Tag Archives: oldest cigarette manufacturer

Philip Morris International is Expecting a Drop in Demand for its Tobacco Products

Chris Nelson, representative of the PMI, stated the tobacco industry may have problems in surpassing last year’s record sales due to the increase in the excise duties, which affected cigarette products. Nelson also stated that the increasing political crisis in the Middle East, which is the main destination for Filipino workers, might also be a reason of the slump in the demand for cigarettes.

Philip Morris International Drop in cigarette sales

“Last year, it was the case with significant volumes and a great demand. But this year our sales might suffer, tacking into account current situation in the Middle East,” the representative stated without giving any details.

“We shouldn’t forget about the increase in excise duties in January and higher prices would clearly influence demand,” Nelson declared.

But the market would proceed to develop because of propitious demographic like the country’s growing adult population.

“The industry’s growth has always been associated with the country’s population, which has been increasing by 1.7 % to 1.8% annually. Since 2005 the industry has increased by about 2%.

“The market is rather price sensitive since it is an indicator of the consumer’s expendable income. Any sudden tax increase would weaken the market. It would be judiciously to admit that the demand would be influenced but overall, the industry prospect, not peculiar to 2011, is favorable. The only warning is that the right excise duty system should be in place,” Nelson stated.

The cigarette producer has been forcing for the prolongation of the present excise duty system, which is expiring in 2013.

“Excise duties collection on tobacco products have raised significantly to P31.6 billion last year, surpassing the government’s objective of P25 billion. This proves one more time, that the system works and there is no motive for it to be changed,” Nelson said.

The Act Increasing the Excise Duties Rates Imposed on Alcohol and Tobacco Products, stipulates for increases every two years from 2005 to 2001. The scheme settles that alcohol and cigarettes are placed in four categories with changing duty rates.

“There are few laws in many countries which produced such an effect as the RA 9334 that permitted government to levy more taxes and at the same time. It is an evident success, which works very well,” Nelson said.

Starting from January 1, all cigarettes packed by machine with the net retail prices of less than P5 (0.11 USD) per package would be levied P2.72 (0.06 USD).

Lorillard stirs investors’ interests

According to several experts Lorillard has become a takeover target for tobacco industry tycoon R.J. Reynolds due to the emerging popularity of its cigarette brands – Newport and Kent. It also has appeared to be a major object of interest since it is a less than expensive stock that might be traded up to 30% higher.

newport-cigarettes

Lorillard Tobacco Company is listed in the Top 20 of the oldest US companies. It is also the oldest cigarette manufacturer in the United States. Lorillard is the third biggest American tobacco company behind Philip Morris and R. J. Reynolds. Although it produces a rather large variety of cigarette brands like Maverick, True, Old Gold, Kent, Satin, and others, the company is world-famous for its leading brand – Newport, which has been the best selling menthol cigarette during two years.

Lorillard Tobacco Company is a bright example of a one-brand company; hence its market value comprises more than $10B. Although it is smaller than main rivals, this company owns an absolutely astonishing net profit margin of over $1B and has no debts. Moreover, the revenues are supposed to reach a 7% raise this year. Despite the Americans tend to give up smoking, Lorillard earned almost 3% more last year in comparison with a 3% decline for the tobacco industry as a whole.

Lorillard best brand Newport makes a 7,8% share of the American cigarettes market, being the number two in the list of best selling cigarette brands behind Philip Morris’s Marlboro.

Many investors consider that Lorillard is heavily underestimated on Wall Street. It is also rumored that R. J. Reynolds has started private negotiations with Carolina Group, the owner of Lorillard, attempting to purchase Lorillard for a much more considerable price than its actual $62/ share. Should Reynolds succeed in their attempt, they would become the largest tobacco company in the world, leaving Imperial Tobacco and Philip Morris International behind them.

However, it is still unclear if a Reynolds/Lorillard merger would be approved by antitrust legislation. Hence, experts remind about the Miller/Coors combo that contributed to the birth of a monopoly at the beer market duopoly but managed to go through the antitrust review.

Peter Edelman, a BNP Paribas expert admitted that Lorillard is the simply the best tobacco company in the world. He stated that it should have an $80 share, since they are simply undervalued by the Wall Street.

According to several other analysts, if Reynolds succeeds in the purchase of Lorillard it would be the most outrageous deals from both financial and strategic points of view.

Yet, there is only one but enormous obstacle, namely the law introduced to the Congress. If the law would be endorsed, the Food and Drug Administration would obtain the right to regulate the cigarette industry. It could lead to imposing a ban on menthol cigarettes. However, this situation seems rather unbelievable since it has been scientifically proven that menthol-flavored cigarettes provide maximum the same health complications as regular-tasted cigarettes.