PM - Philip Morris International

[LC]

Or if e-cigs are no longer giving smokers enough of a hit, maybe they move back to cigarettes.

[StubbleJumper]

The regulatory announcement is purely noise for PM.  What is more important and what should not be forgotten is that the US dollar has dropped by 10-ish percent since the beginning of 2017.  Pretty much all of PM's lacklustre performance of the past few years has been attributable to unfavourable currency movement.  Well, now we have a favourable movement.  Ignore the silliness about the regs.

[Neversummer]

In reality what is the process to get this implemented? I can't say I'm familiar with it. Does the FDA simply say "so it is written so it is done?" Or is there some sort of bill that is proposed and voted on? Congress can't agree on squat so I'm just curious if it needs to go through congress anyway. I am assuming the FDA does not need congressional approval based on the reaction in PM.

[StubbleJumper]

In reality what is the process to get this implemented? I can't say I'm familiar with it. Does the FDA simply say "so it is written so it is done?" Or is there some sort of bill that is proposed and voted on? Congress can't agree on squat so I'm just curious if it needs to go through congress anyway. I am assuming the FDA does not need congressional approval based on the reaction in PM.

 

 

Process?  PM sells cigs pretty much everywhere but the US.  The FDA can invent regulations to their heart's content, and it does not matter one iota to PM unless other national regulators elect to put in place similar measures.

[CorpRaider]

Heard Russo on this one recently.  At least he seemed favorably impressed with the imprimatur of the FDA in regard to smokeless cigs.  Just saying.

[Read the Footnotes]

The regulatory announcement is purely noise for PM.  What is more important and what should not be forgotten is that the US dollar has dropped by 10-ish percent since the beginning of 2017.  Pretty much all of PM's lacklustre performance of the past few years has been attributable to unfavourable currency movement.  Well, now we have a favourable movement.  Ignore the silliness about the regs.

 

I agree that this press release is either no news or good news for companies selling to the US market. With that said, the best thing that could happen is for a a completely non-sensical draw down to take the price significantly below current levels so that those of us who bothered to read and think can have a nice buying opportunity. I have seen other instances where press releases were misinterpreted and led to a 50% drop in market price over several months, only to then rebound once rationality returned. I think that is unlikely in the case of PM, it would be almost too good to be true. More likely in the case of BAT and MO, but it pays to be prepared, and one can always hope.

[randomep]

The regulatory announcement is purely noise for PM.  What is more important and what should not be forgotten is that the US dollar has dropped by 10-ish percent since the beginning of 2017.  Pretty much all of PM's lacklustre performance of the past few years has been attributable to unfavourable currency movement.  Well, now we have a favourable movement.  Ignore the silliness about the regs.

 

Now that is the most significant news for the shareholder from all the recent posts.

 

The question an investor should ask is: are we living healthier lifestyles?

 

- there is a greater acceptance of recreational drugs like marijuana

- alcoholic consumption is as high as ever

- obesity is as bad as ever

 

so why would cigarette consumption decline? people will find a way to get their nicotine fix no matter what, the dopamines in our body will make it so and no amount of FDA regulation will change that

[Neversummer]

Ack! I meant the process here in the US and how it goes down for MO (I'm still stuck in the old days of no spin :) ).

 

I appreciate it affects MO and negligible most likely for PM what I don't know is what the process is for getting this implemented in the USA

[fareastwarriors]

Big Tobacco Won’t Let the FDA Cut Nicotine Without a Fight

 

Lobbyists will likely lead the campaign against making cigarettes less addictive.

 

https://www.bloomberg.com/news/articles/2017-08-03/big-tobacco-won-t-let-the-fda-cut-nicotine-without-a-fight

[orthopa]

I bought MO, PM, and BTI today.

 

It was nice to immediately pickup a 6% return on PM shares bought just a few hours ago. The dip in PM share price was pretty illogical. I can't figure out how they are exposed to today's FDA press release regarding domestic US nicotine levels given that their sales are 100% international.

 

MO, and BTI are also interesting. They have both traded down similar amounts, but BTI is significantly more international and therefore less exposed to uncertainty in the US market

 

The truth is as LC pointed out on the "What are you Buying" Thread, this only impacts previously unregulated products such as cigars and e-cigarettes.

 

"Importantly, the anticipated new enforcement policy will not affect any current requirements for cigarettes and smokeless tobacco, only the newly-regulated tobacco products such as cigars and e-cigarettes."

