Stop Bogarting Tobacco Stocks

You know you have reached a certain level of immortality when your name becomes a verb, and I can think of no better example than the American actor Humphrey Bogart, perhaps best known for his role in that all-time classic, Casablanca. To “Bogart” a cigarette is to leave it dangling sloppily in your mouth, even when speaking, rather than engaging in proper smoking etiquette by giving it a few puffs at a time, then removing it. Over the years, the word also has come to mean to greedily hog something.

Today, I would say both meanings of the word are accurate descriptions of investors in tobacco stocks. Investors are “Bogarting” tobacco stocks — by continuing to hold them at current prices. First, a little disclosure is needed. I have been a major fan of sin stocks in general, and cigarette stocks in particular, for years. (See “Not All Sin Stocks are Created Equal” and “Delightfully Sinful Dividend Stocks” as recent examples.) However, my enthusiasm for Big Tobacco rested on two big assumptions: They are largely despised by both individual and institutional investors because of their pariah status as politically incorrect merchants of death, making them perpetual contrarian value investments.

They pay high and growing dividends that are significantly better than what can be found elsewhere among mainstream large-cap stocks. Unfortunately, I cannot credibly say that either of these conditions still hold. Cigarette stocks have become downright trendy of late as investors have taken to chasing yield in a low-interest-rate world. Let’s take a look at Philip Morris International (NYSE:PM), the seller of the iconic Marlboro brand, among many others. Philip Morris appeared to be the perfect stock. It had access to emerging-market growth (roughly half its sales) while benefiting from an American listing and top-notch management. It also paid a dividend far higher than the norm among stable U.S. blue-chip stocks, and that dividend was growing every year.

There’s one little problem here: Philip Morris International still is a tobacco company. Its sales might be enjoying a multi-year boost as emerging-market smokers trade up from cheaper local competitors to premium Western cigarettes, but worldwide demand for their products is shrinking, and fast. In its most recent quarterly release, Philip Morris International saw its profits fall 6% on lower volume sales. And perhaps worse: The regulatory noose continues to be tightened. Consider Australia’s new plain-packaging law.

All cigarette boxes now look identical in Australia. Cigarettes must now be sold in logo-free boxes featuring nothing more than graphic pictures of people dying of smoke-related illness. It’s hard to enjoy taking a drag on that cigarette when you’re looking at a picture of a gangrenous foot. This does not at all bode well for premium brands like Marlboro. Given that tobacco companies are all but prohibited from advertising, how can a premium brand differentiate itself from the cheaper competition when it sells its cigarettes in an identical box?

Mankato Looks to Ban Tobacco Sampling In-Store

The Hookah Wars come to Mankato, as the city council considers a tobacco license for Puff Puff Palace. The city attorney has expressed concern over the business practice of sampling, saying it would make the business more a smoking lounge than a tobacco shop. Puff Puff Palace, located at 408 South Front Street, is owned by the same individual that owns Smokes 4 Less, looking to focus on the flavored tobacco world of hookah cafés.

The establishment will have 6 smoking areas, capable of holding 24 patrons at a time - and that has lead city leaders to doubt the actual intent. Mankato City Manager Pat Hentges says, "I think the question for the council is - yes, Eileen [City Attorney Eileen Wells] believes that our current ordinance could allow for sampling - is that what you really intend?" Councilman Charlie Hurd says, "You want a sample, you buy it, you take it home and you sample it. And they can provide small enough amounts, if that's really the intent here."

Councilman Jack Considine says, "No, the intent is to have a spot where people can walk from the other bars and smoke for awhile - that's what it is." The majority of council members were not pleased with the plan being put forth, and asked for the city administration to look into creating ordinances that would ban sampling outright, like other cities have done. Councilman Mark Frost says, "Do we have this language in our ban at all? I would really like us to consider putting this language into our smoking ban."

Alaska Native groups join forces to fight tobacco use

Alaska Native anti-tobacco crusaders received unanimous support from the board of the state’s largest Native organization last year. Now, with that support of the Alaska Federation of Natives, they’re trying to cut into the state’s high rate of tobacco use by Alaska Natives by persuading individual tribes to stop their employees from smoking at work. They’ve been particularly successful in the Interior, where the Tanana Chiefs Conference — a nonprofit corporation serving 42 Interior villages — resolved to ban tobacco products on tribal government facilities this year.

“We want to protect workers and children from secondhand smoke but also from seeing it as a social norm,” said Gary Ferguson, the wellness and prevention director for the Alaska Native Tribal Health Consortium. He has been a vocal anti-tobacco advocate. “In the Interior, we have very resistant rates of tobacco use, and having an organization like TCC make a stand for its facilities basically sets the stage,” he said.

A majority of the state’s population is already protected from workplace secondhand smoke if you factor in municipal bans like those in Anchorage and Nome as well as employers that have made workplaces smoke-free, according to Andrea Thomas, tobacco department manager for the Southeast Alaska Regional Health Consortium. Because there are so many tribal governments in the state, it is difficult to know how many have established policies like that of TCC, but at least seven have passed resolutions in support of smoke-free workplaces this year, she said. The Native Village of Nenana passed such a resolution.

