01—Abstract
Summary
Summary of the 10-K filed February 9, 2021. Cited figures are marked; the original filing is the authoritative source.
Philip Morris International Inc. (PM) reported net revenues of $28.7 billiona for the year ended December 31, 2020, a decrease of 3.7% from 2019, primarily impacted by the COVID-19 pandemic.
Despite the revenue dip, diluted earnings per share (EPS) saw a significant increase of 11.9% to $5.16b, driven by strong operational performance and a lower effective tax rate. The company continues its strategic pivot towards a "smoke-free future," with its Reduced-Risk Products (RRPs) segment showing robust growth, with net revenues increasing by 21.9% to $6.8 billion. The company's strategy to transition smokers to RRPs, exemplified by its IQOS product line, is a key focus.
While combustible product revenues declined, the substantial growth in RRPs highlights the company's successful product innovation and market penetration in this category. Management remains confident in its ability to navigate challenges such as increasing regulation and evolving consumer preferences by focusing on its transformation agenda and driving the adoption of its smoke-free alternatives.
02—Key points
Key Highlights
- Net revenues decreased by 3.7% to $28.7 billion in 2020, largely due to the impact of the COVID-19 pandemic.
- Diluted EPS increased by 11.9% to $5.16 in 2020, driven by operational improvements and a lower effective tax rate.
- Reduced-Risk Products (RRPs) revenue grew by 21.9% to $6.8 billion, indicating strong momentum in the company's strategic shift.
- Heated Tobacco Units (HTU) shipment volume increased by 27.6% to 76.1 billion units.
- The European Union segment was the largest revenue contributor at $10.7 billion, with a significant increase in operating income.
- The company reaffirmed its commitment to a smoke-free future, emphasizing the growth and potential of its RRP portfolio.
- Despite a challenging year due to COVID-19, the company demonstrated resilience with strong cash flow from operations of $9.8 billion.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2020, Philip Morris International Inc. kept $0.28.
- Revenue$28.69B100.0%
- Cost of revenue−$9.57B33.3%
- Gross profit$19.13B66.7%
- Operating costs−$7.46B26.0%
- Operating income$11.67B40.7%
- Interest, other & tax−$3.61B12.6%
- Net income$8.06B28.1%
Where FY2020 revenue went
$28.69B- Cost of revenue: $9.57B, 33% of revenue
- Net income: $8.06B, 28% of revenue
- Other operating costs: $6.96B, 24% of revenue
- Interest, other & tax: $3.61B, 13% of revenue
- R&D: $495.0M, 1.7% of revenue
Kept 28% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2020filed February 9, 2021Financial Statements
FY2020 against FY2019
| Line item | FY2020FY2019 | Change |
|---|---|---|
| Revenue | $28.69B$29.80B | −3.7% |
| Cost of Revenue | $9.57B$10.51B | −9.0% |
| Gross Profit | $19.13B$19.29B | −0.9% |
| R&D Expenses | $495.00M$465.00M | +6.5% |
| Operating Income | $11.67B$10.53B | +10.8% |
| Interest Expense | $728.00M$796.00M | −8.5% |
| Net Income | $8.06B$7.18B | +12.1% |
| EPS (Basic) | $5.16$4.61 | +11.9% |
| EPS (Diluted) | $5.16$4.61 | +11.9% |
| Shares Outstanding (Basic) | 1.56B1.55B | +0.1% |
| Shares Outstanding (Diluted) | 1.56B1.56B | +0.1% |
05—Questions
Frequently Asked Questions
What was the primary driver behind the revenue decline in 2020?
The primary driver for the 3.7% decrease in net revenues to $28.7 billion in 2020 was the impact of the COVID-19 pandemic, which affected sales across various markets and product categories, particularly in the second quarter and the latter half of the year.
How did the company's Reduced-Risk Products (RRPs) perform in 2020?
The company's RRPs showed strong performance, with net revenues increasing by 21.9% to $6.8 billion. This growth was primarily driven by higher heated tobacco unit (HTU) shipment volumes, which increased by 27.6% to 76.1 billion units.
What is the company's outlook or strategy regarding its 'smoke-free future' initiative?
Philip Morris International is strategically focused on transforming the tobacco industry towards a smoke-free future. This involves developing and commercializing RRPs, such as IQOS, which are positioned as a better choice for adult smokers compared to continuing to smoke cigarettes. The company continues to invest heavily in R&D for these products and is working to convince adult smokers to switch to these less risky alternatives.
What factors contributed to the increase in earnings per share (EPS) despite lower revenues?
The increase in diluted EPS by 11.9% to $5.16 was primarily due to a combination of factors. These include favorable operational performance across key segments, a lower effective tax rate, and a favorable comparison of "Cost/Other" items in 2020 versus significant charges recorded in 2019, such as the Russia excise and VAT audit charge and the loss on deconsolidation of RBH.
06—Continue