10-KPeriod: FY2017

Philip Morris International Inc. Annual Report, Year Ended Dec 31, 2017

Filed February 13, 2018For Securities:PM

Summary

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 billion, 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 billion, 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.

Financial Highlights

52 data points
Beta

Revenue

$28.75B

63.7% Gross Margin

Net Income

$6.04B

21.0% Net Margin

EPS (Diluted)

$3.88

Total Assets

$42.97B

Cash & Equivalents

$8.48B

Free Cash Flow

$7.36B

Financial Statements
Beta
Revenue$28.75B
Cost of Revenue$10.43B
Gross Profit$18.32B
R&D Expenses$453.00M
Operating Income$11.58B
Interest Expense$1.10B
Net Income$6.04B
EPS (Basic)$3.88
EPS (Diluted)$3.88
Shares Outstanding (Basic)1.55B
Shares Outstanding (Diluted)1.55B

Key Highlights

  • 1Net revenues increased by 4.2% to $78.1 billion in 2017, driven by price increases and favorable volume/mix, despite currency headwinds.
  • 2Reduced-Risk Products (RRPs), primarily IQOS, showed significant growth, contributing $3.8 billion in net revenues in 2017.
  • 3Operating income grew by 6.4% to $11.5 billion, demonstrating operational efficiency.
  • 4Diluted 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.
  • 5Excluding the tax impact and currency fluctuations, adjusted diluted EPS showed a positive operational increase.
  • 6The company maintained strong operating cash flow, providing financial flexibility.
  • 7Significant capital expenditures were directed towards RRP capacity expansion, signaling future growth investments.

Frequently Asked Questions

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.

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.

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.

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.