Withdraws 2020
Full-Year Reported Diluted EPS Forecast Due Solely to Uncertainty
Related to COVID-19 Pandemic and Replaces With Quarterly Forecast;
Provides 2020 Second-Quarter Reported Diluted EPS Forecast of $1.00
to $1.10, Reflecting Unfavorable Currency Impact of Approximately
$0.12
Regulatory News:
Philip Morris International Inc. (NYSE:PM) today announces its
2020 first-quarter results. Comparisons presented in this press
release on a "like-for-like" basis reflect pro forma 2019 results,
which have been adjusted for the deconsolidation of PMI's Canadian
subsidiary, Rothmans, Benson & Hedges, Inc. (RBH), effective
March 22, 2019 (the date of deconsolidation). In addition,
reflecting the deconsolidation, PMI's total market share has been
restated for previous periods.
2020 FIRST-QUARTER HIGHLIGHTS
- Reported diluted EPS of $1.17, up by 34.5%; up by 49.4%,
excluding currency
- Adjusted diluted EPS of $1.21, up by 11.0%; up by 30.1% on a
like-for-like basis, excluding currency
- Cigarette and heated tobacco unit shipment volume down by 1.2%
(reflecting cigarette shipment volume down by 4.4%, and heated
tobacco unit shipment volume up by 45.5% to 16.7 billion units);
down by 0.6% on a like-for-like basis
- Market share of heated tobacco units in IQOS markets, excluding
the U.S., up by 1.9 points to 6.6%
- Net revenues up by 6.0%; up by 10.0% on a like-for-like basis,
excluding currency
- Operating income up by 36.0%; up by 45.6%, excluding
currency
- Adjusted operating income up by 25.5% on a like-for-like basis,
excluding currency
- Adjusted operating income margin up by 5.1 points to 41.3% on a
like-for-like basis, excluding currency
- Total IQOS users at quarter-end estimated at approximately 14.6
million, of which approximately 10.6 million have stopped smoking
and switched to IQOS
- During the quarter, PMI declared a regular quarterly dividend
of $1.17 per common share, representing an annualized rate of
$4.68
- On March 30, 2020, PMI submitted a supplemental premarket
tobacco product application (PMTA) for the IQOS 3 tobacco heating
device with the U.S. Food and Drug Administration
"During these unprecedented times, our main focus is on the
health and well-being of our employees and their families, our
commercial partners and the broader communities in which we
operate," said André Calantzopoulos, Chief Executive Officer. "To
that end, we recently announced a new set of guiding principles to
reassure our employees of the company’s commitment to job security.
Thanks to our employees' efforts, our business continuity measures
are operating effectively."
"We started the year with a very strong first quarter,
reflecting continued structural growth momentum driven by our
smoke-free portfolio and favorable combustible tobacco pricing. We
experienced a limited impact on our performance from the early
stages of the COVID-19 pandemic, as the onset of government
restrictions related to social distancing and travel were generally
only implemented in our key markets over the course of March."
"We expect that the pandemic will have adverse impacts on our
full-year 2020 business results. Those already observable relate to
a severe reduction of our duty-free sales, slower IQOS user
acquisition and delayed minimum price enforcement in Indonesia. We
also have to assume that, in certain markets, unemployment and
related reductions in disposable income will have a temporary
impact on market dynamics or the ability of certain small retailers
to operate."
"The duration of the pandemic, the magnitude of its economic
impact during the government restrictions, and the subsequent speed
of recovery are today unknown. As we are currently unable to
forecast with reasonable accuracy the impact of these factors for
the remainder of the year, we are withdrawing our 2020 reported
diluted EPS guidance of at least $5.50, originally provided on
February 6, 2020, and are instead providing a forecast for the
second quarter, for which we have relatively better
visibility."
"Despite near-term uncertainty, our company is resilient with a
robust financial position. I remain as confident as ever in the
underlying fundamentals of our business over time and expect PMI to
emerge from the current challenges even better positioned to
deliver on our smoke-free ambition and reward our
shareholders."
COVID-19: Q1 2020 Volume and Financial Impacts on
Like-for-Like Change vs. Q1 2019
The estimated impacts of the COVID-19 pandemic on select PMI
volume and currency-neutral financial metrics in the first quarter
of 2020 are provided in the table below and primarily reflect
favorable estimated distributor and trade inventory movements.
Like-for-Like Change
Fav./(Unfav.) (1)
Est. Impact Attributable to
COVID-19
PMI Total Shipment Volume
(0.6)%
+1.7 p.p.
Net Revenues
10.0%
+2.0 p.p.
Adjusted Operating Income
25.5%
+5.6 p.p.
Adjusted Diluted EPS
30.1%
+6.8 p.p.
(1) Changes for Net Revenues, Adjusted
Operating Income and Adjusted Diluted EPS exclude currency.
Explanations and reconciliations to the most directly comparable
U.S. GAAP measures are provided in Appendix 2 and Schedule 8.
COVID-19: Business Continuity Update
Since the onset of COVID-19, PMI has undertaken a number of
business continuity measures to mitigate potential disruption to
its operations and route-to-market in order to preserve the
availability of products to its customers and adult consumers.
Currently, PMI has sufficient access to the inputs for its
products and is not facing any significant business continuity
issues with respect to key suppliers.
The large majority of PMI's manufacturing facilities globally
are currently operational, including all heated tobacco unit
factories. Certain cigarette production facilities are temporarily
impacted by government-mandated shutdowns or production
limitations. Such facilities account for approximately 20% of PMI's
total cigarette production capacity worldwide.
Based on current sales trends, there are adequate inventories of
PMI finished goods, on average across all markets, of over two
months for heated tobacco units, over three months for tobacco
heating devices, and over one and a half months for cigarettes.
While government-related restrictions have led to complexities in
the company's route-to-market in select geographies, PMI does not
currently anticipate out-of-stock situations in any major operating
income markets and generally expects consumers to have adequate
access to its products. In certain emerging markets, potential
difficulties for some smaller general trade outlets could lead to
temporary localized out-of-stock situations given less developed
route-to-market infrastructures.
Currently, PMI has ample liquidity resources through cash on
hand, the ongoing cash generation of its business, and continued
access to commercial paper. As of March 31, 2020, the company had
approximately $3.7 billion of cash and cash equivalents, $1.1
billion of commercial paper, with an average term of approximately
30 days, and $7.5 billion in stand-by revolving credit facilities.
PMI repaid approximately $3.6 billion in bond maturities during the
first quarter and paid approximately $3.6 billion in dividends to
shareholders year-to-date April (reflecting dividends declared in
the fourth quarter of 2019 and the first quarter of 2020). The
company has a well laddered bond portfolio and $0.3 billion of
bonds maturing through the end of 2020.
COVID-19: Primary Business Impacts
While the trajectory and duration of the COVID-19 pandemic --
and related government restrictions -- remain uncertain, PMI
anticipates three primary areas of impact from temporary changes to
its operating environment:
- Reduced Duty-Free Sales: Government travel restrictions and
related reductions in passenger travel are having a significant
impact on the company's duty-free business, which contributed
approximately 4% of total net revenues in 2019 and has relatively
high unit margins reflecting its skew to premium brands. As a
result of this premium skew, only a portion of the COVID-linked
duty-free volume decline is expected to be recovered by the
company's own brand portfolio in local markets, and generally at
lower margins.
- Delayed IQOS User Acquisition: Lock-down measures and other
restrictions limit PMI's ability to engage with adult smokers
through the company's field sales forces, as well as company-owned
and third-party retail touch-points, and are only partly mitigated
by PMI's increasing use of digital tools that enable virtual guided
trials and other e-commerce activities. Based on trends since
lock-down measures were introduced in various markets, the rate of
new user acquisition is expected to be, on average, around 50%
lower than anticipated for as long as government restrictions are
in place, with variation depending on the level of restrictions by
market.
- Indonesia - Minimum Retail Price Delay: The Indonesian
government has announced that the enforcement of the new minimum
price, originally scheduled for April 1, 2020, is delayed until
June due to COVID-19 restrictions. This is expected to impact
retail prices at the low end of the market and related price gaps
with PMI's cigarette brands, with a corresponding negative impact
on PMI's cigarette market share and timing of pricing.
PMI also anticipates uncertainty as to the general economic
impact of the global pandemic and ultimate shape of the recovery,
particularly with respect to unemployment, disposable income,
consumption and the extent of any down-trading, as well as retail
operations in certain developing markets.
2020 FULL-YEAR FORECAST WITHDRAWAL
Given the inherent uncertainty surrounding the COVID-19 pandemic
and the related impact on PMI's business globally, the company is
currently unable to forecast its full-year financial results with
reasonable accuracy. PMI is therefore withdrawing its 2020 reported
diluted EPS forecast of at least $5.50, originally provided on
February 6, 2020.
The limited impact of COVID-19 on the company's first-quarter
2020 financial results primarily reflected the relatively
late-quarter onset of the pandemic in many of PMI's key markets.
However, as an increasing number of governments globally have now
enforced self-isolation and lock-down measures -- the duration and
severity of which remain uncertain -- the company anticipates an
adverse impact on its full-year results that cannot be accurately
quantified at this time.
Based on data from markets to date, particularly those that were
impacted by COVID-19-related government restrictions earlier in the
year, PMI believes that the adverse impacts on its business from
the pandemic are temporary in nature, mainly subject to the
duration of government lock-downs and the subsequent timing of
recovery.
2020 SECOND-QUARTER FORECAST
Although the company is unable to assess with reasonable
accuracy the impact of COVID-19 on its business over the full year,
it has relatively better visibility on the second quarter of
2020.
As initially communicated on February 6th, PMI anticipated a
soft second quarter in 2020, notably due to an unfavorable prior
year comparison, existing dynamics in Indonesia and the phasing of
certain costs. The company now anticipates a further adverse impact
related to the COVID-19 pandemic, with the largest quarterly impact
this year expected in the second quarter.
PMI forecasts second-quarter reported diluted EPS to be in a
range of $1.00 to $1.10, including an unfavorable currency impact,
at prevailing exchange rates, of approximately $0.12 per share.
This forecast assumes the following estimated unfavorable EPS
impacts in the quarter related to COVID-19:
- 10 cents for distributor and trade inventory movements, mainly
related to reversals from the first quarter;
- 9 cents for lost Duty-Free sales, net of domestic sales
recapture, assuming no recovery in global travel in the
period;
- 5 to 15 cents for the impact of the delay in minimum price
enforcement in Indonesia and other COVID-19-related factors,
including temporary reductions in daily consumption and
down-trading in certain developing markets.
The forecast also assumes:
- a currency-neutral net revenue decline of approximately 8% to
12%, wholly attributable to COVID-19-related factors, including
lower IQOS device sales; and
- no additional disruption in the company's ability to supply its
customers, based on its current operations and inventory
levels.
Until PMI is able to estimate the full-year 2020 impact of
COVID-19 on its business with greater certainty, the company plans
to continue providing quarterly forecasts on a one quarter forward
basis, with the exception of the following items forecasted for the
full year:
- capital expenditures of approximately $0.8 billion, compared to
approximately $1.0 billion disclosed previously, with the reduction
unrelated to reduced-risk product investments; and
- an effective tax rate of approximately 23%, subject to changes
in full-year earnings mix.
