NEW YORK -- Although 2015 might seem a distant memory, the Big Three tobacco companies only recently reported results from the fourth quarter, as well as plans and predictions for 2016, in a slew of earnings calls. Vivien Azer, a tobacco analyst for the New York-based Cowen Group, was overall optimistic about the results, especially when it came to cigarette forecasts for the new year.
“We now raise our industry outlook to down 3% (vs. down 4%, previously),” Azer wrote in a research note following earnings calls by Philip Morris International (parent to Altria), Reynolds American Inc. and Imperial Brands PLC (parent to ITG Brands). “This improved outlook is particularly encouraging given the strong pricing that we have seen for the industry.”
Here are some brands to watch based on each individual earnings call.
Philip Morris International: Marlboro 2.0
Philip Morris International was the first of the Big Three to report its end-of-year earnings in late January. Azer said the Marlboro brand “certainly delivered” in 2015, growing share in three of the four regions (remaining flat year over year in the Eastern Europe, Middle East and Asia region).
“Investments behind Marlboro 2.0 have clearly paid off, as management noted strong underlying fundamentals in markets where Marlboro 2.0 has been rolled out for a year or more,” she said. “Now in approximately 100 markets, we believe the brand will continue to benefit from 2.0 in 2016 as more recent rollouts begin to pay off and fuel further market share gains for Marlboro.”
Imperial Brands PLC: Winston and Kool
“New” to the U.S. Big Three, Imperial Brands said it expected overall U.S. cigarette volumes to fall 2% in 2016, eventually returning to a more normalized 2% to 3% decline rate.
“The company remains encouraged by the market share trends for Winston and Kool (as Imperial has opted to prioritize both brands, as opposed to just Winston), after doing more work on brand equities over the course of the deal,” Azer said. “Imperial reiterated their commitment to modestly grow market share in the U.S. over time.”
Reynolds American Inc.: Newport
Like Imperial, Reynolds predicted a modest 2% to 3% decline in U.S. cigarette volumes in 2016. But the really exciting news was around the manufacturer’s recent acquirement, Newport.
For three consecutive months, Reynolds reported Newport had delivered accelerating share gains, with nearly a 5% volume growth in the fourth quarter of 2015. Azer noted the brand was benefitting from its inclusion in Reynolds’ Everyday Low Price (EDLP) program, with Reynolds remaining on track to transition 70% of industry volumes to EDLP (vs. 60% prior to the end of the standstill).
“Following today's earnings call, we are encouraged by Reynolds' more favorable 2016 industry volume outlook, as well as the company's positive share trends, in particular with Newport,” Azer said.
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