PM - Philip Morris International

[ourkid8]

http://www.wsj.com/articles/SB10000872396390444657804578052664166255722

 

"Why would they share their market?'' Philip Morris Chairman and Chief Executive Louis Camilleri told investors in June. "To come up with new technology is really the only avenue to get into a place like China.''

 

-CNTC has a monopoly with 97% market share in the country with $160B in sales in 2011.

 

Marlboro is the world's top-selling cigarette brand globally, but it has a minuscule 0.3% share of the market in China, where roughly a quarter of the population smokes.  BAT has a 0.5% share. 

 

Tks,

S

Thank you very much.

Regarding China, would you please tell me why it's a big potential? A lot of people in China smoke Marlboro. So isn't PM already there?

[actuary]

Long term, I think PM is probably the greatest company on earth. After all, who else has 30%+ free cash flow margins on their product? Who else has almost no real need for reinvestment in the business and can return 100% of cash year after year after year? All of this with a 5% yield that has increased every year for something like 48 or 49 years (MO+PM)... At a minimum, one should expect their return for holding PM long-term to be equal to the dividend plus the annual increase in dividend. This has a tendency to be 15% or so annually and I think it can go on for decades.

 

Amen.

 

Re: currency questions in this thread. Why not just consider PM part of one's international allocation? Or short the corresponding basket of forex?

[FCharlie]

Thank you very much.

Regarding China, would you please tell me why it's a big potential? A lot of people in China smoke Marlboro. So isn't PM already there?

 

There are more cigarette smokers in China than there are people in the U.S.

 

A few years ago Louis Camilleri made the comment that a ten cent increase in a pack of cigarettes in China would translate into a $12 Billion windfall for CNTC. PM has almost no market share in China, and they feel that a reduced harm product is their best hope for truly breaking into the market.

 

 

[randomep]

Thank you very much.

Regarding China, would you please tell me why it's a big potential? A lot of people in China smoke Marlboro. So isn't PM already there?

 

There are more cigarette smokers in China than there are people in the U.S.

 

A few years ago Louis Camilleri made the comment that a ten cent increase in a pack of cigarettes in China would translate into a $12 Billion windfall for CNTC. PM has almost no market share in China, and they feel that a reduced harm product is their best hope for truly breaking into the market.

 

FCharlie,

 

Just curious about you and other bullish PM posters. What were you doing in 2000 when the Engles decision came down? MO was at $26 which, accounting for all the spinoffs is probable a tenth of what it is today. Were you too young? Were you not into stocks?  How did your opinion of PM change from then to now? It is the same company making the same cigarettes under the same label!  Main difference is the litigation overhang is gone. Did you buy then or did you just recently change your opinion of PM.

 

 

[sleepydragon]

Thanks. I was just asking my Chinese friends how does marlboro sell in China. It's correct that marlboro is not very popular there. One reason is the price. Due to import tax, the price is much higher than the domestic ones. People sometimes buy it as gifts. The other reason is Chinese cigarettes have their own tastes, and most chinese people prefer the chinese cigarettes.

[thefatbaboon]

 

 

I'm by no means an expert of currency hedging and was wondering if anyone could tell me why PM has not been able to hedge meaningfully over the past 2 years in regard to currency?

 

 

PM has never hedged currency. They have a tendency to believe it's a fools game to try and predict currency movements and would rather focus on the business.

 

Not true.  They have used partial hedges regularly over the last two years - particularly in the yen.

 

I really think people need to be more precise with their use of words when discussing currencies.  It's fine to talk about "masked" or "underlying growth" so long as one is clear that it is the DELTA or rate of growth that is being masked.  The ABSOLUTE level of earnings in USD is exactly what it is, no more, no less - there is no "underlying" or "masking" or coiled up earning power or whatever....UNLESS one assumes a favorable exchange rate shift in the future.  I recommend that anyone who is confused regarding currencies, that they "mask true earnings" or "fluctuate up and down" take a moment and go look at long term charts.

 

Building on Actuary's comment - euro and, for some posters, yen can be shorted via margin loans.  For example, a $1m PM investment can be funded via $250k short euros and $150k short yen equivalents and $600k simple cash.  This gives reasonable partial hedge and the euro and yen borrow is very cheap.  Many other currencies are too expensive or impossible to short: rupiah, ruble, peso etc.

