10-KPeriod: FY2015

Philip Morris International Inc. Annual Report, Year Ended Dec 31, 2015

Filed February 17, 2016For Securities:PM

Summary

Philip Morris International (PM) reported its 2015 annual results, highlighting a slight decrease in overall cigarette shipment volume, down 1.0% year-over-year to 847.3 billion units, aligning with an estimated 2.6% decline in the broader international market. Despite this volume pressure, the company saw growth in key brands like Marlboro and Philip Morris, driven by pricing strategies and market share gains in several important regions. The company's financial performance was significantly impacted by unfavorable currency movements, particularly against the U.S. dollar, which reduced net revenues and operating income. PM is actively investing in the development and commercialization of Reduced-Risk Products (RRPs), with iQOS showing promising initial launches in select markets. The company faced increased operational costs and a challenging regulatory environment globally, as detailed in its risk factors, including potential impacts from excise tax increases and stricter marketing regulations. The company's financial position remained solid, supported by strong operating cash flow, though it continued to manage significant long-term debt.

Financial Highlights

54 data points
Beta

Revenue

$73.91B

23.6% Gross Margin

Net Income

$6.87B

9.3% Net Margin

EPS (Diluted)

$4.42

Total Assets

$33.96B

Cash & Equivalents

$3.42B

Free Cash Flow

$6.91B

Financial Statements
Beta
Revenue$73.91B
Cost of Revenue$9.37B
Gross Profit$17.43B
R&D Expenses$423.00M
Operating Income$10.62B
Interest Expense$1.13B
Net Income$6.87B
EPS (Basic)$4.42
EPS (Diluted)$4.42
Shares Outstanding (Basic)1.55B
Shares Outstanding (Diluted)1.55B

Key Highlights

  • 1Total cigarette shipment volume decreased by 1.0% in 2015 to 847.3 billion units, slightly outperforming the estimated 2.6% decline in the international market.
  • 2Net revenues decreased by 7.7% to $73.9 billion, primarily due to unfavorable currency movements (-$4.7 billion) and a slight unfavorable volume/mix, partially offset by price increases (+$2.1 billion).
  • 3Operating income decreased by 9.2% to $10.6 billion, impacted by unfavorable currency, higher marketing/administration/research costs, and unfavorable volume/mix, partially offset by price increases.
  • 4Diluted Earnings Per Share (EPS) decreased by 7.1% to $4.42, with a significant unfavorable currency impact of $1.20 per share.
  • 5The company is advancing its Reduced-Risk Products (RRPs) strategy, with iQOS launched in Japan, Switzerland, and pilot cities globally.
  • 6Total debt stood at $28.5 billion at year-end 2015.
  • 7Dividends declared per share increased to $4.04 in 2015 from $3.88 in 2014.

Frequently Asked Questions

In 2015, Philip Morris International (PM) experienced a decrease in net revenues by 7.7% to $73.9 billion and a 9.2% decline in operating income to $10.6 billion. This was largely driven by unfavorable currency impacts and a slight decrease in shipment volumes, partially offset by price increases. Diluted EPS decreased by 7.1% to $4.42.

Currency exchange rates had a significant negative impact in 2015. The strengthening of the U.S. dollar against various currencies reduced reported net revenues by $4.7 billion (excluding excise taxes) and operating income by $2.3 billion. The company attributed $1.20 of the year-over-year decline in diluted EPS to unfavorable currency movements.

PM is actively pursuing a strategy to develop, assess, and commercialize Reduced-Risk Products (RRPs). The company is investing in R&D and has launched its iQOS heated tobacco product in several markets, including Japan and Switzerland. They are conducting rigorous scientific studies to substantiate potential reduced risk claims, aiming to provide adult smokers with alternatives to traditional cigarettes.

Key risks highlighted include declining cigarette consumption in many markets due to increased taxes, government actions, and diminishing social acceptance of smoking. The company also faces intense competition, extensive government regulation (including potential plain packaging and ingredient restrictions), litigation risk, currency fluctuations, and the ongoing challenge of illicit trade.