from, a great company BTW, but there are other companies as well located in the USA!

Jul 19, 2013 1:07PM
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started using e-cig 120 days ago after 20 years of 2 packs a day, bye bye pm
Jul 19, 2013 3:48PM
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My wife and I quit smoking last Nov. I guess the tobacco companies are finally feeling the effect. Didn't think we smoked that much!-lol
Jul 19, 2013 3:14PM
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ECigs aren't the wave of the future, they are here! I have been smoking my entire adult life, and I am proudly cigarette free. I can't even remember the last time I bought cigarettes. The taste? No comparison. Cigarettes taste like burnt leaves now (ha, ha), compared to the hundreds of really good flavors out there on the market. I am currently enjoying Java, and it tastes so good it puts my actual coffee to shame. I can breathe easier, my clothes, car, and home don't stink and I don't have to clean out the ashtray or stand in the alienated but sanctioned smoking area at work anymore. Cigarettes are out in a big way. Still waiting to see what happens with the FDA, but all ingredients involved are FDA-approved and there’s too many good reasons to keep this trend going until ultimately Big Tobacco will only have overseas sales because anyone with a set of lungs in the US who wants to keep them will already have switched!

Jul 19, 2013 1:35PM
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I like a good cigar & I mean a good one not some $2 turd! a really great hand rolled stick every once & a while is great but they are getting up there $15 to $30 a stick , but you can get a ok stick for around $7 & if your lucky it wont rip apart before its smoked!
Jul 19, 2013 1:36PM
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Has nothing to do with money, it has everything to do with Balance and Power.

Folks, if they were to remove cigarettes from the shelves in America alone we would go into a state of emergency. It is a balance of energy.

What happens when someone you know or yourself quit smoking? You have a tremendous amount of new energy. You start living again, working out, maybe a job or second job, etc.. It also jumps up the energy of people around you, smoker s or not.

Oil would shoot up to 300 a barrel, and their is not enough jobs now for people, much less all that new energy. Its a balance of energy, always will be. Wanna test me on this? Remove them and see what happens to oil and employment.

Whats sad to say is in the long run, we would be a much better nation, but not gonna happen. They would have to kill off people one way or another. This way, they let people kill themselves.
Jul 19, 2013 3:26PM
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Hey dingbats, they have priced themselves as the price leader. They need to lower their prices a bit, and the government lower their taxes a bunch. Jeeze, what maroons.
Jul 19, 2013 9:54AM
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They exploit human weakness and frailty to sell a pack of misery, sickness, and death for $6. Evil is their only business.
Jul 19, 2013 10:53AM
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I used to work for a tobacco farm; new farm bill just past no food stamps though. you can smoke but you can't eat. no taxes for food stamps.
Jul 19, 2013 11:56AM
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As long as they can keep their second hand smoke way from others it should be ok
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