The forecasts in this press release exclude the impact of any
future acquisitions, unanticipated asset impairment and exit cost
charges, future changes in currency exchange rates, further
developments related to the U.S. Tax Cuts and Jobs Act, further
developments pertaining to the judgment in the two Québec Class
Action lawsuits and the Companies’ Creditors Arrangement Act (CCAA)
protection granted to RBH, any unusual events, and any
COVID-19-related developments different from the assumptions set
forth in the company's forecasts.
Factors described in the Forward-Looking and Cautionary
Statements section of this release represent continuing risks to
these projections.
Conference Call
A conference call, hosted by André Calantzopoulos, Chief
Executive Officer, and Martin King, Chief Financial Officer, will
be webcast at 9:00 a.m., Eastern Time, on April 21, 2020. Access is
at www.pmi.com/2020Q1earnings. The audio webcast may also be
accessed on iOS or Android devices by downloading PMI’s free
Investor Relations Mobile Application at www.pmi.com/irapp.
CONSOLIDATED SHIPMENT VOLUME & MARKET
SHARE
PMI Shipment Volume by Region
First-Quarter
(million units)
2020
2019
Change
Cigarettes
European Union
40,646
39,488
2.9%
Eastern Europe
21,419
20,320
5.4%
Middle East & Africa
29,996
33,304
(9.9)%
South & Southeast Asia
37,595
41,492
(9.4)%
East Asia & Australia
12,299
12,113
1.5%
Latin America & Canada
15,063
17,580
(14.3)%
Total PMI
157,018
164,297
(4.4)%
Heated Tobacco Units
European Union
4,661
2,293
+100%
Eastern Europe
4,366
1,548
+100%
Middle East & Africa
470
754
(37.7)%
South & Southeast Asia
—
—
—%
East Asia & Australia
7,122
6,849
4.0%
Latin America & Canada (1)
108
54
+100%
Total PMI
16,727
11,498
45.5%
Cigarettes and Heated Tobacco
Units
European Union
45,307
41,781
8.4%
Eastern Europe
25,785
21,868
17.9%
Middle East & Africa
30,466
34,058
(10.5)%
South & Southeast Asia
37,595
41,492
(9.4)%
East Asia & Australia
19,421
18,962
2.4%
Latin America & Canada
15,171
17,634
(14.0)%
Total PMI
173,745
175,795
(1.2)%
(1) Includes shipments to Altria Group,
Inc., commencing in the third quarter of 2019, for sale in the
United States under license.
During the quarter, PMI's total shipment volume decreased by
1.2%, or by 0.6% on a like-for-like basis, principally due to:
- Middle East & Africa, reflecting lower cigarette shipment
volume, notably in Saudi Arabia and Turkey, partly offset by North
Africa;
- South & Southeast Asia, reflecting lower cigarette shipment
volume, primarily in Indonesia, Pakistan and the Philippines;
and
- Latin America & Canada, reflecting lower cigarette shipment
volume, primarily in Argentina, Canada (mainly due to the impact of
the deconsolidation of RBH), and Mexico. On a like-for-like basis,
PMI's total shipment volume in the Region decreased by 8.8%;
partly offset by
- the EU, reflecting higher heated tobacco unit shipment volume
across the Region, particularly in Italy, as well as higher
cigarette shipment volume, notably in Germany and Italy;
- Eastern Europe, reflecting higher heated tobacco unit shipment
volume across the Region, notably in Russia and Ukraine, as well as
higher cigarette shipment volume, mainly in Russia, partly offset
by Ukraine; and
- East Asia & Australia, mainly reflecting higher cigarette
and heated tobacco unit shipment volume in Japan.
First-Quarter Impact of Inventory Movements
On a like-for-like basis, excluding the net favorable impact of
estimated distributor inventory movements of approximately 5.4
billion units, PMI’s total in-market sales declined by 3.7%, due to
a 6.7% decline in cigarettes, partly offset by a 35.6% increase in
heated tobacco units.
The net favorable impact of estimated distributor inventory
movements of approximately 5.4 billion units reflected:
- A net favorable impact of 4.7 billion cigarettes, mainly driven
by the EU Region, Japan, North Africa, PMI Duty Free and Russia,
partly offset by Saudi Arabia; and
- A net favorable impact of 0.7 billion heated tobacco units,
mainly driven by the EU Region and Russia.
PMI Shipment Volume by Brand
PMI Shipment Volume by Brand
First-Quarter
(million units)
2020
2019
Change
Cigarettes
Marlboro
59,245
59,963
(1.2)%
L&M
22,641
21,816
3.8%
Chesterfield
12,903
14,298
(9.8)%
Philip Morris
11,463
10,723
6.9%
Sampoerna A
8,548
7,901
8.2%
Parliament
7,573
8,830
(14.2)%
Dji Sam Soe
6,175
6,651
(7.2)%
Bond Street
5,612
5,671
(1.0)%
Lark
4,025
5,270
(23.6)%
Fortune
2,482
3,045
(18.5)%
Others
16,351
20,129
(18.8)%
Total Cigarettes
157,018
164,297
(4.4)%
Heated Tobacco Units (1)
16,727
11,498
45.5%
Total PMI
173,745
175,795
(1.2)%
(1) Includes shipments to Altria Group,
Inc., commencing in the third quarter of 2019, for sale in the
United States under license.
Note: Sampoerna A includes Sampoerna;
Philip Morris includes Philip Morris/Dubliss; and Lark includes
Lark Harmony.
PMI's cigarette shipment volume of the following brands
decreased:
- Marlboro, mainly due to the GCC, Indonesia, Mexico and Turkey,
partially offset by Germany, Italy, Japan, North Africa and
Russia;
- Chesterfield, mainly due to Argentina, Russia, Saudi Arabia and
Turkey, partly offset by Brazil;
- Parliament, mainly due to Russia and Turkey;
- Dji Sam Soe in Indonesia, mainly due to Dji Sam Soe Magnum
Mild, reflecting adult smoker down-trading to super-low-price
brands due to widened price gaps;
- Bond Street, mainly due to Ukraine, partly offset by
Russia;
- Lark, mainly due to Japan and Turkey;
- Fortune in the Philippines, mainly reflecting the impact of the
August 2019 price increase, which widened price gaps with
competitive brands; and
- "Others," notably due to: the impact of the deconsolidation of
RBH in Canada; mid-price Sampoerna U in Indonesia and Muratti in
Turkey; and low-price Morven in Pakistan.
The increase in PMI's heated tobacco unit shipment volume was
mainly driven by the EU (notably Italy), Eastern Europe (notably
Russia and Ukraine) and Japan, partly offset by PMI Duty Free.
PMI's cigarette shipment volume of the following brands
increased:
- L&M, mainly driven by Mexico and North Africa (primarily
Egypt), partly offset by Saudi Arabia;
- Philip Morris, primarily driven by Japan and Russia, partly
offset by Argentina; and
- Sampoerna A in Indonesia, mainly driven by premium A Mild,
notably reflecting reduced price gaps with directly competitive mid
and low-price brands.
First-Quarter International Share of Market
PMI's total international market share (excluding China and the
U.S.), defined as PMI's cigarette and heated tobacco unit sales
volume as a percentage of total industry cigarette and heated
tobacco unit sales volume, decreased by 0.2 points to 27.9%,
reflecting:
- Total international market share for cigarettes of 25.0%, down
by 1.1 points; and
- Total international market share for heated tobacco units of
2.9%, up by 0.9 points.
PMI's total international cigarette sales volume as a percentage
of total industry cigarette sales volume was down by 0.8 points to
25.9%, mainly reflecting: out-switching to heated tobacco units, as
well as lower cigarette market share, notably in Argentina,
Indonesia, Mexico, Pakistan, Saudi Arabia and Turkey.
CONSOLIDATED FINANCIAL SUMMARY
Financial Summary - Quarters Ended
March 31,
Change Fav./(Unfav.)
Variance Fav./(Unfav.)
2020
2019
Total
Excl. Curr.
Total
Cur- rency
Price
Vol/ Mix
Cost/ Other(1)
(in millions)
Net Revenues
$
7,153
$
6,751
6.0
%
7.1
%
402
(74
)
323
381
(228
)
Cost of Sales
(2,402
)
(2,465
)
2.6
%
0.6
%
63
49
—
29
(15
)
Marketing, Administration and Research
Costs (2)
(1,944
)
(2,217
)
12.3
%
20.0
%
273
(171
)
—
—
444
Amortization of Intangibles
(18
)
(19
)
5.3
%
5.3
%
1
—
—
—
1
Operating Income
$
2,789
$
2,050
36.0
%
45.6
%
739
(196
)
323
410
202
Asset Impairment & Exit Costs (3)
—
(20
)
+100
%
+100
%
20
—
—
—
20
Canadian Tobacco Litigation-Related
Expense (3)
—
(194
)
+100
%
+100
%
194
—
—
—
194
Loss on Deconsolidation of RBH (3)
—
(239
)
+100
%
+100
%
239
—
—
—
239
Adjusted Operating Income
$
2,789
$
2,503
11.4
%
19.3
%
286
(196
)
323
410
(251
)
Adjusted Operating Income
Margin
39.0
%
37.1
%
1.9
pp
4.2
pp
(1) Cost/Other variance includes the
impact of the RBH deconsolidation.
(2) Unfavorable Cost/Other variance of $9
million, excluding 2019 asset impairment and exit costs, the 2019
Canadian tobacco litigation-related expense and the 2019 Loss on
deconsolidation of RBH.
(3) Included in Marketing, Administration
and Research Costs above.
Note: Net Revenues include revenues from
shipments of Platform 1 devices, heated tobacco units and
accessories to Altria Group, Inc., commencing in the third quarter
of 2019, for sale under license in the United States.
During the quarter, net revenues, excluding unfavorable
currency, increased by 7.1%, mainly reflecting: a favorable pricing
variance, notably driven by Australia, the GCC, Germany, Mexico,
the Philippines and Turkey, partly offset by Italy; and a favorable
volume/mix, primarily driven by heated tobacco unit volume (notably
in the EU and Eastern Europe, partly offset by PMI Duty Free),
partially offset by lower IQOS device volume (notably in Japan) and
lower cigarette volume (mainly due to Mexico, the Philippines,
Saudi Arabia and Turkey, largely offset by Germany, Italy, Japan,
North Africa and Russia). The currency-neutral growth in net
revenues of 7.1% came despite the unfavorable impact of $228
million, shown in "Cost/Other," mainly resulting from the
deconsolidation of RBH. On a like-for-like basis, net revenues,
excluding unfavorable currency, increased by 10.0%, as detailed in
Schedule 8.
Operating income, excluding unfavorable currency, increased by
45.6%, notably reflecting a favorable comparison to charges
recorded in the first quarter of 2019 of $453 million, shown in
"Cost/Other," related to the loss on deconsolidation of RBH, the
Canadian tobacco litigation-related expense, and asset impairment
and exit costs related to a plant closure in Pakistan.
