News

Philip Morris International Inc. Reports 2020 Second-Quarter Reported Diluted EPS of $1.25 Versus $1.49 in 2019, Reflecting Currency-Neutral Adjusted Diluted EPS Decline of 7.5%

Provides 2020 Full-Year Reported Diluted EPS Forecast of $4.84 to $4.99, or Adjusted Diluted EPS of $4.92 to $5.07, Reflecting Like-for-Like Currency-Neutral Growth of Approximately 2% to 5%

NEW YORK–(BUSINESS WIRE)–Regulatory News:

Philip Morris International Inc. (NYSE:PM) today announces its 2020 second-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, PMI’s total market share has been restated for previous periods to reflect the deconsolidation.

2020 SECOND-QUARTER & YEAR-TO-DATE HIGHLIGHTS

2020 Second-Quarter

  • Reported diluted EPS of $1.25, down by 16.1%; down by 12.1%, excluding currency
  • Adjusted diluted EPS of $1.29, down by 11.6%; down by 7.5%, excluding currency
  • Cigarette and heated tobacco unit shipment volume down by 14.5% (reflecting cigarette shipment volume down by 17.6%, and heated tobacco unit shipment volume up by 24.3% to 18.7 billion units)
  • Market share for heated tobacco units in IQOS markets, excluding the U.S., up by 1.8 points to 6.3%
  • Net revenues down by 13.6%; down by 9.5%, excluding currency
  • Operating income down by 14.3%; down by 11.0%, excluding currency
  • Adjusted operating income down by 9.5%, excluding currency
  • Adjusted operating income margin flat at 41.7%, excluding currency
  • Total IQOS users at quarter-end estimated at approximately 15.4 million, of which approximately 11.2 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 July 7, 2020, the U.S. Food and Drug Administration (FDA) authorized the marketing of the IQOS tobacco heating system as a modified risk tobacco product

2020 Six Months Year-to-Date

  • Reported diluted EPS of $2.42, up by 2.5%; up by 10.6%, excluding currency
  • Adjusted diluted EPS of $2.50, down by 2.0%; up by 8.0% on a like-for-like basis, excluding currency
  • Cigarette and heated tobacco unit shipment volume down by 8.2% (reflecting cigarette shipment volume down by 11.4%, and heated tobacco unit shipment volume up by 33.4% to 35.4 billion units); down by 8.0% on a like-for-like basis
  • Market share for heated tobacco units in IQOS markets, excluding the U.S., up by 1.8 points to 6.3%
  • Net revenues down by 4.5%; down by 0.5% on a like-for-like basis, excluding currency
  • Operating income up by 5.4%; up by 11.1%, excluding currency
  • Adjusted operating income up by 5.4% on a like-for-like basis, excluding currency
  • Adjusted operating income margin up by 2.3 points to 41.5% on a like-for-like basis, excluding currency

“Despite a very challenging quarter due to the pandemic, we delivered results above our previously communicated expectations for both net revenues and reported diluted EPS,” said André Calantzopoulos, Chief Executive Officer.

“This primarily reflected favorable sequential performance in June, with a strong industry volume recovery — notably in the higher margin EU Region — and substantial IQOS user acquisition growth, as well as the benefit of certain non-underlying factors, some of which we expect to reverse in the third quarter.”

“We are particularly pleased by the excellent performance of IQOS, for which we continued to grow share across a broad range of markets. This is testament to the strength and agility of our commercial model, which increasingly leverages our digital assets.”

“While further volatility and restrictions are clearly possible, and the pandemic’s economic impact is difficult to quantify, we have improving visibility on the trajectory of our business for the remainder of the year. We are therefore providing a full-year 2020 forecast, which reflects like-for-like currency-neutral adjusted diluted EPS growth in the low-to-mid single digits.”

“Importantly, we are very pleased with the U.S. FDA’s recent authorization of IQOS as a modified risk tobacco product. This is a historic milestone for both public health and PMI, and reflects the FDA’s recognition that IQOS is a fundamentally different product than cigarettes and must be regulated differently.”

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 less than 5% of PMI’s total cigarette production capacity worldwide.

Based on current sales trends, there are adequate inventories of PMI finished goods across all key markets for cigarettes and across all IQOS markets for heated tobacco units and tobacco heating devices. 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.

PMI has ample liquidity through cash on hand, the ongoing cash generation of its business, and its access to the commercial paper and debt markets. As of June 30, 2020, the company had approximately $4.2 billion of cash and cash equivalents. The company has a well laddered bond portfolio, and on May 1, 2020, issued a three-tranche bond offering totaling $2.25 billion, equally split among three, five and 10-year maturities. PMI has a $0.3 billion (equivalent) bond maturing in September 2020.

