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Why Philip Morris Stock Fell 11% Last Month

Jeremy Bowman, The Motley Fool

What happened

Shares of Philip Morris (NYSE: PM) were getting smoked last month on a combination of downbeat tobacco sales data and a lawsuit in Brazil. As a result, the international tobacco giant and seller of brands like Marlboro, Parliament, and Virginia Slims finished May down 11% according to data from S&P Global Market Intelligence.

As the chart below shows, the news tanked not just Philip Morris but also industry peers Altria (NYSE: MO) and British American Tobacco (NYSE: BTI) when it came out at the end of the month.

PM Chart

PM data by YCharts.

So what

Philip Morris's worst day of the month came on May 28, when the stock fell 3.7% on a report from Nielsen that the decline in U.S. tobacco use was speeding up. According to the research, the number of packs of cigarettes sold in the U.S. fell 11.2% in the four-week period ended May 18, while dollar sales were down 6.9% and have now declined for 18 months straight.

A hand holding a lit cigarette.

Image source: Getty Images.

Though Philip Morris does not operate in the U.S., the news was considered a reflection that the global decline in tobacco consumption may be accelerating.

Elsewhere during the month, Philip Morris and British American Tobacco found themselves the subjects of a lawsuit in Brazil, where that country's attorney general filed suit against the tobacco giants for the public health-related costs of smoking. By doing so, Brazil becomes the first Latin American country to sue Big Tobacco, following the lead of the U.S. and Canada.

Now what

Tobacco stocks tend to travel as a herd, since they are largely subject to the same industry regulations and secular trends as consumers around the world are turning away from smoking. Nonetheless, Philip Morris has continued to deliver results to investors; tobacco is a high-margin business, and the company is a dividend powerhouse, currently paying a yield of 5.9%.

Investors will want to keep an eye on the prospects for IQOS, the company's heat-not-burn product, which offers an alternative to cigarettes. As the success of companies like JUUL has shown, cigarette alternatives are in high demand. A slowdown in IQOS sales in Japan last year sparked concern among investors, since the product is key to Philip Morris's long-term future. However, the decline in smoking internationally has been very gradual, giving the company time to adjust its product portfolio and prepare for the future.

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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.