uploads///Inventory Mgmt Q

How Can Tobacco Companies Improve 1Q16 Inventory Levels?


Mar. 14 2016, Updated 8:06 a.m. ET

Distribution channels

Tobacco companies such as Reynolds American (RAI) and Altria Group (MO) distribute cigarettes through a combination of direct wholesale deliveries. They include local distribution centers and public warehouses throughout the United States. In comparison, Philip Morris International (PM), British American Tobacco (BTI), and Japan Tobacco (JAPAF) (JAPAY) distribute their products in many diverse geographies.

Article continues below advertisement

Declining inventory levels

Inventory levels for 4Q15 were lower for tobacco companies due to declining shipment volume of cigarettes. The inventory turnover ratio for RAI for 4Q15 declined 7.7% to 3.1x compared to 3.4x in 4Q14. The overall cigarette industry volume declined 0.5% in 4Q15. After adjusting for the wholesale inventory changes, industry shipments were down about 0.2%.

Altria Group’s (MO) fiscal 4Q15 ended with a 4.3% decline in inventory levels. The 4Q15 inventory turnover metric came in at 3.8x. In Altria’s 4Q15 earnings call, CEO (chief executive officer) and president Martin J. Barrington announced that trade inventories for cigarettes may moderate going forward. Also, unfavorable foreign currency translation could affect prior-year comparisons of earnings from Altria’s equity investment in SABMiller (SBMRY).

For Philip Morris International (PM), 4Q15 ended with a 3% decline in inventory levels. The 4Q15 inventory turnover ratio came in at 1.2x compared to 1.3x in 4Q14. In the 4Q15 conference call, PM’s CFO (chief financial officer) Jacek Olczak said that organic cigarette volume declined by 2.4% due to lower cigarette industry volume and lower market share, notably in the Asia region. This indicates lower inventory levels for 1Q16 for Philip Morris.

Highest inventory

In terms of inventory management for fiscal 3Q15, Vector Group (VGR) outperformed its peers with a higher inventory turnover ratio of 7.0x.

The iShares Core High Dividend ETF (HDV) gives exposure to established, high-quality US companies, including MO, with 4.1%[1. updated as of March 10, 2016] of the total weight of the portfolio.


More From Market Realist

  • CONNECT with Market Realist
  • Link to Facebook
  • Link to Twitter
  • Link to Instagram
  • Link to Email Subscribe
Market RealistLogo
Do Not Sell My Personal Information

© Copyright 2021 Market Realist. Market Realist is a registered trademark. All Rights Reserved. People may receive compensation for some links to products and services on this website. Offers may be subject to change without notice.