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Will Brexit Vote Impact Philip Morris’s European Union 2Q16 Results?


Jul. 13 2016, Updated 10:08 a.m. ET

PM’s 1Q16 European Union revenue

Philip Morris’s (PM) European Union region’s reported net revenue fell by 1.5% to $1.9 billion in 1Q16. The decrease was primarily due to an unfavorable currency impact of $0.2 billion and the impact of acquisitions.

Excluding currency impact, net revenue for the European Union region rose by 3.4%, driven by favorable pricing in Germany.

For British American Tobacco (BTI), volume and market share rose in Germany, driven by Lucky Strike and Pall Mall. Japan Tobacco’s (JAPAY) (JAPAF) GFB shipment volume grew by 4.3%, reflecting growth in Germany, France, and Italy.

Reynolds American (RAI) and Altria Group (MO) do not have a presence outside the US.

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Tax-driven price increase

For the Eastern Europe, Middle East, and Africa region (or EEMA), PM’s reported revenue fell by 13.1% to $1.6 billion compared to $1.8 billion in 1Q15. The decrease was primarily due to the unfavorable currency impact of $0.2 billion.

In Algeria, excess tax-driven retail (XRT) price increases of ~21% in 2015 decreased Marlboro’s market share by 7.4% in North Africa.

Asia and Latin America regions

Philip Morris’s (PM) Asia shipment volume decreased by 7% to 65.2 billion units. This was mainly due to Indonesia’s soft economy and the impact of price increases. PM’s total Asia market share fell by 1.3 points to 34.1% primarily due to its share loss in machine-made kretek cigarettes.

For Latin America, Philip Morris’s reported net revenue fell by 10.5% to $0.7 billion in 1Q16. Excluding the negative currency impact, net revenue increased by 14.7% in 1Q16. This was the highest among all segments.

More risk exposure after Brexit

In 1Q16, Philip Morris generated 30.6% of its revenue from the European Union. This was the second highest in terms of revenue after Asia in 1Q16. After the Brexit referendum, when Britain voted to leave the European Union, Philip Morris’s risk exposure increased compared to other tobacco companies.

The company is focusing on the launch of new products like Chesterfield 100s and its super-slim variants, which reflected higher market share growth in France and Poland.

On July 9, 2016, Philip Morris (PM) comprised 2.7% of the PowerShares S&P 500 Momentum Portfolio ETF (SPMO).


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