Excluding the impact of these 2019 charges, adjusted operating
income, excluding unfavorable currency, increased by 19.3%,
primarily reflecting: a favorable pricing variance; and favorable
volume/mix, primarily driven by heated tobacco unit volume (notably
in the EU and Eastern Europe, partly offset by PMI Duty Free);
partially offset by higher manufacturing costs; higher marketing,
administration and research costs (notably reflecting increased
investment behind reduced-risk products, mainly in the EU and
Eastern Europe); and the net unfavorable impact resulting from the
deconsolidation of RBH, included in "Cost/Other." On a
like-for-like basis, adjusted operating income, excluding
unfavorable currency, increased by 25.5%, as detailed in Schedule
8.
Adjusted operating income margin, excluding currency, increased
by 4.2 points to 41.3%, as detailed in Schedule 7, or by 5.1 points
to 41.3% on a like-for-like basis, as detailed in Schedule 8.
EUROPEAN UNION REGION
Financial Summary - Quarters Ended
March 31,
Change Fav./(Unfav.)
Variance Fav./(Unfav.)
2020
2019
Total
Excl. Curr.
Total
Cur- rency
Price
Vol/ Mix
Cost/ Other
(in millions)
Net Revenues
$ 2,535
$ 2,159
17.4
%
20.7
%
376
(70
)
16
430
—
Operating Income
$ 1,158
$ 896
29.2
%
36.5
%
262
(65
)
16
378
(67
)
Asset Impairment & Exit Costs
—
—
—
%
—
%
—
—
—
—
—
Adjusted Operating Income
$ 1,158
$ 896
29.2
%
36.5
%
262
(65
)
16
378
(67
)
Adjusted Operating Income
Margin
45.7
%
41.5
%
4.2
pp
5.4
pp
During the quarter, net revenues, excluding unfavorable
currency, increased by 20.7%, primarily reflecting favorable
volume/mix, mainly driven by higher heated tobacco unit volume
across the Region (notably in the Czech Republic, Germany, Italy
and Poland), as well as higher cigarette volume (notably in Germany
and Italy). The favorable pricing variance reflected higher
combustible pricing across the Region (notably in Germany), partly
offset by lower heated tobacco unit pricing (notably in Italy) and
lower IQOS device pricing.
Operating income, excluding unfavorable currency, increased by
36.5%, mainly reflecting: favorable volume/mix, driven by the same
factors as for net revenues noted above; and a favorable pricing
variance; partly offset by higher manufacturing costs; and higher
marketing, administration and research costs, largely related to
increased investments behind reduced-risk products.
Adjusted operating income margin, excluding currency, increased
by 5.4 points to 46.9%, as detailed in Schedule 7.
Total Market, PMI Shipment & Market Share
Commentaries
European Union Key Data
First-Quarter
Change
2020
2019
% / pp
Total Market (billion units)
109.3
107.4
1.8%
PMI Shipment Volume (million
units)
Cigarettes
40,646
39,488
2.9%
Heated Tobacco Units
4,661
2,293
+100%
Total EU
45,307
41,781
8.4%
PMI Market Share
Marlboro
17.7
%
18.2
%
(0.5)
L&M
6.5
%
6.7
%
(0.2)
Chesterfield
5.7
%
5.9
%
(0.2)
Philip Morris
2.6
%
2.8
%
(0.2)
HEETS
3.9
%
2.1
%
1.8
Others
3.0
%
3.2
%
(0.2)
Total EU
39.4
%
38.9
%
0.5
In the quarter, the estimated total market in the EU increased
by 1.8% to 109.3 billion units, mainly driven by:
- Denmark, up by +100%, mainly reflecting the net favorable
impact of estimated trade inventory movements in advance of a
significant excise tax increase on April 1, 2020. Excluding these
movements, the total estimated market decreased by 2.0%; and
- Germany, up by 3.7%, or down by 1.8% excluding the net
favorable impact of estimated trade inventory movements, primarily
reflecting the impact of price increases in March 2019;
partly offset by
- France, down by 8.7%, primarily reflecting the impact of
significant excise tax-driven price increases in November 2019 and
March 2020, and a higher prevalence of illicit trade.
Excluding the net favorable impact of estimated trade inventory
movements, the estimated total market in the EU was down by
0.4%.
PMI's total shipment volume increased by 8.4% to 45.3 billion
units, reflecting:
- higher heated tobacco unit shipment volume across the Region,
driven by higher market share (notably in Germany, Italy and
Poland) and the net favorable impact of estimated distributor
inventory movements (partly driven by distributor inventory
increases related to COVID-19, notably in Italy); and
- higher cigarette shipment volume, mainly driven by the net
favorable impact of estimated distributor inventory movements
(partly driven by distributor inventory increases related to
COVID-19, notably in Italy and Spain), partly offset by lower
market share (notably in Italy and Poland, partially reflecting
out-switching to heated tobacco units).
Excluding the net favorable impact of estimated distributor
inventory movements, PMI's total in-market sales in the Region
increased by 3.1%.
EASTERN EUROPE REGION
Financial Summary - Quarters Ended
March 31,
Change Fav./(Unfav.)
Variance Fav./(Unfav.)
2020
2019
Total
Excl. Curr.
Total
Cur- rency
Price
Vol/ Mix
Cost/ Other
(in millions)
Net Revenues
$ 788
$ 579
36.1
%
35.1
%
209
6
14
189
—
Operating Income
$ 99
$ 129
(23.3
)%
48.1
%
(30
)
(92
)
14
129
(81
)
Asset Impairment & Exit Costs
—
—
—
%
—
%
—
—
—
—
—
Adjusted Operating Income
$ 99
$ 129
(23.3
)%
48.1
%
(30
)
(92
)
14
129
(81
)
Adjusted Operating Income
Margin
12.6
%
22.3
%
(9.7)
pp
2.1
pp
During the quarter, net revenues, excluding favorable currency,
increased by 35.1%, mainly reflecting: favorable volume/mix,
predominantly driven by higher heated tobacco unit volume in Russia
and Ukraine; and a favorable pricing variance, driven mainly by
higher combustible pricing (notably in Russia and Ukraine), partly
offset by lower IQOS device pricing (predominantly in Russia).
Operating income, excluding unfavorable currency (primarily
related to an adverse transaction currency impact from the
revaluation of foreign currency payables in Russia), increased by
48.1%, mainly reflecting: favorable volume/mix, reflecting the same
drivers as for net revenues noted above; and a favorable pricing
variance; partially offset by higher manufacturing costs and higher
marketing, administration and research costs (primarily related to
reduced-risk products in Russia and Ukraine).
Adjusted operating income margin, excluding currency, increased
by 2.1 points to 24.4%, as detailed in Schedule 7.
Total Market, PMI Shipment & Market Share
Commentaries
In the quarter, the estimated total market in Eastern Europe
decreased, notably due to:
- Russia, down by 0.1%, or by 3.9% excluding the net favorable
impact of estimated trade inventory movements, primarily reflecting
the impact of price increases, as well as an increase in the
prevalence of illicit trade; and
- Ukraine, down by 6.5%, mainly reflecting the impact of excise
tax-driven price increases.
PMI Shipment Volume
First-Quarter
(million units)
2020
2019
Change
Cigarettes
21,419
20,320
5.4%
Heated Tobacco Units
4,366
1,548
+100%
Total Eastern Europe
25,785
21,868
17.9%
PMI's total shipment volume increased by 17.9% to 25.8 billion
units, mainly driven by:
- Kazakhstan, up by 15.6%, mainly reflecting a higher market
share of heated tobacco units; and
- Russia, up by 24.0%, or by 14.5% excluding the net favorable
impact of estimated distributor inventory movements (primarily for
cigarettes and driven by distributor inventory increases due to
COVID-19), mainly reflecting a higher market share of heated
tobacco units.
MIDDLE EAST & AFRICA REGION
Financial Summary - Quarters Ended
March 31,
Change Fav./(Unfav.)
Variance Fav./(Unfav.)
2020
2019
Total
Excl. Curr.
Total
Cur- rency
Price
Vol/ Mix
Cost/ Other
(in millions)
Net Revenues
$ 876
$ 927
(5.5
)%
(5.3
)%
(51
)
(2
)
72
(76
)
(45
)
Operating Income
$ 321
$ 344
(6.7
)%
(1.2
)%
(23
)
(19
)
72
(30
)
(46
)
Asset Impairment & Exit Costs
—
—
—
%
—
%
—
—
—
—
—
Adjusted Operating Income
$ 321
$ 344
(6.7
)%
(1.2
)%
(23
)
(19
)
72
(30
)
(46
)
Adjusted Operating Income
Margin
36.6
%
37.1
%
(0.5)
pp
1.6
pp
During the quarter, net revenues, excluding unfavorable
currency, decreased by 5.3%, reflecting: unfavorable volume/mix,
mainly due to lower heated tobacco unit and IQOS device volume in
PMI Duty Free and lower cigarette volume (notably in Saudi Arabia
and Turkey, partly offset by Kuwait and North Africa); and lower
fees for certain distribution rights billed to customers in certain
markets, shown in "Cost/Other"; partially offset by a favorable
pricing variance, driven predominantly by the GCC and Turkey.
Operating income, excluding unfavorable currency, decreased by
1.2%, reflecting: unfavorable volume/mix, mainly due to lower
heated tobacco unit volume in PMI Duty Free and lower cigarette
volume (notably in Saudi Arabia, partly offset by Kuwait and North
Africa); and unfavorable "Cost/Other," mainly due to lower fees for
certain distribution rights, as for net revenues noted above, and
higher manufacturing costs, partly offset by lower marketing,
administration and research costs; partially offset by a favorable
pricing variance.
Adjusted operating income margin, excluding currency, increased
by 1.6 points to 38.7%, as detailed in Schedule 7.
Total Market, PMI Shipment & Market Share
Commentaries
In the quarter, the estimated total market in the Middle East
& Africa decreased, mainly due to:
- International Duty Free, down by 33.0%, primarily reflecting
the impact of government travel restrictions and reduced passenger
traffic due to the COVID-19 pandemic;
- Saudi Arabia, down by 18.6%, notably reflecting the increased
prevalence of non-domestic products following the implementation of
plain packaging in the fourth quarter of 2019; and
- Turkey, down by 24.1%, mainly reflecting a higher prevalence of
illicit trade related to cut tobacco following significant
industry-wide price increases in 2019;
partly offset by
- Egypt, up by 5.9%, partly reflecting a lower prevalence of
illicit trade and in-switching to cigarettes from other tobacco
products.
PMI Shipment Volume
First-Quarter
(million units)
2020
2019
Change
Cigarettes
29,996
33,304
(9.9)%
Heated Tobacco Units
470
754
(37.7)%
Total Middle East & Africa
30,466
34,058
(10.5)%
PMI's total shipment volume decreased by 10.5% to 30.5 billion
units, notably due to:
- PMI Duty Free, down by 12.8%, or by 28.1% excluding the net
favorable impact of estimated distributor inventory movements
(driven by cigarettes), mainly reflecting the lower total
market;
- Saudi Arabia, down by 72.6%. Excluding the net unfavorable
impact of estimated distributor inventory movements of 2.3 billion
cigarettes, largely attributable to the timing of shipments in
2019, PMI's in-market sales decreased by 20.4%, mainly due to the
lower total market; and
- Turkey, down by 27.0%, mainly reflecting the lower total market
and lower market share due primarily to adult smoker down-trading
following the price increases;
partly offset by
- Egypt, up by 17.1%, or by 6.1% excluding the net favorable
impact of estimated distributor inventory movements, mainly
reflecting the higher total market.
