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Why Philip Morris’s EEMA Region Saw Revenue Wobbles in 3Q15


Oct. 23 2015, Updated 11:07 a.m. ET

EEMA region’s performance in 3Q15

Philip Morris International’s (PM), or Philip Morris’s, 3Q15 revenue for the EEMA (Eastern Europe, Middle East, and Africa) region decreased by 13.8% to $2.1 billion, compared to $2.4 billion in 3Q14. The decrease was primarily due to an unfavorable currency impact of $0.6 billion. However, excluding the negative impact of currencies, net revenues from the EEMA region rose by 9% in 3Q15.

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Reasons for rise

The rise in revenue for the EEMA region on a constant-currency basis was primarily due to a favorable pricing gain of $0.2 billion, driven by Russia, Turkey, and Ukraine. The cigarette shipment volume of L&M increased by 11.3% to 39.8 billion units in Turkey and Ukraine.

Operating income

The EEMA region’s adjusted operating income, excluding the unfavorable currency loss of $0.3 billion, increased by 12.3% in 3Q15. However, adjusted operating income fell by 14.2% to $1.0 billion in 3Q15, compared to $1.2 billion in 3Q14. The decline was primarily due to lower shipment volumes of premium brands like Parliament (down by 3.7%) in Kazakhstan and Russia.

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Performance of peers in Russia

By comparison, due to the weakening ruble, British American Tobacco (BTI) delivered lower profits in Russia. But Imperial Tobacco Group’s (ITYBY) Davidoff brand maintained its cigarette share in western Russia despite challenging economic conditions. Japan Tobacco’s (JAPAF) (JAPAY), GFB (Global Flagship Brand) market share grew by 23.8%, led by Winston’s 15.2% share and LD’s 6.1% share in Russia in 2Q15.

Increasing prices

According to Philip Morris CFO Jacek Olczak, for fiscal 2015, the estimated cigarette market in Russia is forecast to decrease by ~7%. The company is planning to further increase its retail (XRT) selling price by five rubles per pack across a majority of its portfolio. This may increasingly help the company with 4Q15 progress, but it might significantly decline shipment volume.

Philip Morris has exposure in the iShares Core High Dividend ETF (HDV), with 4.7% of the portfolio’s total weight as of October 16, 2015.


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