 

And regarding the leverage to buy stock.  Camilleri's answer is disingenuous.  No one is suggesting them to borrow CP to buy stock.  What I'm suggesting is that they borrow (a balance of yen, euro and usd) at reasonable duration and use the proceeds to buy stock and sacrifice their single A (and CP access) because the math just doesn't make sense.  PM has more than 10 time interest coverage, pays a full income tax rate and has a stock with a 5% coupon and rising.

 

randomep,

 

MO was one of the first "big" investments I made - $30 in 2003.  $66bn mkt cap.  Included 100% MO, PM, and nearly all of Kraft and Mondelez.  Paying around $2.5 in dividends.  Sold most around $65 but continued to be involved in tobacco primarily through Lorillard.

 

Agree with the other posters that PM is a great business - but I do not think the currency risk should be underestimated for USD investors.  (Same applies to the foreign earning of other internationals: IBM, KO etc)

 

In 2015 if one extrapolates current x-rates PM is on track to lose another $1bn in OI from currency.  EPS will probably be around $4.80 - less than the $4.88 in 2011, and that is AFTER repurchasing 175m shares in between (bit more that 10% of 2011 float).  That's amazing really.  And there is no "coil" waiting to spring back.  If you believe you have the skill to find coiled springs in the currency markets go trade some crosses - you'll make a heck of a lot more than buying PM if you're right.  For the currency agnostic, you'll do what I do, forget the past and re-value PM every year on the basis of prevailing exchange rates.

 

 

 

[Danger Zone]

PM is starting to look very attractive at these levels. My main concern is how growing e-cigarrette sales will affect future earnings. From my understanding, PM has a large market share in this segment, but I don't know how much they earn on a regular smoker vs e-cigarrette smoker. Anyone have some insights?

[FCharlie]

Thank you very much.

Regarding China, would you please tell me why it's a big potential? A lot of people in China smoke Marlboro. So isn't PM already there?

 

There are more cigarette smokers in China than there are people in the U.S.

 

A few years ago Louis Camilleri made the comment that a ten cent increase in a pack of cigarettes in China would translate into a $12 Billion windfall for CNTC. PM has almost no market share in China, and they feel that a reduced harm product is their best hope for truly breaking into the market.

 

FCharlie,

 

Just curious about you and other bullish PM posters. What were you doing in 2000 when the Engles decision came down? MO was at $26 which, accounting for all the spinoffs is probable a tenth of what it is today. Were you too young? Were you not into stocks?  How did your opinion of PM change from then to now? It is the same company making the same cigarettes under the same label!  Main difference is the litigation overhang is gone. Did you buy then or did you just recently change your opinion of PM.

 

 

From 2000 until only a few years ago, MO/PM was my largest investment, something like 25-35% of my portfolio. Even as I added to other investments, MO/PM held that large of a percentage simply because it kept rising. Eventually, after KFT was spun and split into two pieces itself, I sold most of that. I still have all the MO and PM though. In 2010 I began aggressively buying PM again, leading it to be about 35% of my portfolio again. I sold some of that in 2011-2012 and now am becoming very interested again. I don't really do anything with MO except take their dividend in cash. Still reinvesting PM dividends.

 

I don't find myself excited by MO anymore. I don't much care for the wine/beer business. They've been winding down PM Capital forever it seems. The US cigarette market has been declining for what seems like my whole life. I did buy some more MO in 2008 for $15/share as a trade but didn't hold it long enough. I think PM is by far the better company. I also liked that when Altria split up, Louis Camilleri went with PM and not MO.

[FCharlie]

 

 

I'm by no means an expert of currency hedging and was wondering if anyone could tell me why PM has not been able to hedge meaningfully over the past 2 years in regard to currency?

 

 

PM has never hedged currency. They have a tendency to believe it's a fools game to try and predict currency movements and would rather focus on the business.

 

Not true.  They have used partial hedges regularly over the last two years - particularly in the yen.

