Philip Morris International Inc. PM has seen its shares rally as much as 27.2% in the past three months, outpacing the industry’s growth of 22.6%. The company is largely benefiting from its stringent focus on reduced-risk products (RRPs), which is reconfirmed by its latest launch of “The Year of Unsmoke.”
The Year of Unsmoke is a call to action for smokers, regulators and nonsmokers, aimed at creating a better future for all smokers in the world. This move comes in response to the World Health Organization’s expectation of the number of smokers remaining nearly the same in 2025, in spite of all the efforts to curb smoking.
Given such a situation, focus on low-risk products is deemed fit.
We note that serious health hazards due to cigarette smoking have pushed consumers toward RRPs. With radical investments to undertake research and development in the RRPs category, Phillip Morris is pioneering the shift from harmful tobacco products to scientific and low-risk alternatives. In fact, the company’s IQOS, a smokeless cigarette, counts among one of the leading RRPs in the industry. In October 2018, the company launched additional versions of IQOS in Japan.
These next generation devices, namely IQOS 3 and IQOS 3 MULTI, are backed by substantial scientific insights and research. The company expects such advanced and high-quality products to aid adult smokers to switch from traditional cigarettes to smoke-free options. IQOS customers, at the end of fourth-quarter 2018, reached 9.6 million.
Going ahead, the company expects consistent growth in IQOS and Heated Tobacco category. The company is on track with investments in this category. Further, to cater to the rising demand for such products, Phillip Morris has been undertaking plant conversions, transforming them from cigarette to RRPs manufacturing facilities. This was witnessed in the company’s Papastratos factory in Greece for the production of HEETS, a unit used with IQOS.
Moreover, the marketing and technology sharing agreement between Philip Morris and its peer Altria Group MO, which is currently under FDA review, is also expected to boost the business. Phillip Morris also inked a deal with Canada-based Parallax, which provides low-risk alternatives of tobacco.
Such endeavors along with efficient pricing are likely to continue aiding this Zacks Rank #3 (Hold) company amid hurdles like soft cigarette shipment volumes. This in turn stems from consumers’ rising health consciousness and strict government regulations. This, in fact, is a common headwind for many tobacco players like British American Tobacco BTI and Vector Group VGR, among others. Nevertheless, focus on e-cigarettes and other low-risk tobacco products is expected to offer significant cushion to the aforementioned tobacco players.
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