Organizational Design Optimization

As part of its transformation to a smoke-free future, PMI seeks to optimize its organizational design, which includes the elimination, relocation and outsourcing of certain activities. During the second quarter, PMI recorded pre-tax asset impairment and exit costs of $71 million related to restructuring activities in Switzerland and the outsourcing of certain activities performed in the U.S. These pre-tax charges were allocated across all segments.

2020 FULL-YEAR FORECAST

On April 21, 2020, PMI withdrew its 2020 full-year reported diluted EPS forecast of at least $5.50, originally provided on February 6, 2020. At the time, the company was unable to forecast its full-year financial results with reasonable accuracy given the uncertainty surrounding the COVID-19 pandemic and the related impact on the company’s business globally.

PMI believes that it is now in a better position to provide a 2020 full-year forecast, primarily reflecting the benefit of an additional quarter of actual results, as well as improved visibility on the progression of pandemic-related government restrictions (including lockdowns) in many of its key international markets, and the impact of such restrictions on adult smoker and reduced-risk product user behavior, as well as the company’s global operations.

Notwithstanding this improved visibility, uncertainty remains as to the risk and magnitude of COVID-19 resurgence, as well as the economic consequences of the pandemic.

 

Full-Year

2020 EPS Forecast

2020 Forecast

 

 

2019

 

 

Adjusted

Growth

 

 

 

 

 

 

 

 

 

 

 

 

Reported Diluted EPS

$4.84

$4.99

 

 

$4.61

 

 

 

 

 

 

Tax items

 

 

 

 

 

(0.04

)

 

 

 

 

 

Asset impairment and exit costs

 

 

0.04

 

 

0.23

 

 

 

 

 

 

Canadian tobacco litigation-related expense

 

 

 

 

 

0.09

 

 

 

 

 

 

Loss on deconsolidation of RBH

 

 

 

 

 

0.12

 

 

 

 

 

 

Russia excise and VAT audit charge

 

 

 

 

 

0.20

 

 

 

 

 

 

Fair value adjustment for equity security investments

 

 

0.04

 

 

(0.02

)

 

 

 

 

 

Adjusted Diluted EPS

$4.92

$5.07

 

 

$5.19

 

 

 

 

 

 

Net earnings attributable to RBH

 

 

 

 

 

(0.06

)

(a)

 

 

 

 

Adjusted Diluted EPS

$4.92

$5.07

 

 

$5.13

 

(b)

 

 

 

 

Currency

 

 

0.31

 

 

 

 

 

 

 

 

Adjusted Diluted EPS, excluding currency

$5.23

$5.38

 

 

$5.13

 

(b)

 

2

%

5

%

 

 

 

 

 

 

 

 

 

 

 

 

(a) Net reported diluted EPS attributable to RBH from January 1, 2019 through March 21, 2019.

(b) Pro forma.

Reported diluted earnings per share forecast to be in a range of $4.84 to $4.99, at prevailing exchange rates versus reported diluted earnings per share of $4.61 in 2019.

  • Excluding an unfavorable currency impact, at prevailing exchange rates, of approximately $0.31 per share, asset impairment and exit costs of $0.04 per share, and a fair value adjustment for equity security investments of $0.04 per share, this forecast represents a projected increase of approximately 2% to 5% versus pro forma adjusted diluted earnings per share of $5.13 in 2019, as detailed in the above table.

2020 Full-Year Forecast Assumptions

This forecast assumes:

  • No recurrence of national lockdowns in PMI’s key international markets during the second half of 2020;
  • Lack of near-term recovery in PMI’s duty-free business given the uncertain outlook for global travel, with current dynamics persisting at least through the third quarter;
  • Full enforcement of minimum retail selling price requirements in Indonesia as of September 2020, at the earliest;
  • An estimated total international industry volume decline, excluding China and the U.S., of approximately 7% to 9%;
  • A total cigarette and heated tobacco unit shipment volume decline for PMI of approximately 8% to 10% on a like-for-like basis, notably due to Indonesia and PMI Duty Free;
  • A full-year heated tobacco unit shipment volume that keeps PMI on-track to reach its 2021 target of 90 to 100 billion units;
  • A currency-neutral net revenue decline in the low single digits, on a like-for-like basis. Excluding Indonesia and PMI Duty Free, this assumes currency-neutral net revenue growth in the low single digits on the same basis;
  • An increase in currency-neutral, like-for-like adjusted operating income margin of more than 150 basis points;
  • Reported diluted EPS in the third quarter broadly in line with the company’s second-quarter 2020 EPS results, supported by a sequential improvement in reported net revenues in the quarter, offset by the unfavorable impact of the reversal of certain items from the first half and the timing of certain costs;
  • Operating cash flow of at least $9.0 billion, subject to year-end working capital requirements and currency movements;
  • Capital expenditures of approximately $0.7 billion;
  • An effective tax rate of 22% to 23%, compared to approximately 23% assumed previously, notably reflecting changes in the company’s earnings mix and a lower corporate tax rate in Indonesia; and
  • No share repurchases.