SOUTH & SOUTHEAST ASIA REGION
Financial Summary - Quarters Ended
March 31,
Change Fav./(Unfav.)
Variance Fav./(Unfav.)
2020
2019
Total
Excl. Curr.
Total
Cur- rency
Price
Vol/ Mix
Cost/ Other
(in millions)
Net Revenues
$ 1,251
$ 1,113
12.4
%
10.7
%
138
19
159
(40
)
—
Operating Income
$ 599
$ 440
36.1
%
31.8
%
159
19
159
(18
)
(1
)
Asset Impairment & Exit Costs (1)
—
(20
)
+100
%
+100
%
20
—
—
—
20
Adjusted Operating Income
$ 599
$ 460
30.2
%
26.1
%
139
19
159
(18
)
(21
)
Adjusted Operating Income
Margin
47.9
%
41.3
%
6.6
pp
5.8
pp
(1) Included in marketing, administration
and research costs at the consolidated operating income level.
During the quarter, net revenues, excluding favorable currency,
increased by 10.7%, reflecting a favorable pricing variance,
principally driven by the Philippines, partly offset by unfavorable
volume/mix, mainly due to lower cigarette volume in Indonesia and
the Philippines, partially offset by favorable cigarette mix in
Indonesia.
Operating income, excluding favorable currency, increased by
31.8%, partly reflecting a favorable comparison to a charge
recorded in the first quarter of 2019, shown in "Cost/Other," for
asset impairment and exit costs related to a plant closure in
Pakistan.
Excluding the impact of the 2019 charge, adjusted operating
income, excluding favorable currency, increased by 26.1%,
reflecting a favorable pricing variance, partly offset by
unfavorable volume/mix, due to the same factors as for net revenues
noted above, and higher marketing, administration and research
costs.
Adjusted operating income margin, excluding currency, increased
by 5.8 points to 47.1%, as detailed in Schedule 7.
Total Market, PMI Shipment & Market Share
Commentaries
In the quarter, the estimated total market in South &
Southeast Asia decreased, notably due to:
- Indonesia, down by 0.6%, or by approximately 7% excluding the
net favorable impact of estimated trade inventory movements, mainly
reflecting the impact of excise tax-driven price increases;
- Pakistan, down by 25.3%, or by 41.9% excluding the net
favorable impact of estimated trade inventory movements, mainly due
to the impact of excise tax-driven price increases in June 2019;
and
- the Philippines, down by 8.9%, or by 13.2% excluding the net
favorable impact of estimated trade inventory movements, mainly
reflecting the impact of industry-wide price increases in the third
quarter of 2019 and the implementation of quarantines related to
COVID-19 in select geographies beginning in mid-March 2020.
PMI Shipment Volume
First-Quarter
(million units)
2020
2019
Change
Cigarettes
37,595
41,492
(9.4)%
Heated Tobacco Units
—
—
—%
Total South & Southeast
Asia
37,595
41,492
(9.4)%
PMI's total shipment volume decreased by 9.4% to 37.6 billion
units, notably due to:
- Indonesia, down by 7.6%, primarily reflecting lower market
share, mainly due to Marlboro and Dji Sam Soe Magnum Mild, partly
offset by Sampoerna A;
- Pakistan, down by 35.0%, mainly due to the lower total market;
and
- the Philippines, down by 8.8%, mainly reflecting the lower
total market.
EAST ASIA & AUSTRALIA REGION
Financial Summary - Quarters Ended
March 31,
Change Fav./(Unfav.)
Variance Fav./(Unfav.)
2020
2019
Total
Excl. Curr.
Total
Cur- rency
Price
Vol/ Mix
Cost/ Other
(in millions)
Net Revenues
$ 1,255
$ 1,321
(5.0
)%
(4.3
)%
(66
)
(9
)
13
(70
)
—
Operating Income
$ 486
$ 427
13.8
%
14.8
%
59
(4
)
13
(11
)
61
Asset Impairment & Exit Costs
—
—
—
%
—
%
—
—
—
—
—
Adjusted Operating Income
$ 486
$ 427
13.8
%
14.8
%
59
(4
)
13
(11
)
61
Adjusted Operating Income
Margin
38.7
%
32.3
%
6.4
pp
6.5
pp
During the quarter, net revenues, excluding unfavorable
currency, decreased by 4.3%, reflecting: unfavorable volume/mix,
mainly due to lower IQOS device volume in Japan and unfavorable
cigarette volume/mix in Australia, partly offset by higher
cigarette and heated tobacco unit volume in Japan. The unfavorable
volume/mix was partly offset by a favorable pricing variance,
mainly driven by Australia.
Operating income, excluding unfavorable currency, increased by
14.8%, mainly reflecting lower manufacturing costs related to
Japan; lower marketing, administration and research costs; and a
favorable pricing variance; partly offset by unfavorable
volume/mix, notably due to unfavorable cigarette volume/mix in
Australia, partially offset by higher cigarette volume in
Japan.
Adjusted operating income margin, excluding currency, increased
by 6.5 points to 38.8%, as detailed in Schedule 7.
Total Market, PMI Shipment & Market Share
Commentaries
In the quarter, the estimated total market in East Asia &
Australia, excluding China, decreased, notably due to:
- Australia, down by 19.1%, or by 7.9% excluding the net
unfavorable impact of estimated trade inventory movements, mainly
due to the impact of excise tax-driven retail price increases;
- Japan, down by 5.7%, mainly reflecting adult smoker
out-switching from cigarettes to the cigarillo category; and
- Taiwan, down by 14.4%, or by 3.2% excluding the net unfavorable
impact of estimated trade inventory movements, notably due to an
increase in the prevalence of illicit trade.
PMI Shipment Volume
First-Quarter
(million units)
2020
2019
Change
Cigarettes
12,299
12,113
1.5%
Heated Tobacco Units
7,122
6,849
4.0%
Total East Asia & Australia
19,421
18,962
2.4%
PMI's total shipment volume increased by 2.4% to 19.4 billion
units, notably in:
- Japan, up by 5.6%, reflecting the net favorable impact of
estimated distributor inventory movements of approximately 0.8
billion units (driven by a 0.9 billion favorable impact for
cigarettes), partly due to accelerated cigarette and heated tobacco
unit shipments to the distributor related to COVID-19. Excluding
the impact of these inventory movements, PMI's in-market sales
decreased by 0.9%, mainly due to the lower total market, partly
offset by higher heated tobacco unit market share.
LATIN AMERICA & CANADA REGION
Financial Summary - Quarters Ended
March 31,
Change Fav./(Unfav.)
Variance Fav./(Unfav.)
2020
2019
Total
Excl. Curr.
Total
Cur- rency
Price
Vol/ Mix
Cost/ Other(1)
(in millions)
Net Revenues
$ 448
$ 652
(31.3
)%
(28.5
)%
(204
)
(18
)
49
(52
)
(183
)
Operating Income
$ 126
$ (186
)
+100
%
+100
%
312
(35
)
49
(38
)
336
Asset Impairment & Exit Costs
—
—
—
%
—
%
—
—
—
—
—
Canadian Tobacco Litigation-Related
Expense (2)
—
(194
)
+100
%
+100
%
194
—
—
—
194
Loss on Deconsolidation of RBH (2)
—
(239
)
+100
%
+100
%
239
—
—
—
239
Adjusted Operating Income
$ 126
$ 247
(49.0
)%
(34.8
)%
(121
)
(35
)
49
(38
)
(97
)
Adjusted Operating Income
Margin
28.1
%
37.9
%
(9.8)
pp
(3.4)
pp
(1) Unfavorable Cost/Other variance
includes the impact of the RBH deconsolidation.
(2) Included in marketing, administration
and research costs at the consolidated operating income level.
Note: Net Revenues include revenues from
shipments of Platform 1 devices, heated tobacco units and
accessories to Altria Group, Inc., commencing in the third quarter
of 2019, for sale under license in the United States.
During the quarter, net revenues, excluding unfavorable
currency, decreased by 28.5%, reflecting: the unfavorable impact of
the deconsolidation of RBH shown in "Cost/Other"; and unfavorable
volume/mix, notably lower cigarette volume in Argentina and Mexico;
partly offset by a favorable pricing variance, driven by Mexico. On
a like-for-like basis, net revenues, excluding unfavorable
currency, decreased by 1.3%, as detailed in Schedule 9.
Operating income, excluding unfavorable currency, increased by
+100%, notably reflecting a favorable comparison to charges
recorded in the first quarter of 2019 of $433 million, included in
"Cost/Other," related to the loss on deconsolidation of RBH and the
Canadian tobacco litigation-related expense.
Excluding the impact of these 2019 charges, adjusted operating
income, excluding unfavorable currency, decreased by 34.8%,
reflecting: the unfavorable impact of the deconsolidation of RBH,
included in "Cost/Other"; and unfavorable volume/mix, due to the
same factors as for net revenues noted above; partly offset by a
favorable pricing variance and lower marketing, administration and
research costs. On a like-for-like basis, excluding unfavorable
currency, adjusted operating income increased by 30.3%, as detailed
in Schedule 9.
Adjusted operating income margin, excluding currency, decreased
by 3.4 points to 34.5%, as detailed in Schedule 7, or increased by
8.2 points to 34.0% on a like-for-like basis, as detailed in
Schedule 9.
Total Market, PMI Shipment & Market Share
Commentaries
In the quarter, the estimated total market in Latin America
& Canada decreased, notably due to:
- Argentina, down by 5.7%, mainly reflecting the impact of price
increases; and
- Mexico, down by 10.5%, mainly due to the impact of excise
tax-driven price increases in January 2020;
partly offset by
- Brazil, up by 10.3%, mainly reflecting a lower prevalence of
illicit trade due to reduced price gaps with legal products and
improved macro-economic conditions.
PMI Shipment Volume
First-Quarter
(million units)
2020
2019
Change
Cigarettes
15,063
17,580
(14.3)%
Heated Tobacco Units
108
54
+100%
Total Latin America &
Canada
15,171
17,634
(14.0)%
PMI's total shipment volume decreased by 14.0% to 15.2 billion
units, or by 8.8% on a like-for-like basis, notably due to:
- Argentina, down by 13.2%, primarily reflecting a lower market
share due to adult smoker down-trading to ultra-low-price brands
produced by local manufacturers, as well as the lower total market;
and
- Mexico, down by 14.0%, mainly due to the lower total market and
lower market share due to adult smoker down-trading.
Philip Morris International: Delivering a Smoke-Free
Future
Philip Morris International (PMI) is leading a transformation in
the tobacco industry to create a smoke-free future and ultimately
replace cigarettes with smoke-free products to the benefit of
adults who would otherwise continue to smoke, society, the company
and its shareholders. PMI is a leading international tobacco
company engaged in the manufacture and sale of cigarettes, as well
as smoke-free products and associated electronic devices and
accessories, and other nicotine-containing products in markets
outside the United States. In addition, PMI ships a version of its
IQOS Platform 1 device and its consumables authorized by the U.S.
