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Philip Morris International Inc. (PM), Altria Group Inc (MO), Lorillard Inc. (LO): Tobacco Sales do not Seem to be Slowing Down

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Philip Morris International Inc. (NYSE:PM)Any investors who own tobacco stocks will have taken part in a debate about whether or not the global tobacco industry is in decline. This argument is brought up nearly every time I mention big tobacco as an investment, although there is very little evidence to support this conclusion.

I am not a smoker, but I am an investor who likes to make money, and one of the best sectors for shareholder returns is big tobacco. I tried to gather information on tobacco consumption worldwide, to establish if consumption was indeed declining at a significant rate, but it appears that there is no definitive answer.

Between the World Health Organization, The World Bank and the Center for Disease Control and Prevention, I have not managed to find a comprehensive and easily understandable set of data on the subject.

That said, I have managed to find some data that presents several different views on the subject, although, most of the data is several years old.

According to the Centers for Disease Control and Prevention (CDC), global cigarette consumption has been on a steady decline over the past 11 years, but according to the Tobacco Atlas, over the past 10 years cigarette consumption has increased 3%. Additionally,the use of non-cigarette smoked tobacco has risen 123% during the past 10 years.

In addition, this report on tobacco advertising, “Economic Theory and International Evidence,” seems to suggest that the world’s war against tobacco advertising is not as effective as many people think. Here is report in more detail and to summarize, the report states that “a set of comprehensive tobacco advertising bans can reduce tobacco consumption, while a limited set of tobacco advertising bans will have little or no effect.”

Elsewhere, some reports suggest that the tobacco advertising ban in some countries, in particular, Norway, has actually led to a rise in tobacco consumption by up-to 30%!

So what is actually going on?

Contrary to what many anti-smoking campaigners will tell you, it would appear that smoking is not actually on the decline. For example, here are the sales figures for the four major public tobacco companies in the US – all of which are registering constant or even rising tobacco sales figures.

The first quarter of this year was affected by one fewer shipping day so data is somewhat skewed.

Philip Morris International Inc. (NYSE:PM)

Metric Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 YoY Change
Sticks Volume Sold 219,090 238,296 236,531 233,119 204,947 -6.46%
Net Income $2,161 $2,317 $2,227 $2,095 $2,125 -1.67%

Figures in millions

Philip Morris International Inc. (NYSE:PM) has seen its stick volume fall 6.5% year over year. However, this figure has been affected by the first quarter of this year, where government regulation in the Philippines hit sales. Excluding this bad quarter, sales grew 6.4% over the prior year.

Altria Group Inc (NYSE:MO)

Metric Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 YoY Change
Sticks Volume Sold 31,436 36,555 34,004 34,116 29,774 -5.29%
Net Income $1,195 $1,225 $657 $1,101 $1,385 15.90%

Figures in millions

Altria Group Inc (NYSE:MO)’s sales fell 5.3% year over year, although, again the company was hit by a bad first quarter (one less shipping day in the quarter also impacted). Once again, excluding this quarter, sales expanded 8.5%.

Reynolds American, Inc. (NYSE:RAI)

Metric Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 YoY Change
Sticks Volume Sold 16,300 18,100 17,400 17,000 14,900 -8.59%
Net Income $270 $443 $420 $139 $508 88.15%

Figures in millions

Over the year, Reynolds American, Inc. (NYSE:RAI)’ stick volume followed the trend, growing but falling during the first quarter 2013 as there was one less shipping day during the quarter. Excluding the poor first-quarter, Reynolds American, Inc. (NYSE:RAI)’ stick volume expanded 4.3%.

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