Philip Morris International Inc. Quarterly Report for Q2 Ended Jun 30, 2019

Summary

Philip Morris International Inc. (PM) reported its second-quarter 2019 financial results, showing a slight decrease in net revenues to $7.7 billion from $7.7 billion in the prior year, primarily due to unfavorable currency movements. However, on a currency-neutral basis, net revenues increased by 5.4%. Diluted earnings per share (EPS) for the quarter rose to $1.49 from $1.41 in the prior year, a 5.7% increase. For the six months ended June 30, 2019, net revenues were $14.5 billion, a 1.2% decrease from $14.6 billion in the same period last year, but a 4.4% increase on a currency-neutral basis. Diluted EPS for the six months was $2.36, a 2.1% decrease from $2.41 in the prior year. The company experienced significant impacts from the deconsolidation of its Canadian subsidiary, Rothmans, Benson & Hedges Inc. (RBH), and a Canadian tobacco litigation-related charge, which together resulted in a substantial year-over-year decrease in operating income and diluted EPS for the six-month period. Despite these headwinds, the growth in reduced-risk products (RRPs), particularly heated tobacco units (HTUs), continues to be a key growth driver, with net revenues from RRPs increasing by 26.2% for the six months and 43.7% for the quarter, driven by strong performance in the EU and Eastern Europe. PMI remains focused on its transformation towards a smoke-free future, with continued investment in RRPs. The company received FDA authorization for its Platform 1 product (IQOS) for sale in the United States during the quarter, a significant regulatory milestone. Investors should monitor the company's progress in RRP adoption, regulatory developments, and its ability to manage the decline in combustible product volumes while navigating ongoing litigation and operational challenges.

Key Highlights

• 1Net revenues for the three months ended June 30, 2019, were $7.7 billion, a slight decrease of 0.3% year-over-year, but increased 5.4% on a currency-neutral basis.
• 2Diluted EPS for the three months ended June 30, 2019, increased by 5.7% to $1.49.
• 3Net revenues for the six months ended June 30, 2019, were $14.5 billion, a decrease of 1.2% year-over-year, but increased 4.4% on a currency-neutral basis.
• 4Diluted EPS for the six months ended June 30, 2019, decreased by 2.1% to $2.36.
• 5Net revenues from Reduced-Risk Products (RRPs) increased by 26.2% year-over-year for the six months, reaching $2.7 billion, and by 43.7% for the quarter, reaching $1.5 billion.
• 6The company experienced a loss on deconsolidation of its Canadian subsidiary RBH and a Canadian tobacco litigation-related charge, impacting operating income and EPS for the six-month period.
• 7PMI received FDA authorization for its IQOS (Platform 1) product in the United States, a key market for RRP expansion.

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