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What’s Next for Big Tobacco after 3 Robust Quarters in 2015?

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What’s Next for Big Tobacco after 3 Robust Quarters in 2015? PART 1 OF 8

3Q15 Revenue Results of Tobacco Companies Sent Strong Signals

Fiscal 3Q15 results

Tobacco companies’ results for fiscal 3Q15, which ended on September 30, 2015, conveyed strong signals to investors. Revenue was ahead of consensus Wall Street estimates for Philip Morris International (PM), Reynolds American Inc. (RAI), Altria Group Inc. (MO), and Vector Group Limited (VGR) in 3Q15, with all four companies reporting higher-than-expected sales growth.

3Q15 Revenue Results of Tobacco Companies Sent Strong Signals

3Q15 Revenue Results of Tobacco Companies Sent Strong Signals

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Factors that impacted 3Q15 revenue

However, Philip Morris International (PM) reported an 11.8% fall in 3Q15 revenue. Reported revenue was negatively impacted by $1.4 billion due to the adverse foreign currency impact from the higher US dollar. Despite the decline, PM’s 3Q15 sales beat consensus Wall Street analyst estimates for the sixth consecutive time. To learn more about PM’s 3Q15 results, please refer to A Must-Read Analysis of Philip Morris’s 3Q15 Performance.

Reynolds American’s reported revenue increased 41.1% in 3Q15 due to RAI’s domestic cigarette volume increase of 29.5% in 3Q15, benefiting from the addition of the Newport brand due to the Lorillard acquisition. Reynolds American came in ahead of Wall Street analyst estimates on revenue for the third consecutive quarter.

Altria Group’s net revenue not only exceeded Wall Street estimates in 3Q15 but also increased 3.2% to $6.7 billion compared to 3Q14. The increase was driven by higher income in the smokeable products segment behind the Marlboro and Copenhagen brands.

Focusing on e-cigs

The US tobacco industry is highly concentrated with few tobacco giants. The industry concentration has increased further after the acquisition of Lorillard by RAI and the asset sale of RAI’s Santa Fe to Japan Tobacco (JAPAF) (JAPAY). However, companies are capitalizing on innovative e-cigarettes to increase revenue and shift away from traditional cigarettes.

Philip Morris International, Altria Group, and Reynolds American together have exposure in the SPDR S&P 500 ETF (SPY), constituting 1.6%1 of the total weight of the portfolio.

  1. Updated on December 3, 2015
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