10-QPeriod: Q1 FY2018

Philip Morris International Inc. Quarterly Report for Q1 Ended Mar 31, 2018

Filed April 26, 2018For Securities:PM

Summary

Philip Morris International (PM) reported its first-quarter 2018 results, showcasing a 13.7% increase in net revenues year-over-year, reaching $6.9 billion. This growth was primarily driven by strong performance in reduced-risk products (RRPs), which saw revenues more than double to $1.1 billion, 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 $5.25-$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.

Financial Highlights

48 data points
Beta

Revenue

$6.90B

62.1% Gross Margin

Net Income

$1.56B

22.6% Net Margin

EPS (Diluted)

$1.00

Total Assets

$43.07B

Cash & Equivalents

$7.23B

Free Cash Flow

$1.01B

Financial Statements
Beta
Revenue$6.90B
Cost of Revenue$2.62B
Gross Profit$4.28B
Operating Income$2.43B
Net Income$1.56B
EPS (Basic)$1.00
EPS (Diluted)$1.00
Shares Outstanding (Basic)1.55B
Shares Outstanding (Diluted)1.55B

Key Highlights

  • 1Net revenues increased by 13.7% to $6.9 billion, driven by RRP growth and favorable pricing.
  • 2Reduced-Risk Products (RRPs) revenue more than doubled to $1.1 billion, indicating strong adoption.
  • 3Diluted Earnings Per Share (EPS) decreased by 2.0% to $1.00, impacted by increased operating expenses and higher taxes.
  • 4The company raised its full-year 2018 diluted EPS forecast to $5.25-$5.40.
  • 5Shipment volume for cigarettes decreased by 5.3%, while heated tobacco unit volume increased significantly by over 100%.
  • 6Significant investments were made in RRPs, as reflected in higher marketing, administration, and research costs.
  • 7The company's strong balance sheet and liquidity position remain, with no borrowings under committed credit facilities at quarter-end.

Frequently Asked Questions

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.

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.

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.

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.