Philip Morris International, Inc. (PM) is an American tobacco company that earns most of its revenue from countries outside the United States. “It sells cigarettes around the world – with 40% of its sales coming from the European Union, 24% from EMEA (Eastern Europe, the Middle East, and Africa), 22% from Asia, and 12% from Latin America and Canada.” (Rising Star Portfolios, 2011) In the analysis, we will explore PM financial strategy of being the market leader, the microeconomic and macroeconomic environment and challenges that the company faces.
The history of Philip Morris can be traced back as far as 1847 when the company opened its first shop, selling tobacco and cigarettes. Roughly three decades later in 1881, the once private company made a decision to go public. Four years later, the company became known as Philip Morris & Co., Ltd. In 1902, the company became incorporated in New York, by Gustav Eckmeyer. During that time the ownership of the company was divided 50-50 between the British parent and American partners. Then in 1919, they went through another transformation—an acquisition of the Philip Morris Company in the U.S. From the acquisition, Philip Morris & Co., Ltd moved to Richmond, Virginia and became incorporated…the new name Philip Morris & Co., Ltd., Inc. “By the end of the next decade, the Company had begun to manufacture cigarettes in its factory in Richmond, Virginia; in 1924, what was to become its most famous brand, Marlboro, was introduced.
By the mid-1950s the company had become a part of American culture and soon after it launched Philip Morris International to manufacture and market its products around the world.” (Philip Morris, 2011). Currently, Philip Morris International (PM) is one of the world’s top leading tobacco companies with products in approximately 160 countries. In the article, Philip Morris Captures Tobacco Addicted Emerging Markets, Nicholas Pardini talked about the fundamental strength of Phillip Morris and its dominant position international smoking friendly markets. In most developing markets, the demand for cigarettes and other tobacco products are still on the increase. With the exception of China, which has its own tobacco company, Philip Morris controls roughly 28% of the world market.
Table 1: Company Management|
Louis C. Camilleri| Doug Dean| James R. Mortensen| Daniele Regorda| Chairman of the Board and| Senior Vice President,| President, Latin America| Senior Vice President,| Chief Executive Officer| Research and Development| & Canada Region| Human Resources| | | | |
David M. Bernick| Even Hurwitz| Jacek Olczak| Hermann Waldemer| Senior Vice President| Senior Vice President,| President,| Chief Financial Officer| and General Counsel| Corporate Affairs| European Union Region
André Calantzopoulos| Martin King| Matteo Pellegrini| Jerry Whitson| Chief Operating Officer| Senior Vice President,| President,| Deputy General Counsel| | Operations| Asia Region| and Corporate Secretary
Kevin Click| Marco Kuepfer| Joachim Psotta| Miroslaw Zielinski| Senior Vice President and| Vice President,| Vice President and| President, Eastern Europe,| Chief Information Officer| Finance and Treasurer| Controller| Middle East & Africa Region| | | | and PMI Duty Free
CEO Louis C. Camilleri has been with Philip Morris International, Inc. for 33 plus years. Before he joined the company, Camilleri was employed as a business analyst with W.R. Grace and Company located in Lausanne, Switzerland. In his past career, he was the Chairman and Chief Executive Officer of Altria Group, Inc. Camilleri has held several positions with Altria Group, Inc. and its subsidiaries since 1978. “Philip Morris International’s management team has extensive market, function, and management experience, providing the collective depth and business knowledge to successfully manage our business and world-class portfolio of brands and products.” (Philip Morris, 2011). See Table 1 for leadership in the U.S. and other parts of the world. Market Position
CEO Camilleri said, “With much of the developed world still grappling with high unemployment levels, heavy debt burdens and high budget deficits, we nevertheless posted a solid financial performance in 2010.” Philip Morris International, Inc. is and has been the world’s leading seller of tobacco and cigarettes outside the United States with about 15.6 percent of market share.
In comparison with other companies in the industry, Philip Morris has a Market Cap of 141.88 billion. Outside of the United States, the company has great increased prospects in Europe, Latin America, and Southeast Asia where the mass majority of the population have gotten addicted on cigarettes. In the past few years, Philip Morris has generated billions in free cash flow and has increased its dividend each year. Studies show that smoking alone reduces life expectancy by seven to eight years. The company needs to assess the risk potential in their tobacco products…to bring about products with the potential to reduce or lessen the risks of smoking-related diseases. Doug Dean, Senior Vice President, Research and Development of PMI said, the company is working to develop new products that might be less harmful to the consumers, hence there’s no such thing as a safe cigarette. Macro and Micro-Economics
It’s evidence that Philip Morris has a very strong brand portfolio of cigarettes such as: Marlboro, Philip Morris, Virginia Slims, L&M to list a few. “The company is strengthening its brand portfolio through innovation based on enhanced consumer understanding. Marlboro leads the brands and has the largest market share among its close competitors. Marlboro s brand equity is being supported by the introduction of innovative packaging, new blends, and other line extensions, along with fresh execution of its iconic image.” (Zacks Investment Research, 2012) The same can be said about the L&M brand which known for its smoother taste. Company Analysis – S.W.O.T|
If you do not own share in Philip Morris, well you should. The management team has and continues to improve shareholder value through share repurchases and dividends. In June of this year, the company announced a new share repurchase program of $18.0 billion that will start soon after the completion of the ongoing $12 billion share buyback program which began in May 2010. Each year PMI seem to increase its dividend payout…in 2011, it raised its regular quarterly dividend to $0.77 per share, up from $0.64 per share paid earlier. Over the years, there have been tougher restrictions on the tobacco industry…even so that the Food and Drug Administration (FDA) has passed a ruling that will force the tobacco companies to use scary labels on the cigarette packets to keep customers away from smoking. Sadly enough this has had little affect the numbers of smokers.
Many cities across the country have already implemented or planning to banned smoking in public places such parks, restaurants, etc. “Apart from imposing restrictions on smoking, governments across the world are imposing higher taxes which is forcing companies to increase prices. For example: Philip Morris very recently increased cigarette prices in response to higher tax in Japan after the Japanese government announced a two-step tax increase from existing 5% to 8% in 2014 and 10% in 2015.” (Zacks Investment Research, 2012) Despite of the anti-smoking messages, anti-smoking ads and government regulations, the tobacco industry is continuing to see strong profits—Philip Morris International, Inc. “Despite the rush of negativity toward the tobacco industry the cigarette companies trading on the U.S. stock exchanges have posted positive performance this year — all above 10%.” (Lipman, 2011)
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