10-KPeriod: FY2016

Philip Morris International Inc. Annual Report, Year Ended Dec 31, 2016

Filed February 14, 2017For Securities:PM

Summary

Philip Morris International Inc. (PM) reported solid results for the fiscal year ended December 31, 2016. The company demonstrated resilience by increasing diluted earnings per share (EPS) by 1.4% to $4.48, despite a 4.1% decrease in total cigarette shipment volume. This growth was driven by strategic price increases across its portfolio and a reduction in marketing, administration, and research costs, which more than offset unfavorable currency movements and a slight decline in volume/mix. The company's diversified geographic segments contributed to this performance, with the EU, EEMA, Asia, and Latin America & Canada regions all showing contributions to operating income growth, primarily through pricing actions. A significant strategic focus for PMI is the development and commercialization of Reduced-Risk Products (RRPs). The company reported substantial growth in IQOS Consumables shipment volume, reaching 7.4 billion units, up from 396 million in the prior year, indicating growing adoption of its innovative products. This strategic shift towards RRPs is a key long-term growth driver, aiming to transition adult smokers to potentially less harmful alternatives. Despite the ongoing challenges in the tobacco industry, including declining cigarette volumes and increasing regulatory pressures, PMI's financial performance in 2016 highlights its ability to manage costs, execute pricing strategies, and invest in future growth areas like RRPs.

Financial Highlights

54 data points
Beta

Revenue

$26.68B

64.8% Gross Margin

Net Income

$6.97B

26.1% Net Margin

EPS (Diluted)

$4.48

Total Assets

$36.85B

Cash & Equivalents

$4.24B

Free Cash Flow

$6.91B

Financial Statements
Beta
Revenue$26.68B
Cost of Revenue$9.39B
Gross Profit$17.29B
R&D Expenses$429.00M
Operating Income$10.90B
Interest Expense$1.07B
Net Income$6.97B
EPS (Basic)$4.48
EPS (Diluted)$4.48
Shares Outstanding (Basic)1.55B
Shares Outstanding (Diluted)1.55B

Key Highlights

  • 1Diluted EPS increased by 1.4% to $4.48, driven by price increases and cost management, despite a 4.1% decline in cigarette shipment volume.
  • 2Net revenues, excluding excise taxes, saw a slight decrease of 0.4% to $26.7 billion, primarily due to unfavorable currency movements, but were supported by a 1.6% increase in net revenue from price increases.
  • 3Operating income rose by 1.8% to $10.8 billion, driven by price increases and lower marketing, administration, and research costs.
  • 4Shipments of IQOS Consumables saw significant growth, reaching 7.4 billion units in 2016, up from 396 million in 2015, indicating strong market adoption for Reduced-Risk Products (RRPs).
  • 5The European Union segment reported a 11.7% increase in operating companies income, driven by price increases and cost reductions.
  • 6The company maintained strong financial liquidity with $4.2 billion in cash and cash equivalents and $8.0 billion in committed credit facilities at year-end.
  • 7PMI continued to manage its debt effectively, with total debt of $29.1 billion and a weighted-average all-in financing cost of 2.8%.

Frequently Asked Questions

In 2016, Philip Morris International reported a 1.4% increase in diluted EPS to $4.48. Net revenues were $74.95 billion, a 1.4% increase including excise taxes, or a 0.4% decrease excluding excise taxes, primarily due to unfavorable currency impacts. Operating income grew by 1.8% to $10.8 billion, driven by price increases and cost efficiencies, which offset a 4.1% decrease in cigarette shipment volume.

PMI is actively developing and commercializing RRPs, which are products that present less risk of harm to smokers who switch compared to continued smoking. The company's key RRP, IQOS, demonstrated significant growth in 2016, with IQOS Consumables shipment volume reaching 7.4 billion units. PMI views RRPs as a critical part of its future strategy to transition smokers away from traditional cigarettes.

The increase in operating income was primarily driven by price increases across its product portfolio, which contributed $1.6 billion to net revenue. Additionally, a reduction in marketing, administration, and research costs by $251 million, and the non-recurrence of asset impairment and exit costs from 2015, also contributed positively. These factors helped to offset the negative impacts of unfavorable currency movements ($1.0 billion) and unfavorable volume/mix ($692 million).

PMI operates globally and is exposed to foreign currency fluctuations. The company uses derivative financial instruments, such as forward contracts, swaps, and options, to manage its exposure to market risks arising from changes in foreign currency exchange rates and interest rates. These instruments are generally not used for speculative purposes and are formally documented as hedges to mitigate risk.