 

I really think people need to be more precise with their use of words when discussing currencies.  It's fine to talk about "masked" or "underlying growth" so long as one is clear that it is the DELTA or rate of growth that is being masked.  The ABSOLUTE level of earnings in USD is exactly what it is, no more, no less - there is no "underlying" or "masking" or coiled up earning power or whatever....UNLESS one assumes a favorable exchange rate shift in the future.  I recommend that anyone who is confused regarding currencies, that they "mask true earnings" or "fluctuate up and down" take a moment and go look at long term charts.

 

Building on Actuary's comment - euro and, for some posters, yen can be shorted via margin loans.  For example, a $1m PM investment can be funded via $250k short euros and $150k short yen equivalents and $600k simple cash.  This gives reasonable partial hedge and the euro and yen borrow is very cheap.  Many other currencies are too expensive or impossible to short: rupiah, ruble, peso etc.

 

And regarding the leverage to buy stock.  Camilleri's answer is disingenuous.  No one is suggesting them to borrow CP to buy stock.  What I'm suggesting is that they borrow (a balance of yen, euro and usd) at reasonable duration and use the proceeds to buy stock and sacrifice their single A (and CP access) because the math just doesn't make sense.  PM has more than 10 time interest coverage, pays a full income tax rate and has a stock with a 5% coupon and rising.

 

randomep,

 

MO was one of the first "big" investments I made - $30 in 2003.  $66bn mkt cap.  Included 100% MO, PM, and nearly all of Kraft and Mondelez.  Paying around $2.5 in dividends.  Sold most around $65 but continued to be involved in tobacco primarily through Lorillard.

 

Agree with the other posters that PM is a great business - but I do not think the currency risk should be underestimated for USD investors.  (Same applies to the foreign earning of other internationals: IBM, KO etc)

 

In 2015 if one extrapolates current x-rates PM is on track to lose another $1bn in OI from currency.  EPS will probably be around $4.80 - less than the $4.88 in 2011, and that is AFTER repurchasing 175m shares in between (bit more that 10% of 2011 float).  That's amazing really.  And there is no "coil" waiting to spring back.  If you believe you have the skill to find coiled springs in the currency markets go trade some crosses - you'll make a heck of a lot more than buying PM if you're right.  For the currency agnostic, you'll do what I do, forget the past and re-value PM every year on the basis of prevailing exchange rates.

 

What hedges has PM used in the past two years? Any hedges they may have put on were immaterial. They always say they don't predict or hedge currency risk. Even in the most recent November presentation w/ Morgan Stanly Andre Calantzopoulos said about 12 minutes in that it's a "Fools Errand" to try and predict currency.

 

Regarding Camilleri's comment about CP and buying back stock, the analyst asking the question specifically asked why they aren't levering up "With commercial paper at 35 basis points and the stock yielding 5%".    I think management gets asked about levering all the time, and that's why you get comments such as "I don't know how people think buying $5-6 Billion of your stock isn't aggressive.  And what you're suggesting, borrowing in multiple currencies at very low rates, PM has been doing for years already.

 

Yes you are correct that PM's earnings are what they are, but investors should still pay attention to the underlying level of earnings excluding currency. When you have a $1 billion headwind, EPS may be flat, but operationally PM is doing pretty well...The reduced share count and higher dividend yield is the coil waiting to spring back... Show me a stock with 20-25% EPS growth, a 5% dividend yield and a monster buyback and tell me that stock isn't going to explode higher.....

 

And while some people may wish to trade FOREX and make more money, they could lose a lot more also. With PM you have the ability to do very well with a shift in FOREX, but still not lose should currency continue to be a headwind.

[Philip Morris IV]

Thanks. I was just asking my Chinese friends how does marlboro sell in China. It's correct that marlboro is not very popular there. One reason is the price. Due to import tax, the price is much higher than the domestic ones. People sometimes buy it as gifts. The other reason is Chinese cigarettes have their own tastes, and most chinese people prefer the chinese cigarettes.

 

My impression here is that taste and even price are less material factors than access.  PM is only in China via licensing its brands to CNT (which controls manufacturing and distribution).  You can only find PM's brands in major cities and probably not in a full spectrum of stores like you can in the US.  It would be nice if the 10-K gave more color on this, but it does not for now.  Nonetheless I see China and southeast Asia as a modest growth avenue.  Each 1% of market share PM can claim is tens of billions of cigarettes per year.

