01—Abstract
Summary
Summary of the 10-Q filed October 25, 2016. Cited figures are marked; the original filing is the authoritative source.
Philip Morris International (PM) reported its third-quarter and year-to-date results for 2016, showing a slight decrease in net revenues driven by unfavorable currency movements, particularly against a strengthening U.S. dollar.
Despite a 3.9% decline in cigarette shipment volume for the nine months, the company managed to increase net revenues excluding excise taxes by 0.8% in the third quarter due to price increases, which offset unfavorable volume/mix and currency impacts. Diluted Earnings Per Share (EPS) for the nine months was $3.38a, a 6.6% decrease year-over-year, largely due to currency headwinds, though the company reaffirmed its full-year reported diluted EPS forecast, indicating an expected growth of 10.5% to 11.5% excluding currency impacts. The company's operational performance showed mixed results across its segments.
The European Union segment experienced revenue growth and increased operating companies income, driven by price increases. However, the Eastern Europe, Middle East & Africa (EEMA) segment saw a decline in both net revenues and operating companies income, primarily due to unfavorable currency and volume/mix. The Asia segment reported a slight decrease in net revenues excluding excise taxes but saw an increase in operating companies income for the quarter, driven by price increases and favorable currency.
The Latin America & Canada segment reported decreases in net revenues and operating companies income, primarily due to currency and unfavorable volume/mix. Philip Morris International continues to invest in Reduced-Risk Products (RRPs), with significant capital expenditures planned for capacity expansion. The company is progressing with its iQOS product commercialization and anticipates RRPs to approach break-even operating income in 2017 and contribute positively in 2018.
The company's financial position remains solid with substantial liquidity from committed credit facilities and no commercial paper outstanding. However, pending litigation remains a factor, with the company noting that unfavorable outcomes could materially affect its financial results.
02—Key points
Key Highlights
- Net revenues increased slightly in Q3 2016 year-over-year, driven by price increases in the EU and Asia segments, offsetting unfavorable currency and volume declines.
- Nine-month diluted EPS decreased by 6.6% to $3.38, primarily impacted by unfavorable currency movements, though the full-year EPS forecast remains positive excluding currency.
- Cigarette shipment volume declined by 3.9% for the nine months and 5.4% for the third quarter, with significant decreases in EEMA and Asia segments.
- The European Union segment showed resilience with revenue growth and increased operating income, driven by price increases and market share gains in key countries.
- Significant investment in Reduced-Risk Products (RRPs), particularly iQOS, with planned capacity expansions to meet growing demand.
- The company maintained strong liquidity with $8.0 billion in committed credit facilities and no commercial paper outstanding.
- Operating companies income in the EEMA segment decreased significantly due to adverse currency fluctuations and lower volume/mix.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q3 FY2016, Philip Morris International Inc. kept $0.10.
- Revenue$19.93B100.0%
- Cost of revenue−$15.38B77.2%
- Gross profit$4.55B22.8%
- Operating costs−$1.57B7.9%
- Operating income$2.98B14.9%
- Interest, other & tax−$1.04B5.2%
- Net income$1.94B9.7%
04—Financials
Financial Highlights
Figures from 10-QQ3 FY2016filed October 25, 2016Financial Statements
Q3 FY2016 against Q3 FY2015
| Line item | Q3 FY2016Q3 FY2015 | Change |
|---|---|---|
| Revenue | $19.93B$19.42B | +2.6% |
| Cost of Revenue | $2.43B$2.38B | +2.1% |
| Gross Profit | $4.55B$4.54B | +0.1% |
| Operating Income | $2.98B$2.96B | +0.6% |
| Net Income | $1.94B$1.94B | −0.2% |
| EPS (Basic) | $1.25$1.25 | 0.0% |
| EPS (Diluted) | $1.25$1.25 | 0.0% |
| Shares Outstanding (Basic) | 1.55B1.55B | +0.1% |
| Shares Outstanding (Diluted) | 1.55B— | — |
05—Questions
Frequently Asked Questions
How did currency fluctuations impact Philip Morris International's results?
Currency fluctuations had a significant negative impact on Philip Morris International's results. The strengthening of the U.S. dollar against various international currencies reduced reported net revenues and operating income. For the nine months, the unfavorable currency impact reduced diluted EPS by $0.32, and for the third quarter, it reduced diluted EPS by $0.04.
What is the company's outlook for its Reduced-Risk Products (RRPs)?
Philip Morris International is heavily investing in its Reduced-Risk Products, such as iQOS. The company plans significant capital expenditures for RRP capacity expansion and expects RRPs to approach break-even operating income in 2017 and become profitable in 2018. They are actively pursuing regulatory approvals for reduced risk claims.
What is the company's financial health and liquidity position?
The company maintains a strong liquidity position. As of September 30, 2016, Philip Morris International had $8.0 billion in committed credit facilities, with no borrowings outstanding. They also have no commercial paper outstanding, indicating ample financial flexibility to meet their obligations and invest in growth initiatives.
What are the key risks identified in the report?
Key risks highlighted include declining cigarette consumption due to increased taxes, regulatory actions, and changing social acceptance. Intense competition, litigation related to tobacco use, adverse currency movements, and potential regulatory hurdles for Reduced-Risk Products are also significant risks. The company also faces risks related to illicit trade and governmental investigations in various jurisdictions.
06—Continue