01—Abstract
Summary
Summary of the 10-K filed February 20, 2015. Cited figures are marked; the original filing is the authoritative source.
Philip Morris International Inc. (PMI) for the year ending December 31, 2014, demonstrated resilience despite facing significant currency headwinds and restructuring charges.
While net revenues remained relatively flat year-over-year, a substantial decline in diluted EPS was primarily driven by unfavorable currency movements, particularly impacting the Argentine peso, Australian dollar, Canadian dollar, Euro, Indonesian rupiah, Japanese yen, Kazakhstan tenge, Russian ruble, Turkish lira, and the Ukraine hryvnia. The company also incurred significant asset impairment and exit costs related to factory closures and restructuring initiatives. Despite these challenges, PMI continued to execute its pricing strategies, which helped offset some of the negative impacts on operating income.
The company also made strategic acquisitions, including Nicocigs Limited, to expand its presence in the e-vapor market. Looking ahead, PMI provided guidance for 2015, forecasting a decline in reported diluted EPS, largely due to continued currency pressures. However, the company emphasized its focus on innovation, particularly with its reduced-risk product (RRP) portfolio, including iQOS, signaling a strategic shift towards developing and commercializing products with the potential to reduce individual risk and population harm.
02—Key points
Key Highlights
- Net revenues were largely flat at $80.1 billion in 2014 compared to $80.0 billion in 2013, but excluding excise taxes, net revenues decreased by 4.6% to $29.8 billion due to unfavorable currency movements and volume/mix, partially offset by price increases.
- Diluted earnings per share (EPS) decreased by 9.5% to $4.76 in 2014 from $5.26 in 2013, significantly impacted by unfavorable currency movements (which reduced EPS by $0.80) and asset impairment/exit costs ($0.26 per share).
- The company recorded pre-tax asset impairment and exit costs of $535 million in 2014, primarily related to factory closures in the Netherlands, Australia, and Canada, and restructuring of its U.S. leaf purchasing model.
- Total cigarette shipment volume decreased by 2.8% in 2014, with notable declines in the EEMA and Asia regions, although market share increased or remained flat in several key markets.
- PMI acquired Nicocigs Limited, a UK-based e-vapor company, for $103 million plus contingent payments, as part of its strategy to develop reduced-risk products (RRPs).
- Despite a challenging operating environment, PMI continued to return capital to shareholders, with dividends declared per share increasing to $3.88 in 2014 from $3.58 in 2013.
- The company is actively developing a portfolio of reduced-risk products (RRPs), including the iQOS heated tobacco product, which was launched in pilot cities in Japan and Italy in late 2014.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2014, Philip Morris International Inc. kept $0.09.
- Revenue$80.11B100.0%
- Cost of revenue−$60.77B75.9%
- Gross profit$19.33B24.1%
- Operating costs−$7.63B9.5%
- Operating income$11.70B14.6%
- Interest, other & tax−$4.21B5.3%
- Net income$7.49B9.4%
Where FY2014 revenue went
$80.11B- Other operating costs: $57.53B, 72% of revenue
- Cost of revenue: $10.44B, 13% of revenue
- Net income: $7.49B, 9.4% of revenue
- R&D: $433.0M, 0.5% of revenue
- Interest, other & tax: $4.21B, 5.3% of revenue
Kept 9.4% as net incomeR&D $433.0M · 0.5%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2014filed February 20, 2015Financial Statements
FY2014 against FY2013
| Line item | FY2014FY2013 | Change |
|---|---|---|
| Revenue | $80.11B$80.03B | +0.1% |
| Cost of Revenue | $10.44B$10.41B | +0.2% |
| Gross Profit | $19.33B$20.81B | −7.1% |
| R&D Expenses | $433.00M$449.00M | −3.6% |
| Operating Income | $11.70B$13.52B | −13.4% |
| Interest Expense | $1.17B$1.10B | +6.0% |
| Net Income | $7.49B$8.58B | −12.6% |
| EPS (Basic) | $4.76$5.26 | −9.5% |
| EPS (Diluted) | $4.76$5.26 | −9.5% |
| Shares Outstanding (Basic) | 1.57B1.62B | −3.5% |
05—Questions
Frequently Asked Questions
What were the primary drivers of the decline in Philip Morris International's diluted EPS in 2014?
The primary drivers of the decline in diluted EPS from $5.26 in 2013 to $4.76 in 2014 were unfavorable currency movements, which negatively impacted EPS by $0.80, and asset impairment and exit costs of $0.26 per share, primarily related to factory closures and restructuring.
What is Philip Morris International's strategy regarding reduced-risk products (RRPs)?
PMI is strategically focused on developing, assessing, and commercializing a portfolio of RRPs. This includes investing in heated tobacco products like iQOS, as well as e-vapor products. The company is conducting rigorous scientific studies to substantiate potential reduced exposure and risk claims, aiming to provide adult smokers with alternatives to combustible cigarettes.
How did currency fluctuations affect Philip Morris International's financial results in 2014?
Currency fluctuations had a significant negative impact on PMI's financial results in 2014. The strengthening U.S. dollar against various currencies, including the Argentine peso, Euro, Japanese yen, and Russian ruble, decreased reported net revenues by $5.3 billion and operating income by $1.5 billion. This unfavorable currency impact also reduced diluted EPS by $0.80.
What significant restructuring or asset impairment charges did the company incur in 2014?
In 2014, PMI incurred pre-tax asset impairment and exit costs of $535 million. These charges were primarily related to the discontinuation of cigarette production at its factory in the Netherlands, factory closures in Australia and Canada, and the restructuring of its U.S. leaf purchasing model.
06—Continue