Summary
- Philip Morris operates a respectable portfolio of assets and is continuing to expand into new segments and improve its margins.
- The company has the potential for long-term shareholder rewards as it continues its near 6% dividend.
- Utilizing an options strategy will allow investors to significantly expand their yield in the immediate term.
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Philip Morris (NYSE: PM) is the largest publicly traded tobacco company with a market capitalization of more than $120 billion and a 6% dividend yield. The company has the potential to continue generating strong long-term cash flow for shareholders. As we'll see throughout this article, the company's continued performance and asset portfolio, along with options trading, makes it a quality long-term investment.
Philip Morris COVID-19 Performance
Philip Morris, with lock downs and job losses experienced a difficult quarter from COVID-19.
Philip Morris 1H 2020 Results - Philip Morris Investor Presentation
Specifically, in 2Q 2020, the company saw a 9.5% decline in revenue and a 7.5% YoY EPS decline. That doesn't count an additional ~5% EPS decline due to currency issues. Traditionally, in times of market instability, international currencies suffer more significantly. Philip Morris, as an international company, suffers from that more significantly.
More importantly, in 1H 2020, the company actually performed better. The company saw a mere 0.5% decrease in net revenue and 5.4% increase in combustible tobacco pricing. The company's margins not counting currency increased by 2.3% resulting in a non-currency increase in adjusted diluted EPS by 8%.
Counting currency impacts that was a low-single digit increase, but that growth, and the bottom of COVID-19, is incredibly impressive.
Philip Morris Volumes
More so, the numbers that truly matter for the company at the end of the day, its volumes are improving.
Philip Morris Volumes - Philip Morris Investor Presentation
Philip Morris saw volumes collapse towards May bottoms of 51.9 billion units of total volumes. The company's 2Q 2020 volumes of 170.1 billion units were down from 198.9 billion units in 2Q 2019. However, its also worth noting that YoY the company's HTU (heated tobacco unit) volumes increased by 24.3% highlighting a trend to the company's healthier higher margin business.
At the same time, the company's June rebounds were some of the strongest for the year as volumes rebounded significantly and COVID-19 lock-downs were lifted. It's worth highlighting that the company has continued to suffer from a strong anti-smoking push and higher taxes in Indonesia and the continued restrictions around air travel and duty-free sales.
