10-QPeriod: Q1 FY2020

Philip Morris International Inc. Quarterly Report for Q1 Ended Mar 31, 2020

Filed April 28, 2020For Securities:PM

Summary

Philip Morris International Inc. (PM) reported a solid first quarter for 2020, with net revenues increasing by 6.0% to $7.2 billion, driven by strong performance in reduced-risk products (RRPs) and favorable pricing and currency-neutral growth of 7.1%. Diluted earnings per share (EPS) saw a significant increase of 34.5% to $1.17, benefiting from higher operating income and a favorable comparison to charges incurred in the prior year, partially offset by unfavorable currency impacts and a fair value adjustment on equity investments. The company highlighted continued growth in its RRP segment, with net revenues increasing by 25.1% to $1.56 billion, primarily driven by heated tobacco units. This growth was particularly strong in the European Union and Eastern Europe. Despite the ongoing COVID-19 pandemic, PMI demonstrated resilience, with sufficient liquidity and inventory levels. Management noted that while the pandemic created some operational complexities and impacted duty-free sales and IQOS user acquisition, the company is actively managing these challenges.

Financial Highlights

47 data points
Beta

Revenue

$7.15B

66.4% Gross Margin

Net Income

$1.83B

25.5% Net Margin

EPS (Diluted)

$1.17

Total Assets

$37.49B

Cash & Equivalents

$3.75B

Free Cash Flow

$941.00M

Financial Statements
Beta
Revenue$7.15B
Cost of Revenue$2.40B
Gross Profit$4.75B
Operating Income$2.79B
Net Income$1.83B
EPS (Basic)$1.17
EPS (Diluted)$1.17
Shares Outstanding (Basic)1.56B
Shares Outstanding (Diluted)1.56B

Key Highlights

  • 1Net revenues increased by 6.0% to $7.2 billion, with currency-neutral growth of 7.1%.
  • 2Reduced-Risk Products (RRPs) revenue grew by 25.1% to $1.56 billion, driven by strong heated tobacco unit performance.
  • 3Diluted EPS increased by 34.5% to $1.17, benefiting from strong operational performance and a favorable prior-year comparison.
  • 4The company maintained a strong liquidity position with $3.7 billion in cash and cash equivalents and $7.5 billion in committed credit facilities.
  • 5Despite COVID-19 impacts, PMI reported sufficient inventory levels and business continuity measures.
  • 6Geographic segment performance was mixed, with significant net revenue growth in the European Union and Eastern Europe, while Middle East & Africa and East Asia & Australia saw declines.

Frequently Asked Questions

PMI reported that while the COVID-19 pandemic presented operational challenges, including impacts on duty-free sales and IQOS user acquisition, the company maintained sufficient liquidity and inventory levels. The company implemented business continuity measures to mitigate disruptions. The pandemic also led to an increase in working capital requirements due to inventory build-up and extended payment terms to some customers.

PMI continues to see strong growth in its RRP segment, with net revenues increasing by 25.1% to $1.56 billion in Q1 2020. This growth is primarily driven by heated tobacco units, with significant contributions from the European Union and Eastern Europe. The company remains committed to developing and commercializing RRPs as part of its strategy to transition away from traditional cigarettes.

Unfavorable currency movements had a negative impact on PMI's reported results, particularly on net revenues and operating income. The company noted that currency-neutral growth was higher than reported growth, indicating that a stronger U.S. dollar reduced the reported value of earnings generated in foreign currencies. Key currencies contributing to the unfavorable impact included the Brazilian real, Euro, and Turkish lira.

The year-over-year comparison of EPS was significantly influenced by charges incurred in Q1 2019, including a loss on the deconsolidation of RBH ($239 million), Canadian tobacco litigation-related expenses ($194 million), and asset impairment and exit costs ($20 million). These charges made the Q1 2020 comparison appear more favorable. Conversely, Q1 2020 had an unfavorable fair value adjustment for equity security investments ($62 million after tax).