Food and Drug Administration to Altria Group, Inc. for sale in the
U.S. under license. PMI is building a future on a new category of
smoke-free products that, while not risk-free, are a much better
choice than continuing to smoke. Through multidisciplinary
capabilities in product development, state-of-the-art facilities
and scientific substantiation, PMI aims to ensure that its
smoke-free products meet adult consumer preferences and rigorous
regulatory requirements. PMI's smoke-free IQOS product portfolio
includes heat-not-burn and nicotine-containing vapor products. As
of March 31, 2020, PMI estimates that approximately 10.6 million
adult smokers around the world have already stopped smoking and
switched to PMI's heat-not-burn product, available for sale in 53
markets in key cities or nationwide under the IQOS brand. For more
information, please visit www.pmi.com and www.pmiscience.com.
Forward-Looking and Cautionary Statements
This press release contains projections of future results and
other forward-looking statements. Achievement of future results is
subject to risks, uncertainties and inaccurate assumptions. In the
event that risks or uncertainties materialize, or underlying
assumptions prove inaccurate, actual results could vary materially
from those contained in such forward-looking statements. Pursuant
to the “safe harbor” provisions of the Private Securities
Litigation Reform Act of 1995, PMI is identifying important factors
that, individually or in the aggregate, could cause actual results
and outcomes to differ materially from those contained in any
forward-looking statements made by PMI.
PMI's business risks include: excise tax increases and
discriminatory tax structures; increasing marketing and regulatory
restrictions that could reduce our competitiveness, eliminate our
ability to communicate with adult consumers, or ban certain of our
products; health concerns relating to the use of tobacco and other
nicotine-containing products and exposure to environmental tobacco
smoke; litigation related to tobacco use; intense competition; the
effects of global and individual country economic, regulatory and
political developments, natural disasters and conflicts; changes in
adult smoker behavior; lost revenues as a result of counterfeiting,
contraband and cross-border purchases; governmental investigations;
unfavorable currency exchange rates and currency devaluations, and
limitations on the ability to repatriate funds; adverse changes in
applicable corporate tax laws; adverse changes in the cost and
quality of tobacco and other agricultural products and raw
materials; and the integrity of its information systems and
effectiveness of its data privacy policies. PMI's future
profitability may also be adversely affected should it be
unsuccessful in its attempts to produce and commercialize
reduced-risk products or if regulation or taxation do not
differentiate between such products and cigarettes; if it is unable
to successfully introduce new products, promote brand equity, enter
new markets or improve its margins through increased prices and
productivity gains; if it is unable to expand its brand portfolio
internally or through acquisitions and the development of strategic
business relationships; or if it is unable to attract and retain
the best global talent. Future results are also subject to the
lower predictability of our reduced-risk product category's
performance.
The COVID-19 pandemic has created significant societal and
economic disruption, and resulted in closures of stores, factories
and offices, and restrictions on manufacturing, distribution and
travel, all of which will adversely impact our business, results of
operations, cash flows and financial position during the
continuation of the pandemic. Although we have business continuity
plans and other safeguards in place, there is no assurance that
such plans and safeguards will be effective. While much of the
COVID-19 pandemic and its effect on our business is still unknown,
currently, significant risks include our diminished ability to
convert adult smokers to our RRPs, significant volume declines in
our duty-free business and certain other key markets, disruptions
or delays in our manufacturing and supply chain, increased currency
volatility, and delays in certain cost saving, transformation and
restructuring initiatives. Our business could also be adversely
impacted if key personnel or a significant number of employees or
business partners become unavailable due to the COVID-19 outbreak.
The significant adverse impact of COVID-19 on the economic or
political conditions in markets in which we operate could result in
changes to the preferences of our adult consumers, lower demand for
our products, particularly for our mid-price or premium-price
brands, and increased illicit trade. Continuation of the pandemic
could disrupt our access to the credit markets or increase our
borrowing costs. Governments may temporarily be unable to focus on
the development of science-based regulatory frameworks for the
development and commercialization of RRPs or on the enforcement or
implementation of regulations that are significant to our business.
In addition, messaging about the potential negative impacts of the
use of our products on COVID-19 risks may lead to increasingly
restrictive regulatory measures on the sale and use of our
products, negatively impact demand for our products, the
willingness of adult consumers to switch to our RRPs and our
efforts to advocate for the development of science-based regulatory
frameworks for the development and commercialization of RRPs.
Despite our efforts to manage these risks, their impact also
depends on factors beyond our knowledge or control, including the
duration and severity of the outbreak and actions taken to contain
its spread and to mitigate its public health effects, and the
ultimate economic consequences thereof.
PMI is further subject to other risks detailed from time to time
in its publicly filed documents, including the Form 10-K for the
year ended December 31, 2019. PMI cautions that the foregoing list
of important factors is not a complete discussion of all potential
risks and uncertainties. PMI does not undertake to update any
forward-looking statement that it may make from time to time,
except in the normal course of its public disclosure
obligations.
Key Terms, Definitions and Explanatory Notes
General
- "PMI" refers to Philip Morris International Inc. and its
subsidiaries. Trademarks and service marks that are the registered
property of, or licensed by, the subsidiaries of PMI, are
italicized.
- Comparisons are made to the same prior-year period unless
otherwise stated.
- Unless otherwise stated, references to total industry, total
market, PMI shipment volume and PMI market share performance
reflect cigarettes and heated tobacco units.
- References to total international market, defined as worldwide
cigarette and heated tobacco unit volume excluding the U.S., total
industry, total market and market shares are PMI estimates for
tax-paid products based on the latest available data from a number
of internal and external sources and may, in defined instances,
exclude the People's Republic of China and/or PMI's duty free
business. In addition, to reflect the deconsolidation of PMI's
Canadian subsidiary, Rothmans, Benson & Hedges, Inc. (RBH),
effective March 22, 2019, PMI's total market share has been
restated for previous periods.
- "OTP" is defined as "other tobacco products," primarily
roll-your-own and make-your-own cigarettes, pipe tobacco, cigars
and cigarillos, and does not include reduced-risk products.
- "Combustible products" is the term PMI uses to refer to
cigarettes and OTP, combined.
- In-market sales, or "IMS," is defined as sales to the retail
channel, depending on the market and distribution model.
- "Total shipment volume" is defined as the combined total of
cigarette shipment volume and heated tobacco unit shipment
volume.
- "North Africa" is defined as Algeria, Egypt, Libya, Morocco and
Tunisia.
- "The GCC" (Gulf Cooperation Council) is defined as Bahrain,
Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates
(UAE).
- Following the deconsolidation of PMI's Canadian subsidiary,
Rothmans, Benson & Hedges, Inc. (RBH), PMI will continue to
report the volume of brands sold by RBH for which other PMI
subsidiaries are the trademark owner. These include HEETS, Next,
Philip Morris and Rooftop.
- From time to time, PMI’s shipment volumes are subject to the
impact of distributor inventory movements, and estimated total
industry/market volumes are subject to the impact of inventory
movements in various trade channels that include estimated trade
inventory movements of PMI’s competitors arising from
market-specific factors that significantly distort reported volume
disclosures. Such factors may include changes to the manufacturing
supply chain, shipment methods, consumer demand, timing of excise
tax increases or other influences that may affect the timing of
sales to customers. In such instances, in addition to reviewing PMI
shipment volumes and certain estimated total industry/market
volumes on a reported basis, management reviews these measures on
an adjusted basis that excludes the impact of distributor and/or
estimated trade inventory movements. Management also believes that
disclosing PMI shipment volumes and estimated total industry/market
volumes in such circumstances on a basis that excludes the impact
of distributor and/or estimated trade inventory movements, such as
on an IMS basis, improves the comparability of performance and
trends for these measures over different reporting periods.
Financial
- Net revenues related to combustible products refer to the
operating revenues generated from the sale of these products,
including shipping and handling charges billed to customers, net of
sales and promotion incentives, and excise taxes. PMI recognizes
revenue when control is transferred to the customer, typically
either upon shipment or delivery of goods.
- Net revenues related to RRPs represent the sale of heated
tobacco units, IQOS devices and related accessories, and other
nicotine-containing products, primarily e-vapor products, including
shipping and handling charges billed to customers, net of sales and
promotion incentives, and excise taxes. PMI recognizes revenue when
control is transferred to the customer, typically either upon
shipment or delivery of goods.
- "Cost of sales" consists principally of: tobacco leaf,
non-tobacco raw materials, labor and manufacturing costs; shipping
and handling costs; and the cost of IQOS devices produced by
third-party electronics manufacturing service providers. Estimated
costs associated with IQOS warranty programs are generally provided
for in cost of sales in the period the related revenues are
recognized.
- "Marketing, administration and research costs" include the
costs of marketing and selling our products, other costs generally
not related to the manufacture of our products (including general
corporate expenses), and costs incurred to develop new products.
The most significant components of our marketing, administration
and research costs are marketing and sales expenses and general and
administrative expenses.
- "Cost/Other" in the Consolidated Financial Summary table of
total PMI and the six operating segments of this release reflects
the currency-neutral variances of: cost of sales (excluding the
volume/mix cost component); marketing, administration and research
costs (including asset impairment and exit costs, the Canadian
tobacco litigation-related expense and the charge related to the
deconsolidation of RBH in Canada); and amortization of intangibles.
“Cost/Other” also includes the currency-neutral net revenue
variance, unrelated to volume/mix and price components,
attributable to fees for certain distribution rights billed to
customers in certain markets in the ME&A Region, as well as the
impact of the deconsolidation in RBH.
- "Adjusted Operating Income Margin" is calculated as adjusted
operating income, divided by net revenues.
- "Adjusted EBITDA" is defined as earnings before interest,
taxes, depreciation, amortization and equity (income)/loss in
unconsolidated subsidiaries, excluding asset impairment and exit
costs, and unusual items.
- "Net debt" is defined as total debt, less cash and cash
equivalents.
- Management reviews net revenues, OI, OI margins, operating cash
flow and earnings per share, or "EPS," on an adjusted basis, which
may exclude the impact of currency and other items such as
acquisitions, asset impairment and exit costs, tax items and other
special items. For example, PMI’s adjusted diluted EPS and other
impacted results reflect the loss on deconsolidation of RBH and the
Canadian tobacco litigation-related expense, recorded in the first
quarter of 2019, and the Russia excise & VAT charge, recorded
in the third quarter of 2019. PMI believes that the adjusted
measures, including pro forma measures, will provide useful insight
into underlying business trends and results, and will provide a
more meaningful performance comparison for the period during which
RBH remains under CCAA protection. For PMI's 2018 pro forma
adjusted diluted EPS by quarter and year-to-date, see Schedule 3 in
PMI's first-quarter 2019 earnings release.
- Management reviews these measures because they exclude changes
in currency exchange rates and other factors that may distort
underlying business trends, thereby improving the comparability of
PMI’s business performance between reporting periods. Furthermore,
PMI uses several of these measures in its management compensation
program to promote internal fairness and a disciplined assessment
of performance against company targets. PMI discloses these
measures to enable investors to view the business through the eyes
of management.
