10-QPeriod: Q3 FY2023

Philip Morris International Inc. Quarterly Report for Q3 Ended Sep 30, 2023

Filed October 26, 2023For Securities:PM

Summary

Philip Morris International Inc. (PM) reported its third-quarter and year-to-date results for the period ending September 29, 2023. The company experienced an increase in net revenues driven by favorable pricing and strong performance in heated tobacco units (HTUs) and oral nicotine products, partly offset by a decline in cigarette volumes and adverse currency movements. The acquisition of Swedish Match continues to be a significant driver of growth, particularly in the oral nicotine segment. Despite revenue growth, diluted earnings per share (EPS) saw a decline year-over-year due to several factors, including substantial non-recurring charges such as goodwill impairment in the Wellness and Healthcare segment, the South Korea indirect tax charge, and costs associated with the termination of an agreement with the Foundation for a Smoke-Free World. These items, combined with higher interest expenses related to the Swedish Match acquisition and increased operating costs due to inflation, weighed on profitability. The company remains focused on its long-term transformation towards a smoke-free future, with significant investments in its reduced-risk product portfolio.

Financial Highlights

48 data points
Beta

Revenue

$9.14B

65.4% Gross Margin

Net Income

$2.05B

22.5% Net Margin

EPS (Diluted)

$1.32

Total Assets

$62.93B

Cash & Equivalents

$3.02B

Free Cash Flow

$3.04B

Financial Statements
Beta
Revenue$9.14B
Cost of Revenue$3.17B
Gross Profit$5.98B
Operating Income$3.37B
Net Income$2.05B
EPS (Basic)$1.32
EPS (Diluted)$1.32
Shares Outstanding (Basic)1.55B
Shares Outstanding (Diluted)1.55B

Key Highlights

  • 1Net revenues increased by 10.7% for the nine months ended September 30, 2023, reaching $26.1 billion, primarily driven by higher pricing and strong growth in heated tobacco units and oral nicotine products.
  • 2Diluted EPS decreased by 15.5% to $3.61 for the nine months ended September 30, 2023, compared to $4.28 in the prior year period, impacted by significant one-time charges.
  • 3The Wellness and Healthcare segment recorded a goodwill impairment charge of $665 million due to challenges in product development.
  • 4The Swedish Match acquisition, completed in late 2022, is showing strong performance, particularly in oral nicotine products, with net revenues of $1.8 billion for the first nine months of 2023.
  • 5PMI continues to invest in its smoke-free product portfolio, with RRPs (Reduced-Risk Products) accounting for $9.3 billion in net revenues for the first nine months of 2023, an increase of 28.0%.
  • 6The company's financial performance was impacted by a $204 million indirect tax charge in South Korea and $140 million related to the termination of an agreement with the Foundation for a Smoke-Free World.
  • 7Net cash provided by operating activities was $5.9 billion for the first nine months of 2023, a decrease from $7.7 billion in the prior year period, largely due to higher working capital requirements.

Frequently Asked Questions

The acquisition of Swedish Match, completed in late 2022, significantly contributed to revenue growth, particularly in the oral nicotine segment. For the first nine months of 2023, the Swedish Match segment generated $1.8 billion in net revenues, with smoke-free products making up over 80% of this. However, the acquisition also led to higher interest expenses and amortization of acquired intangibles, impacting overall profitability.

The decline in diluted EPS was primarily due to several significant one-time charges and increased expenses. These included a $665 million goodwill impairment charge in the Wellness and Healthcare segment, a $204 million indirect tax charge in South Korea, $140 million for terminating an agreement with the Foundation for a Smoke-Free World, higher interest expenses related to the Swedish Match acquisition, and general inflationary pressures on operating costs.

PMI continues to advance its smoke-free future strategy, with smoke-free products accounting for $9.3 billion in net revenues for the first nine months of 2023, an increase of 28.0% year-over-year. The company is seeing strong growth in heated tobacco units (HTUs) and oral nicotine products, driven by brands like IQOS and ZYN. PMI is actively investing in research, development, and commercialization of these reduced-risk products across various markets.

For the first nine months of 2023, net cash provided by operating activities was $5.9 billion, lower than the prior year due to increased working capital requirements. The company expects full-year 2023 net cash provided by operating activities to be around $10 billion. Capital expenditures for the first nine months were $1.0 billion, primarily for smoke-free product manufacturing capacity, with total expected capital expenditures for 2023 around $1.3 billion.