10-QPeriod: Q2 FY2010

Philip Morris International Inc. Quarterly Report for Q2 Ended Jun 30, 2010

Filed August 6, 2010For Securities:PM

Summary

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 billion 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% 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.

Financial Highlights

53 data points
Beta

Revenue

$17.38B

26.0% Gross Margin

Net Income

$1.98B

11.4% Net Margin

EPS (Diluted)

$1.07

Total Assets

$33.32B

Cash & Equivalents

$1.58B

Free Cash Flow

$3.30B

Financial Statements
Beta
Revenue$17.38B
Cost of Revenue$2.55B
Gross Profit$4.51B
Operating Income$2.91B
Net Income$1.98B
EPS (Basic)$1.07
EPS (Diluted)$1.07
Shares Outstanding (Basic)1.85B
Shares Outstanding (Diluted)1.85B

Key Highlights

  • 1Net 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.
  • 2Diluted 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.
  • 3Consolidated net revenues increased by 15.7% to $33.0 billion for the six months ended June 30, 2010.
  • 4The company benefited from a favorable currency impact, increasing net revenues by $2.4 billion for the six months ended June 30, 2010.
  • 5A significant acquisition in the Philippines (PMFTC Inc.) contributed to volume growth and is expected to be accretive to earnings in 2011.
  • 6The effective income tax rate decreased to 26.6% for the six months ended June 30, 2010, partly due to the reversal of tax reserves.
  • 7PMI raised its full-year 2010 diluted EPS forecast to a range of $3.75 to $3.85.

Frequently Asked Questions

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.

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.

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.

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.