01—Abstract
Summary
Summary of the 10-K filed February 7, 2019. Cited figures are marked; the original filing is the authoritative source.
Philip Morris International (PM) reported a net revenue increase of 3.1% to $29.6 billiona for the fiscal year ended December 31, 2018.
This growth was primarily driven by favorable pricing across key markets and a significant increase in heated tobacco unit (HTU) volume, particularly in the European Union. Diluted Earnings Per Share (EPS) saw a substantial increase of 30.9% to $5.08b, largely attributed to the positive impact of the U.S. Tax Cuts and Jobs Act of 2017, which reduced the company's effective tax rate, and lower interest expenses due to debt optimization.
The company continues its strategic transformation towards a smoke-free future with its Reduced-Risk Products (RRPs), notably IQOS, which saw a 14.2%c increase in shipment volume. Despite the overall positive financial performance, the company faces ongoing challenges related to declining cigarette consumption in many markets and increasing regulatory scrutiny across the industry.
02—Key points
Key Highlights
- Net revenues increased by 3.1% to $29.6 billion in 2018, driven by favorable pricing and a rise in heated tobacco unit (HTU) shipments.
- Diluted EPS grew by 30.9% to $5.08, significantly impacted by the U.S. Tax Cuts and Jobs Act and improved capital structure management.
- Heated Tobacco Unit (HTU) shipments increased by 14.2% year-over-year, indicating growing adoption of the IQOS product line.
- The company's total international market share, including cigarettes and HTUs, grew slightly to 28.4% in 2018.
- Net revenues from Reduced-Risk Products (RRPs) reached $4.1 billion in 2018, up from $3.6 billion in 2017.
- Operating income saw a slight decrease of 1.8% to $11.4 billion, negatively impacted by unfavorable currency movements and increased marketing, administration, and research costs, particularly for RRPs.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2018, Philip Morris International Inc. kept $0.27.
- Revenue$29.63B100.0%
- Cost of revenue−$10.76B36.3%
- Gross profit$18.87B63.7%
- Operating costs−$7.49B25.3%
- Operating income$11.38B38.4%
- Interest, other & tax−$3.47B11.7%
- Net income$7.91B26.7%
Where FY2018 revenue went
$29.63B- Cost of revenue: $10.76B, 36% of revenue
- Net income: $7.91B, 27% of revenue
- Other operating costs: $7.11B, 24% of revenue
- R&D: $383.0M, 1.3% of revenue
- Interest, other & tax: $3.47B, 12% of revenue
Kept 27% as net incomeR&D $383.0M · 1.3%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2018filed February 7, 2019Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $29.63B$28.75B | +3.1% |
| Cost of Revenue | $10.76B$10.43B | +3.1% |
| Gross Profit | $18.87B$18.32B | +3.0% |
| R&D Expenses | $383.00M$453.00M | −15.5% |
| Operating Income | $11.38B$11.58B | −1.8% |
| Interest Expense | $855.00M$1.10B | −22.0% |
| Net Income | $7.91B$6.04B | +31.1% |
| EPS (Basic) | $5.08$3.88 | +30.9% |
| EPS (Diluted) | $5.08$3.88 | +30.9% |
| Shares Outstanding (Basic) | 1.55B1.55B | +0.2% |
| Shares Outstanding (Diluted) | 1.55B1.55B | +0.1% |
05—Questions
Frequently Asked Questions
What was Philip Morris International's net revenue and earnings performance in 2018?
In 2018, Philip Morris International reported a net revenue of $29.6 billion, a 3.1% increase from the prior year, primarily driven by favorable pricing and higher shipment volumes of heated tobacco units. Diluted Earnings Per Share (EPS) increased significantly by 30.9% to $5.08, boosted by the U.S. Tax Cuts and Jobs Act, which lowered the effective tax rate, and a reduction in interest expenses.
How did the company's Reduced-Risk Products (RRPs), like IQOS, perform in 2018?
Reduced-Risk Products (RRPs) generated $4.1 billion in net revenues in 2018, an increase from $3.6 billion in 2017. Shipments of heated tobacco units (HTUs) saw a 14.2% increase, highlighting the growing consumer adoption of the IQOS platform.
What are the main risks and challenges facing Philip Morris International?
Philip Morris International faces several key risks, including the continued decline in cigarette consumption in many markets, increasing governmental regulations and taxes on tobacco products, intense competition, and the potential for litigation. The company also notes the less predictable financial performance of its RRPs and risks associated with supply chain disruptions for these new products.
How did currency fluctuations impact the company's financial results?
Unfavorable currency movements, particularly against the Argentine peso, Indonesian rupiah, Russian ruble, and Turkish lira, had a negative impact on net revenues and operating income. While net revenues excluding currency effects increased by 3.4%, reported net revenues saw a smaller increase due to these currency headwinds.
06—Continue