Before the announcement of second-quarter results, Philip Morris International Inc. (NYSE:PM) always had the edge over former parent company Altria Group Inc (NYSE:MO). However, Philip Morris International Inc. (NYSE:PM)’ poor second quarter highlights how the company is struggling to grow worldwide with many different factors pulling the company down, such as the strong US dollar, excise taxes rising faster than sales and competition.
Altria Group Inc (NYSE:MO), on the other hand, is still growing thanks to the company’s diversified operations, lack of exposure to currency movements, and in comparison to Philip Morris, relatively low excise taxes.
So, based on a SWOT (strengths, weaknesses, opportunities and threats) analysis, is it time to sell Philip Morris in favor of Altria Group Inc (NYSE:MO)?
Philip Morris International Inc. (NYSE:PM)’ main strength is its international presence; unfortunately, this has come back to bite the company recently as I will show. Still, Philip Morris’ international presence allows for diversification and no single reliance on any one market, a problem that Altria is stuck with. Philip Morris International Inc. (NYSE:PM) also has one of the biggest portfolios of tobacco products and cigarettes, which puts it in every segment of the market from luxury to value.
Altria’s strengths also lie in its diversification but not its tobacco diversification. Although tobacco is Altria Group Inc (NYSE:MO)’s main revenue stream, the company has wine estates and a 20% holding in SABMiller, which will allow the company diversification away from the general declining tobacco market.
The biggest weakness to both Altria and Philip Morris International Inc. (NYSE:PM) is the declining consumption of tobacco, although this is not such a big issue for Altria Group Inc (NYSE:MO) as it is somewhat diversified. In addition, both companies face potential regulation from governments in the regions in which they operate. Philip Morris, however, faces the bigger risks as the company is exposed to many more governments around the world. Moreover, Philip Morris International Inc. (NYSE:PM) faces the threat of excise taxes, which have been rising faster than revenue and the strong US dollar, which hit earnings hard in the second quarter.
When it comes to opportunities, both companies are limited as global cigarette consumption is declining. That said, the opening up of the Chinese market is a huge potential opportunity for Philip Morris International Inc. (NYSE:PM). There is also an opportunity in the eCig market for both companies. However, it would appear that Altria is making more progress in the eCig market alongside its smoke-free products such as snuff.
On the other hand, Philip Morris has exposure to the global cigar market – a highly lucrative area for the company. Altria Group Inc (NYSE:MO) has exposure to this market but only within the US.