What Led To The Poor Performance Of Philip Morris In Its Latin America And Canada Region In The Second Quarter?

During the recent earnings announcement of the second quarter, it could be seen that the Latin America and Canada region was the worst performing segment for Philip Morris International (NYSE:PM). The net revenues in the region, excluding excise taxes, fell 13.6%, as compared to the second quarter of 2015. The main reason for this was unfavorable currency movements, which negatively impacted the revenues by $136 million. If the currency impact is excluded, the net revenues actually increased 3.2%. This growth was driven by a favorable pricing of $74 million, primarily in Argentina and Canada, partially offset by an unfavorable volume mix of $48 million, reflecting the impact of excise tax-driven price hikes.

While the fall in revenues was high, the decline in operating companies income was even greater, coming in at over 31%. If currency headwinds of $78 million are excluded, this metric still declined by 7.1%. The unfavorable volume/mix, primarily in Argentina, negatively impacted by $39 million. Furthermore, higher costs, again primarily inflationary-driven in Argentina, further impacted the results. These factors, in turn, negatively affected the OCI margin, which declined 820 basis points, to 32.1%.

The company’s cigarette shipment volume fell close to 6%, to 21.3 billion units, predominantly due to Argentina. The one bright spot in all of this was an improvement in Marlboro’s market share, which increased 0.4 points to ~15.3%, despite a fall in its shipment volume by 5.1%. This improvement was mostly driven by Brazil, which increased by 0.6 points to 10%, Colombia, up by 0.2 points to 9.3%, and Mexico, a rise of 1.7 points to 47.8%.

The performance of Philip Morris’ key markets in the regions have been shown below.

While the total cigarette market declined 12.5%, as a result of weakness in the economic environment, the shipment volume of PMI fell by a higher rate, reflecting growth in the competitors’ super-low priced products.

During the quarter, the total cigarette market in Canada declined 6.4%, while the company’s shipments fell a comparatively smaller 1.5%. This was a result of a higher market share gained by the company, particularly the improved performance of premium Belmont, low-priced Next, and super-low priced Philip Morris.

In the second quarter, Mexico’s cigarette market increased by 1.2%, reflecting improved market conditions and a lower prevalence of illicit trade. This also resulted in growth for cigarette shipments by PMI, further aided by an improvement in the market share for the company, driven by Marlboro and premium Benson & Hedges, and low-priced Delicados. The company’s share in the premium segment in the country, 56.5% of the total market, increased 1.3 points to a massive 93.3%.

Have more questions on Philip Morris? See the links below:

• Philip Morris Q2 2016 Earnings: Currency Headwinds Leave The Company Flat
• How Will Philip Morris Perform In Q2 2016?
• Which Is A Better Dividend Bet – Altria Or Philip Morris?
• What Is The State Of The Illicit Cigarette Market In The European Union?
• How Will The Brexit Impact Philip Morris?
• What Effect Will The Plain Packaging Ruling In Canada Have On Philip Morris?
• What Effect Will A Tobacco Tax Hike Have In New Zealand?
• How Will Philip Morris Perform In 2016?
• Why Has Philip Morris’ Price Risen ~17% This Year Despite An Earnings Miss?
• How Did The Market Share For Philip Morris Change in Q1 2016 In EU And Its Key Markets, As Compared To Q1 2015?
• How Did The Revenue And Operating Companies Income In Each Region Change In Q1 2016, As Compared To Q1 2015?
• Philip Morris Misses Q1 Revenue And EPS Estimates
• Will Philip Morris Beat Expectations This Earnings Season?
• How Did Philip Morris Perform In The European Union, And Its Key Markets There, In 2015?
• How Did Philip Morris Perform In Russia, Given The Currency Headwinds And Excise Tax Rise?
• How Has Philip Morris Fared In Comparison To Its Peers?
• How Has Philip Morris’ Shipment Volume, By Brand, Changed Over The Past 3 Years?
• How Has Philip Morris’ Revenue And EBITDA Composition Changed In The Last 5 Years?
• How Will Philip Morris’ Revenue And EBITDA Change In The Next 3 Years?
• Philip Morris: Year 2015 In Review
• By What Percentage Did Philip Morris’ Revenue & EBITDA Change In The Last 5 Years?
• What is Philip Morris’ Fundamental Value Based On Expected 2016 Results?
• What is Philip Morris’ Revenue And EBITDA Breakdown?

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