This forecast excludes 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 forecast.

Factors described in the Forward-Looking and Cautionary Statements section of this release represent continuing risks to these projections.

FDA Authorizes Marketing of IQOS as a Modified Risk Tobacco Product

On July 7, 2020, the U.S. Food and Drug Administration (FDA) authorized the marketing of a version of IQOS, PMI’s heat-not-burn product, as a modified risk tobacco product (MRTP). In doing so, the agency found that an IQOS exposure modification order is appropriate to promote the public health. IQOS is the first and only electronic nicotine product to be granted marketing orders through the FDA’s MRTP process.

The FDA authorized the marketing of IQOS with the following information:

  • The IQOS system heats tobacco but does not burn it
  • This significantly reduces the production of harmful and potentially harmful chemicals
  • Scientific studies have shown that switching completely from conventional cigarettes to the IQOS system reduces your body’s exposure to harmful or potentially harmful chemicals

The agency concluded that the available scientific evidence demonstrates that IQOS is expected to benefit the health of the population as a whole, taking into account both users of tobacco products and persons who do not currently use tobacco products.

The FDA’s decision further builds on the emerging independent international scientific consensus that IQOS is a better choice than continuing to smoke, and follows the FDA’s April 2019 decision authorizing the commercialization of a version of IQOS in the U.S.

The FDA’s decision provides an important example of how governments and public health organizations can regulate smoke-free alternatives to differentiate them from cigarettes in order to protect and promote the public health.

This decision follows a review of the extensive scientific evidence package PMI submitted to the FDA in December 2016 to support its MRTP applications.

Conference Call

A conference call, hosted by Emmanuel Babeau, Chief Financial Officer, will be webcast at 9:00 a.m., Eastern Time, on July 21, 2020. Access is at www.pmi.com/2020Q2earnings. 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

 

Second-Quarter

 

Six Months Year-to-Date

(million units)

 

2020

2019

Change

 

2020

2019

Change

Cigarettes

 

 

 

 

 

 

 

 

European Union

 

40,317

46,367

(13.0)%

 

80,963

85,855

(5.7)%

Eastern Europe

 

23,657

27,080

(12.6)%

 

45,076

47,400

(4.9)%

Middle East & Africa

 

27,188

31,659

(14.1)%

 

57,184

64,963

(12.0)%

South & Southeast Asia

 

33,346

46,376

(28.1)%

 

70,941

87,868

(19.3)%

East Asia & Australia

 

12,071

13,845

(12.8)%

 

24,370

25,958

(6.1)%

Latin America & Canada

 

14,780

18,472

(20.0)%

 

29,843

36,052

(17.2)%

Total PMI

 

151,359

183,799

(17.6)%

 

308,377

348,096

(11.4)%

 

 

 

 

 

 

 

 

 

Heated Tobacco Units

 

 

 

 

 

 

 

 

European Union

 

4,227

3,043

38.9%

 

8,888

5,336

66.6%

Eastern Europe

 

5,126

2,807

82.6%

 

9,492

4,355

+100%

Middle East & Africa

 

185

719

(74.3)%

 

655

1,473

(55.5)%

South & Southeast Asia

 

—%

 

—%

East Asia & Australia

 

9,076

8,428

7.7%

 

16,198

15,277

6.0%

Latin America & Canada (1)

 

94

59

59.3%

 

202

113

78.8%

Total PMI

 

18,708

15,056

24.3%

 

35,435

26,554

33.4%

 

 

 

 

 

 

 

 

 

Cigarettes and Heated Tobacco Units

 

 

 

 

 

 

 

 

European Union

 

44,544

49,410

(9.8)%

 

89,851

91,191

(1.5)%

Eastern Europe

 

28,783

29,887

(3.7)%

 

54,568

51,755

5.4%

Middle East & Africa

 

27,373

32,378

(15.5)%

 

57,839

66,436

(12.9)%

South & Southeast Asia

 

33,346

46,376

(28.1)%

 

70,941

87,868

(19.3)%

East Asia & Australia

 

21,147

22,273

(5.1)%

 

40,568

41,235

(1.6)%

Latin America & Canada

 

14,874

18,531

(19.7)%

 

30,045

36,165

(16.9)%

Total PMI

 

170,067

198,855

(14.5)%

 

343,812

374,650

(8.2)%

(1) Includes shipments to Altria Group, Inc., commencing in the third quarter of 2019, for sale in the United States under license.

