Philip Morris International (PMI) is one of the world’s leading tobacco companies.
While PMI still relies largely on sales of cigarettes, it is steadily transitioning to non-combustible products, hoping to help smokers to switch to less-harmful alternatives.
During the transformation, Philip Morris introduced several non-combustible products, including the IQOS blade which heats up but does not burn to provide users with a smokeless experience.
For your information, the IQOS blade uses proprietary Heated Tobacco Units or HTUs sold exclusively by PMI.
Despite the tremendous amount of effort and investment undertaken by PMI, its cigarette sales still account for 85% of the company’s total shipment volume as of fiscal 2022.
Can Philip Morris succeed in transitioning from a cigarette-based to a smokeless company?
In this article, we will look at PMI’s sales volume for cigarettes and heated tobacco units (HTU) as well as the sales breakdown on a regional basis.
For your information, heater tobacco units or HTUs refer to heated tobacco consumables such as HEETS, also known as Heatsticks in some markets.
Besides, Philip Morris’ HTUs are proprietary products that can only work on the company-produced IQOS blade.
Therefore, Philip Morris’ IQOS is modeled based on the razor and blade concept where users having the company-produced IQOS blade must also purchase its proprietary HTUs in order for the device to work.
All told, let’s head out to the following topics!
Cigarette Sales Volume
On a yearly basis, Philip Morris International’s total cigarette sales have been on a decline as shown in the chart above, reaching only 622 billion units as of fiscal 2022, down 1% from 2021 or a massive 16% from 2018.
PMI’s declining cigarette sales illustrate fewer new smokers taking up smoking and existing smokers may have totally quit or switched to less-harmful alternatives such as smokeless or non-combustible tobacco products.
While PMI’s cigarette sales have been on a decline, the rate of decline seems to have slowed in recent years, particularly since 2020.
Therefore, PMI’s cigarette sales are not totally out yet and still represent an important revenue source for the company.
HTU Sales Volume
As mentioned, HTUs or heated tobacco units are proprietary consumables that will only work on PMI-produced IQOS devices.
Some of PMI’s HTUs include HEETS which are also referred to as HeatSticks in some markets.
For a complete definition of HTUs, please head out to this article – PMI’s HEETS.
That said, contrary to cigarette sales, Philip Morris’ HTU sales have been on the rise as seen in the chart above.
As of fiscal 2022, PMI’s HTU sales reached a record high of 109 billion units, representing a year-on-year growth of 15% from 2021 or a massive 166% increment from 2018.
These growth rates are in sharp contrast with that of cigarettes which we saw in prior discussions.
As Philip Morris has been aggressively transforming to smokeless products, it is not a surprise to see the growing sales of the company’s HTUs over the years.
Breakdown Of Cigarette And HTU Sales By Percentage
From the perspective of percentage, Philip Morris’ cigarette sales represent the majority of the total volume, topping at a massive 85% as of 2022.
On the other hand, Philip Morris’ HTU sales made up only 15% of the total volume as of 2022.
While there is still a long way to go for HTUs before being a mainstream product for PMI, the ratio to total volume has been on the rise as shown in the chart above.
As seen, Philip Morris’ HTU percentage has been on an increase and has grown by roughly 10 ppts or 200% since 2018 to reach the 15% ratio reported in 2022.
On the other hand, the percentage of PMI’s cigarette volume has been on a steady decline and reached a record low as of 2022.
The declining ratio illustrates that PMI’s transformation plan has, perhaps been working out as it has been getting less dependent on combustible tobacco products.
Cigarette Sales Volume By Region
A notable trend worth pointing out is Philip Morris’ declining cigarette shipment volumes in all regions around the world as shown in the chart above.
For example, PMI’s cigarette shipment volume in European Union has declined by more than 20 billion units or 14% since 2018 and reached 154 billion units as of 2022, a record low in the past 5 years.
Similarly, Philip Morris’ cigarette sales in South & Southeast Asia have probably declined the most among all regions in the world during the past 5 years, dropping from 178.5 billion sticks reported in 2018 to only 144 billion sticks as of 2022, down by a massive 34.5 billion sticks or 19% in the same period.
Also, things are not looking good in Eastern Europe, particularly Russia, where PMI’s cigarette sales in this region have declined by 25% since 2018.
While cigarette sales in the European Union and Eastern Europe have been on a downtrend, their respective revenue seems to be on an increase in the past 5 years, according to this article – Philip Morris Revenue By Region.
The growing revenue reported in the European region has probably been helped by the increasing sales of HTU in these regions.
We will look at HTU sales by region in the next discussions.
Before heading out, let’s briefly look at the ranking of PMI’s cigarette shipment volume by region.
For example, Philip Morris ships the most cigarettes to the European Union, notably at 154 billion sticks in 2022.
The South & Southeast Asia region comes after the European Union, with 144 billion sticks of cigarettes sold in 2022.
The third place goes to the Middle East & Africa where 134 billion sticks of cigarettes were sold in 2022.
In short, the European Union is Philip Morris’ biggest market for its cigarettes while East Asia & Australia is the smallest market whose cigarette sales totaled only 42.5 billion units in 2022.