 

PM is starting to look very attractive at these levels. My main concern is how growing e-cigarrette sales will affect future earnings. From my understanding, PM has a large market share in this segment, but I don't know how much they earn on a regular smoker vs e-cigarrette smoker. Anyone have some insights?

 

As an ecig user and very curious person/investor, I've thought meaningfully about the ecig business.  In my opinion it is not a 'main' concern for a PM investor here.  The market is growing rapidly, but this is the percentage-effect coming from small starting numbers -- it is absolutely dwarfed by tobacco and facing many strong headwinds and quality control issues, especially outside the US.  PM has a leading brand and will continue to introduce and acquire more.  The economics are generally good and I believe will work in PM's favor over time.

 

I could probably go on about the ecig industry if others want more in-depth insight, but suffice to say I personally don't see it as a material threat.  Currency is by far the #1 issue here.

 

FCharlie -- interesting you mentioned PM Capital.  They have one small office in Stamford CT and several years ago I worked for another co in that same building.  No one knew what exactly they did; the office is small with roughly two dozen people.  10-K and website are amusingly vague about PMCC.

[muscleman]

 

 

I'm by no means an expert of currency hedging and was wondering if anyone could tell me why PM has not been able to hedge meaningfully over the past 2 years in regard to currency?

 

 

PM has never hedged currency. They have a tendency to believe it's a fools game to try and predict currency movements and would rather focus on the business.

 

Not true.  They have used partial hedges regularly over the last two years - particularly in the yen.

 

I really think people need to be more precise with their use of words when discussing currencies.  It's fine to talk about "masked" or "underlying growth" so long as one is clear that it is the DELTA or rate of growth that is being masked.  The ABSOLUTE level of earnings in USD is exactly what it is, no more, no less - there is no "underlying" or "masking" or coiled up earning power or whatever....UNLESS one assumes a favorable exchange rate shift in the future.  I recommend that anyone who is confused regarding currencies, that they "mask true earnings" or "fluctuate up and down" take a moment and go look at long term charts.

 

Building on Actuary's comment - euro and, for some posters, yen can be shorted via margin loans.  For example, a $1m PM investment can be funded via $250k short euros and $150k short yen equivalents and $600k simple cash.  This gives reasonable partial hedge and the euro and yen borrow is very cheap.  Many other currencies are too expensive or impossible to short: rupiah, ruble, peso etc.

 

And regarding the leverage to buy stock.  Camilleri's answer is disingenuous.  No one is suggesting them to borrow CP to buy stock.  What I'm suggesting is that they borrow (a balance of yen, euro and usd) at reasonable duration and use the proceeds to buy stock and sacrifice their single A (and CP access) because the math just doesn't make sense.  PM has more than 10 time interest coverage, pays a full income tax rate and has a stock with a 5% coupon and rising.

 

randomep,

 

MO was one of the first "big" investments I made - $30 in 2003.  $66bn mkt cap.  Included 100% MO, PM, and nearly all of Kraft and Mondelez.  Paying around $2.5 in dividends.  Sold most around $65 but continued to be involved in tobacco primarily through Lorillard.

 

Agree with the other posters that PM is a great business - but I do not think the currency risk should be underestimated for USD investors.  (Same applies to the foreign earning of other internationals: IBM, KO etc)

 

In 2015 if one extrapolates current x-rates PM is on track to lose another $1bn in OI from currency.  EPS will probably be around $4.80 - less than the $4.88 in 2011, and that is AFTER repurchasing 175m shares in between (bit more that 10% of 2011 float).  That's amazing really.  And there is no "coil" waiting to spring back.  If you believe you have the skill to find coiled springs in the currency markets go trade some crosses - you'll make a heck of a lot more than buying PM if you're right.  For the currency agnostic, you'll do what I do, forget the past and re-value PM every year on the basis of prevailing exchange rates.

 

I just came across this today. I think I read PM post in 2012 but I didn't want to pay 20 P/E to buy it. It is 16 P/E as of today and the EPS growth seems to be zero in the past 3 years. I understand it is probably due to currency rates though.

