Cigarette market drops, but profits are still unhurt
Published on November 5, 2009 9:53 AM
The economy downturn and hefty taxes are hurting cigarette market across the globe – but most dramatically in the U.S., with constant tax hikes, smoking restrictions and social intolerance have triggered a 10 percent drop of sale volumes.
America’s leading tobacco companies revealed last week about higher than expected profits, and increased their overall venue estimates for 2009.
Although Philip Morris International, the manufacturer of 7 of the world’s top-selling 15 brands and Reynolds American, the maker of Camels and Winston and the second-largest tobacco company in the country increased prices, the profits were unhurt. In addition Reynolds considers their smokeless tobacco products as the key products for future years.
Experts are closely monitoring the American tobacco industry’s results in the third quarter since smokers are getting used to the federal tax increase that raised the prices per pack by 62 cents. It was reported that demand dropped in the first half of 2009 after the federal tax went into force.
However, Reynolds American reported about a 72 percent growth in profits in comparison with the same period a year earlier, when rescheduling expenses and the sinking value of its flagship brands hampered its revenues. Winston-Salem-based company recorded a $362 million profit for the third quarter, comparing to $211 million in 2008.
Susan M. Ivey, Reynolds CEO admitted that tax hikes and recession reduced the volume of products it sold by 10 percent, but added that its smokeless products branch, Conwood Co., managed to ship 11.7 percent more smokeless tobacco items up from the same period last year.
Demand drops are less considerable in other countries.
PMI sold 219.3 billion cigarettes in the third quarter, which is 3 percent down from the previous year. However, drops in European Union and US were compensated by increasing demand in Asia, Latin America and Canada thanks to the purchase of Rothmans Inc. last summer.
The tobacco giant that owns such brands like Marlboro, Virginia and L&M, reported their earnings in the third quarter dropped by 14 percents because of strong dollar that reduced its venues generated in other countries.
When the dollar has a sold position, companies, which sell its products in the international market and convert the earnings from other currencies, are hurt in the dollar value. That is what triggered profit drops for PMI, since its sales are focused on the international market.
PMI – that has headquarters in Switzerland and United States reported it generated $1.79 billion in the third quarter.
Philip Morris International is the second-largest cigarette company in the world after China National Tobacco Corp, owned by the state. It became an independent company after the 2008 spin-off from Altria Group, proprietor of Philip Morris USA, the biggest cigarette-maker across the USA.
Altria also recorded higher than expected profits during the third quarter, which increased by 1.7 percent because strong cigar sales and cost cuts. According to the report, it shipped nearly 12 percent less cigarettes in comparison with overall industry drop of 10 percents. As regards, Lorillard Inc., the third-biggest cigarette company across the nation, owning the menthol best-seller Newport, it’s report is expected to be disclosed next week.
