01—Abstract
Summary
Summary of the 10-Q filed April 26, 2018. Cited figures are marked; the original filing is the authoritative source.
Philip Morris International (PM) reported its first-quarter 2018 results, showcasing a 13.7% increase in net revenues year-over-year, reaching $6.9 billiona.
This growth was primarily driven by strong performance in reduced-risk products (RRPs), which saw revenues more than double to $1.1 billionb, and favorable pricing across most regions. Despite revenue growth, diluted earnings per share (EPS) slightly declined by 2.0% to $1.00. This was impacted by increased marketing, administration, and research costs, particularly investments in RRPs, and a higher effective tax rate.
The company also increased its full-year 2018 EPS forecast to $5.25c-$5.40, anticipating continued revenue growth and a lower effective tax rate. PMI's strategic shift towards smoke-free products is evident, with RRPs, including heated tobacco units and IQOS devices, showing significant growth in both revenue and shipment volume. The company continues to invest heavily in the development and commercialization of these products, aiming to transition its business model while maintaining its leading position in the combustible products market.
02—Key points
Key Highlights
- Net revenues increased by 13.7% to $6.9 billion, driven by RRP growth and favorable pricing.
- Reduced-Risk Products (RRPs) revenue more than doubled to $1.1 billion, indicating strong adoption.
- Diluted Earnings Per Share (EPS) decreased by 2.0% to $1.00, impacted by increased operating expenses and higher taxes.
- The company raised its full-year 2018 diluted EPS forecast to $5.25-$5.40.
- Shipment volume for cigarettes decreased by 5.3%, while heated tobacco unit volume increased significantly by over 100%.
- Significant investments were made in RRPs, as reflected in higher marketing, administration, and research costs.
- The company's strong balance sheet and liquidity position remain, with no borrowings under committed credit facilities at quarter-end.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q1 FY2018, Philip Morris International Inc. kept $0.23.
- Revenue$6.90B100.0%
- Cost of revenue−$2.62B37.9%
- Gross profit$4.28B62.1%
- Operating costs−$1.85B26.9%
- Operating income$2.43B35.2%
- Interest, other & tax−$870.0M12.6%
- Net income$1.56B22.6%
04—Financials
Financial Highlights
Figures from 10-QQ1 FY2018filed April 26, 2018Financial Statements
Q1 FY2018 against Q1 FY2017
| Line item | Q1 FY2018Q1 FY2017 | Change |
|---|---|---|
| Revenue | $6.90B$6.06B | +13.7% |
| Cost of Revenue | $2.62B$2.18B | +20.1% |
| Gross Profit | $4.28B$3.89B | +10.1% |
| Operating Income | $2.43B$2.42B | +0.4% |
| Net Income | $1.56B$1.59B | −2.1% |
| EPS (Basic) | $1.00$1.02 | −2.0% |
| EPS (Diluted) | $1.00$1.02 | −2.0% |
| Shares Outstanding (Basic) | 1.55B1.55B | +0.1% |
| Shares Outstanding (Diluted) | 1.55B1.55B | +0.1% |
05—Questions
Frequently Asked Questions
What was the primary driver of Philip Morris International's revenue growth in Q1 2018?
Philip Morris International's revenue growth in the first quarter of 2018 was primarily driven by a significant increase in sales of Reduced-Risk Products (RRPs), including heated tobacco units and IQOS devices, which more than doubled their revenue contribution. Additionally, favorable pricing across most regions and higher IQOS device sales contributed to the overall revenue increase.
Why did diluted Earnings Per Share (EPS) decrease despite revenue growth?
Despite revenue growth, diluted EPS saw a slight decrease due to increased operating expenses, specifically higher marketing, administration, and research costs associated with investments in RRPs and the Foundation for a Smoke-Free World. Additionally, a higher effective tax rate in the quarter also impacted profitability.
What is the company's outlook for full-year 2018 earnings?
Philip Morris International raised its full-year 2018 reported diluted EPS forecast to a range of $5.25 to $5.40, representing an estimated increase of 35% to 39% compared to 2017. This upward revision reflects a lower anticipated effective tax rate and strong performance expectations for its core business.
How is Philip Morris International progressing with its 'smoke-free future' strategy?
The company is making significant strides in its transition towards smoke-free products. RRPs, particularly heated tobacco units and IQOS devices, saw substantial growth in both revenue and shipment volume, more than doubling their contribution. PMI is investing heavily in the development, scientific assessment, and commercialization of these products, aiming to shift its business model towards a smoke-free future while continuing to manage its combustible products portfolio.
06—Continue