01—Abstract
Summary
Summary of the 10-Q filed October 25, 2018. Cited figures are marked; the original filing is the authoritative source.
Philip Morris International Inc. (PM) reported a solid third quarter for 2018, with net revenues increasing by 0.4% to $7.5 billiona, 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 $1.44b, 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.
02—Key points
Key Highlights
- Net revenues for Q3 2018 increased by 0.4% to $7.5 billion, driven by favorable pricing and a 3.3% increase excluding currency impacts.
- Diluted EPS grew by 13.4% to $1.44 for Q3 2018, reflecting strong operational performance, lower interest expenses, and a reduced effective tax rate.
- Net 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.
- Total 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.
- The company reaffirmed its full-year 2018 diluted EPS forecast, projecting a year-over-year increase of 28% to 29%, demonstrating confidence in continued growth.
- Operating 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.
- PMI'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.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q3 FY2018, Philip Morris International Inc. kept $0.30.
- Revenue$7.50B100.0%
- Cost of revenue−$2.62B34.9%
- Gross profit$4.89B65.1%
- Operating costs−$1.73B23.1%
- Operating income$3.16B42.1%
- Interest, other & tax−$909.0M12.1%
- Net income$2.25B29.9%
04—Financials
Financial Highlights
Figures from 10-QQ3 FY2018filed October 25, 2018Financial Statements
Q3 FY2018 against Q3 FY2017
| Line item | Q3 FY2018Q3 FY2017 | Change |
|---|---|---|
| Revenue | $7.50B$7.47B | +0.4% |
| Cost of Revenue | $2.62B$2.73B | −4.3% |
| Gross Profit | $4.89B$4.74B | +3.1% |
| Operating Income | $3.16B$3.09B | +2.2% |
| Net Income | $2.25B$1.97B | +14.1% |
| EPS (Basic) | $1.44$1.27 | +13.4% |
| EPS (Diluted) | $1.44$1.27 | +13.4% |
| Shares Outstanding (Basic) | 1.55B1.55B | +0.1% |
| Shares Outstanding (Diluted) | 1.55B1.55B | +0.1% |
05—Questions
Frequently Asked Questions
What was the year-over-year revenue and profit performance for Philip Morris International in Q3 2018?
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.
How are Reduced-Risk Products (RRPs) performing and what is their contribution to the company's strategy?
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.
What is the company's outlook for the full year 2018?
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.
How did currency fluctuations impact the company's financial results?
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.
06—Continue