10-KPeriod: FY2019

Philip Morris International Inc. Annual Report, Year Ended Dec 31, 2019

Filed February 7, 2020For Securities:PM

Summary

Philip Morris International Inc. (PM) reported total net revenues of $29.8 billion 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 $4.61, 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.

Financial Highlights

51 data points
Beta

Revenue

$29.80B

64.7% Gross Margin

Net Income

$7.18B

24.1% Net Margin

EPS (Diluted)

$4.61

Total Assets

$42.88B

Cash & Equivalents

$6.87B

Free Cash Flow

$9.24B

Financial Statements
Beta
Revenue$29.80B
Cost of Revenue$10.51B
Gross Profit$19.29B
R&D Expenses$465.00M
Operating Income$10.53B
Interest Expense$796.00M
Net Income$7.18B
EPS (Basic)$4.61
EPS (Diluted)$4.61
Shares Outstanding (Basic)1.55B
Shares Outstanding (Diluted)1.56B

Key Highlights

  • 1Net revenues increased slightly by 0.6% to $29.8 billion in 2019, driven by favorable pricing and RRP volume.
  • 2Shipments of Heated Tobacco Units (HTUs) increased by 44.2% to 59.7 billion units, indicating strong growth in the smoke-free category.
  • 3Diluted EPS decreased by 9.3% to $4.61, negatively impacted by significant charges including asset impairment, litigation expenses, and deconsolidation of a subsidiary.
  • 4The 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.
  • 5Cigarette shipment volume declined by 4.5% to 706.7 billion units.
  • 6Total assets grew to $42.88 billion, and long-term debt stood at $26.66 billion at year-end 2019.
  • 7The company paid $7.2 billion in dividends in 2019, with an annualized dividend rate of $4.68 per common share.

Frequently Asked Questions

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.

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.

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.

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.