10-QPeriod: Q1 FY2017

Philip Morris International Inc. Quarterly Report for Q1 Ended Mar 31, 2017

Filed April 27, 2017For Securities:PM

Summary

Philip Morris International Inc. (PM) reported its first-quarter 2017 financial results, showing a slight decrease in net revenues of 1.4% to $16.56 billion, largely due to unfavorable currency movements and a decrease in combustible product volume, partially offset by price increases. Diluted Earnings Per Share (EPS) saw a modest increase of 4.1% to $1.02, driven by lower interest expenses and a more favorable tax rate, which included a one-time benefit from a legal entity restructuring. The company continues to invest in its Reduced-Risk Products (RRPs) segment, with significant growth in heated tobacco unit shipments, particularly in Japan, indicating a strategic shift towards these newer product categories. Despite a decline in overall cigarette shipment volume, PM highlighted a strong performance in RRPs, demonstrating continued progress in its long-term strategy to transition towards a smoke-free future. The company reiterated its full-year 2017 EPS guidance, reflecting confidence in its operational performance and ongoing strategic initiatives. Investors should monitor the growth trajectory of RRPs and the company's ability to navigate regulatory landscapes and currency fluctuations.

Financial Highlights

50 data points
Beta

Revenue

$6.06B

64.1% Gross Margin

Net Income

$1.59B

26.2% Net Margin

EPS (Diluted)

$1.02

Total Assets

$36.63B

Cash & Equivalents

$5.21B

Free Cash Flow

$551.00M

Financial Statements
Beta
Revenue$6.06B
Cost of Revenue$2.18B
Gross Profit$3.89B
Operating Income$2.42B
Net Income$1.59B
EPS (Basic)$1.02
EPS (Diluted)$1.02
Shares Outstanding (Basic)1.55B
Shares Outstanding (Diluted)1.55B

Key Highlights

  • 1Net revenues decreased by 1.4% to $16.56 billion, primarily impacted by unfavorable currency and lower combustible product volume, though offset by price increases.
  • 2Diluted EPS increased by 4.1% to $1.02, supported by lower interest expense and a reduced effective tax rate, which included a $0.04 benefit from a legal entity restructuring.
  • 3Heated tobacco unit shipments saw significant growth, increasing to 4.4 billion units from 453 million units in the prior year's quarter, driven by strong performance in Japan.
  • 4Combustible product net revenues declined by 3.4% to $16.12 billion, while Reduced-Risk Product (RRP) net revenues surged by 684% to $440 million.
  • 5Operating income decreased by 3.1% to $2.40 billion, mainly due to unfavorable volume/mix and higher operating costs, partially offset by price increases.
  • 6The company maintained a strong liquidity position with $5.08 billion in cash and cash equivalents and no borrowings under its $8.0 billion in committed credit facilities.
  • 7The company increased its full-year 2017 EPS guidance to a range of $4.84 to $4.99.

Frequently Asked Questions

The increase in Diluted EPS to $1.02 was primarily driven by a lower effective tax rate (24.9% compared to 28.3% in Q1 2016), which included a favorable impact of $0.04 from a legal entity restructuring, and a decrease in net interest expense. These factors more than offset the slight decline in net revenues and operating income.

The RRP segment is showing substantial growth. Net revenues from RRPs increased significantly to $440 million in Q1 2017 from $56 million in Q1 2016. This growth is largely attributed to the strong performance of heated tobacco units, particularly in Japan, with shipments increasing to 4.4 billion units from 453 million units year-over-year.

Philip Morris International raised its full-year 2017 EPS guidance to a range of $4.84 to $4.99. This updated guidance reflects a favorable discrete tax item of $0.04 and projects an increase of approximately 9% to 12% over the adjusted 2016 diluted EPS of $4.48, excluding currency impacts. This forecast assumes net revenue growth, excluding excise taxes, of 4% to 6%.

The combustible products business faces several challenges, including declining consumption in many markets due to increased taxes, regulatory restrictions, changing consumer preferences, and the prevalence of illicit trade. The company also noted unfavorable volume/mix in key segments like the European Union and Latin America & Canada, impacting operating income.