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October 30, 2011 at 12:25 pm

Philip Morris International, Inc. (PM) and the Emerging Markets

Posted by in Finance, Investing

In June of this year, I traveled to Poland for business and I was quickly reminded of just how many people in Europe smoke cigarettes. Walking around Warsaw, men and women of all ages were lighting up with abandon. This prompted me to do some research on global tobacco consumption.  The stigma now attached to smoking in the United States simply hasn’t yet taken hold in much of the rest of the world.  The available data indicates that while tobacco consumption is declining in developed nations, demand is on the uptick in emerging markets such as China and where I personally observed this trend, Eastern Europe.  The World Health Organization reports, “Asia, Australia and the Far East are by far the largest consumers (2,715 billion cigarettes), followed by the Americas (745 billion), Eastern Europe and Former Soviet Economies (631 billion) and Western Europe (606 billion).”

Philip Morris International, Inc. (NYSE: PM), which sells a variety of cigarette and tobacco products in these markets, caught my eye for a few reasons:  its impressive quarterly revenue growth (26.4% v. 6% for the industry), operating margin (43.42% v. 32.43% for the industry), and P/E ratio (15.30 to 16.54 for the industry).  Two additional pieces of information tell me that senior management is interested in increasing shareholder value:  (1) its dividend, and (2)  its recent buyback of 21.2 million shares.

(1) The company pays a robust dividend of $3.08 per share for a dividend yield of 4.50%, which tells me that management is serious about increasing value to the shareholder.  (2) The company announced that it repurchased 21.2 million shares of its common stock for $1.4 billion during the quarter.  What I didn’t like about PMI were some of its liquidity ratios, specifically the quick and current ratios, which were a bit weaker than I would like to see.  However, PMI is not overly leveraged and the choice to pay a robust cash dividend–rather than pay down debt at a faster rate–is ultimately a good one.

My very good friend and I are competing against each other using Investopedia.com’s Stock Simulator, which enables you to trade stocks, options, and shorted stocks without using real cash.  The Stock Simulator provides a virtual trading mechanism for people to learn about investing and opportunity to experiment with various investment strategies.  Earlier this month, I took a position in my Investopedia portfolio in PMI at $62.97 a share.  Since then, PMI has had nice a little run (14.53%) closing at $72.12 on Friday.  PMI reported earnings on October 21.  Some highlights include:

  • Reported diluted earnings per share of $1.35, up by 36.4%, or by 32.3% excluding currency, versus$0.99 in 2010
  • Adjusted diluted earnings per share of $1.37, as detailed in the attached Schedule 12, up by 37.0%, or by 33.0% excluding currency, versus $1.00 in 2010
  • Cigarette shipment volume growth of 4.4%, excluding acquisitions
  • Reported net revenues, excluding excise taxes, up by 26.4% to $8.4 billion, or by 15.9% excluding currency
  • Reported operating companies income up by 29.2% to $3.8 billion, or by 23.1% excluding currency
  • Adjusted operating companies income up by 29.8% to $3.8 billion, or by 23.7% excluding currency and acquisitions
  • Operating income up by 29.7% to $3.7 billion
  • Free cash flow, defined as net cash provided by operating activities less capital expenditures:  up for the quarter by 25.6% to $2.8 billion, or by 16.1% to $2.6 billion excluding currency, up for the first nine months of the year by 22.1% to $9.0 billion, or by 15.6% to $8.5 billion excluding currency
  • Increased its regular quarterly dividend during the quarter by 20.3% to an annualized rate of $3.08 per common share
  • Repurchased 21.2 million shares of its common stock for $1.4 billion during the quarter PMI narrows its forecast for 2011 full-year reported diluted earnings per share to a range of $4.75 to $4.80, up by approximately 21% to 22.5% versus $3.92 in 2010

In terms of tobacco consumption, many of these emerging markets are where the United States was in the 1960s and 1970s.  For some time, there will be significant growth opportunities in the emerging markets when it comes to tobacco.  The big risk for these companies are punitive taxation and excessive regulation, which have hampered the U.S. tobacco market.  It is likely that at some point government intervention in these emerging markets will significantly curtail growth in the tobacco industry.  In some markets this will take 10 years; others it will take 15 or 25 years.  In the near- to medium-term, however, PMI and its competitors may provide some reasonable growth opportunities.

Disclaimer:  The author does not own PMI.

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June 28, 2011 at 7:35 pm

Crossroads GPS: Shovel Ready

Posted by in 2012 Elections, American Politics, Current Events, Economy, National Debt

It’s a bold move–laughing about a $1 trillion spending policy that didn’t work while the national debt exceeds $14 trillion and 14 million Americans are unemployed.

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June 26, 2011 at 7:41 am

Conservative Critics of the Libya Campaign Aren’t Isolationist–They’re Realists

Posted by in 2012 Elections, American Foreign Policy, Conservatism, Current Events

The continued military adventure in Libya, the House of Representatives’ ambiguous rebuke of the President, and the President’s recent speech on Afghanistan,  has led to a number of thoughtful articles on the current trajectory of our foreign policy which I wanted to share.

Lastly, I wanted to share the piece I wrote for RealClearPolitics, Conservatism Does Not End at America’s Shorelines. Like the three authors above, I, too, was prompted by the misleading comments of Sens. McCain and Graham. What the conservative intellectual movement needs is a substantive, honest debate on the merits of various foreign policy approaches.  Throwing verbal firebombs does not constitute a serious debate. Reasonably people can certainly disagree but let’s hear the arguments.  I’ve received some interesting feedback on the piece thus far. What is encouraging is that even among folks who disagree with my preferred approach, most concede the point on cost/national interest which is the crux of my argument.  Foreign policy and military affairs are not exempt from the economic realities that govern the rest of human affairs.

