10-QPeriod: Q2 FY2016

Philip Morris International Inc. Quarterly Report for Q2 Ended Jun 30, 2016

Filed July 26, 2016For Securities:PM

Summary

Philip Morris International Inc. (PM) reported its financial results for the second quarter and the first half of 2016. For the first half of the year, net revenues were $35.83 billion, a slight decrease from $36.12 billion in the prior year period, primarily driven by unfavorable currency movements impacting revenues by $994 million, partially offset by price increases of $616 million. Diluted earnings per share (EPS) for the first half stood at $2.13, down from $2.37 in the prior year, largely due to the negative impact of currency fluctuations. The company's operating income also saw a decline, primarily attributed to currency headwinds and unfavorable volume/mix. Despite the overall decline in EPS and operating income, driven largely by currency impacts, the company saw positive developments in certain areas. Pricing actions across various segments provided a significant offset to volume and currency pressures. Furthermore, the company is actively investing in Reduced-Risk Products (RRPs), with total shipment volume of HeatSticks showing a substantial increase. The company maintained a strong liquidity position with significant committed credit facilities and no outstanding commercial paper. The company also reaffirmed its full-year 2016 reported diluted EPS forecast, excluding currency impacts, projecting a 10-12% increase.

Financial Highlights

51 data points
Beta

Revenue

$19.04B

22.5% Gross Margin

Net Income

$1.79B

9.4% Net Margin

EPS (Diluted)

$1.15

Total Assets

$34.80B

Cash & Equivalents

$3.81B

Free Cash Flow

$2.12B

Financial Statements
Beta
Revenue$19.04B
Cost of Revenue$2.36B
Gross Profit$4.29B
Operating Income$2.75B
Net Income$1.79B
EPS (Basic)$1.15
EPS (Diluted)$1.15
Shares Outstanding (Basic)1.55B
Shares Outstanding (Diluted)1.55B

Key Highlights

  • 1Net revenues for the first six months of 2016 were $35.83 billion, a decrease of 0.8% compared to the prior year, primarily due to unfavorable currency impacts.
  • 2Diluted earnings per share (EPS) for the first six months of 2016 decreased to $2.13 from $2.37 in the prior year, largely driven by a significant unfavorable currency impact of $0.28.
  • 3Operating income for the first six months of 2016 decreased by 9.3% to $5.23 billion, primarily due to unfavorable currency movements, unfavorable volume/mix, and higher marketing, administration, and research costs.
  • 4Price increases across various segments provided a significant offset to unfavorable currency and volume/mix impacts, contributing positively to net revenues and operating income.
  • 5The company's cigarette shipment volume decreased by 3.2% for the first six months of 2016, with declines across most segments, particularly in EEMA and Asia.
  • 6Shipment volume of HeatSticks (an RRP) saw a significant increase, reaching 1.6 billion units in the first six months of 2016, up from 56 million units in the prior year period.
  • 7The company maintained strong liquidity with $8.0 billion in committed credit facilities and no commercial paper outstanding as of June 30, 2016.

Frequently Asked Questions

The primary driver for the decrease in net revenues and EPS was the unfavorable impact of currency exchange rates. The strengthening of the U.S. dollar against various international currencies reduced the value of foreign earnings when translated back into U.S. dollars. This currency headwind significantly impacted profitability across the company's key operating markets.

Price increases were a crucial factor in offsetting the negative impacts of unfavorable currency movements and declining shipment volumes. The company implemented price increases across its segments, which contributed positively to net revenues and helped mitigate the decline in operating income.

Philip Morris International is making significant investments in Reduced-Risk Products (RRPs). A key product, HeatSticks (used with the iQOS device), saw a substantial increase in shipment volume, reaching 1.6 billion units in the first six months of 2016, compared to 56 million units in the same period of the prior year. The company is also conducting extensive scientific studies to substantiate claims of reduced exposure and risk for these products.

The company maintains a strong liquidity position. As of June 30, 2016, Philip Morris International had $8.0 billion in committed credit facilities and no commercial paper outstanding. They also have ongoing sales of trade receivables to manage cash flow. The company's debt levels were $30.0 billion, and they actively manage their debt structure and interest rate exposure through various financial instruments.