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Re: PM earnings callIQOS is 25% of profits from what 15% of revenue... No, this isn't accurate. HEETS are now 10% of volume of sticks sold. HEETS are expected to be 25% of revenues generated in 2020, and were already 23% of all revenues through the first 9 months of 2020. While profit just for HEETS is not explicitly disclosed by PM, HEETS are also expected to generate around 25% of 2020 profits, as they now carry similar margins to cigarettes, even with some extra costs for new launches, marketing, discounted device sales, etc. Here is the math from PM's 10-K for last year (2019): Cigarettes sold: 707 billion = 92% of all units sold HEETS sold: 60 billion = 8% of all units sold Cigarette revenues (net of excise taxes): $24.2 billion = 81% of revenues HEETS revenues (net of excise taxes): $5.6 billion = 19% of revenues As you can see, HEETS carry a much higher average selling price (aka revenue) than the average cigarette PM sells. HEETS are priced similar to a Marlboro, but PM also sells billions of much lower priced cigarettes, which generate much lower revenues and profits. Here is the math from PM's 3rd quarter 2020 report (for 9 months, not a full year): Cigarettes sold: 474 billion = 90% of all units sold HEETS sold: 54 billion = 10% of all units sold Cigarette revenues (net of excise taxes): $16.7 billion = 77% of revenues HEETS revenues (net of excise taxes): $5.0 billion = 23% of revenues As you can see, PM has sold 54 billion HEETS so far in 2020 through 9/30. They will likely end up somewhere between 72-75 billion for the full year, which will be growth of 20-25% over 2019. They also have stated they are confident of meeting their goal of 90-100 billion HEETS sold in 2021, which would be another 20-30% growth over 2020. There was also talk in the earnings call about PM's internal goal of reaching sales of 250 billion units of IQOS (both HEETS and vapor) by 2025. In order to achieve that, they would have to continue to grow units sales by 20-25% annually over the next five years. PM hasn't publicly committed to that 2025 goal yet, but it obviously looks possible. And here would be the result if that happens. If they can continue to grow IQOS at those rates, by 2025 they would generate around $25 billion in revenue just from IQOS, versus $29-$30 billion in combined revenue from cigarette & IQOS in 2020. And with PM expecting continued margin expansion in HEETS, that could mean earning close to $5 per share in EPS just from IQOS in 2025. So when PM talks about the end of cigarette sales in 10-15 years, it isn't just a pipe dream. If IQOS grows like they believe it can, cigarettes might be such a small part of their business at that point, they would either just stop selling them, or sell/spin off the cigarette brands at that point. |
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