10-QPeriod: Q3 FY2018

Philip Morris International Inc. Quarterly Report for Q3 Ended Sep 30, 2018

Filed October 25, 2018For Securities:PM

Summary

Philip Morris International Inc. (PM) reported a solid third quarter for 2018, with net revenues increasing by 0.4% to $7.5 billion, driven by a 3.3% increase excluding unfavorable currency impacts. This growth was primarily fueled by favorable pricing across all regions and increased fees for certain distribution rights. Diluted Earnings Per Share (EPS) saw a significant increase of 13.4% to $1.44, benefiting from improved operational performance, lower interest expenses, and a reduced effective tax rate, partly influenced by the Tax Cuts and Jobs Act. The company continues its strategic transformation towards smoke-free products, with Reduced-Risk Products (RRPs) showing substantial revenue growth of 48.7% for the nine months ended September 30, 2018, reaching $2.97 billion. This segment is a key focus for future growth, although it is capital-intensive. The company reaffirmed its full-year 2018 diluted EPS forecast, projecting a significant year-over-year increase.

Financial Highlights

48 data points
Beta

Revenue

$7.50B

65.1% Gross Margin

Net Income

$2.25B

29.9% Net Margin

EPS (Diluted)

$1.44

Total Assets

$39.38B

Cash & Equivalents

$5.91B

Free Cash Flow

$1.35B

Financial Statements
Beta
Revenue$7.50B
Cost of Revenue$2.62B
Gross Profit$4.89B
Operating Income$3.16B
Net Income$2.25B
EPS (Basic)$1.44
EPS (Diluted)$1.44
Shares Outstanding (Basic)1.55B
Shares Outstanding (Diluted)1.55B

Key Highlights

  • 1Net revenues for Q3 2018 increased by 0.4% to $7.5 billion, driven by favorable pricing and a 3.3% increase excluding currency impacts.
  • 2Diluted EPS grew by 13.4% to $1.44 for Q3 2018, reflecting strong operational performance, lower interest expenses, and a reduced effective tax rate.
  • 3Net revenues from Reduced-Risk Products (RRPs) surged by 48.7% for the nine months ended September 30, 2018, reaching $2.97 billion, indicating strong momentum in this strategic growth area.
  • 4Total shipment volume for cigarettes decreased by 1.7% in Q3 2018, but heated tobacco unit shipments saw a significant increase across most regions, though overall heated tobacco unit shipments declined by 11.0% in Q3 due to inventory adjustments in Japan.
  • 5The company reaffirmed its full-year 2018 diluted EPS forecast, projecting a year-over-year increase of 28% to 29%, demonstrating confidence in continued growth.
  • 6Operating income increased by 2.2% to $3.16 billion in Q3 2018, with currency-neutral operating income growing by 7.6%, driven by favorable pricing across all regions.
  • 7PMI's balance sheet remains strong with $5.9 billion in cash and cash equivalents at the end of Q3 2018 and $8 billion in committed credit facilities, with no borrowings outstanding.

Frequently Asked Questions

In the third quarter of 2018, Philip Morris International reported a 0.4% increase in net revenues to $7.5 billion and a 13.4% increase in diluted EPS to $1.44. This growth was driven by favorable pricing, reduced interest expenses, and a lower effective tax rate.

Reduced-Risk Products (RRPs) are a key strategic focus, with net revenues increasing by 48.7% for the first nine months of 2018, reaching $2.97 billion. The company is investing significantly in RRPs and aims to transition smokers to these potentially less harmful alternatives.

Philip Morris International reaffirmed its full-year 2018 diluted EPS forecast, projecting a range of $4.97 to $5.02, representing an approximate 28% to 29% increase compared to 2017. This outlook reflects confidence in continued operational improvements and growth.

Unfavorable currency movements, particularly against the Indonesian rupiah, Russian ruble, and Turkish lira, negatively impacted reported results. However, the company managed to achieve currency-neutral growth, indicating underlying business strength.