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Philip Morris Doubles Investment in Crespellano Facility

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Philip Morris International Inc. (PM - Free Report) intends to invest an additional €500 million to expand its Crespellano facility in Bologna, Italy. Initially, the company invested nearly €500 million to construct the facility which was completed in Sep 2016. Notably, the Crespellano facility is the company’s first manufacturing facility for producing heated tobacco products on a large-scale basis.

Currently, 600 workers are employed and the expansion of the facility is likely to create 600 additional jobs, going ahead. The expansion of the facility is expected to be completed by the end of 2018 and is considered to be a valuable step in achieving the company’s vision of creating smoke-free products. In fact, this tobacco leader is expected to have roughly 100 billion units of annual installed capacity by the end of 2018.

We note that Philip Morris is aggressively investing in creating smoke-free products in order to replace harmful cigarettes. Prior to this, the company had announced to invest roughly $320 million for building a smoke-free product facility in Dresden, Germany. This facility will be wholly operational early 2019 onwards and will manufacture HEETS, the tobacco units for the electronic tobacco heating device IQOS (Heatsticks that heat tobacco instead of burning it).

Additionally, the company plans to convert the cigarette manufacturing factory of its affiliate in Greece to IQOS tobacco unit. In fact, in March, it had already announced plans to invest approximately €300 million to convert one of its cigarette factory at Papastratos into a manufacturing plant for tobacco sticks for reduced-risk product — IQOS.

We remind the investors that Philip Morris had launched the much talked about IQOS, a smokeless cigarette in Nov 2014 owing to declining smoking rates in developed countries. Also, the race to replace cigarettes had started putting pressure on the tobacco industry. In fact, serious health hazards due to cigarette smoking had pushed consumers toward reduced-risk products.

This new product is expected to support the tobacco industry’s move toward reduced-risk products, which may eventually replace the traditional ones. We note that Philip Morris’ IQOS smokeless cigarette looks a lot like a second-generation vaporizer that uses actual tobacco in the shape of small Marlboro cigarettes called HeatSticks that are heated at high temperatures but not burned.

Significantly, IQOS are anticipated to boost market share and offset declining volumes in traditional cigarette business in 2017. The company has already launched IQOS in key cities in more than 25 markets globally and aims to expand nationally in 32 to 35 markets by the end of the current year.

It is to be noted that Philip Morris had conducted various researches earlier, which showed that IQOS are safer than conventional cigarettes. Moreover, the company’s efforts to enhance its portfolio and take steps to develop smoke-free products called reduced-risk products are encouraging as customers are shifting away from tobacco products.



A glimpse of Philip Morris’ share price movement also shows that it has outpaced the Zacks categorized Tobacco industry on a year-to-date basis. This Zacks Rank #3 (Hold) stock was up 30.6%, while the industry gained 20.7%.

Stocks that Warrant a Look

Better-ranked stocks in the broader Consumer Staples sector include Craft Brew Alliance, Inc. , Constellation Brands, Inc. (STZ - Free Report) and Aramark (ARMK - Free Report) .

Craft Brew Alliance has surged 74.3% in the last one year and currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Constellation Brands delivered an average positive earnings surprise of 7.7% over the trailing four quarters and has a long-term earnings growth rate of 17.8%. The stock carries a Zacks Rank #2 (Buy).

Aramark, a Zacks Rank #2 stock pulled off an average positive earnings surprise of 4.5% over the trailing four quarters. Also, it has a long-term earnings growth rate of 12%.

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