10-QPeriod: Q2 FY2008

Philip Morris International Inc. Quarterly Report for Q2 Ended Jun 30, 2008

Filed August 7, 2008For Securities:PM

Summary

Philip Morris International (PM) reported strong financial performance for the six months ended June 30, 2008, with net earnings of $3.56 billion, a significant increase from $2.93 billion in the prior year period. Diluted EPS also rose to $1.69 from $1.39. This growth was driven by robust operational performance across its global segments, favorable currency movements, and strategic net price increases, partially offset by asset impairment and exit costs, and higher interest expenses. The company also highlighted its successful separation from Altria Group, Inc., completed on March 28, 2008, which established PMI as an independent entity. Following the spin-off, PMI initiated a significant $13.0 billion share repurchase program and declared its inaugural quarterly dividend of $0.46 per share. The balance sheet shows substantial growth in cash and cash equivalents to $3.03 billion, while total assets grew to $34.32 billion, indicating a strong financial position.

Financial Highlights

26 data points
Beta

Revenue

$16.70B

25.4% Gross Margin

Net Income

$1.69B

10.1% Net Margin

EPS (Diluted)

$0.80

Cash & Equivalents

$3.03B

Free Cash Flow

$4.53B

Financial Statements
Beta
Revenue$16.70B
Cost of Revenue$2.46B
Gross Profit$4.25B
Operating Income$2.61B
Net Income$1.69B
EPS (Basic)$0.81
EPS (Diluted)$0.80

Key Highlights

  • 1Net earnings increased by 21.6% to $3.56 billion for the six months ended June 30, 2008, compared to $2.93 billion in the prior year.
  • 2Diluted Earnings Per Share (EPS) grew to $1.69 from $1.39 year-over-year.
  • 3Net revenues increased by 18.7% to $32.3 billion for the six months ended June 30, 2008.
  • 4The company successfully completed its separation from Altria Group, Inc. on March 28, 2008, establishing it as an independent publicly traded entity.
  • 5PMI initiated a $13.0 billion share repurchase program and declared its first quarterly dividend of $0.46 per share.
  • 6Cash and cash equivalents increased significantly to $3.03 billion as of June 30, 2008, up from $1.66 billion at the end of 2007.
  • 7Operating income showed a substantial increase of 24.7% to $5.42 billion for the six months ended June 30, 2008.

Frequently Asked Questions

The separation, completed on March 28, 2008, resulted in PMI becoming an independent entity. The financial statements reflect this separation, including the settlement of intercompany accounts and the establishment of new benefit plans. PMI received a net payment of $332 million from Altria related to the spin-off activities, including stock awards, tax contingencies, and benefit plan liabilities. This also led to PMI initiating its own dividend policy and share repurchase program.

Favorable currency movements significantly benefited PMI's results. For the six months ended June 30, 2008, currency positively impacted net revenues by $1.1 billion (after excluding excise taxes) and operating income by $532 million. This was primarily due to the weakness of the U.S. dollar against currencies such as the Euro, Japanese yen, Russian ruble, and Turkish lira.

PMI has an active program of selective acquisitions to strengthen its brand portfolio and expand geographic reach, as evidenced by the acquisition of the 'Interval' trademark and other trademarks for $396 million in June 2008. The company also launched a significant $13.0 billion share repurchase program in May 2008 and declared its first quarterly dividend, indicating a focus on returning value to shareholders and strategic growth investments.

Yes, PMI is involved in various ongoing legal proceedings, primarily related to tobacco litigation (smoking and health, health care cost recovery, lights cases, public civil actions). While the company believes it has valid defenses and has historically been largely successful in defending against such claims, the potential exists for unfavorable outcomes that could materially affect financial position or results of operations. The company does not record provisions for these contingencies unless an unfavorable outcome is probable and the amount can be reasonably estimated.