Native anti-smoking advocates point to “Tobacco in the Great Land,” a 200-page report on tobacco use commissioned by the state government as a potent argument for fighting tobacco use. According the most recent report, in 2008 it’s estimated that 43 percent of Alaskan Native adults smoked cigarettes based on self-reported surveys. The estimated number of non-Native adults who smoked was 19 percent.

Both rates are higher in Bush communities than in cities and have declined during the past 10 years. The report overwhelmingly identifies tobacco as the leading cause of preventable disease in the state and directly responsible for $500 million annually in direct medical expenditures and lost productivity because of tobacco-related deaths. Read more: Fairbanks Daily News-Miner - Alaska Native groups join forces to fight tobacco use

Philip Morris Int'l 3Q profit falls 6 percent

Cigarette maker Philip Morris International Inc.'s third-quarter net income fell more than 6 percent, despite higher prices, as the company sold fewer cigarettes. The seller of Marlboro and other cigarette brands overseas said Thursday that changes in currency exchange rates hurt its profit in the July-September quarter. The company narrowed its earnings guidance for the year. Philip Morris International said it earned $2.23 billion, or $1.32 per share, in the third quarter, down from $2.38 billion, or $1.35 per share, a year ago.

On an adjusted basis, the company said it earned $1.38 per share, missing Wall Street estimates by a penny. Its shares fell $3.85, or 4.2 percent, to close at $88 Thursday. When the U.S. dollar is rising against the world's other currencies, companies that sell goods internationally take a hit when converting revenue in foreign currencies back into the dollar. That effect is particularly strong for Philip Morris International, because it does all its business overseas. Excluding excise taxes, revenue fell about 5 percent to $7.9 billion, despite higher prices.

Analysts expected $8.21 billion, according to FactSet. Philip Morris International said the number of cigarettes it shipped fell more than 1 percent to 236.5 billion cigarettes compared with a year ago when the company saw volumes jump more than 4 percent. The company is the world's second-biggest cigarette seller, trailing state-controlled China National Tobacco Corp. Smokers face tax hikes, bans, health concerns and social stigma worldwide, but the effect on cigarette demand generally is less stark outside the United States.

Philip Morris International has compensated for volume declines by raising prices and cutting costs. Shipments grew 3 percent in the company's region that encompasses Eastern Europe, the Middle East and Africa, but fell about 8 percent in the European Union as the region is under pressure because of the continent's government debt crisis, which has caused smokers to switch to cheaper roll-your-own tobacco and counterfeit cigarettes. "Economic conditions continue to be very difficult. Unemployment continues to rise," Jacek Olczak, the company's chief financial officer, said in a conference call with investors. Still, Olczak expressed "confidence in the underlying strength of the business." Shipments also fell nearly 5 percent in Latin America and Canada.

And in Asia, one of its largest growth areas, shipments grew less than 1 percent during the quarter on a tough comparison with the year-ago period, when shipments shot up in Japan following the March 2011 earthquake and tsunami. The events offered the company a sales opportunity because supply disruptions led Japan Tobacco Inc., the world's No. 3 tobacco maker, to stop shipping cigarettes within Japan. Philip Morris International also bought Philippines company Fortune Tobacco Co. in February 2010, bolstering its Asian business.

Philip Morris International said total Marlboro shipments fell 2.3 percent in the quarter to 77.1 billion cigarettes. The company said its market share increased or remained stable in many key areas. During the quarter, the company spent $1.5 billion to buy back 16.7 million shares of stock, completing a three-year, $12 billion buyback program that began in May 2010. A new, previously announced three-year share repurchase program of $18 billion began in August. Looking forward, Philip Morris narrowed its full-year earnings forecast to between $5.12 and $5.18 per share. Previously the company forecast $5.10 to $5.20 per share. Altria Group Inc. in Richmond, Va., the owner of Philip Morris USA, spun off Philip Morris International as a separate company in 2008. Altria is the largest U.S. cigarette seller.

Tougher tobacco laws being drafted

A tobacco watchdog is preparing a new tobacco control law that will lift the legal age for buying cigarettes from 18 to 20, while sellers must be over 18. Dr Lakkana Termsirichaikul, of Mahidol University’s faculty of public health, on Monday revealed details of the proposed legislation at a press conference dubbed “Stop Using Children to Sell Cigarettes”. She said the Tobacco Control Research and Knowledge Management Centre (TRC) was busy drafting the new law on tobacco consumption control to replace the current one which was brought in 20 years ago.

 A study showed the number of smokers aged between 15-18 in the past 10 years had risen from 6.44% to 9.2% with the youngest smokers reported at the age of 6. The new law would be aimed at protecting juveniles. About 300,00 of them became new daily smokers each year, Dr Lakkana added. Besides raising the minimum age for buying and selling cigarettes, the significant changes to the law include:

- Those allowing minors to sell tobacco products will face a maximum one-year prison sentence and a fine of 20,000 baht.
 - Banning the sale of cigarettes on the internet and closing websites associated with it.
 - Banning the sale of packets containing less than 20 cigarettes and selling cigarettes individually.
 - Prohibit sales promotions by tobacco companies and displaying any form of advertising and prices of cigarettes at a point-of-sale.
 - State-run academic institutes must not receive financial support offered by tobacco firms, nor disseminate or promote their corporate social responsibility (CSR) activities.

