01—Abstract
Summary
Summary of the 10-Q filed July 29, 2020. Cited figures are marked; the original filing is the authoritative source.
Philip Morris International Inc. (PM) reported its second quarter and first half 2020 financial results, showing a decrease in net revenues and operating income compared to the prior year, largely attributed to the ongoing impact of COVID-19 and unfavorable currency movements.
For the six months ended June 30, 2020, net revenues were $13.8 billiona, a decrease of 4.5% (1.8% excluding currency), while operating income increased by 5.4% (11.1% excluding currency). Diluted EPS for the first half of the year was $2.42, up 2.5% (10.6% excluding currency). The company experienced a significant decline in combustible product net revenues across most segments, offset by strong growth in reduced-risk products (RRPs), particularly in the European Union and Eastern Europe.
The company continued its strategic shift towards smoke-free alternatives, highlighting the FDA's authorization of IQOS as a modified risk tobacco product. Despite the challenging operating environment due to the pandemic, PMI maintained a strong liquidity position with $4.2 billionb in cash and cash equivalents.
02—Key points
Key Highlights
- Net revenues for the six months ended June 30, 2020, decreased by 4.5% to $13.8 billion, primarily due to COVID-19 impacts and unfavorable currency.
- Operating income for the six months increased by 5.4% to $5.52 billion, driven by favorable pricing and lower cost/other impacts year-over-year.
- Diluted EPS for the six months increased by 2.5% to $2.42.
- Reduced-Risk Products (RRPs) net revenues increased by 16.7% for the six months, signaling continued progress in the company's smoke-free future strategy.
- The FDA authorized the marketing of a version of PMI's Platform 1 product as a 'modified risk tobacco product' with specific reduced exposure claims.
- PMI maintained a strong liquidity position with $4.2 billion in cash and cash equivalents as of June 30, 2020.
- Shipment volume of Heated Tobacco Units increased by 33.4% for the six months, outpacing the decline in cigarette shipment volume.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2020, Philip Morris International Inc. kept $0.29.
- Revenue$6.65B100.0%
- Cost of revenue−$2.18B32.8%
- Gross profit$4.47B67.2%
- Operating costs−$1.74B26.2%
- Operating income$2.73B41.1%
- Interest, other & tax−$784.0M11.8%
- Net income$1.95B29.3%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2020filed July 29, 2020Financial Statements
Q2 FY2020 against Q2 FY2019
| Line item | Q2 FY2020Q2 FY2019 | Change |
|---|---|---|
| Revenue | $6.65B$7.70B | −13.6% |
| Cost of Revenue | $2.18B$2.67B | −18.2% |
| Gross Profit | $4.47B$5.03B | −11.2% |
| Operating Income | $2.73B$3.19B | −14.3% |
| Net Income | $1.95B$2.32B | −16.0% |
| EPS (Basic) | $1.25$1.49 | −16.1% |
| EPS (Diluted) | $1.25$1.49 | −16.1% |
| Shares Outstanding (Basic) | 1.56B1.56B | +0.1% |
| Shares Outstanding (Diluted) | 1.56B1.56B | +0.1% |
05—Questions
Frequently Asked Questions
What was the overall financial performance for the first half of 2020?
For the first six months of 2020, Philip Morris International reported a net revenue of $13.8 billion, a decrease of 4.5% compared to the same period in 2019. This was primarily attributed to the impact of COVID-19 and unfavorable currency movements. However, operating income saw an increase of 5.4% to $5.52 billion, and diluted earnings per share (EPS) rose by 2.5% to $2.42.
How did Reduced-Risk Products (RRPs) perform compared to combustible products?
The company saw a significant increase in RRPs, with net revenues for these products rising by 16.7% to $3.16 billion for the first six months of 2020. This growth in RRPs helped to offset the decline in combustible product net revenues, which decreased by 9.4% during the same period.
What is the significance of the FDA's recent decision regarding IQOS?
The FDA authorized the marketing of a version of PMI's Platform 1 (IQOS) product as a 'modified risk tobacco product' with specific claims about reduced exposure to harmful chemicals. This is a significant milestone for PMI's smoke-free strategy, providing scientific validation for the product's potential to reduce harm compared to continued smoking.
How has the COVID-19 pandemic impacted PMI's operations and financial results?
The COVID-19 pandemic had a material impact, leading to decreased net revenues and shipment volumes, particularly in the second quarter. The company experienced supply chain complexities, temporary factory shutdowns in some regions, and reduced consumer mobility impacting sales. Despite these challenges, PMI maintained adequate liquidity and focused on business continuity measures.
06—Continue