10-QPeriod: Q3 FY2020

Philip Morris International Inc. Quarterly Report for Q3 Ended Sep 30, 2020

Filed October 27, 2020For Securities:PM

Summary

Philip Morris International (PM) reported solid results for the nine months ended September 30, 2020, with diluted EPS increasing by 9.2% to $3.90. Net revenues for the period were $21.25 billion, 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 billion, 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.

Financial Highlights

49 data points
Beta

Revenue

$7.45B

67.6% Gross Margin

Net Income

$2.31B

31.0% Net Margin

EPS (Diluted)

$1.48

Total Assets

$39.13B

Cash & Equivalents

$4.83B

Free Cash Flow

$3.46B

Financial Statements
Beta
Revenue$7.45B
Cost of Revenue$2.42B
Gross Profit$5.03B
Operating Income$3.24B
Net Income$2.31B
EPS (Basic)$1.48
EPS (Diluted)$1.48
Shares Outstanding (Basic)1.56B
Shares Outstanding (Diluted)1.56B

Key Highlights

  • 1Diluted EPS increased by 9.2% to $3.90 for the nine months ended September 30, 2020.
  • 2Net 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.
  • 3Reduced-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.
  • 4Operating income increased by 9.2% to $8.76 billion for the nine months ended September 30, 2020, benefiting from favorable pricing and cost management.
  • 5The European Union segment showed strong growth, with net revenues up 7.8% and operating income up 17.3% for the nine months.
  • 6Heated Tobacco Units (HTUs) shipment volume increased by 27.9% for the nine months ended September 30, 2020, indicating growing consumer adoption.
  • 7Philip Morris International received FDA authorization for certain IQOS products as modified risk tobacco products, a significant step for its RRP strategy.

Frequently Asked Questions

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).

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.

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.

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.