Chico City Council to consider 20-foot smoking rule for businesses

A smoking ban within a specified distance of private entryways will be up for discussion at Tuesday's City Council meeting. Smoking is already prohibited in front of entryways to public buildings but not privately-owned businesses. The ordinance before the council would prohibit smoking within 20 feet of doors, windows and other openings to businesses. Two ordinance options are being considered, with one adding an exception for people passing by. It's not clear what kind of enforcement will be used or the penalty for violations.

The proposal was brought forward by the American Lung Association earlier this year, and in August the council voted 5-2 to send the issue to city staff for suggestions, with Bob Evans and Mark Sorensen voting no. In researching how other cities have addressed the matter, City Attorney Lori Barker reports most ordinances prohibit smoking within 20 to 25 feet of doors, windows or other openings. Other ordinances she found prohibit smoking completely on specifically designated sidewalks or on all city public property.

In August, a handful of community members said the rules would be difficult to enforce, and that people still smoke now in places where it is banned, including City Plaza. On Friday afternoon, Nicole Romain, membership coordinator and office manager of the Downtown Business Association had not yet heard a reaction to the ordinance from board members. But she said when the association voiced its opposition in August the biggest concern from a survey of business owners was about enforcement. "As far as I know that's still the concern.

I haven't heard anything different," she said. "It's about creating another law and who is going to enforce that law. I don't know we have the police support to be enforcing it." Members of Students with Kids Leading Everyone Against Nicotine said they counted 857 cigarettes butts within 20 feet of 61 businesses, gathered signatures of support from 500 people and received endorsements for a ban from 70 businesses. The city had also been asked by the American Lung Association to ban smoking in Bidwell Park, an issue that has been referred to the Bidwell Parks and Playground Commission. The rest of Tuesday's council agenda includes a quarterly financial update, several consent items and other routine reports.

We must stub out smoking for teens in poor regions

MORE work needs to be done in socially deprived areas to reduce the number of youngsters taking up smoking, campaigners have said. Figures have shown that those who live in deprived areas are more likely to take up smoking and, despite work to bring these numbers down, more is required to try to tackle this trend. Speaking at the annual ASH Wales conference held in Cardiff, Professor Ann McNeill, deputy director of the UK centre for tobacco control studies, said it was also important to look at the influence parents from socially deprived backgrounds may have on their children.

 She said: “The number of people smoking increases between 11-15 - that’s the age when children tend to take up smoking. Smoking has decreased in the last decade so we can all congratulate ourselves but although youth smoking is going down, we cannot be complacent. “There are many factors that influence smoking in young people and the most worrying thing is socioeconomic trends. For may years we did not see much differentiation in young people smoking but what we are seeing at the moment is a trend towards a more deprived youth becoming the main smokers. “We know that smoking can be associated with truancy in schools and drinking and drug use.”

 A report into smoking trends across Wales by the Public Health Wales Observatory and the Welsh Government found that smoking prevalence was highest in the most deprived areas including the South Wales Valleys, South Cardiff and Barry. Professor McNeill said: “Parents smoking are obviously still playing a big role in the prevalence of smoking in young people. “As smoking becomes more concentrated in adults in deprived areas, it is likely that will have a knock-on effect on young children. There was a small change in smoking in the home when the smoke-free legislation came in, but this actually went down. It is clear that the legislation did not have a knock-on effect and drive smoking into the home.

But most of this decline was seen in the high socioeconomic groups so in the future we need to focus more on the more deprived groups.” Professor McNeill said that there were also gender differences in the uptake of smoking, and that it was important to understand these differences to try to reduce the numbers. In his last report before retiring this summer, former Chief Medical Officer for Wales Dr Tony Jewell found that 11% of 15-year-old boys smoked at least once a week while the figure for girls of the same age was 16%. This was higher than the figures for England, Scotland and Ireland. She said: “At the age of 11, boys and girls are similar in their habits, but at the age of 13 and 15, the number of girls smoking is higher than boys.

 “We need to keep an eye on gender differences and we need to keep working to get these rates down. One of the key things we need to be doing is to de-normalise smoking in the wider society.” Professor McNeill also said that the issue of illegal tobacco was of major concern. An estimated one in 10 cigarettes and half of all hand-rolled tobacco is smuggled, according to figures which put the cost of the practice throughout the UK at £2bn. She said: “Illicit tobacco is a really big issue. I think what is evident is that young people are visiting places to get illicit tobacco from wherever it is available and it’s very attractive to them because it is so cheap.

 It’s a big problem and something to watch out for.” Chair of the children’s committee, Julie Morgan AM, said she believed Wales could lead the way in tackling the problem of smoking in teenagers. “Up to 14,000 young people aged between 11 and 15 start smoking each year in Wales and that is a very sobering figure,” she said. We’ve done a lot of work in this area, but there is still a long way to go. With devolution we have more opportunity to be championing and leading the way and there are huge opportunities in Wales to drive the agenda forward.”