 

Finally, though the political cover of the press release is that this change will have positive health effects:

 

"The U.S. Food and Drug Administration today announced a new comprehensive plan for tobacco and nicotine regulation that will serve as a multi-year roadmap to better protect kids and significantly reduce tobacco-related disease and death." https://www.fda.gov/NewsEvents/Newsroom/PressAnnouncements/ucm568923.htm

 

The truth is that this change could actually increase e-cigarette consumption and therefore revenue. Ask yourself, do people usually drink larger volumes of wine or beer? If the nicotine content were to go from wine levels to beer levels, would people smoke more or fewer e-cigarettes?

 

I don't know if I can interpret the announcement as not affecting cigarettes at all. FDA also says in announcement  "The FDA plans to begin a public dialogue about lowering nicotine levels in combustible cigarettes to non-addictive levels through achievable product standards. "

 

That line alone kept me from adding more to MO then I have. Secondly it wasn't terribly cheap after the 20% drop with PE still in high teens. Any implementation is probably 3-4 years away but again the price drop wasn't enough to get the shares into a zone to get me too excited.

 

"A key piece of the FDA’s approach is demonstrating a greater awareness that nicotine – while highly addictive – is delivered through products that represent a continuum of risk and is most harmful when delivered through smoke particles in combustible cigarettes."

 

The quote above to mean screams IQOS. The FDA doesn't seem as worried about people getting nicotine as much as how its delivered. Enter IQOS. Significantly less risk with the same taste and ritual as regular smoking. (Platform 2 is even more so). IQOS also seems to fit the bill in that it delivers 15% less nicotine too.

 

I don't think we see E cigs take off as much as the FDA wants due to failures that have occurred so far, lack of throat hit, lack of smoke plume volume, and loss of taste and ritual.

 

If anything PM made out like a bandit with this statement. No US exposure and 4 eventual platforms for the FDA to pick through and 4 chances to find a product that customers really like. In addition to currency PM should have a relatively long runway of RRP growth compared to all competitors. PM has been trialing its products for almost 3 years now and pushing the limits of capacity to the absolute limit. Its my biggest position and would have loved to add more but still don't love the valuation.

 

[fareastwarriors]

Big Tobacco Has a Death Wish

https://www.bloomberg.com/gadfly/articles/2017-09-20/philip-morris-and-the-slow-death-of-smoking

[Valuehalla]

I am in MO and PM long time and death was always predicted during the last 20 years, but it didnt happen. The investment was great over the years.

 

Concerning MO I like that they are massiv in the alcohol business as well, beside investments in 2 wineries, they are the major shareholder of BUD. They hold app 10 % of BUD, which is today app. 22,5 B. The marketcap of MO is 117,4 B today, so a significant asset inside MO.  (My main BRK-investment does not cover alcohol or smoking industry, thats why I decided many years ago to do so)

 

http://media.corporate-ir.net/media_files/IROL/80/80855/2017ASM/Remarks_and_Reconciliations.pdf

 

Altria and its companies had another outstanding year in 2016. We generated adjusted net earnings of $5.9 billion, or $3.03 per share, representing 8.2% adjusted diluted earnings per share (EPS) growth versus the prior year. We delivered a total shareholder return of 20.5%, far outpacing the S&P 500 and S&P Food, Beverage & Tobacco Index. It marks the fourth consecutive year that total shareholder returns exceeded 20%. We paid shareholders over $4.5 billion in dividends, increased our dividend by 8%, and repurchased over $1 billion of Altria shares. We also took advantage of favorable capital market conditions to further strengthen our balance sheet.

 

I hold also BUD shares directly and hope that we will see a magic & mighty attack from the 3 G guys, with a great army of BRK, BUD, KHC & maybe QSR. MO will maybe benefit as well from that.

 

For me smoking and drinking is anyhow connected and if analysts see a great future for alcohol cause of self driving cars or drones, i expect a positive side effect for smoking too. So I expects % of smokers probably to rise again in the future.

 

MO at current level app US$62 is a buy to me. Add PM for the rest of the globe, beside America, which will soon be great again. 8)

 

 

 

[Foreign Tuffett]

I am in MO and PM long time and death was always predicted during the last 20 years, but it didnt happen. The investment was great over the years.