 

Why do you think the company is buying back $6 bn of stock per year at such a high P/E? Do you still expect the EPS to grow at 25% per year for the next 10 years?

[thefatbaboon]

muscleman,

 

they are not buying back $6bn stock a year.  They did a couple years ago but last year was $4bn, and they have estimated 1-2bn for 2015 during their investor day last summer.  Seeing the deterioration in fx since then my guess is between $0 and $1bn for the share repo in 2015.

 

FCharlie, you can find numerous references to their hedging in their q&a after earnings conference calls (seeking alpha has free transcripts) - I think Judy Hong (a powerful imbecile) and Jacek had a discussion about it this 3Q. But they've been doing targeted hedging since just before Camilleri stepped up from CEO and Abe did his first yen deval.  (It's one of the reasons why we can be fairly sure this year is going to have another massive currency hit - because yen was getting booked at better than market in 2014.)

 

You persist in taking about a coiled spring of share repo and dividend...it's very misleading, there is no "coil" EXCEPT with a bounce back or partial bounce back in x-rates.  With static x-rates PM is more expensive today at $80 than it was end 2011 at $80 - it just has a higher div payout (and lower repo).

 

I risk sounding like a broken record here so I will quit banging on about currencies now!

 

 

[orthopa]

Hi Orthopa, can you explain what you mean regarding the currency?  The USD index is say 90 today and earnings is 5.00 today. Ok if the index goes back to 80 I can see you believe the earnings power is $5.72.  But we don't know which way the currency will go? Is your arguement implicitly shorting the USD?

 

 

In every PM 10Q and 10K filing they report the impact of currency on E.P.S. so far this year it's running around negative 72 cents, or just over a billion dollars. Because most investors focus on E.P.S. only, they only see a company that is not growing at all. Underneath, PM is reporting an underlying increase from pricing and buybacks, only slightly offset by higher interest expense. The trick to PM, (other than to hold forever of course)  would be to buy when currency is hammering the bottom line, with the thinking that it won't last forever. When PM reports $1 billion of currency gains + $700 million of pricing + a 30 cent impact from fewer shares outstanding, you get a blue chip stock with 20-25% E.P.S. growth and everyone goes nuts. If you're a trader, that's when you sell. If you're like me, you simply stop buying and look elsewhere.

 

Long term, I think PM is probably the greatest company on earth. After all, who else has 30%+ free cash flow margins on their product? Who else has almost no real need for reinvestment in the business and can return 100% of cash year after year after year? All of this with a 5% yield that has increased every year for something like 48 or 49 years (MO+PM)... At a minimum, one should expect their return for holding PM long-term to be equal to the dividend plus the annual increase in dividend. This has a tendency to be 15% or so annually and I think it can go on for decades.

 

Took the words out of my mouth, could not have said it better myself.

[orthopa]

 

No I got it about MO, I have owned it since 2000, believe me I know its history.

 

But to say PM earns $5.72 USD last year is incorrect. It earnd $5 last year. The PE today is 80/5. That's all I was pointing out.  Ok you can compare relative performance to calculate EPS growth fine.

 

Orthopa said next year it will earn $6 next year. The only way that'll happen in the real world if the USD drops. If you can predict that the USD will drop ok, then I'll load up on PM and stocks in France. But we don't know.

 

My reasoning is I'm buying a piece of a business. The business I am buying is increasing earnings year over year due to pricing increases and buybacks. Those price raises and shares bought back are not based on currency. I zero it all out in my mind.  Those earnings are then are reduced by the effects of currency. In my mind all the currency is, is a coupon to get it, it 10-15% off or pay 10-15% too much. I look at it this way as currency effects wax and wane and there are years where currency will be a tailwind. This theory would be invalided if the dollar was pegged to the converting currencies...but its not. PM averages ~2B a year in price increases. So in 5 years they have gained 10B in pricing power but say the dollar trended down during that time period. Translated earnings are lower but that does not reflect the fundamentals of the business.

