Well-positioned

Philip Morris International (PMI) reaffirmed its 2020 reported diluted earnings per share (EPS) guidance, announced on Feb. 6, for 2020 full-year reported diluted EPS to be at least $5.50 versus $4.61 in 2019.

The company expects its shipments of cigarettes and heated tobacco units to decline by between 2.5 percent and 3.5 percent this year. This development partly reflects factors affecting overall industry volumes outside of China and the United States, including the impact of an above-inflation excise tax increase in Indonesia and out-switching to the cigarillo category in Japan.

The decline in PMI’s overall shipments is driven by the combustible cigarette category. PMI expects its sales of heated tobacco units to grow significantly, reaching between 90 billion and 100 billion units by 2021.

“PMI is leading the industry’s transformation through IQOS, which is seeing accelerated market share momentum,” wrote Pamela Kaufman and Christine Yang of Morgan Stanley. “IQOS should benefit from additional geographic expansion, new device/heatstick launches and PMI’s improved marketing approach.”

According to PMI, only 2 percent of the world’s 1.1 billion adult smokers have fully switched to reduced-risk products, suggesting considerable opportunity for growth. While the number of IQOS users lags the number of vapers, IQOS adoption should continue to increase as it has been more successful in driving full smoker conversion, senior PMI officials told investors at the Consumer Analyst Group of New York conference in Boca Raton, Florida, USA, yesterday. According to PMI, 71 percent of IQOS users have stopped smoking versus 25 percent of vapers.

PMI has invested some $7.2 billion in IQOS since 2008 and should begin to more meaningfully leverage this investment over the coming years, allowing it to bring down consumer acquisition cost, for example, according to Morgan Stanley.

Meanwhile, the recently announced partnership with KT&G of South Korea will allow PMI to broaden its portfolio with KT&G’s Lil Hybrid and vapor products.