01—Abstract
Summary
Summary of the 10-K filed February 7, 2020. Cited figures are marked; the original filing is the authoritative source.
Philip Morris International Inc. (PM) reported total net revenues of $29.8 billiona for the year ended December 31, 2019, a slight increase of 0.6% from 2018.
This growth was primarily driven by favorable pricing and increased volume/mix from its Reduced-Risk Products (RRPs), particularly heated tobacco units (HTUs) and IQOS devices in the EU and Russia. Despite a decline in cigarette shipment volume, the company saw a significant 44.2% increase in HTU shipment volume, reaching 59.7 billion units, underscoring the growing importance of its smoke-free portfolio. However, diluted earnings per share (EPS) decreased by 9.3% to $4.61b, impacted by substantial one-time charges including asset impairment and exit costs, a Canadian tobacco litigation-related expense, a loss on the deconsolidation of its Canadian subsidiary (RBH), and a Russia excise and VAT audit charge.
The company continues to navigate a challenging operating environment characterized by declining cigarette consumption in many markets, increased taxes, and evolving regulations. PMI's strategic focus remains on transforming the tobacco industry towards a smoke-free future by developing and commercializing RRPs. The strong growth in HTU sales, coupled with the FDA's authorization of its Platform 1 product for sale in the U.S. (licensed to Altria), signals progress in this strategic shift, although significant investments in RRP development and commercialization are expected to continue impacting near-term profitability.
02—Key points
Key Highlights
- Net revenues increased slightly by 0.6% to $29.8 billion in 2019, driven by favorable pricing and RRP volume.
- Shipments of Heated Tobacco Units (HTUs) increased by 44.2% to 59.7 billion units, indicating strong growth in the smoke-free category.
- Diluted EPS decreased by 9.3% to $4.61, negatively impacted by significant charges including asset impairment, litigation expenses, and deconsolidation of a subsidiary.
- The company continued to invest heavily in Reduced-Risk Products (RRPs), with R&D expenses for RRPs accounting for 98% of total R&D spending in 2019.
- Cigarette shipment volume declined by 4.5% to 706.7 billion units.
- Total assets grew to $42.88 billion, and long-term debt stood at $26.66 billion at year-end 2019.
- The company paid $7.2 billion in dividends in 2019, with an annualized dividend rate of $4.68 per common share.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2019, Philip Morris International Inc. kept $0.24.
- Revenue$29.80B100.0%
- Cost of revenue−$10.51B35.3%
- Gross profit$19.29B64.7%
- Operating costs−$8.76B29.4%
- Operating income$10.53B35.3%
- Interest, other & tax−$3.35B11.2%
- Net income$7.18B24.1%
Where FY2019 revenue went
$29.80B- Cost of revenue: $10.51B, 35% of revenue
- Other operating costs: $8.30B, 28% of revenue
- Net income: $7.18B, 24% of revenue
- R&D: $465.0M, 1.6% of revenue
- Interest, other & tax: $3.35B, 11% of revenue
Kept 24% as net incomeR&D $465.0M · 1.6%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2019filed February 7, 2020Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $29.80B$29.63B | +0.6% |
| Cost of Revenue | $10.51B$10.76B | −2.3% |
| Gross Profit | $19.29B$18.87B | +2.3% |
| R&D Expenses | $465.00M$383.00M | +21.4% |
| Operating Income | $10.53B$11.38B | −7.4% |
| Interest Expense | $796.00M$855.00M | −6.9% |
| Net Income | $7.18B$7.91B | −9.2% |
| EPS (Basic) | $4.61$5.08 | −9.3% |
| EPS (Diluted) | $4.61$5.08 | −9.3% |
| Shares Outstanding (Basic) | 1.55B1.55B | 0.0% |
| Shares Outstanding (Diluted) | 1.56B1.55B | +0.1% |
05—Questions
Frequently Asked Questions
What was the primary driver for Philip Morris International's net revenue growth in 2019?
Philip Morris International's net revenue growth in 2019 was primarily driven by a favorable pricing variance across several markets and an increase in volume/mix, largely attributed to the strong performance of its Reduced-Risk Products (RRPs), specifically heated tobacco units (HTUs) and IQOS devices.
What factors led to the decrease in Diluted Earnings Per Share (EPS) in 2019?
The decrease in Diluted EPS for 2019 was mainly due to several significant charges, including $422 million in asset impairment and exit costs related to manufacturing optimization, a $194 million Canadian tobacco litigation-related expense, a $239 million loss from the deconsolidation of its Canadian subsidiary (RBH), and a $374 million charge related to a Russia excise and VAT audit.
How is Philip Morris International advancing its 'smoke-free future' strategy?
PMI is advancing its smoke-free future strategy by heavily investing in the development and commercialization of Reduced-Risk Products (RRPs), such as IQOS and heated tobacco units. The company reported a significant increase in HTU shipments and continued to focus its R&D efforts on these new product categories, which it believes offer a better choice for adult smokers compared to continued cigarette smoking.
What is the company's financial position regarding debt and liquidity?
As of December 31, 2019, Philip Morris International had total debt of $31.0 billion, with long-term debt at $26.66 billion. The company maintained substantial liquidity with $6.86 billion in cash and cash equivalents and $8.0 billion in committed credit facilities, with no borrowings outstanding under these facilities at that time. Its debt ratings were stable from Moody's, Standard & Poor's, and Fitch.
06—Continue