Image source: Philip Morris.
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Global tobacco giant Philip Morris International has a short history as a separate company, but it has operated around the world for decades. Over that time, Philip Morris has learned the ropes and figured out how to deal with changing conditions in its most important markets. Yet even after all its success, many investors have questions about where Philip Morris plans to go from here. Below, we address five of those questions along with answers that Philip Morris CFO Jacek Olczak just provided at a presentation in May.
How is Europe doing for Philip Morris?
Olczak was optimistic about the company's prospects in Europe. Not only have industry trends finally started to turn more favorable, but Philip Morris has done a good job of fighting against illicit trade of cigarettes and other tobacco products. The company has maintained its pricing power, and population movements both within Europe as well as from other regions into European countries are an opportunity for Philip Morris to build its business there. In particular, the Marlboro brand is doing well in countries like Italy, Spain, and Poland, and that's helping to drive growth in earnings for Philip Morris in the region.
Is Marlboro going to be the focus for the company going forward?
Philip Morris' most important brand is Marlboro, and Olczak sees that continuing to be the focal point for the company's overall strategy. Other brands such as L&M and Chesterfield have also done reasonably well, making up the top three brands in Europe when you add in Marlboro. Yet the Marlboro 2.0 architecture project has taken several years to implement fully, and market share has responded favorably to the efforts to update the message surrounding the key brand for Philip Morris. Between marketing design, sales-force marketing strategies, and a solid ground game at the local level, Philip Morris is making Marlboro work more effectively than ever.
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Why is Japan a tough area for Philip Morris?
Olczak explained how pressure on market share in Japan continues for Philip Morris, noting that new flavors in the menthol part of the market have created a lot of new competition among industry leaders serving the island nation. Philip Morris has worked to come up with innovations to respond to that competitive demand in the combustible cigarette area, but Olczak also encouraged investors to take a more holistic approach in analyzing the company's Japanese business. In particular, the iQOS heat-not-burn reduced-risk product has moved the needle in Philip Morris' numbers for Japan, and the CFO believes that those trends will continue well into the future.
How is iQOS doing in global markets?
More broadly, iQOS has done well in the limited number of markets in which the product has been introduced. In Japan, iQOS has roughly 0.8% market share based on penetration of 60% to 65% of the national market based on its most recent available numbers, and since then, Philip Morris believes it has a fully national presence for the product. Penetration numbers in Switzerland, Italy, Ukraine, Russia, and Romania aren't nearly as high as they are in Japan, but initial figures are encouraging for the company. By scaling up in the markets where it already has a presence and by adding new markets to the mix, Philip Morris is optimistic about iQOS' long-term prospects.
Is a U.S. launch for iQOS coming?
Philip Morris has planned an application to the U.S. Food and Drug Administration to have iQOS approved. Olczak pointed out in his presentation that part of the FDA application will also cover the manufacturing of the product. With Philip Morris building a factory in Italy to ramp up global supply, the company will need to manufacture iQOS products in exactly the same way that consumers received the product for testing purposes. FDA inspectors will have the opportunity to look at laboratory, manufacturing, and other practices to make sure that the product is consistently made and is uniform. Even then, Philip Morris can't be sure that it will get an FDA approval, but many are hopeful that the company has a better chance with iQOS to diversify its business beyond traditional cigarettes.
Philip Morris has a lot of growth potential, both through its existing product lines and with the promise of iQOS. Investors should watch closely to see how well Philip Morris is able to capitalize on its opportunities and build up its business in the future.
The article Philip Morris Just Answered These 5 Key Questions originally appeared on Fool.com.
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