 

Concerning MO I like that they are massiv in the alcohol business as well, beside investments in 2 wineries, they are the major shareholder of BUD. They hold app 10 % of BUD, which is today app. 22,5 B. The marketcap of MO is 117,4 B today, so a significant asset inside MO.  (My main BRK-investment does not cover alcohol or smoking industry, thats why I decided many years ago to do so)

 

http://media.corporate-ir.net/media_files/IROL/80/80855/2017ASM/Remarks_and_Reconciliations.pdf

 

Altria and its companies had another outstanding year in 2016. We generated adjusted net earnings of $5.9 billion, or $3.03 per share, representing 8.2% adjusted diluted earnings per share (EPS) growth versus the prior year. We delivered a total shareholder return of 20.5%, far outpacing the S&P 500 and S&P Food, Beverage & Tobacco Index. It marks the fourth consecutive year that total shareholder returns exceeded 20%. We paid shareholders over $4.5 billion in dividends, increased our dividend by 8%, and repurchased over $1 billion of Altria shares. We also took advantage of favorable capital market conditions to further strengthen our balance sheet.

 

I hold also BUD shares directly and hope that we will see a magic & mighty attack from the 3 G guys, with a great army of BRK, BUD, KHC & maybe QSR. MO will maybe benefit as well from that.

 

For me smoking and drinking is anyhow connected and if analysts see a great future for alcohol cause of self driving cars or drones, i expect a positive side effect for smoking too. So I expects % of smokers probably to rise again in the future.

 

MO at current level app US$62 is a buy to me. Add PM for the rest of the globe, beside America, which will soon be great again. 8)

 

 

 

US cigarette volumes peaked in 1981 and the adult smoking rate consistently declines year after year. The % decline in 2015 was one of the largest on record. The idea that "self driving cars or drones" are going to "probably" reverse this secular decline is.....interesting....but not in a good way.

 

Also, the vast, vast majority of MO's operating profit comes from its smokeable products segment. Something to keep in mind when thinking about the wine segment and BUD stake.

[DooDiligence]

 

For me smoking and drinking is anyhow connected and if analysts see a great future for alcohol cause of self driving cars or drones, i expect a positive side effect for smoking too. So I expects % of smokers probably to rise again in the future.

 

 

I wonder if attitudes will shift generationally.

 

Right now smoking has a bad rep (and rightly so) but the next gen may turn into a bunch of drunken, red meat eating, chain smokers.

 

Fingers crossed  ;D

[sleepydragon]

 

For me smoking and drinking is anyhow connected and if analysts see a great future for alcohol cause of self driving cars or drones, i expect a positive side effect for smoking too. So I expects % of smokers probably to rise again in the future.

 

 

I wonder if attitudes will shift generationally.

 

Right now smoking has a bad rep (and rightly so) but the next gen may turn into a bunch of drunken, red meat eating, chain smokers.

 

Fingers crossed  ;D

 

I think a lot of kids smoke in college, but mayne most quit after graduation.

[boilermaker75]

 

I wonder if attitudes will shift generationally.

 

Right now smoking has a bad rep (and rightly so) but the next gen may turn into a bunch of drunken, red meat eating, chain smokers.

 

Fingers crossed  ;D

 

Actually, eating grass-fed red meat is very healthy,

 

https://draxe.com/grass-fed-beef-nutrition/

 

It is a high-carb diet that is bad for you.

[DooDiligence]

 

I wonder if attitudes will shift generationally.

 

Right now smoking has a bad rep (and rightly so) but the next gen may turn into a bunch of drunken, red meat eating, chain smokers.

 

Fingers crossed  ;D

 

Actually, eating grass-fed red meat is very healthy,

 

https://draxe.com/grass-fed-beef-nutrition/

 

It is a high-carb diet that is bad for you.

 

Yeah, I was going 4 a visual with that...

 

:o

 

Some folks are aggressive risk takers (mountain climbing, base jumping, bitcoin...)

Other prefer to show their edginess in a more passive way (smoking, chewing, bitcoin...)

 

I'm thinking there'll be enough of the latter 4 cash flow & we'll see if management can make the long pivot to smokeless.

Maybe they'll become acquisitive & start expanding alcohol?

[John Hjorth]

Anyone have any idea what's going on in the market with PM today? [down ~ 16 - 17 percent.]

[Spekulatius]

PM’ revenues and volumes were below expectation.

