Philip Morris’s Growth Initiatives to Counter Declining Top Line
Philip Morris Let Down Investors with 1Q16 Earnings
In line with industry volume decline
As we’ve already seen, Philip Morris International (PM) expects 2016 organic cigarette volume, excluding the People’s Republic of China and the United States, to decline by 1%–2.5%. This is in line with the industry volume decline of 2%–2.5% for 2016.
Growth in emerging markets
The tobacco industry is highly concentrated with only a few dominant international players. They include British American Tobacco (BTI), Reynolds American (RAI), Japan Tobacco (JAPAF), and Philip Morris. As the industry struggles with declining smoking rates, higher sales taxes, and strict regulations in mature markets, developing economies have offered relatively better prospects.
A growing population and rising disposable income in emerging markets act as a top-down growth catalyst for this industry. Philip Morris has been capitalizing on the growth potential of RRPs (reduced-risk products). The company is focusing on commercialization and clinical assessment of iQOS.
For example, iQOS is currently present in six cities of Switzerland, representing about a third of the total cigarette industry volume. Also, at 1.9% market share, HeatStick’s offtake share was higher in France and stable at 0.2% in the areas covering Turin, Milan, Modena, Rome, and Bologna.
Growth of innovative products
According to CFO (chief financial officer) Jacek Olczak, after conducting the clinical tests for iQOS, the average reductions in biomarkers of exposure for adult smokers who switched to iQOS reached more than 60% in February. The company is focused on demonstrating that iQOS is not only a reduced exposure product but also a reduced-risk product. In Japan, the weekly HeatStick offtake share increased 2.4% in the expansion area and 3.4% in Tokyo by the end of 1Q16.
PM is geographically diverse, which acts as a key growth catalyst. The company has exposure to emerging market economies, which offer huge growth potential. It also has exposure to developed economies with high margins.
PM makes up 1.3% of the iShares S&P 100 ETF (OEF).
To learn more about Philip Morris’s business, you can read The Future of Tobacco Giant Philip Morris: an Inside-Out Breakdown .
To read more industry updates and analysis, please visit our Consumer Products Page .
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