HTU Sales Volume By Region
In terms of heated tobacco units (HTUs) shipment volume, Philip Morris recorded the highest sales figure in the European Union region, notably at nearly 40 billion units as of 2022.
This figure also has been on an increase and has grown by more than 500% since 2018, possibly the region with the best growth rates among all other regions in the world.
PMI also generated one of the best HTU sales in East Asia & Australia region in 2022, at 39.4 billion units, representing a rise of 3% over 2021 or 46% over 2018.
Interestingly, Philip Morris’ cigarette sales in East Asia & Australia were at the bottom of the list but its HTU sales were one of the highest among all other regions.
The Eastern Europe region comes in third in terms of HTU sales figures and the recorded number was 24.8 billion sticks for fiscal 2022.
For other regions such as the Middle East & Africa, South & Southeast Asia, and the Americas, Philip Morris’ HTU sales in these regions have been very low despite recording some of the highest cigarette volumes in the same regions.
While PMI sold less than 1 billion HTUs in regions such as South & Southeast Asia and the Americas, the opportunity for smokeless products in these regions is enormous.
Imagine if Philip Morris is able to convert a majority of these smokers to consuming the company’s smoke-free or non-combustible products.
A similar trend applies to the Middle East & Africa region where the number of smokers is disproportionately high compared to HTU users.
Therefore, the market opportunity for HTU products in these regions is still pretty much untapped and Philip Morris can take advantage of that since its user base is already there.
Regional Cigarette Sales By Percentage
Of all regions, Philip Morris’ European Union contributes the most in terms of cigarette shipment volume, topping 25% of total sales volume as of 2022.
Philip Morris’ South and Southeast Asia came in second, with a cigarette sales volume making up 23% of total volume in 2022.
Total cigarette sales in the Middle East & Africa region represent about 22% of the total volume as of 2022.
On the other hand, East Asia & Australia has the least percentage, only at 7% as of 2022.
A trend worth pointing out is the declining ratio in most regions around the world.
However, the Middle East & Africa seems like the only region with a growing percentage.
For example, the number for the Middle East & Africa region has grown by 3 ppts since 2018.
Interestingly, PMI’s cigarette sales in the Middle East & Africa have been roughly flat during the same period.
The growing percentage should point out that Philip Morris’ cigarette sales in the Middle East & Africa have been reasonably strong and resilient compared to other regions whose sales volumes have significantly declined.
Regional HTU Sales By Percentage
Philip Morris’ HTU sales volume by percentage was the highest in both the European Union and East Asia & Australia regions.
Ironically, the percentage of HTU sales in East Asia & Australia has been on a decline while the respective absolute figure has been on the increase as seen in prior discussions.
The declining percentage of HTU sales in East Asia & Australia illustrates the significant rise of HTU sales in other regions, particularly the European Union and Eastern Europe.
For the rest of the regions such as South & Southeast Asia and the Americas, PMI’s HTU sales have made little to no progress as the ratios have been fewer than 1% in the last 5 years.
Cigarette Sales Volume By TTM
On a quarterly basis, Philip Morris’ cigarette sales have been on a serious decline as shown in the TTM plot above.
Since 2018, PMI’s cigarette volume has fallen by 16%, or 118 billion sticks, and reached only 622 billion sticks as of Q4 2022 on a TTM basis.
While volume has been falling, the downtrend seems to have slowed considerably since 2021.
As seen, the cigarette volume has even gone slightly higher in subsequent quarters after reaching the bottom in 1Q 2021.
Therefore, does that mean PMI’s cigarette sales have already reached a bottom and are on the cusp of a turnaround?
Probably but we may only see a minimal turnaround in PMI’s cigarette sales as the company is determined to become a smokeless company.
HTU Sales Volume By TTM
Contrary to cigarette sales, Philip Morris’ HTU sales have been on the rise and reached a record high of 109 billion units as of 4Q 2022, representing a rise of 6% over the prior quarter or 15% over the quarter a year ago.
The rising HTU sales are not a surprise as Philip Morris has been investing in alternative products which are expected to be less harmful than smoking.
PMI is determined to go smokeless as cigarette sales have been falling and therefore, HTU sales will most likely continue to grow.
To recap, Philip Morris International (PMI) is going smoke-free while still maintaining its legacy cigarette business.
As a result, we are seeing that PMI’s cigarette sales have already reached a plateau and are now on the verge of a decline.
At the same time, PMI’s heated tobacco unit sales have been on the rise and its quarterly sales figures reach record highs every quarter on a TTM basis.
As of fiscal 2022, PMI’s cigarette volume clocked 85% while HTU volume represented 15% of the total volume, showing that the transformation effort may have been working for the firm.
While smoke-free products have seriously gained in terms of sales percentage, Philip Morris was still pretty much a cigarette company as of 2022, with the majority of its sales volume still coming from its legacy smokeable products.
References and Credits
1. All financial figures in this article were obtained and referenced from PMI’s quarterly and annual filings available in Philip Morris International’s Reports And Filings.
2. Featured images in this article are obtained free and are used without any attribution from the following links: Pixabay
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