 

I am bearish on tobacco because I think smokeless products will replace tobacco quicker than many think and won’t be nearly as profitable , plus new entrants can take significant market share with a better product (see Juules).

[fareastwarriors]

Philip Morris Plunges the Most in a Decade on Slump in Cigarettes

 

https://www.bloomberg.com/news/articles/2018-04-19/philip-morris-sales-disappoint-as-cigarette-demand-slips-further

[Foreign Tuffett]

PM’ revenues and volumes were below expectation.

 

I am bearish on tobacco because I think smokeless products will replace tobacco quicker than many think and won’t be nearly as profitable , plus new entrants can take significant market share with a better product (see Juules).

 

I did lots of work on Altria last year, but never jumped in for basically the reason you outline (among other things, including valuation). Big Tobacco USA (Altria and Reynolds) have a massive moat due to scale, brand loyalty, and the severe advertising restrictions that make it very, very difficult for new brands to gain traction. However, their moat is in traditional tobacco products, not e cigarettes and other technology based nicotine delivery devices. As of mid-2017 (the last time I updated my model) Altria's e cigarette segment (Nu Mark) wasn't even profitable! In 2015 cigarettes volumes in the US declined by something like ~10%, an accelerated pace compared to past years. This, along with the mom-and-pop "vaping" retail shops that have popped up everywhere, signaled to me that younger nicotine addicts were moving away from traditional cigarettes fairly quickly. Altria really needs the FDA (or some other government agency) to bail them out by regulating e cigarette and vaping industry so that it becomes more akin to the traditional cigarette market. I wasn't willing to bet on this happening. 

 

PM has been the most aggressive of the big cigarette companies in investing in next generation products. iQOS/HeatSticks garnered lots of traction in Japan very quickly. However, Japan is the ultimate fad driven market, and vaping-type devices are banned. I felt the market was extrapolating PM's Japanese success to other markets without recognizing the Japanese market's uniqueness. 

 

In sum, I don't think next gen nicotine delivery products are, or are likely to be, anywhere nearly as "moaty" as traditional tobacco products have been.   

 

 

 

[bathtime]

Purely anecdotal. I teach in a high school. It struck me a moment ago reading this thread that I can't remember seeing a high school kid smoking a regular cigarette anywhere near my school in the 2.5 years I've taught there. Not outside the school, not outside nearby coffee shops. Clearly I'm not paying full attention - or they are doing it elsewhere -  as it can't be zero. But that is way different than when I was in high school.

[doughishere]

Purely anecdotal. I teach in a high school. It struck me a moment ago reading this thread that I can't remember seeing a high school kid smoking a regular cigarette anywhere near my school in the 2.5 years I've taught there. Not outside the school, not outside nearby coffee shops. Clearly I'm not paying full attention - or they are doing it elsewhere -  as it can't be zero. But that is way different than when I was in high school.

 

Why would you smoke cigarettes from one of these companies? Its all downside. At least marijuana and e-cigs dont have all those chemicals that arent natural. Best estimates show that vaping is 95% safer than smoking tobacco cigarettes. Note, im not sayin its safe just safer. I think some studies claim that there 7,000 compounds inhaled in tobacco smoke. Whats the benefit of that?

 

You dont need a lighter, theres no butts to throw on the ground and i can fit my cig-pen in anything. If im a high schooler i can whip my pen out when the teacher isnt looking, take a drag, and blow it out the window or something....it literally takes 3 seconds and its quiet.

 

 

If you ask me the kids are just being smarter than their adult counterparts. Its not messy. It doesnt stink. It a 10000x better product and i can even get one that cherry flavored if I want to.

 

 

 

[orthopa]

PM’ revenues and volumes were below expectation.

 

I am bearish on tobacco because I think smokeless products will replace tobacco quicker than many think and won’t be nearly as profitable , plus new entrants can take significant market share with a better product (see Juules).

 

There is no evidence to suggest that smokeless products will be less profitable. In fact it should be just the opposite. What evidence do you have of this?

 

Better products will come and go with trialing. FDA will over time regulate most competition due to regulations, fees or studies needed for product verification.

[orthopa]

IMO the drop is due mostly due to valuation coming inline. A lot of consumer staples and tobacco had over time. PM had not yet. PM is finally back in line with historical valuation metrics.

 

Its way to early to have an honest opinion on the future of any of the cigarette alternatives. This uncertainty was a hit too.