01—Abstract
Summary
Summary of the 10-Q filed July 27, 2023. Cited figures are marked; the original filing is the authoritative source.
Philip Morris International (PM) reported its second-quarter 2023 financial results, showing a mixed performance impacted by significant one-time charges.
While net revenues increased by 14.5% year-over-year to $9.0 billiona for the quarter and 9.0% to $17.0 billion for the six months, driven by higher pricing across combustible products and strong growth in smoke-free products, particularly heated tobacco units (HTUs) and oral nicotine products from the Swedish Match acquisition, profitability was significantly affected. Net earnings attributable to PMI decreased by 29.8% to $1.6 billion for the quarter and 21.9% to $3.6 billion for the six months. This decline was largely due to substantial non-cash charges, including a $680 million impairment charge for goodwill and other intangibles in the Wellness and Healthcare segment, and a $204 million indirect tax charge in South Korea.
These factors, combined with higher interest expenses related to the Swedish Match acquisition and increased operating costs due to inflation, led to a notable decrease in diluted EPS. Despite these headwinds, the company's strategic focus on transforming towards a smoke-free future and integrating the Swedish Match acquisition remains a key long-term driver.
02—Key points
Key Highlights
- Net revenues for Q2 2023 increased by 14.5% to $9.0 billion, driven by pricing and strong performance in smoke-free products.
- Net earnings attributable to PMI decreased by 29.8% to $1.6 billion for Q2 2023.
- Diluted EPS declined by 29.4% to $1.01 for Q2 2023, significantly impacted by non-recurring charges.
- A substantial $680 million goodwill and intangible asset impairment charge was recorded in the Wellness and Healthcare segment.
- A $204 million charge related to an adverse South Korean tax ruling impacted Q2 results.
- The acquisition of Swedish Match continues to contribute to growth, particularly in oral nicotine products, with strong volume increases reported.
- Heated Tobacco Unit (HTU) shipments increased by 26.6% for the quarter and 18.5% for the six months, showcasing continued momentum in the smoke-free category.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2023, Philip Morris International Inc. kept $0.17.
- Revenue$8.97B100.0%
- Cost of revenue−$3.23B36.0%
- Gross profit$5.74B64.0%
- Operating costs−$3.17B35.4%
- Operating income$2.57B28.6%
- Interest, other & tax−$998.0M11.1%
- Net income$1.57B17.5%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2023filed July 27, 2023Financial Statements
Q2 FY2023 against Q2 FY2022
| Line item | Q2 FY2023Q2 FY2022 | Change |
|---|---|---|
| Revenue | $8.97B$7.83B | +14.5% |
| Cost of Revenue | $3.23B$2.65B | +21.9% |
| Gross Profit | $5.74B$5.18B | +10.7% |
| Operating Income | $2.57B$3.06B | −16.0% |
| Net Income | $1.57B$2.23B | −29.8% |
| EPS (Basic) | $1.01$1.44 | −29.9% |
| EPS (Diluted) | $1.01$1.43 | −29.4% |
| Shares Outstanding (Basic) | 1.55B1.55B | +0.1% |
| Shares Outstanding (Diluted) | 1.55B1.55B | +0.1% |
05—Questions
Frequently Asked Questions
What were the main drivers of the revenue increase in Q2 2023?
The revenue increase was primarily driven by a favorable pricing variance, especially for combustible tobacco products, and strong volume/mix performance in smoke-free products. The acquisition of Swedish Match also significantly contributed to the overall revenue growth, particularly in the oral nicotine product category.
What caused the significant drop in net earnings and EPS?
The substantial decline in net earnings and EPS was primarily due to significant non-cash charges. These included a $680 million impairment charge for goodwill and other intangibles in the Wellness and Healthcare segment, related to disappointing clinical trial results and slower CDMO business development, and a $204 million charge resulting from an unfavorable tax ruling in South Korea. Higher interest expenses related to the Swedish Match acquisition and inflationary cost pressures also contributed to the decline.
How is the integration of Swedish Match progressing, and what is its impact?
The integration of Swedish Match is progressing well, contributing positively to net revenues and volume growth, especially in oral nicotine products like ZYN. For the quarter, Swedish Match contributed $665 million in net revenues and $264 million in operating income. The company expects strong full-year performance from Swedish Match's existing operations.
What is the outlook for the Wellness and Healthcare segment?
The Wellness and Healthcare segment faced challenges, leading to a significant $680 million impairment charge. While PMI remains committed to this business, the company now expects its 2025 revenue ambition for the segment to be postponed, and investment levels will be adjusted downwards for the next year due to factors including clinical trial setbacks for an inhalable aspirin product.
06—Continue