- Non-GAAP measures used in this release should neither be
considered in isolation nor as a substitute for the financial
measures prepared in accordance with U.S. GAAP. For a
reconciliation of non-GAAP measures to the most directly comparable
U.S. GAAP measures, see the relevant schedules provided with this
press release.
- U.S. GAAP Treatment of Argentina as a Highly Inflationary
Economy. Following the categorization of Argentina by the
International Practices Task Force of the Center for Audit Quality
as a country with a three-year cumulative inflation rate greater
than 100%, the country is considered highly inflationary in
accordance with U.S. GAAP. Consequently, PMI began to account for
the operations of its Argentinian affiliates as highly
inflationary, and to treat the U.S. dollar as the functional
currency of the affiliates, effective July 1, 2018.
- "Fair value adjustment for equity security investments"
reflects the adjustment resulting from share price movements in
passive investments for publicly traded entities that are not
controlled or influenced by PMI. Under U.S. GAAP, such adjustments
are required, since January 1, 2018, to be reflected directly in
the income statement.
- The estimated impact from the COVID-19 pandemic primarily
reflects management’s estimate for shipments to distributors and
trade partners that have been made solely for the purpose of
increasing safety stocks. The impact also includes the estimated
reduction of shipments to duty free distributors and trade partners
resulting from the pandemic-related decline in international
travel.
Reduced-Risk Products
- Reduced Risk Products (“RRPs”) is the term PMI uses to refer to
products that present, are likely to present, or have the potential
to present less risk of harm to smokers who switch to these
products versus continuing smoking. PMI has a range of RRPs in
various stages of development, scientific assessment and
commercialization. PMI's RRPs are smoke-free products that produce
an aerosol that contains far lower quantities of harmful and
potentially harmful constituents than found in cigarette
smoke.
- "Heated tobacco units," or "HTUs," is the term PMI uses to
refer to heated tobacco consumables, which include the company's
HEETS, HEETS Creations, HEETS Marlboro and HEETS FROM MARLBORO,
defined collectively as HEETS, as well as Marlboro HeatSticks and
Parliament HeatSticks.
- Unless otherwise stated, all references to IQOS are to PMI's
heat-not-burn products.
- The IQOS heat-not-burn device is a precisely controlled heating
device into which a specially designed and proprietary tobacco unit
is inserted and heated to generate an aerosol.
- “Total IQOS users” is defined as the estimated number of Legal
Age (minimum 18 years) IQOS users that used PMI HTUs for at least
5% of their daily tobacco consumption over the past seven
days.
- The estimated number of people who have "stopped smoking and
switched to IQOS" is defined as: for markets where IQOS is the only
heat-not-burn product, daily individual consumption of PMI HTUs
represents the totality of their daily tobacco consumption in the
past seven days; for markets where IQOS is one among other
heat-not-burn products, daily individual consumption of HTUs
represents the totality of their daily tobacco consumption in the
past seven days, of which at least 70% are PMI HTUs.
IQOS in the United States
- On April 30, 2019, the U.S. Food and Drug Administration (FDA)
announced that the marketing of a version of IQOS, PMI's
heat-not-burn product, together with its heated tobacco units (the
term PMI uses to refer to heated tobacco consumables), is
appropriate for the protection of public health and authorized it
for sale in the U.S. The FDA’s decision follows its comprehensive
assessment of PMI’s premarket tobacco product applications (PMTAs)
submitted to the Agency in 2017. In the third quarter of 2019, PMI
brought a version of its IQOS Platform 1 device and three variants
of its heated tobacco units to the U.S. through its license with
Altria Group, Inc., whose subsidiary, Philip Morris USA Inc., is
responsible for marketing the product and complying with the
provisions set forth in the FDA's marketing order. On March 30,
2020, PMI submitted a supplemental PMTA for the IQOS 3 tobacco
heating device with the FDA.
- Shipment volume of heated tobacco units to the U.S. is included
in the heated tobacco unit shipment volume of the Latin America
& Canada segment. Revenues from shipments of Platform 1
devices, heated tobacco units and accessories to Altria Group, Inc.
for sale under license in the U.S. are included in Net Revenues of
the Latin America & Canada segment.
Appendix 1
PHILIP MORRIS INTERNATIONAL INC.
and Subsidiaries
Key Market Data
Quarters Ended March
31,
Market
Total Market, bio
units
PMI Shipments, bio
units
PMI Market Share, %
(1)
Total
Cigarette
HTU
Total
HTU
2020
2019
% Change
2020
2019
% Change
2020
2019
% Change
2020
2019
% Change
2020
2019
pp Change
2020
2019
pp Change
Total
606.6
624.7
(2.9
)
173.7
175.8
(1.2
)
157.0
164.3
(4.4
)
16.7
11.5
45.5
27.9
28.1
(0.2
)
2.9
2.0
0.9
European Union
France
8.3
9.1
(8.7
)
4.0
4.2
(3.0
)
4.0
4.1
(3.8
)
—
—
—
44.5
45.0
(0.5
)
0.4
0.2
0.2
Germany
16.0
15.4
3.7
6.7
6.1
10.8
6.4
5.9
7.3
0.4
0.2
+100
42.2
39.5
2.7
2.4
1.0
1.4
Italy
15.7
15.6
0.6
9.2
7.7
19.1
7.8
7.1
8.9
1.4
0.6
+100
51.9
51.0
0.9
7.4
3.7
3.7
Poland
10.8
10.6
2.0
4.3
4.2
2.4
3.9
4.0
(4.3
)
0.5
0.2
+100
40.0
39.9
0.1
4.3
1.8
2.5
Spain
10.4
10.2
1.8
3.7
3.6
1.8
3.5
3.5
(0.4
)
0.1
0.1
+100
31.0
31.7
(0.7
)
0.9
0.6
0.3
Eastern Europe
Russia
46.6
46.7
(0.1
)
15.0
12.1
24.0
12.4
11.3
9.8
2.6
0.8
+100
32.6
28.4
4.2
6.5
3.0
3.5
Middle East & Africa
Saudi Arabia
4.3
5.3
(18.6
)
1.1
3.8
(72.6
)
1.0
3.8
(72.8
)
—
—
—
40.8
41.7
(0.9
)
—
—
—
Turkey
22.4
29.5
(24.1
)
10.2
13.9
(27.0
)
10.2
13.9
(27.0
)
—
—
—
45.1
47.2
(2.1
)
—
—
—
South & Southeast Asia
Indonesia
67.2
67.6
(0.6
)
20.4
22.1
(7.6
)
20.4
22.1
(7.6
)
—
—
—
30.4
32.7
(2.3
)
—
—
—
Philippines
15.3
16.8
(8.9
)
10.7
11.7
(8.8
)
10.7
11.7
(8.8
)
—
—
—
70.2
70.1
0.1
—
—
—
East Asia & Australia
Australia
2.5
3.1
(19.1
)
0.7
0.8
(7.2
)
0.7
0.8
(7.2
)
—
—
—
28.0
24.4
3.6
—
—
—
Japan
35.5
37.7
(5.7
)
12.8
12.1
5.6
6.8
6.5
5.6
6.0
5.7
5.6
36.3
34.5
1.8
19.1
17.0
2.1
Korea
16.2
15.6
3.6
3.5
3.6
(2.8
)
2.4
2.5
(1.2
)
1.1
1.2
(6.2
)
21.8
23.3
(1.5
)
6.6
7.3
(0.7
)
Latin America & Canada
Argentina
8.0
8.5
(5.7
)
5.3
6.1
(13.2
)
5.3
6.1
(13.2
)
—
—
—
66.1
72.3
(6.2
)
—
—
—
Mexico
6.7
7.4
(10.5
)
4.1
4.7
(14.0
)
4.1
4.7
(14.2
)
—
—
—
61.1
63.6
(2.5
)
0.2
—
0.2
(1) Market share estimates are calculated
using IMS data
Note: % change for Total Market and PMI
shipments is computed based on millions of units; PMI Market Share
estimates for previous periods are restated to reflect RBH
deconsolidation and exclude RBH-owned brands.
Appendix 2
PHILIP MORRIS INTERNATIONAL INC.
and Subsidiaries
Reconciliation of Non-GAAP
Measures
Shipment Volume Adjusted for
the Impact of RBH Deconsolidation and COVID-19
(in million units) /
(Unaudited)
Total PMI
Quarters Ended March
31,
2020
2019
% Change
Total Shipment Volume
173,745
175,795
(1.2
)%
Shipment Volume for RBH-owned brands
(1)
(1,008
)
(2)
Total Shipment Volume
173,745
174,787
(3)
(0.6
)%
Estimated impact related to COVID-19
(3,000
)
Total Shipment Volume
170,745
(4)
174,787
(3)
(2.3
)%
Total Cigarette Shipment Volume
157,018
164,297
(4.4
)%
Shipment Volume for RBH-owned brands
(1)
(1,008
)
(2)
Total Cigarette Shipment Volume
157,018
163,289
(3)
(3.8
)%
Estimated impact related to COVID-19
(2,600
)
Total Cigarette Shipment Volume
154,418
(4)
163,289
(3)
(5.4
)%
Total HTU Shipment Volume
16,727
11,498
45.5
%
Estimated impact related to COVID-19
(400
)
Total HTU Shipment Volume
16,327
(4)
11,498
42.0
%
Latin America & Canada
Total Shipment Volume
15,171
17,634
(14.0
)%
Shipment Volume for RBH-owned brands
(995
)
(2)
Total Shipment Volume
15,171
16,639
(3)
(8.8
)%
(1) Includes Duty Free sales in Canada
(2) Represents volume for RBH-owned brands
from January 1, 2019 through March 21, 2019
(3) Pro forma
(4) Pro forma, ex-COVID-19
Note: Shipment Volume includes Cigarettes
and Heated Tobacco Units; following the deconsolidation of RBH, we
report the volume of brands sold by RBH for which other PMI
subsidiaries are the trademark owners
Schedule 1
PHILIP MORRIS INTERNATIONAL INC.
and Subsidiaries
Diluted Earnings Per Share
(EPS)
($ in millions, except per share
data) / (Unaudited)
Diluted EPS
Quarters Ended
March 31,
2020 Diluted Earnings Per Share
(1)
$
1.17
2019 Diluted Earnings Per Share
(1)
$
0.87
Change
$
0.30
% Change
34.5
%
Reconciliation:
2019 Diluted Earnings Per Share
(1)
$
0.87
2019 Asset impairment and exit costs
0.01
2019 Canadian tobacco litigation-related
expense
0.09
2019 Loss on deconsolidation of RBH
0.12
2019 Tax items
—
2020 Asset impairment and exit costs
—
2020 Fair value adjustment for equity
security investments
(0.04
)
2020 Tax items
—
Currency
(0.13
)
Interest
0.01
Change in tax rate
(0.01
)
Operations (2)
0.25
2020 Diluted Earnings Per Share
(1)
$
1.17
(1) Basic and diluted EPS were calculated
using the following (in millions):
Quarters Ended
March 31,
2020
2019
Net Earnings attributable to PMI
$ 1,826
$ 1,354
Less: Distributed and undistributed
earnings attributable to share-based payment awards
5
4
Net Earnings for basic and diluted EPS
$ 1,821
$ 1,350
Weighted-average shares for basic EPS
1,557
1,555
Plus Contingently Issuable Performance
Stock Units
1
1
Weighted-average shares for diluted
EPS
1,558
1,556
(2) Includes the impact of shares
outstanding and share-based payments
Schedule 2
PHILIP MORRIS INTERNATIONAL INC.
