Yesterday, Philip Morris CR CEO I. Ferguson told Reuters that the company could face a more difficult year in 2004 due to:
- an expected cigarette excise-tax hike, which would put pressure on PM CR to lower its margins on premium brands to prevent a sales flight to cheaper brands,
- a possible negative Czech currency (the koruna) exchange-rate development relative to the U.S. dollar; a long-term downward trend in the koruna would increase PM CR’s tobacco-purchase costs (which are USD-denominated) and would consequently compel the identification of new costs savings,
- a widened tobacco-products advertising ban effective July 2004.
As all these factors have been expected and largely reflected in PM CR valuations, the CEO’s comments are neutral for the stock.
Note that PM CR's 2004 net profit will be positively influenced by the expected decrease in the domestic corporate-income-tax rate next year (from 31% to 28%), which we believe should mostly offset the above-mentioned factors.
Jan Hájek