 

I also believe that if PM was sold to a private buyer the purchase price would be based on currency neutral earnings under the assumption currencies fluctuate and that there will be years where earnings are magnified and lessened. Currency exposure could be factored in the price but it would be small IMO as it could easily be argued either way.

 

If currency was to have the opposite effect in 2015 and say $6.00 was currency neutral and there was a $.72 tail wind for a total eps of $6.72. I would'nt be a buyer there as in my mind the business and its ability to raise prices, buy back shares etc. is still earning $6.00 a share. IMO it would be foolish to buy and pay for the currency tailwind as the pricing power, shares bought back essentially the ability of the business to turn out cash was not increased.

 

Im ok with waiting during the time periods of "synthetic" undervaluation as I get a static return in a dividend that is also increasing yearly compounded by reinvestment. My yield on cost with PM is 8% so every year I can expect a 8% return on my original investment plus or minus the fluctuation in share price which I don't pay much attention too.

 

My investment thesis would change when pricing power was lost, free cash flow was changed significantly by some other force, the cigarette business all of a sudden required significant reinvestment, or the shareholder nature of the company changed significantly. Not currency.

[orthopa]

Thank you very much.

Regarding China, would you please tell me why it's a big potential? A lot of people in China smoke Marlboro. So isn't PM already there?

 

There are more cigarette smokers in China than there are people in the U.S.

 

A few years ago Louis Camilleri made the comment that a ten cent increase in a pack of cigarettes in China would translate into a $12 Billion windfall for CNTC. PM has almost no market share in China, and they feel that a reduced harm product is their best hope for truly breaking into the market.

 

FCharlie,

 

Just curious about you and other bullish PM posters. What were you doing in 2000 when the Engles decision came down? MO was at $26 which, accounting for all the spinoffs is probable a tenth of what it is today. Were you too young? Were you not into stocks?  How did your opinion of PM change from then to now? It is the same company making the same cigarettes under the same label!  Main difference is the litigation overhang is gone. Did you buy then or did you just recently change your opinion of PM.

 

I was too young/didnt have any money to invest at that point. Even if I had the $$ I was to ignorant to the concept of investing to even know if it was a good opportunity. I wish I would have. I think an even more powerful point is to overlay a graph of MO/PM share price over time vs smoking incidence. A large argument detractors to the thesis (not implying you, just saying) is the decreasing smoking rate. Looking at such a graph I would simply ask why would anything change in regard to share price/smoking incidence. Why are decreasing smokers even a risk?

 

If MO can perform as it has with decreasing smokers /litigation, what would/will happen with a static number orslight increase in smokers ie PM?

[FCharlie]

I still am amazed at the rates PM is borrowing at. Last year they issued five year debt at 0.75% and ten year debt at 1.625% and fifteen year debt at 2.875%

 

This year they have 750 million Euros of debt rolling off that was 5.875% and next year another 750 million Euros that were issued at 5.75% 

 

Based on the more recent issuances, I'd expect PM can roll this debt over at about 2%, saving about $60 million annually.

[ourkid8]

Wonderful and let's hope forex at least stabilizes in 2015 so the company can restart their large share repurchase program. 

 

Tks,

S

 

I still am amazed at the rates PM is borrowing at. Last year they issued five year debt at 0.75% and ten year debt at 1.625% and fifteen year debt at 2.875%

 

This year they have 750 million Euros of debt rolling off that was 5.875% and next year another 750 million Euros that were issued at 5.75% 

 

Based on the more recent issuances, I'd expect PM can roll this debt over at about 2%, saving about $60 million annually.

[orthopa]

I still am amazed at the rates PM is borrowing at. Last year they issued five year debt at 0.75% and ten year debt at 1.625% and fifteen year debt at 2.875%

 

This year they have 750 million Euros of debt rolling off that was 5.875% and next year another 750 million Euros that were issued at 5.75% 

 

Based on the more recent issuances, I'd expect PM can roll this debt over at about 2%, saving about $60 million annually.

 

I agree, it would be nice if they could issue more EU debt as it essentially de-leverages the balance sheet when they pay the interest with the strong dollar now.

 

I have been buying more lately in small stabs to take advantage of the 5%+ div. I think the EU volumes will be particularly strong this year with the low oil prices, and monetary stimulus.  The ruble has also strengthened nearly 20% since management gave guidance in early Feb.

