01—Abstract
Summary
Summary of the 10-Q filed August 6, 2010. Cited figures are marked; the original filing is the authoritative source.
Philip Morris International (PM) reported solid financial performance for the six months ended June 30, 2010, with net earnings attributable to PMI increasing by 21.9% to $3.7 billiona and diluted EPS rising by 29.6% to $1.97 compared to the same period in 2009.
This growth was driven by a combination of net price increases, favorable currency movements, and the positive impact of acquisitions, particularly the business combination in the Philippines. The company also benefited from a lower effective tax rate due to the reversal of tax reserves following the conclusion of IRS examinations. Despite a 1.0%b decline in cigarette shipment volume excluding acquisitions, PM saw overall volume growth due to new business combinations.
The company's diverse geographic segments contributed to this performance, with Asia showing strong growth driven by the Philippines business combination and higher distributor inventories in Japan. While challenges such as increased excise taxes, regulatory pressures, and economic downturns in some regions persist, Philip Morris International raised its full-year 2010 diluted EPS forecast, demonstrating confidence in its ongoing business strategies and market positioning.
02—Key points
Key Highlights
- Net earnings attributable to PMI increased by 21.9% to $3.7 billion for the six months ended June 30, 2010, compared to $3.0 billion in the prior year period.
- Diluted EPS rose by 29.6% to $1.97 for the six months ended June 30, 2010, up from $1.52 in the comparable 2009 period.
- Consolidated net revenues increased by 15.7% to $33.0 billion for the six months ended June 30, 2010.
- The company benefited from a favorable currency impact, increasing net revenues by $2.4 billion for the six months ended June 30, 2010.
- A significant acquisition in the Philippines (PMFTC Inc.) contributed to volume growth and is expected to be accretive to earnings in 2011.
- The effective income tax rate decreased to 26.6% for the six months ended June 30, 2010, partly due to the reversal of tax reserves.
- PMI raised its full-year 2010 diluted EPS forecast to a range of $3.75 to $3.85.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2010, Philip Morris International Inc. kept $0.11.
- Revenue$17.38B100.0%
- Cost of revenue−$12.87B74.0%
- Gross profit$4.51B26.0%
- Operating costs−$1.60B9.2%
- Operating income$2.91B16.7%
- Interest, other & tax−$924.0M5.3%
- Net income$1.98B11.4%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2010filed August 6, 2010Financial Statements
Q2 FY2010 against Q2 FY2009
| Line item | Q2 FY2010Q2 FY2009 | Change |
|---|---|---|
| Revenue | $17.38B$15.21B | +14.3% |
| Cost of Revenue | $2.55B$2.19B | +16.7% |
| Gross Profit | $4.51B$3.95B | +14.2% |
| Operating Income | $2.91B$2.43B | +19.6% |
| Net Income | $1.98B$1.55B | +28.2% |
| EPS (Basic) | $1.07$0.79 | +35.4% |
| EPS (Diluted) | $1.07$0.79 | +35.4% |
| Shares Outstanding (Basic) | 1.85B1.96B | −5.6% |
| Shares Outstanding (Diluted) | 1.85B1.96B | −5.7% |
05—Questions
Frequently Asked Questions
What was the primary driver of the increase in net earnings for the six months ended June 30, 2010?
The primary drivers of the increase in net earnings attributable to PMI were higher operating income, which benefited from net price increases, favorable currency movements, and the impact of acquisitions, as well as a lower effective tax rate due to the reversal of tax reserves.
How did the business combination in the Philippines affect the company's performance?
The business combination in the Philippines, forming PMFTC Inc., significantly contributed to volume growth for the six months ended June 30, 2010, adding 23.3 billion units to shipment volume. The company expects this combination to be accretive to earnings in 2011 as cost synergies are realized.
What is the company's outlook for the remainder of 2010, and what factors are influencing it?
Philip Morris International raised its full-year 2010 reported diluted EPS forecast to $3.75-$3.85, driven by favorable currency at prevailing rates. This outlook anticipates parallel full-year volume performance to 2009 (excluding acquisitions), considering the ongoing worldwide economic recession and its geographic disparity. The guidance includes the benefit from the reversal of tax provisions and excludes potential future acquisitions and other unusual events.
What is the company's strategy for managing foreign currency exposure?
PMI operates in international markets and uses financial instruments, primarily foreign exchange contracts, to manage its exposure to fluctuations in foreign exchange rates. The company policy prohibits the use of leveraged derivatives and speculative trading, focusing instead on hedging actual and forecasted transactions.
06—Continue