01—Abstract
Summary
Summary of the 10-K filed February 13, 2018. Cited figures are marked; the original filing is the authoritative source.
Philip Morris International (PM) reported its 2017 annual results, showcasing solid revenue growth and operational performance.
Net revenues increased by 4.2% to $78.1 billiona, driven by price increases and favorable volume/mix, partially offset by currency headwinds. The company's strategic focus on smoke-free products is evident, with significant growth in Reduced-Risk Products (RRPs), particularly IQOS, which generated $3.8 billion in net revenue in 2017, a substantial increase from the prior year. Despite a challenging regulatory environment and ongoing shifts in consumer preferences, PM demonstrated resilience, with operating income rising 6.4% to $11.5 billion.
A significant event impacting the year was the U.S. Tax Cuts and Jobs Act, which led to a one-time provisional tax charge of $1.6 billionb, negatively affecting diluted EPS. However, excluding this tax impact and currency fluctuations, adjusted diluted EPS showed a healthy increase, indicating strong underlying operational performance. Looking ahead, PM projected continued growth for 2018, signaling confidence in its business strategy.
The company's ongoing investment in RRPs underscores its commitment to transforming its product portfolio and long-term growth trajectory. Investors should note the increasing contribution of RRPs to overall revenue and the company's proactive management of currency risks and regulatory landscapes. The company's financial health remains robust, supported by strong operating cash flow and a well-managed debt structure, positioning it for continued shareholder returns.
02—Key points
Key Highlights
- Net revenues increased by 4.2% to $78.1 billion in 2017, driven by price increases and favorable volume/mix, despite currency headwinds.
- Reduced-Risk Products (RRPs), primarily IQOS, showed significant growth, contributing $3.8 billion in net revenues in 2017.
- Operating income grew by 6.4% to $11.5 billion, demonstrating operational efficiency.
- Diluted EPS was $3.88, a decrease of 13.4% from 2016, largely due to a $1.6 billion provisional tax charge related to the Tax Cuts and Jobs Act.
- Excluding the tax impact and currency fluctuations, adjusted diluted EPS showed a positive operational increase.
- The company maintained strong operating cash flow, providing financial flexibility.
- Significant capital expenditures were directed towards RRP capacity expansion, signaling future growth investments.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2017, Philip Morris International Inc. kept $0.21.
- Revenue$28.75B100.0%
- Cost of revenue−$10.43B36.3%
- Gross profit$18.32B63.7%
- Operating costs−$6.74B23.4%
- Operating income$11.58B40.3%
- Interest, other & tax−$5.55B19.3%
- Net income$6.04B21.0%
Where FY2017 revenue went
$28.75B- Cost of revenue: $10.43B, 36% of revenue
- Other operating costs: $6.28B, 22% of revenue
- Net income: $6.04B, 21% of revenue
- Interest, other & tax: $5.55B, 19% of revenue
- R&D: $453.0M, 1.6% of revenue
Kept 21% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2017filed February 13, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $28.75B$26.68B | +7.7% |
| Cost of Revenue | $10.43B$9.39B | +11.1% |
| Gross Profit | $18.32B$17.29B | +5.9% |
| R&D Expenses | $453.00M$429.00M | +5.6% |
| Operating Income | $11.58B$10.90B | +6.2% |
| Interest Expense | $1.10B$1.07B | +2.5% |
| Net Income | $6.04B$6.97B | −13.4% |
| EPS (Basic) | $3.88$4.48 | −13.4% |
| EPS (Diluted) | $3.88$4.48 | −13.4% |
| Shares Outstanding (Basic) | 1.55B1.55B | +0.1% |
| Shares Outstanding (Diluted) | 1.55B1.55B | +0.1% |
05—Questions
Frequently Asked Questions
What was the impact of the Tax Cuts and Jobs Act on Philip Morris International's 2017 earnings?
The Tax Cuts and Jobs Act, enacted in December 2017, resulted in a one-time provisional tax charge of $1.6 billion for Philip Morris International. This charge significantly impacted diluted earnings per share (EPS), causing a 13.4% decrease compared to 2016. While it reduced net earnings, the company noted no net impact on operating cash flows for the year as changes in deferred taxes and income taxes payable offset the earnings impact.
How are Philip Morris International's Reduced-Risk Products (RRPs) performing?
Philip Morris International's RRPs, notably IQOS, are demonstrating strong growth. In 2017, RRPs generated $3.8 billion in net revenue, a significant increase from $739 million in 2016, primarily driven by sales in Japan. The company is making substantial investments in RRP development and commercialization, viewing them as a key driver for future growth and the company's transformation towards a smoke-free future.
What is the company's outlook for 2018?
Philip Morris International provided a positive outlook for 2018, forecasting a diluted EPS range of $5.20 to $5.35, representing a projected increase of 34% to 38% at prevailing exchange rates compared to 2017's reported diluted EPS. This forecast assumes net revenue growth (excluding excise taxes) of over 8%, operating cash flow exceeding $9.0 billion, and capital expenditures of approximately $1.7 billion.
How is Philip Morris International managing its debt and liquidity?
Philip Morris International maintains a strong liquidity position, supported by committed credit facilities totaling $8.0 billion at February 9, 2018, with no borrowings outstanding at that time. The company also has access to commercial paper programs with an aggregate issuance capacity of $8.0 billion. Total debt stood at $34.3 billion at December 31, 2017, with a weighted-average all-in financing cost of 2.6%. The company expects its operating cash flows, debt financing, and credit facilities to be sufficient to meet its liquidity requirements.
06—Continue