PM PHILIP MORRIS INTERNATIONAL
Sector financial performance:
This company, primarily a manufacturer of cigarettes and other tobacco products, has been grouped into cigarette and cigar sector in tobacco industry.
It seems that demand for premium tobacco products of companies in this sector has been gradually declining in the past three years as indicated by continuing decrease in sales volume of some of typical companies, whose major products fall into that category. However, we also saw apparent shifting of demand to discount cigarette products.
It seems that, for many companies, the price of their products has been seen rising in the past three years, which, to a large extent, offset the decrease in volume of many companies. In addition, the increasing price seems to be helping improve margin and bring increasing cash flow while offset by increasing expenses in current unfavourable industry and regulation climate.
The typical companies’ gross margin has been kept at about average 61% in the past several years. With a slight decrease in SG&A as percentage of sales (about 19% in 2017), the typical operating margin went up to about 44% in 2017.
The typical average stock price/cash flow ratio is about 16-18.
It seems that the large increase in price has been able to offset loss resulted from declining sale volume in the past three years, which implies a strong global demand for tobacco products of this company.
The first three months fiscal 2018 compared with the same period of 2017
Net revenue (excluding currency and exercise taxes) increased 8.3% driven by increase in price and volume mix.
Shipment volume decreased 2.3%.
The fiscal 2017 compared with the 2016
Net revenue (excluding currency and exercise taxes) increased 10% due to increase in price and sales mix.
Shipment volume decreased 2.7%.
The fiscal 2016 compared with 2015
Net revenue (excluding currency and exercise taxes) increased 4.3% due to increase in price offset by decrease in volume mix.
Shipment volume decreased 4.1%.
Its gross margin (excluding exercise taxes) has decreased by about 170 basis points to about 63% in 2017 due probably to volume’s shifting. Its operating margin thus decreased to about 39% in 2017 while its SG&A as percentage of sales was flat (around at 25% in 2017).
This stock currently has a stock price/cash flow ratio of 18. We think that its stock is being relatively fairly valued compared with its peers.
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