Oh, happy day. Philip Morris (Altria), the No. 1 private cigarette manufacturer in the world, saw its profits drop a dramatic 8 percent in the second quarter of 2013, mostly due to lagging sales. Philip Morris shares dropped 2.5 percent as a result.
Here’s what is interesting. We all know the sales of cigarettes is down, so at first blush, this doesn’t seem to be a big surprise.
What IS a big surprise? The biggest reason for the drop in profits is the drop in sales of Philip Morris brands (mostly Marlboro) overseas.
One thing a lot of people may not realize is that while cigarette sales have been obviously dropping the U.S., the tobacco industry has weathered the storm just fine, mostly by expanding its overseas markets in burgeoning smoking regions such as India, the Philippines and Africa. Philip Morris is blaming a sluggish economy overseas:
According to USAToday:
The cigarette maker reported earnings of $2.12 billion, or $1.30 per share, in the quarter ended June 30, down from $2.32 billion, or $1.36 per share, a year ago.
Excluding excise taxes, revenue fell 2.5% to $7.9 billion despite higher prices. Costs to make and sell cigarettes rose more than 1% to $2.7 billion.
Cigarette shipments fell about 4% to 228.9 billion cigarettes as it saw volume declines in all of its regions. Total Marlboro volumes fell nearly 6% to 72.4 billion cigarettes.
Philip Morris International said economic woes in the European Union and increased excise taxes drove shipments down nearly 6% during the quarter. Shipments fell 3.6% in the company’s region that encompasses Eastern Europe, the Middle East and Africa. Shipments also fell 2.4% in Latin America and Canada.
In Asia, one of its largest growth areas, the company said that cigarette volume fell 3.5%, hurt by a recent tax increase in the Philippines, which saw a 16.5% decline in shipments.
Smokers face tax increases, bans, health concerns and social stigma worldwide, but the effect of those on cigarette demand generally is less stark outside the United States. Philip Morris International has compensated for volume declines by raising prices and cutting costs.
Anytime the tobacco industry is hurting that is great news. Perhaps its a bad economy, but maybe smoking bans, higher taxes and lower smoker rates in other countries is having an effect, as well. Of course, Philip Morris would never admit THAT.
3 thoughts on “Philip Morris profits down 8 percent in second quarter 2013”
Markets are feeling the pinch globally. Though India is still showing growth it’s certainly not as before, plus they have a huge tobacco industry, their north western states have mostly tobacco as their major crop. And beedi ( indian cigs) are cheap and found everywhere, they are simply stated caustic.
You know, I didn’t realize this. I always assumed Philip Morris was the No. 1 cigarette company in the world. No, they’re No. 2. No. 1 is the China National Tobacco Corp. Big Tobacco tried to muscle into China about 10 years ago, but the Chinese wouldn’t let them in.
Despite its stature as the second-largest brewer in the U.S., for Philip Morris, Miller was small beer. Its $4.24 billion in sales was less than 5% of Philip Morris’ total sales of $89.9 billion in 2001. Its sales actually fell by 3% last year and the brewery contributed less than 3% to Philip Morris’ $17.4 billion in profit. By contrast, Anheuser-Busch reported record beer sales both by volume and revenue in 2001.
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