01—Abstract
Summary
Summary of the 10-Q filed July 30, 2015. Cited figures are marked; the original filing is the authoritative source.
Philip Morris International (PM) reported its second-quarter 2015 results, highlighting a 1.1% increase in diluted EPS to $1.21a for the three months ended June 30, 2015, compared to $1.17 in the prior year.
For the six months ended June 30, 2015, diluted EPS grew 0.9% to $2.37b from $2.35 in the same period of 2014. This growth was primarily driven by operational improvements, including pricing strategies and cost management, partially offset by unfavorable currency movements, which had a significant impact on reported revenues and profitability. The company reaffirmed its 2015 full-year diluted EPS forecast, anticipating a range of $4.32 to $4.42, reflecting a projected growth of 9% to 11% on an adjusted, currency-neutral basis compared to 2014.
The company's balance sheet shows a decrease in total assets to $32.7 billionc as of June 30, 2015, from $35.2 billion at the end of 2014, primarily due to a reduction in finished product inventory and goodwill. Total liabilities also decreased to $44.5 billion from $46.4 billion. The company's commitment to returning capital to shareholders is evident through dividends paid, which totaled $3.1 billion for the first six months of 2015, an increase from $3.0 billion in the prior year, though share repurchases were paused for 2015.
02—Key points
Key Highlights
- Diluted EPS increased by 3.4% to $1.21 for the three months ended June 30, 2015, and by 0.9% to $2.37 for the six months ended June 30, 2015.
- Net revenues decreased by 10.9% to $18.8 billion for the three months and by 7.0% to $36.1 billion for the six months ended June 30, 2015, largely due to unfavorable currency impacts and volume/mix.
- Operating income for the three months ended June 30, 2015, increased slightly by 0.6% to $2.9 billion, while for the six months it decreased by 1.1% to $5.8 billion.
- Significant asset impairment and exit costs of $512 million (pre-tax) were recorded in the first six months of 2014 related to factory closures in the Netherlands and Australia.
- The company reaffirmed its 2015 full-year diluted EPS forecast of $4.32 to $4.42, representing an expected currency-neutral growth of 9% to 11% over adjusted 2014 EPS.
- Total debt remained significant, at approximately $29.2 billion as of June 30, 2015.
- Dividends paid increased to $3.1 billion for the first six months of 2015, reflecting a higher dividend rate, while share repurchases were not planned for 2015.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2015, Philip Morris International Inc. kept $0.10.
- Revenue$18.76B100.0%
- Cost of revenue−$14.28B76.1%
- Gross profit$4.48B23.9%
- Operating costs−$1.59B8.5%
- Operating income$2.89B15.4%
- Interest, other & tax−$1.00B5.4%
- Net income$1.89B10.1%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2015filed July 30, 2015Financial Statements
Q2 FY2015 against Q2 FY2014
| Line item | Q2 FY2015Q2 FY2014 | Change |
|---|---|---|
| Revenue | $18.76B$21.05B | −10.9% |
| Cost of Revenue | $2.38B$2.70B | −11.8% |
| Gross Profit | $4.48B$5.10B | −12.2% |
| Operating Income | $2.89B$2.87B | +0.6% |
| Net Income | $1.89B$1.85B | +1.9% |
| EPS (Basic) | $1.21$1.17 | +3.4% |
| EPS (Diluted) | $1.21$1.17 | +3.4% |
| Shares Outstanding (Basic) | 1.55B1.57B | −1.4% |
05—Questions
Frequently Asked Questions
What was the impact of currency exchange rates on Philip Morris International's financial performance?
The strengthening U.S. dollar had a significant unfavorable impact on PMI's reported net revenues and profitability. For the three months ended June 30, 2015, unfavorable currency movements decreased net revenues by $1.3 billion, and for the six months, the impact was $2.2 billion. This currency headwind was a key factor in the reported decline in net revenues.
How did the company's operational performance contribute to earnings per share (EPS) growth?
Despite overall revenue declines due to currency, operational performance, particularly through price increases and cost management, helped to partially offset these headwinds. For the six months ended June 30, 2015, operations contributed $0.43 to the increase in diluted EPS, showcasing the company's ability to drive profitability through strategic pricing and efficiency initiatives in its segments.
What is the company's outlook for the remainder of 2015, and what are the key drivers?
Philip Morris International reaffirmed its 2015 full-year diluted EPS forecast to be between $4.32 and $4.42. This forecast projects a currency-neutral growth of 9% to 11% over the adjusted 2014 EPS. The company anticipates incremental investments to support the deployment of its iQOS product in Japan and other markets, along with accelerated spending for planned 2016 iQOS launches and reinforced marketing for its combustible business.
Are there any significant legal or regulatory risks that investors should be aware of?
Yes, Philip Morris International faces significant legal and regulatory risks inherent to the tobacco industry. These include ongoing tobacco-related litigation in various jurisdictions, with some cases seeking billions in damages. The company is also subject to evolving regulations related to tobacco products, such as packaging restrictions, ingredient bans, advertising limitations, and public smoking bans, driven in part by the WHO's Framework Convention on Tobacco Control (FCTC). While the company has largely been successful in defending against tobacco-related litigation to date, unfavorable outcomes could materially affect its financial position.
06—Continue