10-QPeriod: Q3 FY2008

Philip Morris International Inc. Quarterly Report for Q3 Ended Sep 30, 2008

Filed November 7, 2008For Securities:PM

Summary

Philip Morris International Inc. (PM) reported strong performance for the nine months and third quarter ended September 30, 2008, driven by favorable currency movements and net price increases across its global segments. Net revenues for the nine months rose to $49.7 billion, a 19.8% increase year-over-year, while net earnings reached $5.6 billion. The company also saw significant growth in operating income, up 21.5% for the nine-month period, demonstrating effective cost management and pricing strategies. The company completed the significant acquisition of Rothmans Inc. in Canada during the quarter, further expanding its international footprint. Additionally, PMI continued its aggressive share repurchase program, highlighting a commitment to returning value to shareholders. While facing a challenging regulatory and tax environment globally, PMI's diversified geographic presence and strong brand portfolio appear to be enabling resilient performance.

Financial Highlights

28 data points
Beta

Revenue

$17.36B

25.8% Gross Margin

Net Income

$2.08B

12.0% Net Margin

EPS (Diluted)

$1.01

Cash & Equivalents

$2.80B

Free Cash Flow

$1.75B

Financial Statements
Beta
Revenue$17.36B
Cost of Revenue$2.48B
Gross Profit$4.47B
Operating Income$2.89B
Net Income$2.08B
EPS (Basic)$1.01
EPS (Diluted)$1.01

Key Highlights

  • 1Net revenues increased by 19.8% to $49.7 billion for the nine months ended September 30, 2008, compared to the prior year.
  • 2Net earnings for the nine-month period grew to $5.6 billion, a 21.2% increase year-over-year.
  • 3Operating income saw a significant rise of 21.5% to $8.3 billion for the first nine months of 2008.
  • 4The company completed the acquisition of Rothmans Inc. in Canada during the third quarter, adding to its international market presence.
  • 5PMI continued its share repurchase program, repurchasing 44.8 million shares for $2.4 billion in the third quarter, and 86.2 million shares for $4.5 billion year-to-date.
  • 6The company reaffirmed its full-year 2008 diluted EPS forecast, projecting growth of 19% to 21%.
  • 7Significant revenue growth was observed across all segments, with notable contributions from favorable currency movements and net price increases.

Frequently Asked Questions

The most significant event was the completion of the acquisition of Rothmans Inc. in Canada during the third quarter of 2008. This acquisition, along with others in Mexico and Pakistan, contributed to revenue growth and expanded the company's international presence. While the Rothmans acquisition did not have a material impact on the third-quarter results itself, it represents a strategic expansion.

Favorable currency movements, particularly the weakness of the U.S. dollar against major currencies like the Euro and Japanese yen, significantly boosted PMI's reported results. For the nine months ended September 30, 2008, currency movements increased net revenues by $4.9 billion (or $1.7 billion excluding excise taxes) and operating income by $749 million.

Philip Morris International is actively returning value to shareholders through a substantial share repurchase program and dividend payments. The company repurchased 44.8 million shares for $2.4 billion in the third quarter and has a $13.0 billion share repurchase program underway. Additionally, the company increased its quarterly dividend to $0.54 per common share, with an annualized rate of $2.16.

PMI faces significant risks including increasing tobacco legislation and regulation globally, rising excise taxes that impact pricing and volume, ongoing litigation, intense competition, currency exchange rate volatility, and potential changes in consumer preferences. The company also faces challenges related to illicit trade, such as counterfeiting and contraband.