Second-Quarter

PMI’s total shipment volume decreased by 14.5%, principally due to:

  • the EU, reflecting lower cigarette shipment volume, notably in Italy, Poland and Spain, partly offset by higher heated tobacco unit shipment volume across most markets, notably Germany, Italy and Poland;
  • Eastern Europe, reflecting lower cigarette shipment volume, particularly in Russia and Ukraine, partly offset by higher heated tobacco unit shipment volume across the Region, notably in Russia;
  • Middle East & Africa, reflecting lower cigarette shipment volume, particularly in North Africa, PMI Duty Free and Turkey, partly offset by Saudi Arabia, as well as lower heated tobacco shipment volume in PMI Duty Free;
  • South & Southeast Asia, reflecting lower cigarette shipment volume, primarily in Indonesia, Pakistan and the Philippines;
  • East Asia & Australia, reflecting lower cigarette shipment volume, mainly in Japan, partly offset by higher heated tobacco unit shipment volume in Japan; and
  • Latin America & Canada, reflecting lower cigarette shipment volume, primarily in Argentina and Mexico.

Impact of Inventory Movements

Excluding the net unfavorable impact of estimated distributor inventory movements of approximately 2.3 billion units, PMI’s total in-market sales declined by 13.4%, due to a 16.4% decline in cigarettes, partly offset by a 24.0% increase in heated tobacco units.

The net unfavorable impact of estimated distributor inventory movements of approximately 2.3 billion units reflected a net unfavorable impact of 2.5 billion cigarettes, mainly due to Italy, Japan, PMI Duty Free, Russia and Spain, partly offset by Saudi Arabia.

Six Months Year-to-Date

PMI’s total shipment volume decreased by 8.2%, or by 8.0% on a like-for-like basis, due to:

  • the EU, reflecting lower cigarette shipment volume, notably in Italy, Poland and Spain, partly offset by higher heated tobacco unit shipment volume across the Region, particularly in Italy;
  • Middle East & Africa, reflecting lower cigarette shipment volume, notably in PMI Duty Free, Saudi Arabia and Turkey, partly offset by North Africa, as well as lower heated tobacco unit shipment volume in PMI Duty Free;
  • South & Southeast Asia, reflecting lower cigarette shipment volume, primarily in Indonesia, Pakistan and the Philippines;
  • East Asia & Australia, reflecting lower cigarette shipment volume, mainly in Japan, partly offset by higher heated tobacco unit shipment volume in Japan; and
  • Latin America & Canada, reflecting lower cigarette shipment volume, primarily in Argentina, Canada (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 14.6%;

partly offset by

  • Eastern Europe, reflecting higher heated tobacco unit shipment volume across the Region, notably in Russia and Ukraine, partly offset by lower cigarette shipment volume, notably in Russia and Ukraine.

Impact of Inventory Movements

On a like-for-like basis, excluding the net favorable impact of estimated distributor inventory movements of approximately 3.0 billion units, PMI’s total in-market sales declined by 8.8%, due to an 11.8% decline in cigarettes, partly offset by a 29.5% increase in heated tobacco units.

The net favorable impact of estimated distributor inventory movements of approximately 3.0 billion units reflected:

  • a net favorable impact of 2.2 billion cigarettes, mainly driven by Japan, Kuwait and North Africa, partly offset by Saudi Arabia and Spain; and
  • a net favorable impact of 0.8 billion heated tobacco units, mainly driven by Japan and Russia.

