01—Abstract
Summary
Summary of the 10-Q filed July 25, 2019. Cited figures are marked; the original filing is the authoritative source.
Philip Morris International Inc. (PM) reported its second-quarter 2019 financial results, showing a slight decrease in net revenues to $7.7 billiona 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 $1.49b 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 $2.36c, 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.
02—Key points
Key Highlights
- Net 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.
- Diluted EPS for the three months ended June 30, 2019, increased by 5.7% to $1.49.
- Net 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.
- Diluted EPS for the six months ended June 30, 2019, decreased by 2.1% to $2.36.
- Net 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.
- The 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.
- PMI received FDA authorization for its IQOS (Platform 1) product in the United States, a key market for RRP expansion.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2019, Philip Morris International Inc. kept $0.30.
- Revenue$7.70B100.0%
- Cost of revenue−$2.67B34.6%
- Gross profit$5.03B65.4%
- Operating costs−$1.85B24.0%
- Operating income$3.19B41.4%
- Interest, other & tax−$868.0M11.3%
- Net income$2.32B30.1%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2019filed July 25, 2019Financial Statements
Q2 FY2019 against Q2 FY2018
| Line item | Q2 FY2019Q2 FY2018 | Change |
|---|---|---|
| Revenue | $7.70B$7.73B | −0.3% |
| Cost of Revenue | $2.67B$2.74B | −2.9% |
| Gross Profit | $5.03B$4.98B | +1.0% |
| Operating Income | $3.19B$3.09B | +3.0% |
| Net Income | $2.32B$2.20B | +5.5% |
| EPS (Basic) | $1.49$1.41 | +5.7% |
| EPS (Diluted) | $1.49$1.41 | +5.7% |
| Shares Outstanding (Basic) | 1.56B1.55B | +0.1% |
| Shares Outstanding (Diluted) | 1.56B1.55B | +0.1% |
05—Questions
Frequently Asked Questions
What was the overall financial performance of Philip Morris International in Q2 2019?
For the second quarter of 2019, Philip Morris International reported net revenues of $7.7 billion, a slight 0.3% decrease year-over-year, which was a 5.4% increase on a currency-neutral basis. Diluted earnings per share (EPS) increased by 5.7% to $1.49.
How did the deconsolidation of RBH and litigation impact the company's results?
The deconsolidation of Rothmans, Benson & Hedges Inc. (RBH) and a Canadian tobacco litigation-related charge resulted in a significant impact on the six-month financial results. These events led to a $0.12 EPS impact from the RBH deconsolidation and a $0.09 EPS impact from the litigation charge, contributing to a 2.1% decrease in diluted EPS for the first six months of 2019 compared to the prior year.
What is the performance of Philip Morris International's Reduced-Risk Products (RRPs)?
RRPs, particularly heated tobacco units (HTUs), showed strong growth. For the six months ended June 30, 2019, net revenues from RRPs increased by 26.2% to $2.7 billion. For the second quarter, RRP net revenues grew by 43.7% to $1.5 billion, driven by strong performance in regions like the European Union and Eastern Europe.
What is the significance of the FDA authorization for IQOS in the US?
The FDA's authorization of the IQOS (Platform 1) product for sale in the United States is a significant regulatory milestone. It validates the company's scientific approach to RRPs and opens up a major market for the commercialization of their smoke-free products, a key strategic priority for the company's transformation.
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