and Subsidiaries
Reconciliation of Non-GAAP
Measures
Reconciliation of Reported
Diluted EPS to Reported Diluted EPS, excluding Currency,
and Reconciliation of Reported
Diluted EPS to Adjusted Diluted EPS, excluding Currency
(Unaudited)
Quarters Ended March
31,
2020
2019
% Change
Reported Diluted EPS
$ 1.17
$ 0.87
34.5
%
Less: Currency
(0.13)
Reported Diluted EPS, excluding
Currency
$ 1.30
$ 0.87
49.4
%
Quarters Ended March
31,
Year Ended
2020
2019
% Change
2019
Reported Diluted EPS
$ 1.17
$ 0.87
34.5
%
$ 4.61
Asset impairment and exit costs
—
0.01
0.23
Canadian tobacco litigation-related
expense
—
0.09
0.09
Loss on deconsolidation of RBH
—
0.12
0.12
Russia excise and VAT audit charge
—
—
0.20
Fair value adjustment for equity security
investments
0.04
—
(0.02)
Tax items
—
—
(0.04)
Adjusted Diluted EPS
$ 1.21
$ 1.09
11.0
%
$ 5.19
Less: Currency
(0.13)
Adjusted Diluted EPS, excluding
Currency
$ 1.34
$ 1.09
22.9
%
Schedule 3
PHILIP MORRIS INTERNATIONAL INC.
and Subsidiaries
Reconciliation of Non-GAAP
Measures
Reconciliation of Reported
Diluted EPS to Pro Forma Adjusted Diluted EPS
(Unaudited)
Quarter Ended
Quarter Ended
Six Months Ended
Quarter Ended
Nine Months Ended
Quarter Ended
Year Ended
March 31,
June 30,
June 30,
September 30,
September 30,
December 31,
December 31,
2019
2019
2019
2019
2019
2019
2019
Reported Diluted EPS
$ 0.87
$ 1.49
$ 2.36
$ 1.22
$ 3.57
$ 1.04
$4.61
Asset impairment and exit costs
0.01
0.01
0.02
0.01
0.03
0.20
0.23
Canadian tobacco litigation-related
expense
0.09
—
0.09
—
0.09
—
0.09
Loss on deconsolidation of RBH
0.12
—
0.12
—
0.12
—
0.12
Russia excise and VAT audit charge
—
—
—
0.20
0.20
—
0.20
Fair value adjustment for equity security
investments
—
—
—
—
—
(0.02)
(0.02)
Tax items
—
(0.04)
(0.04)
—
(0.04)
—
(0.04)
Adjusted Diluted EPS
$ 1.09
$ 1.46
$ 2.55
$ 1.43
$ 3.97
$ 1.22
$ 5.19
Net earnings attributable to RBH
(0.06)
(1)
—
(0.06)
(1)
—
(0.06)
(1)
—
(0.06)
(1)
Pro Forma Adjusted Diluted EPS
$ 1.03
$ 1.46
$ 2.49
$ 1.43
$ 3.91
$ 1.22
$ 5.13
(1) Represents the impact of net earnings
attributable to RBH from January 1, 2019 through March 21, 2019
Note: EPS is computed independently for
each of the periods presented. Accordingly, the sum of the
quarterly EPS amounts may not agree to the total for the year.
Schedule 4
PHILIP MORRIS INTERNATIONAL INC.
and Subsidiaries
Reconciliation of Non-GAAP
Measures
Net Revenues by Product
Category and Adjustments of Net Revenues for the Impact of Currency
and Acquisitions
($ in millions) / (Unaudited)
Net Revenues
Currency
Net Revenues excluding
Currency
Acquisitions
Net Revenues excluding
Currency & Acquisitions
Quarters Ended March
31,
Net Revenues
Total
Excluding Currency
Excluding Currency &
Acquisitions
2020
Combustible Products
2019
% Change
$ 1,911
$ (53)
$ 1,963
$ —
$ 1,963
European Union
$ 1,812
5.4%
8.4%
8.4%
523
(4)
526
—
526
Eastern Europe
471
11.1%
11.8%
11.8%
832
(2)
835
—
835
Middle East & Africa
829
0.5%
0.7%
0.7%
1,251
19
1,232
—
1,232
South & Southeast Asia
1,113
12.4%
10.7%
10.7%
642
(7)
649
—
649
East Asia & Australia
638
0.6%
1.8%
1.8%
440
(18)
458
—
458
Latin America & Canada
646
(31.9)%
(29.2)%
(29.2)%
$ 5,598
$ (65)
$ 5,663
$ —
$ 5,663
Total Combustible
$ 5,508
1.6%
2.8%
2.8%
2020
Reduced-Risk Products
2019
% Change
$ 624
$ (17)
$ 642
$ —
$ 642
European Union
$ 347
79.9%
84.9%
84.9%
265
10
256
—
256
Eastern Europe
108
+100%
+100%
+100%
44
—
43
—
43
Middle East & Africa
98
(55.7)%
(56.0)%
(56.0)%
—
—
—
—
—
South & Southeast Asia
—
—%
—%
—%
613
(2)
615
—
615
East Asia & Australia
683
(10.2)%
(10.0)%
(10.0)%
8
—
8
—
8
Latin America & Canada(1)
6
38.5%
41.3%
41.3%
$ 1,555
$ (9)
$ 1,564
$ —
$ 1,564
Total RRPs
$ 1,243
25.1%
25.8%
25.8%
2020
PMI
2019
% Change
$ 2,535
$ (70)
$ 2,605
$ —
$ 2,605
European Union
$ 2,159
17.4%
20.7%
20.7%
788
6
782
—
782
Eastern Europe
579
36.1%
35.1%
35.1%
876
(2)
878
—
878
Middle East & Africa
927
(5.5)%
(5.3)%
(5.3)%
1,251
19
1,232
—
1,232
South & Southeast Asia
1,113
12.4%
10.7%
10.7%
1,255
(9)
1,264
—
1,264
East Asia & Australia
1,321
(5.0)%
(4.3)%
(4.3)%
448
(18)
466
—
466
Latin America & Canada
652
(31.3)%
(28.5)%
(28.5)%
$ 7,153
$ (74)
$ 7,227
$ —
$ 7,227
Total PMI
$ 6,751
6.0%
7.1%
7.1%
(1) Net Revenues include revenues from
shipments of Platform 1 devices, heated tobacco units and
accessories to Altria Group, Inc., commencing in the third quarter
of 2019, for sale under license in the United States.
Note: Sum of product categories or Regions
might not foot to Total PMI due to roundings. “-“ indicates amounts
between -$0.5 million and +$0.5 million.
Schedule 5
PHILIP MORRIS INTERNATIONAL INC.
and Subsidiaries
Reconciliation of Non-GAAP
Measures
Adjustments of Operating
Income for the Impact of Currency and Acquisitions
($ in millions) / (Unaudited)
Operating Income
Currency
Operating Income excluding
Currency
Acquisitions
Operating Income excluding
Currency & Acquisitions
Operating Income
Total
Excluding Currency
Excluding Currency &
Acquisitions
2020
Quarters Ended March
31,
2019
% Change
$ 1,158
$ (65)
$ 1,223
$ —
$ 1,223
European Union
$ 896
29.2%
36.5%
36.5%
99
(92)
191
—
191
Eastern Europe
129
(23.3)%
48.1%
48.1%
321
(19)
340
—
340
Middle East & Africa
344
(6.7)%
(1.2)%
(1.2)%
599
19
580
—
580
South & Southeast Asia
440
(1)
36.1%
31.8%
31.8%
486
(4)
490
—
490
East Asia & Australia
427
13.8%
14.8%
14.8%
126
(35)
161
—
161
Latin America & Canada
(186)
(2)
+100%
+100%
+100%
$ 2,789
$ (196)
$ 2,985
$ —
$ 2,985
Total PMI
$ 2,050
36.0%
45.6%
45.6%
(1) Includes asset impairment and exit
costs ($20 million)
(2) Includes the Canadian tobacco
litigation-related expense ($194 million) and the loss on
deconsolidation of RBH ($239 million)
Schedule 6
PHILIP MORRIS INTERNATIONAL INC.
and Subsidiaries
Reconciliation of Non-GAAP
Measures
Reconciliation of Operating
Income to Adjusted Operating Income, excluding Currency and
Acquisitions
($ in millions) / (Unaudited)
Operating Income
Asset Impairment & Exit
Costs and Others
Adjusted Operating
Income
Currency
Adjusted Operating Income
excluding Currency
Acqui- sitions
Adjusted Operating Income
excluding Currency & Acqui- sitions
Operating Income
Asset Impairment & Exit
Costs and Others
Adjusted Operating
Income
Total
Excluding Currency
Excluding Currency &
Acqui- sitions
2020
Quarters Ended March
31,
2019
% Change
$ 1,158
$ —
$ 1,158
$ (65)
$ 1,223
$ —
$ 1,223
European Union
$ 896
$ —
$ 896
29.2%
36.5%
36.5%
99
—
99
(92)
191
—
191
Eastern Europe
129
—
129
(23.3)%
48.1%
48.1%
321
—
321
(19)
340
—
340
Middle East & Africa
344
—
344
(6.7)%
(1.2)%
(1.2)%
599
—
599
19
580
—
580
South & Southeast Asia
440
(20)
(1)
460
30.2%
26.1%
26.1%
486
—
486
(4)
490
—
490
East Asia & Australia
427
—
427
13.8%
14.8%
14.8%
126
—
126
(35)
161
—
161
Latin America & Canada
(186)
(433)
(2)
247
(49.0)%
(34.8)%
(34.8)%
$ 2,789
$ —
$ 2,789
$ (196)
$ 2,985
$ —
$ 2,985
Total PMI
$ 2,050
$ (453)
$ 2,503
11.4%
19.3%
19.3%
(1) Represents asset impairment and exit
costs
(2) Includes the Canadian tobacco
litigation-related expense ($194 million) and the loss on
deconsolidation of RBH ($239 million)
Schedule 7
PHILIP MORRIS INTERNATIONAL INC.