PMI Shipment Volume by Brand

PMI Shipment Volume by Brand

 

Second-Quarter

 

Six Months Year-to-Date

(million units)

 

2020

2019

Change

 

2020

2019

Change

Cigarettes

 

 

 

 

 

 

 

 

Marlboro

 

54,812

68,060

(19.5)%

 

114,057

128,024

(10.9)%

L&M

 

22,385

23,522

(4.8)%

 

45,025

45,337

(0.7)%

Chesterfield

 

12,604

14,202

(11.3)%

 

25,507

28,501

(10.5)%

Philip Morris

 

11,106

12,950

(14.2)%

 

22,569

23,673

(4.7)%

Parliament

 

8,462

9,847

(14.1)%

 

16,035

18,677

(14.1)%

Sampoerna A

 

7,254

9,355

(22.5)%

 

15,802

17,256

(8.4)%

Bond Street

 

6,428

7,741

(17.0)%

 

12,041

13,412

(10.2)%

Dji Sam Soe

 

5,797

7,839

(26.0)%

 

11,972

14,490

(17.4)%

Lark

 

4,189

5,349

(21.7)%

 

8,213

10,619

(22.7)%

Fortune

 

2,263

3,441

(34.2)%

 

4,745

6,487

(26.8)%

Others

 

16,059

21,493

(25.3)%

 

32,411

41,620

(22.1)%

Total Cigarettes

 

151,359

183,799

(17.6)%

 

308,377

348,096

(11.4)%

Heated Tobacco Units (1)

 

18,708

15,056

24.3%

 

35,435

26,554

33.4%

Total PMI

 

170,067

198,855

(14.5)%

 

343,812

374,650

(8.2)%

(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.

Second-Quarter

PMI’s cigarette shipment volume of the following brands decreased:

  • Marlboro, mainly due to Indonesia, Italy, Japan, Mexico, the Philippines and PMI Duty Free, partially offset by the GCC;
  • L&M, mainly due to Egypt, PMI Duty Free, Poland and Thailand, partly offset by Saudi Arabia and Turkey;
  • Chesterfield, mainly due to Mexico, Poland, Russia and Turkey, partly offset by Brazil and Saudi Arabia;
  • Philip Morris, primarily driven by Argentina, Indonesia and Italy;
  • Parliament, mainly due to PMI Duty Free, Russia and Turkey;
  • Sampoerna A in Indonesia, mainly due to premium A Mild;
  • Bond Street, mainly due to Russia and Ukraine;
  • Dji Sam Soe in Indonesia, mainly due to Dji Sam Soe Magnum Mild;
  • Lark, mainly due to Japan and Turkey;
  • Fortune in the Philippines; and
  • “Others,” notably due to: mid-price Sampoerna U in Indonesia and low-price Morven in Pakistan.

The increase in PMI’s heated tobacco unit shipment volume was mainly driven by the EU, Eastern Europe and Japan, partly offset by PMI Duty Free.

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 0.1 point to 28.0%, reflecting:

  • Total international market share for cigarettes of 25.0%, down by 1.0 point; and
  • Total international market share for heated tobacco units of 3.0%, up by 0.9 points.

PMI’s total international cigarette sales volume as a percentage of total industry cigarette sales volume was down by 0.7 points to 26.0%, mainly reflecting: out-switching to heated tobacco units, as well as lower cigarette market share and/or an unfavorable geographic mix impact, notably in Indonesia, Mexico, Pakistan, the Philippines and PMI Duty Free, partly offset by Germany, Russia and Turkey.

Six Months Year-to-Date

PMI’s cigarette shipment volume of the following brands decreased:

  • Marlboro, mainly due to Indonesia, Italy, Mexico, the Philippines, PMI Duty Free, Saudi Arabia, Spain and Turkey, partially offset by Germany, Kuwait, North Africa and Russia;
  • L&M, notably due to PMI Duty Free, Poland and Thailand, partly offset by Jordan, Mexico and Turkey;
  • Chesterfield, notably due to Russia and Turkey, partly offset by Brazil and Saudi Arabia;
  • Philip Morris, notably due to Argentina and Italy, partly offset by Japan, the Philippines and Russia;
  • Parliament, mainly due to PMI Duty Free, Russia and Turkey;
  • Sampoerna A in Indonesia, mainly due to premium A Mild;
  • Bond Street, mainly due to Russia and Ukraine;
  • Dji Sam Soe in Indonesia, mainly due to Dji Sam Soe Magnum Mild;
  • Lark, mainly due to Japan and Turkey;
  • Fortune in the Philippines; 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 Baronet in Mexico and 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.

International Share of Market

PMI’s total international market share (excluding China and the U.S.), decreased by 0.4 points to 27.7%, reflecting:

  • Total international market share for cigarettes of 24.8%, down by 1.2 points; and
  • Total international market share for heated tobacco units of 2.9%, up by 0.8 points.

PMI’s total international cigarette sales volume as a percentage of total industry cigarette sales volume was down by 0.

Contacts

Investor Relations:

New York: +1 (917) 663 2233

Lausanne: +41 (0)58 242 4666

InvestorRelations@pmi.com

Media:

Lausanne: +41 (0)58 242 4500

Iro.Antoniadou@pmi.com

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