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March 5, 2011 at 10:28 am

Afghanistan Study Group Report

Posted by in Afghanistan, American Foreign Policy

The Afghanistan Study Group issued this report last year.  I received a copy at a meeting this week and read it cover-to-cover.  It’s a succicnt report yet manages to address the key issues at hand.  It certainly challenges the conventional wisdom and outlines a new strategy for what has become America’s longest war.

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March 1, 2011 at 11:05 am

Tim Kaine: Cheerleader-In-Chief

Posted by in 2012 Elections

http://cheerleaderinchief.com/

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February 25, 2011 at 7:44 pm

Atlas Shrugged Movie Trailer

Posted by in American Politics, Conservatism, Media, Tea Party

Help promote conservative film.  Spread the word about Atlas Shrugged.  Check out the trailer here.

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February 24, 2011 at 9:10 am

Obama’s Reticence on Libya Result of “Scheduling Issue”

Posted by in American Foreign Policy, Current Events

See for yourself.

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February 23, 2011 at 8:39 am

Libya Highlights Obama’s Foreign Policy Confusion

Posted by in American Foreign Policy, Current Events, Military History, The American Presidency

There are few things more important to a statesman than credibility and consistency when it comes to administering a nation’s foreign policy.  The Obama administration’s response to recent events in Egypt and Libya underscore its foreign policy confusion.  The White House has a peculiar habit of treating allied governments and adversarial governments as equals.  This stems from President Barack Obama’s professed belief that all nations are indeed equal in Washington’s eyes.  Of course, the reality of international politics is quite the opposite.  More than two-thousand years of human history support this fact.   Some states, whose national interests overlap and intersect, join together as allies.  States whose national interests collide tend to have more adversarial relationships.

Understanding the role alliance systems play in international politics is a basic requirement for any successful statesmen.  Judging by the administration’s impartial treatment of other nations (both allies and adversaries), it appears as though this important fact is lost on the president and his senior advisors.  Thucydides’ History of the Peloponnesian War communicates not only the centrality of military power in the conduct of international politics but the critical role of alliance systems.  While its primary actors were the city-states of Athens and Sparta, the story of the Peloponnesian War is a tale of alliance systems.  In the end, it was the Spartan-led Peloponnesian League that defeated the Athenian-led Delian League.

Now consider President Obama’s treatment of Egypt (a U.S. ally) and Libya (a U.S. adversary).  The Obama administration was more than eager to push former Egyptian President Hosni Mubarak from power.  The president held two major press conferences and issued numerous statements through White House channels urging, albeit in sometimes veiled language, for Mubarak to step aside.  Mubarak, a benign dictator and strong U.S. ally, received no support from the White House during the crisis, whose message was based more on platitudes than substantive and thoughtful policy.  Now a military dictatorship has supplanted Mubarak and it appears that elections may follow at a later date.  The risk, of course, is that an Islamist government assumes power democratically and then proceeds to turn Egypt into a one-party state.

Now take Libya and its flamboyant and repressive leader, Muammar Gaddafi, who has masterminded and been linked to numerous terrorist attacks over the last four decades, many of which have led directly to American deaths.  Some of Gaddafi’s terrorist bona fides include:  the 1972 Munich Olympics massacre, the 1986 bombing of the German discotheque, and Pan Am Flight 103.  During the recent protests, Gaddafi has used tanks, helicopters, and fighter aircraft to attack civilian protesters (one report puts the death toll at 560); Mubarak did no such thing in attempting to maintain civil order during the protests in Egypt.

One would reasonably assume that Gaddafi’s regime should be on the receiving end of much more critical rhetoric from the White House.  However, it was Egypt—a U.S. ally—which received more pointed criticism from the White House, along with the de facto request that Mubarak step aside so that another dictatorship could assume the reins of power.  Gaddafi—a longtime adversary with American blood on his hands—has received virtually the same treatment afforded Mubarak.  What type of message does this send to U.S. allies?  Certainly not a message of consistency, credibility, or reassurance.

During the 2009-2010 popular uprisings in Iran following the Iranian presidential election, the White House was mostly reticent as the regime violently suppressed the protests.  Again, President Obama’s reticence is difficult to understand; the protesters were standing in opposition to the brutally repressive and staunchly anti-U.S. regime in Tehran.  Washington should have been more vocal in its support of the protesters.  The Obama administration’s inconsistency in dealing with Egypt and Libya highlights its poor understanding of the role alliances play in international politics.  The president and his senior advisors need to re-read Thucydides.

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February 22, 2011 at 7:53 pm

It’s the Oil, Stupid – Part II

Posted by in American Foreign Policy, American Politics, Conservatism, Current Events, Economy, National Debt, Tea Party

Oil prices jumped 8.5% today as the popular uprisings in Libya continued.  This is exactly what I was talking about last week in my post, “It’s the Oil, Stupid.”  Instability creates uncertainty and uncertainty drives up oil prices.  Because we’re slaves to Middle Eastern crude oil, Washington has to cow-tow to two-bit dictators and the price-fixing cartel OPEC.  This is a choice, though.  When we get serious about energy independence we can fundamentally change this dynamic.  Unfortunately, as I noted last week, “The Obama administration has declared war on the coal industry through its proposed cap-and-trade legislation (and likely forthcoming EPA regulations); the licensing process for building new nuclear power plants has not been accelerated and the administration refuses to grant additional offshore drilling permits.”

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at 7:21 pm

Eric Cantor Continues to Draw Ire of Conservatives

Posted by in 2012 Elections, American Politics, Conservatism, Tea Party, Virginia Politics

Great piece from Erick Erickson at Red State aptly titled, “Eric Cantor’s Failure of Leadership.”

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