and Subsidiaries
Reconciliation of Non-GAAP
Measures
Reconciliation of Adjusted
Operating Income Margin, excluding Currency and
Acquisitions
($ in millions) / (Unaudited)
Adjusted Operating Income
(1)
Net Revenues
Adjusted Operating Income
Margin
Adjusted Operating Income
excluding Currency (1)
Net Revenues excluding
Currency (2)
Adjusted Operating Income
Margin excluding Currency
Adjusted Operating Income
excluding Currency & Acqui- sitions (1)
Net Revenues excluding
Currency & Acqui- sitions (2)
Adjusted Operating Income
Margin excluding Currency & Acqui- sitions
Adjusted Operating Income
(1)
Net Revenues
Adjusted Operating Income
Margin
Adjusted Operating Income
Margin
Adjusted Operating Income
Margin excluding Currency
Adjusted Operating Income
Margin excluding Currency & Acqui- sitions
2020
Quarters Ended March
31,
2019
% Points Change
$ 1,158
$ 2,535
45.7%
$ 1,223
$ 2,605
46.9%
$ 1,223
$ 2,605
46.9%
European Union
$ 896
$ 2,159
41.5%
4.2
5.4
5.4
99
788
12.6%
191
782
24.4%
191
782
24.4%
Eastern Europe
129
579
22.3%
(9.7)
2.1
2.1
321
876
36.6%
340
878
38.7%
340
878
38.7%
Middle East & Africa
344
927
37.1%
(0.5)
1.6
1.6
599
1,251
47.9%
580
1,232
47.1%
580
1,232
47.1%
South & Southeast Asia
460
1,113
41.3%
6.6
5.8
5.8
486
1,255
38.7%
490
1,264
38.8%
490
1,264
38.8%
East Asia & Australia
427
1,321
32.3%
6.4
6.5
6.5
126
448
28.1%
161
466
34.5%
161
466
34.5%
Latin America & Canada
247
652
37.9%
(9.8)
(3.4)
(3.4)
$ 2,789
$ 7,153
39.0%
$ 2,985
$ 7,227
41.3%
$ 2,985
$ 7,227
41.3%
Total PMI
$ 2,503
$ 6,751
37.1%
1.9
4.2
4.2
(1) For the calculation of Adjusted
Operating Income and Adjusted Operating Income excluding currency
and acquisitions refer to Schedule 6
(2) For the calculation of Net Revenues
excluding currency and acquisitions refer to Schedule 4
Schedule 8
PHILIP MORRIS INTERNATIONAL INC.
and Subsidiaries
Reconciliation of Non-GAAP
Measures
Adjustments for the Impact of
RBH, COVID-19, excluding Currency
($ in millions, except per share
data) / (Unaudited)
Quarters Ended March
31,
2020
2019
% Change
Net Revenues
$ 7,153
$ 6,751
6.0
%
Net Revenues attributable to RBH
(181)
(1)
Net Revenues
$ 7,153
$ 6,570
(2)
8.9
%
Less: Currency
(75)
Net Revenues, ex. currency
$ 7,228
$ 6,570
(2)
10.0
%
Estimated impact related to COVID-19
(130)
Net Revenues, ex. currency
$ 7,098
(3)
$ 6,570
(2)
8.0
%
Adjusted Operating Income (4)
$ 2,789
$ 2,503
11.4
%
Operating Income attributable to RBH
(126)
(1)
Adjusted Operating Income
$ 2,789
$ 2,377
(2)
17.3
%
Less: Currency
(195)
Adjusted Operating Income, ex.
currency
$ 2,984
$ 2,377
(2)
25.5
%
Estimated impact related to COVID-19
(133)
Adjusted Operating Income, ex.
currency
$ 2,851
(3)
$ 2,377
(2)
19.9
%
Adjusted OI Margin
39.0%
37.1%
1.9
Adjusted OI Margin attributable to RBH
(0.9)
(1)
Adjusted OI Margin
39.0%
36.2%
(2)
2.8
Less: Currency
(2.3)
Adjusted OI Margin, ex.
currency
41.3%
36.2%
(2)
5.1
Estimated impact related to COVID-19
(1.1)
Adjusted OI Margin, ex.
currency
40.2%
(3)
36.2%
(2)
4.0
Adjusted Diluted EPS (5)
$ 1.21
$ 1.09
11.0
%
Net earnings attributable to RBH
(0.06)
(1)
Adjusted Diluted EPS
$ 1.21
$ 1.03
(2)
17.5
%
Less: Currency
(0.13)
Adjusted Diluted EPS, ex.
currency
$ 1.34
$ 1.03
(2)
30.1
%
Estimated impact related to COVID-19
(0.07)
Adjusted Diluted EPS, ex.
currency
$ 1.27
(3)
$ 1.03
(2)
23.3
%
(1) Represents the impact attributable to
RBH from January 1, 2019 through March 21, 2019
(2) Pro forma
(3) Pro forma, ex-COVID-19
(4) For the calculation of Adjusted
Operating Income, see Schedule 6
(5) For the calculation, see Schedule
2
Note: Financials attributable to RBH
include Duty Free sales in Canada
Schedule 9
PHILIP MORRIS INTERNATIONAL INC.
and Subsidiaries
Reconciliation of Non-GAAP
Measures
Adjustments for the Impact of
RBH, excluding Currency
($ in millions) / (Unaudited)
Latin America & Canada
Quarters Ended March
31,
2020
2019
% Change
Net Revenues
$ 448
$ 652
(31.3
)%
Net Revenues attributable to RBH
(179)
(1)
Net Revenues
$ 448
$ 473
(2)
(5.3
)%
Less: Currency
(19)
Net Revenues, ex. currency
$ 467
$ 473
(2)
(1.3
)%
Operating Income
$ 126
$ (186)
+100
%
Less:
Asset impairment and exit costs
—
—
Canadian tobacco litigation-related
expense
—
(194)
Loss on deconsolidation of RBH
—
(239)
Adjusted Operating Income
$ 126
$ 247
(49.0
)%
Operating Income attributable to RBH
(125)
(1)
Adjusted Operating Income
$ 126
$ 122
(2)
3.3
%
Less: Currency
(33)
Adjusted Operating Income, ex.
currency
$ 159
$ 122
(2)
30.3
%
Adjusted OI Margin
28.1%
37.9%
(9.8
)
Adjusted OI Margin attributable to RBH
(12.1)
(1)
Adjusted OI Margin
28.1%
25.8%
(2)
2.3
Less: Currency
(5.9)
Adjusted OI Margin, ex.
currency
34.0%
25.8%
(2)
8.2
(1) Represents the impact attributable to
RBH from January 1, 2019 through March 21, 2019
(2) Pro forma
Schedule 10
PHILIP MORRIS INTERNATIONAL INC.
and Subsidiaries
Condensed Statements of
Earnings
($ in millions, except per share
data) / (Unaudited)
Quarters Ended March
31,
2020
2019
Change Fav./(Unfav.)
Revenues including Excise Taxes
$ 18,253
$ 17,705
3.1%
Excise Taxes on products
11,100
10,954
(1.3)%
Net Revenues
7,153
6,751
6.0%
Cost of sales
2,402
2,465
2.6%
Gross profit
4,751
4,286
10.8%
Marketing, administration and research
costs (1)
1,944
2,217
12.3%
Amortization of intangibles
18
19
Operating Income
2,789
2,050
36.0%
Interest expense, net
129
152
15.1%
Pension and other employee benefit
costs
23
21
(9.5)%
Earnings before income taxes
2,637
1,877
40.5%
Provision for income taxes
596
424
(40.6)%
Equity investments and securities
(income)/loss, net
54
(11)
Net Earnings
1,987
1,464
35.7%
Net Earnings attributable to
noncontrolling interests
161
110
Net Earnings attributable to
PMI
$ 1,826
$ 1,354
34.9%
Per share data (2):
Basic Earnings Per Share
$ 1.17
$ 0.87
34.5%
Diluted Earnings Per Share
$ 1.17
$ 0.87
34.5%
(1) Includes in 2019 asset impairment and
exit costs ($20 million), the Canadian tobacco litigation-related
expense ($194 million) and the loss on deconsolidation of RBH ($239
million).
(2) Net Earnings and weighted-average
shares used in the basic and diluted Earnings Per Share
computations for the quarters ended March 31, 2020 and 2019 are
shown on Schedule 1, Footnote 1.
Schedule 11
PHILIP MORRIS INTERNATIONAL INC.
and Subsidiaries
Condensed Balance
Sheets
($ in millions, except ratios) /
(Unaudited)
March 31,
December 31,
2020
2019
Assets
Cash and cash equivalents
$
3,746
$
6,861
All other current assets
13,115
13,653
Property, plant and equipment, net
6,107
6,631
Goodwill
5,284
5,858
Other intangible assets, net
1,850
2,113
Investments in unconsolidated subsidiaries
and equity securities
4,390
4,635
Other assets
3,002
3,124
Total assets
$
37,494
$
42,875
Liabilities and Stockholders' (Deficit)
Equity
Short-term borrowings
$
1,438
$
338
Current portion of long-term debt
1,933
4,051
All other current liabilities
13,213
14,444
Long-term debt
24,999
26,656
Deferred income taxes
838
908
Other long-term liabilities
6,136
6,077
Total liabilities
48,557
52,474
Total PMI stockholders' deficit
(12,944
)
(11,577
)
Noncontrolling interests
1,881
1,978
Total stockholders' (deficit)
equity
(11,063
)
(9,599
)
Total liabilities and stockholders'
(deficit) equity
$
37,494
$
42,875
Schedule 12
PHILIP MORRIS INTERNATIONAL INC.
and Subsidiaries
Reconciliation of Non-GAAP
Measures
Calculation of Total Debt to
Adjusted EBITDA and Net Debt to Adjusted EBITDA Ratios
($ in millions, except ratios) /
(Unaudited)
Year Ended March 31,
2020
Year Ended December 31,
2019
April ~ December
January ~ March
12 months
2019
2020
rolling
Net Earnings
$
6,264
$
1,987
$
8,251
$
7,728
Equity investments and securities
(income)/loss, net
(138
)
54
(84
)
(149
)
Provision for income taxes
1,869
596
2,465
2,293
Interest expense, net
418
129
547
570
Depreciation and amortization
724
241
965
964
Asset impairment and exit costs and Others
(1)
776
—
776
1,229
Adjusted EBITDA
$
9,913
$
3,007
$
12,920
$
12,635
March 31,
December 31,
2020
2019
Short-term borrowings
$
1,438
$
338
Current portion of long-term debt
1,933
4,051
Long-term debt
24,999
26,656
Total Debt
$
28,370
$
31,045
Cash and cash equivalents
3,746
6,861
Net Debt
$
24,624
$
24,184
Ratios:
Total Debt to Adjusted EBITDA
2.20
2.46
Net Debt to Adjusted EBITDA
1.91
1.91
(1) For the period April to December 2019,
Others include the Russia excise and VAT charge ($374 million). For
the year ended December 31, 2019, Others include the Canadian
tobacco litigation-related expense ($194 million), the loss on
deconsolidation of RBH ($239 million) and the Russia excise and VAT
audit charge ($374 million).
Schedule 13
PHILIP MORRIS INTERNATIONAL INC.
and Subsidiaries
Reconciliation of Non-GAAP
Measures
Reconciliation of Operating
Cash Flow to Operating Cash Flow, excluding Currency
($ in millions) / (Unaudited)
Quarters Ended March
31,
2020
2019
% Change
Net cash provided by operating
activities (1)
$ 1,111
$ 1,241
(10.5)%
Less: Currency
(50)
Net cash provided by operating
activities, excluding currency
$ 1,161
$ 1,241
(6.4)%
(1) Operating cash flow
View source
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