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Will RRPs Growth Keep Driving Philip Morris (PM) in 2021?
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Tobacco companies have long been struggling with declining cigarette sales, thanks to consumers’ rising health consciousness as well as strict marketing and manufacturing policies imposed by regulatory authorities. Amid such a scenario, industry players like Philip Morris International Inc. (PM - Free Report) are managing to stay afloat on the back of growth in low-risk tobacco alternatives. Additionally, gains from effective pricing strategies have been an upside. Let’s take a closer look.
RRPs Are a Key Growth Catalyst
Philip Morris is committed toward developing a smoke-free future by expanding offerings in the reduced-risk products (RRPs) category. These products, owing to their beneficial claims, are largely being accepted by individuals trying to quit or reduce cigarette consumption. Philip Morris is one of the industry pioneers in driving the shift from cigarettes to RRPs. The company’s IQOS is one of the leading RRPs in the industry. IQOS was launched in the United States in 2019, through a commercial deal with Altria Group, Inc. (MO - Free Report) that was approved by the U.S. Food and Drug Administration (FDA). We note that IQOS is currently the only heat-not-burn product in the U.S. market, which has been approved by the FDA.
Since the onset of the pandemic, the switch from smoking cigarettes to RRPs has been trending positively. Total users of IQOS at the end of third-quarter 2020 were estimated to be about 16.4 million globally. In the said quarter, revenues in the RRPs category increased 28.6% and formed a little more than 23% of the company’s top line.
The company expects consistent growth in the heated tobacco category, and therefore has been committed toward expanding these products. Earlier this month, the company’s IQOS 3 received authorization from the FDA for sale in the United States. The new device incorporates a number of technological improvements like enhanced battery life and quicker recharge. In prior efforts, the company started commercializing IQOS VEEV, which is its new product in the vapor category. The company also announced a partnership with South Korea’s KT&G earlier this year to commercialize the latter’s smoke-free products outside the country.
Clearly, such efforts are likely to keep bolstering Philip Morris’ revenues from the RRPs space. Markedly, the company is on track to achieve its 2021 goal of 90-100 billion shipments of heated tobacco units. We note that other tobacco companies such as Turning Point Brands, Inc. (TPB - Free Report) and British American Tobacco p.l.c. (BTI - Free Report) have been expanding their offerings in the low-risk tobacco space.
Pricing Power to Keep Yielding
Pricing power is supporting Philip Morris’ top line and adjusted operating income even in the face of the unfavorable tax environment and declining cigarette volumes. Though higher pricing might lead to possible decline in cigarette consumption, it is seen that smokers tend to absorb price increases owing to the addictive quality of cigarettes.
Higher pricing variance was an upside to the company’s performance across most regions during the third quarter of 2020. Favorable pricing for combustible products along with strength in RRPs and cost efficiencies boosted the company’s adjusted operating income margin in the quarter. Continued pricing power is likely to act as an upside.
Wrapping Up
Advancements in the low-risk tobacco products arena as well as gains from prudent pricing policies are likely to continue favoring the performance of the company in 2021. Markedly, this Zacks Rank #3 (Hold) stock has gained 11% in the past three months compared with the industry’s rise of 8.7%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Just Released: Zacks’ 7 Best Stocks for Today
Experts extracted 7 stocks from the list of 220 Zacks Rank #1 Strong Buys that has beaten the market more than 2X over with a stunning average gain of +24.4% per year.
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Will RRPs Growth Keep Driving Philip Morris (PM) in 2021?
Tobacco companies have long been struggling with declining cigarette sales, thanks to consumers’ rising health consciousness as well as strict marketing and manufacturing policies imposed by regulatory authorities. Amid such a scenario, industry players like Philip Morris International Inc. (PM - Free Report) are managing to stay afloat on the back of growth in low-risk tobacco alternatives. Additionally, gains from effective pricing strategies have been an upside. Let’s take a closer look.
RRPs Are a Key Growth Catalyst
Philip Morris is committed toward developing a smoke-free future by expanding offerings in the reduced-risk products (RRPs) category. These products, owing to their beneficial claims, are largely being accepted by individuals trying to quit or reduce cigarette consumption. Philip Morris is one of the industry pioneers in driving the shift from cigarettes to RRPs. The company’s IQOS is one of the leading RRPs in the industry. IQOS was launched in the United States in 2019, through a commercial deal with Altria Group, Inc. (MO - Free Report) that was approved by the U.S. Food and Drug Administration (FDA). We note that IQOS is currently the only heat-not-burn product in the U.S. market, which has been approved by the FDA.
Since the onset of the pandemic, the switch from smoking cigarettes to RRPs has been trending positively. Total users of IQOS at the end of third-quarter 2020 were estimated to be about 16.4 million globally. In the said quarter, revenues in the RRPs category increased 28.6% and formed a little more than 23% of the company’s top line.
The company expects consistent growth in the heated tobacco category, and therefore has been committed toward expanding these products. Earlier this month, the company’s IQOS 3 received authorization from the FDA for sale in the United States. The new device incorporates a number of technological improvements like enhanced battery life and quicker recharge. In prior efforts, the company started commercializing IQOS VEEV, which is its new product in the vapor category. The company also announced a partnership with South Korea’s KT&G earlier this year to commercialize the latter’s smoke-free products outside the country.
Clearly, such efforts are likely to keep bolstering Philip Morris’ revenues from the RRPs space. Markedly, the company is on track to achieve its 2021 goal of 90-100 billion shipments of heated tobacco units. We note that other tobacco companies such as Turning Point Brands, Inc. (TPB - Free Report) and British American Tobacco p.l.c. (BTI - Free Report) have been expanding their offerings in the low-risk tobacco space.
Pricing Power to Keep Yielding
Pricing power is supporting Philip Morris’ top line and adjusted operating income even in the face of the unfavorable tax environment and declining cigarette volumes. Though higher pricing might lead to possible decline in cigarette consumption, it is seen that smokers tend to absorb price increases owing to the addictive quality of cigarettes.
Higher pricing variance was an upside to the company’s performance across most regions during the third quarter of 2020. Favorable pricing for combustible products along with strength in RRPs and cost efficiencies boosted the company’s adjusted operating income margin in the quarter. Continued pricing power is likely to act as an upside.
Wrapping Up
Advancements in the low-risk tobacco products arena as well as gains from prudent pricing policies are likely to continue favoring the performance of the company in 2021. Markedly, this Zacks Rank #3 (Hold) stock has gained 11% in the past three months compared with the industry’s rise of 8.7%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Just Released: Zacks’ 7 Best Stocks for Today
Experts extracted 7 stocks from the list of 220 Zacks Rank #1 Strong Buys that has beaten the market more than 2X over with a stunning average gain of +24.4% per year.
These 7 were selected because of their superior potential for immediate breakout.
See these time-sensitive tickers now >>