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Philip Morris Focuses on Hot E-Cigarettes to Overcome Expected Cool Earnings

NEW YORK (TheStreet) -- You do not normally associate the clean Alpine airs and views of Switzerland with the tobacco industry but this week Philip Morris International (PM) held its two-day investor meeting in Lausanne, where the company has a large Operations Center.

Since early Thursday when the company confirmed that a mix of the impact of currency movements, a weak economy in Europe and the impact of illicit trading in Asia raised the possibility of earnings "...at the lower end of our 2014 guidance for full-year currency-neutral adjusted diluted EPS growth of 6%-8%," the shares have fallen around 5%. They currently trade around $84, down 3.5% for the year to date.

So bad tidings from Switzerland for one of the most popular shares for income seekers in the S&P 500?

Actually not at all.

Philip Morris International talked about all the touch points that tobacco sector investors have got excited about over recent years including pricing power, cost efficiencies and the continued emerging markets growth potential. Driven by a strong range of brands led by Marlboro, the company retains market leadership in three out of its four global geographic sectors.

Certainly trading conditions remain competitive, with cigarette volumes declining in many regions and illicit trade still a challenge, but the commitment to grow the current 4.2% dividend yield and continue share buybacks shone through from the meeting.

Also, the company is changing with the times.

Legal changes around the world are hindering the average cigarette smoker from lighting up wherever they like. One solution is the growth of the "e-vapor" or electronic cigarette industry where technological innovation allows a cigarette-like ritual for consumers but without the smoke, ash or smell. As with any forward-looking company Philip Morris International is embracing technology and announced the purchase of a company called Nicocigs Limited that will undoubtedly be part of their global push in this area.

Read: eCig Advertising Marketing Snares the Cool eKid Generation in Net

There is a big prize on offer. Globally cigarettes had a retail value of over $400 billion in 2013 while e-vapor products only came in at $2 billion. Give it a few years, however, and the e-vapor market is likely to be a lot bigger. Philip Morris International showed some evidence from Italy where only 3.1% of adult smokers in that country were e-vapor product users while 55% of smokers were aware of e-vapor products but had never tried them.

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