J.P. Morgan: War Could Thwart PMI’s Smoke-Free Ambitions

The war in Ukraine could seriously impact sales of Philip Morris International, reports MarketWatch. Earlier this week, J.P. Morgan downgraded the multinational’s shares to “neutral” from “overweight,” citing the company’s exposure to Russia and Ukraine.

PMI derives about 8 percent of group sales from Russia and Ukraine combined, according to the investment bank. The two countries account for about 23 percent of PMI’s heated-tobacco unit (HTU) volume. Heated-tobacco products are key to PMI’s next-generation growth strategy as they are reportedly less harmful than cigarettes.

PMI entered the Ukrainian market in 1994. In 2021, Ukraine accounted for around 2 percent of PMI’s total cigarette and HTU shipment volume and under 2 percent of PMI’s total net revenues. The company has one factory and approximately 1,300 employees in the country.

Russia accounted for almost 10 percent of PMI’s total cigarette and HTU shipment volume and around 6 percent of PMI’s total net revenues in 2021. PMI opened its first representative office in Russia in 1992 and has more than 3,200 employees in the country.

PMI’s cigarette shipments to Russia in 2021 fell to 52.5 billion units from 55.6 billion units in 2021, and the percentage of total cigarette shipments fell to 8.4 percent from 8.8 percent, according to a company filing with the U.S. Securities and Exchange Commission.

For HTUs, Russian shipments rose to 16.3 billion units from 13.6 billion units while the percentage of total HTU shipments slipped to 17.2 percent from 17.9 percent.

Meanwhile, PMI’s HTU market share in Russia improved to 7.4 percent from 6.3 percent while the company’s overall HTU market share increased to 3.5 percent from 3 percent.

On March 9, PMI announced the suspension of its planned investments in Russia, including all new product launches and commercial, innovation and manufacturing investments. PMI has also activated plans to scale down its manufacturing operations in Russia amid ongoing supply chain disruptions and the evolving regulatory environment.