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Msg  11855 of 11860  at  1/11/2017 3:34:47 PM  by

Korynd


 In response to msg 11854 by  mo_strategist
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Re: Another Wells report

With the caveat I raised before (global cigarette consumption is currently falling)
While this is true, it has not been a cause of profit declines at PM, especially in the past five years. By comparison, PMUSA has faced declining cigarette consumption for decades now, going from a high of over 40% of Americans smoking to now being well under 20%. Despite that, they still have grown cigarette profits massively during that period through price increases.
 
Likewise, PM does not need actual consumption growth in cigarettes to increase profits, since price increases have long been their main driver of their profit growth as well. Many of PM's market (the EU, Japan, etc.) have rates of annual consumption decline that are similar to the US, and have been for a long time now as well.
 
The emerging markets where consumption volume has still grown recently, are often low profit areas for now. PM often invests time and money in those markets to build brands that they hope will eventually generate more profit as the country becomes more wealthy, hoping they will accept future price hikes and/or uptrade to premium cigarettes. Sometimes they abandon seeking volume on low profit brands, as they did this year in Pakistan and the Phillipines, because it makes little strategic sense.
 
I guess you can call such things "challenges", but that is really saying nothing, as all companies have challenges.  My point was there are no specific, unique, or new "challenges" that PM has faced in the past five years that caused their earnings growth to stagnate other than negative currency.
 
Its a whole article on currency effect and PM. Bottom line is, this author is bearish with respect to currency effect in 2017.
Yes, but the article doesn't even address PM's actual currency problem, because it confines itself to a dollar index that excludes most emerging market currencies.  As large as the drop in the Euro and the Yen has been, the drop in many emerging market currencies that PM deals in has been dramatically worse.
 
The current analyst forecast for 2017 is likely too optimistic at this point, as they still expect PM to increase earnings from $4.50 in 2016 to $4.70 in 2017, while assuming only about 25 cents per share in negative currency for 2017.
 
My current expectation for 2017, given the recent declines in the Euro and Yen, plus massive drops in the Turkish Lira, Mexican Peso, and Egyptian Pound, is that profits will likely be flat at best, and likely even below the $4.50 earned in 2016. PM will give the exact current calculation next month when they release earnings.


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Replies
Msg # Subject Author Recs Date Posted
11856 Re: Another Wells report Mighty_MO 0 1/11/2017 4:48:18 PM
11859 Re: Another Wells report mo_strategist 0 1/12/2017 5:46:18 PM


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