Category: Financial

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.

Marlboro has maintained its status as the world’s most valuable tobacco brand despite a 3 percent decrease in brand value to $32.7 billion in 2020, according to a Brand Finance report.

L&M is the second most valuable brand with a brand value of $6.3 billion. L&M is the fourth best-selling international cigarette brand outside of the U.S. and China.

Pall Mall, Winston and Copenhagen have recorded solid brand value growth, with Winston seeing a 9 percent increase in brand value to $4.1 billion. Winston is the second best-selling cigarette brand globally.

Camel suffered a 14 percent drop in brand value to $3.4 billion. The drop is attributed to menthol bans around the world.

Newport suffered a 6 percent drop in brand value, causing it to drop out of the Brand Finance Tobacco 10 ranking this year.

Rothmans and Gold Flake have entered the ranking this year. Rothmans has a brand value of $3.1 billion and Gold Flake has a brand value of $3 billion.

Swedish Match reported sales of SEK14.74 billion ($1.53 billion) in 2019, up 14 percent over its 2018 sales. Fourth quarter sales increased 19 percent to SEK3.93 billion.

Operating profit was down 8 percent to SEK1.1 billion for the fourth quarter but was up 10 percent to SEK5.31 billion for the full year. Operating profit from product segments was up 22 percent to SEK1.53 billion for the fourth quarter and up 18 percent to SEK5.83 billion for the full year.

“In many respects, 2019 will stand out as a transformational year for Swedish Match—a year in which we not only delivered record sales and operating profit from product segments, but also where the company, aligned with our vision, established itself as the clear market leader for nicotine pouches in the United States and began offering nicotine pouches to markets outside of our core Scandinavian and U.S. markets,” said Lars Dahlgren, CEO of Swedish Match.

“The group’s outstanding financial performance in 2019 further reflects our commitment to our vision as the snus and moist snuff product segment accounted for essentially all of our growth in sales and operating profit from product segments in local currencies.”

In related news, Swedish Match announced it will increase production capacity for its tobacco-free nicotine pouch product, ZYN.

Swedish Match began rolling out ZYN across the U.S. last year, and the company recently decided to expand its U.S. plant. “Given the market success of ZYN, we have recently decided to once again expand capacity,” the company said in a statement. “The fourth phase, which is planned to be completed in 2022, will involve building expansion as well as processing and packaging lines that will increase annualized installed capacity to more than 200 million cans.”

Pyxus International announced its third quarter results for the period ending Dec. 31, 2019.

The company’s sales and other operating revenue decreased to $363.3 million for the three months from $524.5 million for the same period in 2018. Gross profit was down to $55.1 million from $74.7 million in 2018.

As a percentage of sales, however, gross profit improved to 15.2 percent from 14.2 percent, due to favorable currency exchange rate fluctuations resulting in lower green leaf  inventory prices in Africa and South America.

“Two years into our One Tomorrow initiative, we have made significant operational progress against our strategy to transform the business and become a purpose-led company,” said Pieter Sikkel, chairman, president and CEO of Pyxus.

“With products spanning more than five different categories, Pyxus is well on its path to becoming a diversified agricultural technology and consumer products goods company. Across all of our business segments, we strongly believe that our commitment to transparency, sustainability, quality and growth based on market demand will position us as a stronger company prepared to meet the requirements of the international market.”

Japan Tobacco (JT) reported revenue of ¥2.18 trillion ($19.8 billion) in 2019, down from ¥2.22 trillion in the previous year. Its adjusted operating profit was ¥515.9 billion, compared with ¥595.5 billion in 2018. The company’s adjusted operating profit at constant currency exchange rates for the year was ¥600.8 billion, up 0.9 percent over the previous year.

For the fourth quarter of 2019, JT reported revenue of ¥541.9 billion, compared with ¥540 billion in the comparable 2018 period. Adjusted operating profit was ¥64.4 billion, down from ¥84.5 billion the 2018 quarter. Adjusted operating profit at constant currency exchange rates was ¥74.5 billion, down 11.8 percent over the prior year quarter.

“Our consolidated adjusted operating profit at constant FX grew year-on-year, driven by growth in the tobacco business which exceeded the decline in the pharmaceutical business,” said Masamichi Terabatake, president and chief executive officer of the JT Group. “We also secured our free cash flow delivery despite a profit decline due to unfavorable currency movements.”

“To pursue sustainable profit growth, the JT Group’s Business Plan 2020 incorporates the lessons learned through our business operations. The tobacco business remains the core and the key driver of our profit growth,” said Masamichi.

Philip Morris International (PMI) sold 706.71 billion cigarettes and 59.65 billion heated tobacco units in 2019, down 4.5 percent and up 44.2 percent, respectively, over 2018. In the fourth quarter of 2019, PMI shipped 175.09 billion cigarettes and 17.11 billion heated tobacco units. Those figures were down by 8 percent and up by 40.7 percent, respectively, over the prior year quarter.

PMI reported net revenues of $29.81 billion in 2019, up from $29.63 billion in 2018. Its operating income was $10.53 billion, compared with $11.38 billion in the previous year. Adjusted operating income was $11.76 billion, up from $11.38 billion in 2018.

“2019 marked a year of strong underlying business performance for PMI, driven by broad-based growth for IQOS and solid pricing for our combustible tobacco portfolio, with like-for-like adjusted diluted EPS up by 9.9 percent, excluding currency,” said André Calantzopoulos, chief executive officer of PMI.

“We continue to make significant progress in the transformation of our business, with smoke-free products now accounting for 8 percent of shipment volume and nearly one-fifth of net revenues, while further demonstrating our ability to maintain combustible tobacco leadership internationally, as evidenced by Marlboro’s full-year cigarette share of 10 percent—an all-time high.”

Morgan Stanley noted that the strong heated tobacco volumes reinforce the improving momentum of PMI’s IQOS device over the past quarters. “We expect today’s in-line results and solid FY2020 guidance to offer relief given lower expectations heading into the quarter and concerns around 2020 guidance due to anticipated headwinds in Indonesia,” wrote Morgan Stanley analyst Pamela Kaufman, referring to an above-inflation tobacco tax hike in that country.

Universal Corp. reported net income of $56.1 million for the nine months ended Dec. 31, 2019, compared with $72.8 million for the same period of the prior fiscal year. Excluding certain nonrecurring items, net income declined by $20 million.

For the third fiscal quarter that ended Dec. 31, 2019, net income was $26 million, compared with net income of $28.1 million for the prior year’s third fiscal quarter. Excluding certain nonrecurring items, net income declined by $17 million.

For the quarter ended Dec. 31, 2019, results declined for all segments compared to the quarter ended Dec. 31, 2018. Consolidated revenues decreased by $277.5 million to $1.3 billion for the nine months ended Dec. 31, 2019, and by $131.1 million to $505 million for the three months ended Dec. 31, 2019, compared to the same periods in fiscal year 2019, on lower sales volumes and prices.