01—Abstract
Summary
Summary of the 10-K filed February 17, 2016. Cited figures are marked; the original filing is the authoritative source.
Philip Morris International (PM) reported its 2015 annual results, highlighting a slight decrease in overall cigarette shipment volume, down 1.0%a 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.
02—Key points
Key Highlights
- Total 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.
- Net 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).
- Operating 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.
- Diluted Earnings Per Share (EPS) decreased by 7.1% to $4.42, with a significant unfavorable currency impact of $1.20 per share.
- The company is advancing its Reduced-Risk Products (RRPs) strategy, with iQOS launched in Japan, Switzerland, and pilot cities globally.
- Total debt stood at $28.5 billion at year-end 2015.
- Dividends declared per share increased to $4.04 in 2015 from $3.88 in 2014.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2015, Philip Morris International Inc. kept $0.09.
- Revenue$73.91B100.0%
- Cost of revenue−$56.48B76.4%
- Gross profit$17.43B23.6%
- Operating costs−$6.81B9.2%
- Operating income$10.62B14.4%
- Interest, other & tax−$3.75B5.1%
- Net income$6.87B9.3%
Where FY2015 revenue went
$73.91B- Other operating costs: $53.50B, 72% of revenue
- Cost of revenue: $9.37B, 13% of revenue
- Net income: $6.87B, 9.3% of revenue
- R&D: $423.0M, 0.6% of revenue
- Interest, other & tax: $3.75B, 5.1% of revenue
Kept 9.3% as net incomeR&D $423.0M · 0.6%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2015filed February 17, 2016Financial Statements
FY2015 against FY2014
| Line item | FY2015FY2014 | Change |
|---|---|---|
| Revenue | $73.91B$80.11B | −7.7% |
| Cost of Revenue | $9.37B$10.44B | −10.3% |
| Gross Profit | $17.43B$19.33B | −9.8% |
| R&D Expenses | $423.00M$433.00M | −2.3% |
| Operating Income | $10.62B$11.70B | −9.2% |
| Interest Expense | $1.13B$1.17B | −3.2% |
| Net Income | $6.87B$7.49B | −8.3% |
| EPS (Basic) | $4.42$4.76 | −7.1% |
| EPS (Diluted) | $4.42$4.76 | −7.1% |
| Shares Outstanding (Basic) | 1.55B1.57B | −1.1% |
| Shares Outstanding (Diluted) | 1.55B— | — |
05—Questions
Frequently Asked Questions
What was the company's overall financial performance in 2015?
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.
How did currency fluctuations impact PM's results?
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.
What is the company's strategy regarding Reduced-Risk Products (RRPs)?
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.
What are the key risks facing the company?
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.
06—Continue