01—Abstract
Summary
Summary of the 10-Q filed October 27, 2020. Cited figures are marked; the original filing is the authoritative source.
Philip Morris International (PM) reported solid results for the nine months ended September 30, 2020, with diluted EPS increasing by 9.2% to $3.90a.
Net revenues for the period were $21.25 billionb, a slight decrease of 3.8% compared to the prior year, primarily impacted by unfavorable currency movements and a decrease in combustible product net revenues. However, this was partially offset by a 20.6% increase in net revenues from Reduced-Risk Products (RRPs), driven by strong performance in the European Union and East Asia & Australia. The company's RRP portfolio, particularly its IQOS platform, continues to show significant growth and strategic importance, evidenced by the FDA's authorization of certain IQOS products as modified risk tobacco products.
Despite ongoing challenges from COVID-19 and regulatory landscapes, PM's diversification into smoke-free alternatives demonstrates resilience and a forward-looking strategy. The company's operating income for the nine months increased by 9.2% to $8.76 billionc, benefiting from favorable pricing and cost efficiencies, alongside a favorable comparison to significant one-off charges in the prior year. Geographically, the European Union segment showed robust growth in both net revenues and operating income, underscoring its importance.
While combustible product volumes declined across most regions, the growth in heated tobacco units signals a successful strategic shift. PM's liquidity remains strong, with significant credit facilities available and no borrowings outstanding.
02—Key points
Key Highlights
- Diluted EPS increased by 9.2% to $3.90 for the nine months ended September 30, 2020.
- Net revenues decreased by 3.8% to $21.25 billion for the nine months ended September 30, 2020, primarily due to unfavorable currency and lower combustible product sales.
- Reduced-Risk Products (RRPs) net revenues increased by 20.6% for the nine months ended September 30, 2020, driven by strong performance in the EU and East Asia & Australia.
- Operating income increased by 9.2% to $8.76 billion for the nine months ended September 30, 2020, benefiting from favorable pricing and cost management.
- The European Union segment showed strong growth, with net revenues up 7.8% and operating income up 17.3% for the nine months.
- Heated Tobacco Units (HTUs) shipment volume increased by 27.9% for the nine months ended September 30, 2020, indicating growing consumer adoption.
- Philip Morris International received FDA authorization for certain IQOS products as modified risk tobacco products, a significant step for its RRP strategy.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q3 FY2020, Philip Morris International Inc. kept $0.31.
- Revenue$7.45B100.0%
- Cost of revenue−$2.42B32.4%
- Gross profit$5.03B67.6%
- Operating costs−$1.79B24.0%
- Operating income$3.24B43.6%
- Interest, other & tax−$936.0M12.6%
- Net income$2.31B31.0%
04—Financials
Financial Highlights
Figures from 10-QQ3 FY2020filed October 27, 2020Financial Statements
Q3 FY2020 against Q3 FY2019
| Line item | Q3 FY2020Q3 FY2019 | Change |
|---|---|---|
| Revenue | $7.45B$7.64B | −2.6% |
| Cost of Revenue | $2.42B$2.60B | −7.3% |
| Gross Profit | $5.03B$5.04B | −0.1% |
| Operating Income | $3.24B$2.79B | +16.3% |
| Net Income | $2.31B$1.90B | +21.7% |
| EPS (Basic) | $1.48$1.22 | +21.3% |
| EPS (Diluted) | $1.48$1.22 | +21.3% |
| Shares Outstanding (Basic) | 1.56B1.56B | +0.1% |
| Shares Outstanding (Diluted) | 1.56B1.56B | +0.1% |
05—Questions
Frequently Asked Questions
How did Philip Morris International perform financially in the first nine months of 2020 compared to the same period in 2019?
For the nine months ended September 30, 2020, Philip Morris International reported a 9.2% increase in diluted EPS to $3.90 and a 9.2% increase in operating income to $8.76 billion. Net revenues saw a slight decrease of 3.8% to $21.25 billion, impacted by unfavorable currency and a decline in combustible product sales, but this was partially offset by strong growth in Reduced-Risk Products (RRPs).
What is the company's strategy regarding Reduced-Risk Products (RRPs)?
Philip Morris International is strategically focused on transforming the tobacco industry by shifting consumers from cigarettes to smoke-free alternatives. The company's RRP portfolio, including its IQOS platform, is a key driver of this strategy. The FDA's authorization of certain IQOS products as modified risk tobacco products highlights the company's commitment and progress in developing and commercializing these products, which are presented as a better choice for adult smokers who would otherwise continue to smoke.
What are the key geographical segments driving the company's performance?
The European Union segment demonstrated strong performance, with net revenues increasing by 7.8% and operating income by 17.3% for the nine months ended September 30, 2020. The East Asia & Australia segment also showed resilience. The growth in Heated Tobacco Units (HTUs) across regions like the EU and Eastern Europe is a key indicator of the company's transition strategy.
What impact did currency fluctuations have on the company's results?
Unfavorable currency movements had a negative impact on net revenues and operating income. For the nine months ended September 30, 2020, unfavorable currency movements reduced net revenues by 1.7% and operating income by 5.3% (when looking at the currency-neutral change in operating income). The company's diluted EPS was also unfavorably impacted by currency fluctuations.
06—Continue