[muscleman]

Hi Orthopa, can you explain what you mean regarding the currency?  The USD index is say 90 today and earnings is 5.00 today. Ok if the index goes back to 80 I can see you believe the earnings power is $5.72.  But we don't know which way the currency will go? Is your arguement implicitly shorting the USD?

 

 

In every PM 10Q and 10K filing they report the impact of currency on E.P.S. so far this year it's running around negative 72 cents, or just over a billion dollars. Because most investors focus on E.P.S. only, they only see a company that is not growing at all. Underneath, PM is reporting an underlying increase from pricing and buybacks, only slightly offset by higher interest expense. The trick to PM, (other than to hold forever of course)  would be to buy when currency is hammering the bottom line, with the thinking that it won't last forever. When PM reports $1 billion of currency gains + $700 million of pricing + a 30 cent impact from fewer shares outstanding, you get a blue chip stock with 20-25% E.P.S. growth and everyone goes nuts. If you're a trader, that's when you sell. If you're like me, you simply stop buying and look elsewhere.

 

Long term, I think PM is probably the greatest company on earth. After all, who else has 30%+ free cash flow margins on their product? Who else has almost no real need for reinvestment in the business and can return 100% of cash year after year after year? All of this with a 5% yield that has increased every year for something like 48 or 49 years (MO+PM)... At a minimum, one should expect their return for holding PM long-term to be equal to the dividend plus the annual increase in dividend. This has a tendency to be 15% or so annually and I think it can go on for decades.

 

Is PM still growing at 20% EPS earning after adjusting for forex gain/losses? Or is it more like 12-15%?

 

http://seekingalpha.com/article/2910666-looking-beyond-the-q4-headlines-of-philip-morris-international

It seems like the EPS growth excluding foreign currency impact is just 8-10%.

[FCharlie]

I still am amazed at the rates PM is borrowing at. Last year they issued five year debt at 0.75% and ten year debt at 1.625% and fifteen year debt at 2.875%

 

This year they have 750 million Euros of debt rolling off that was 5.875% and next year another 750 million Euros that were issued at 5.75% 

 

Based on the more recent issuances, I'd expect PM can roll this debt over at about 2%, saving about $60 million annually.

 

I agree, it would be nice if they could issue more EU debt as it essentially de-leverages the balance sheet when they pay the interest with the strong dollar now.

 

I have been buying more lately in small stabs to take advantage of the 5%+ div. I think the EU volumes will be particularly strong this year with the low oil prices, and monetary stimulus.  The ruble has also strengthened nearly 20% since management gave guidance in early Feb.

 

 

Indeed the Russian Rouble has strengthened  from 67 to 56 roubles per dollar since PM gave guidance last.

 

Unfortunately, look at some other currencies:

 

Argentine Peso has declined from 8.64 to 8.82 per dollar

 

Indonesia Rupee has declined from 12,625 to 13,015 per dollar

 

Japanese Yen has declined from 117.28 to 119.78

 

Turkish Lira has declined from 2.46 to 2. 59 per dollar

 

Ukraine Hryvnia has declined from 16.08 to 23.25 per dollar

 

The Euro has declined from .88 to .92 per dollar

 

Overall, I think PM will report even stronger headwinds and even lower guidance when they next report.

[fareastwarriors]

I just want to say great call on this one guys.

[ourkid8]

Its the greatest company in the world!

 

Tks,

S

 

I just want to say great call on this one guys.

[tytthus]

I'm happy enough with results, but am not happy they felt they couldn't use the buyback program while the stock was hitting 52 week lows.

[ourkid8]

Management has already guided us due to volatile exchange rates, they do not foresee any share repurchases in 2015.  It is unfortunate but prudent to maintain their credit rating.

 

Tks,

S

 

I'm happy enough with results, but am not happy they felt they couldn't use the buyback program while the stock was hitting 52 week lows.

[The Falcon]

Have been following PM for a while waiting for some capital to be freed up. Missed recent entry point in the 70s. Hoping for an opportunity soon to begin building a position...I think anything with a 7 in front would do it.