Philip Morris International Inc. Reports 2018 Fourth Quarter & Full Year Results; Full-Year 2018 Reported Diluted EPS of $5.08, up by 30.9% vs. $3.88 in 2017,

Adjusted Diluted EPS of $5.10, Reflecting
Ex-Currency Growth of 10.4% vs. $4.72 in 2017; Provides 2019 Earnings
Per Share Forecast

NEW YORK–(BUSINESS WIRE)–Regulatory News:

2018 Full-Year

  • Reported diluted earnings per share of $5.08, up by $1.20 or 30.9%
    versus $3.88 in 2017

    • Excluding unfavorable currency of $0.11, reported diluted earnings
      per share up by $1.31 or 33.8% versus $3.88 in 2017 as detailed in
      the attached Schedule 2
  • Adjusted diluted earnings per share of $5.10, up by $0.38 or 8.1%
    versus $4.72 in 2017

    • Excluding unfavorable currency of $0.11, adjusted diluted earnings
      per share up by $0.49 or 10.4% versus $4.72 in 2017 as detailed in
      the attached Schedule 2
  • Cigarette and heated tobacco unit shipment volume of 781.7 billion
    units, down by 2.1%, or flat excluding the net impact of estimated
    distributor inventory movements, reflecting:

    • Cigarette shipment volume of 740.3 billion units, down by 21.6
      billion units or 2.8%
    • Heated tobacco unit shipment volume of 41.4 billion units, up by
      5.1 billion units or 14.2%
  • International market share, excluding China and the United States,
    increased by 0.5 points to 28.4%
  • Net revenues of $29.6 billion, up by 3.1%

    • Excluding unfavorable currency of $103 million, net revenues up by
      3.4% as detailed in the attached Schedule 4
  • Operating income of $11.4 billion, down by 1.8%

    • Excluding unfavorable currency of $214 million, operating income
      up by 0.1% as detailed in the attached Schedule 5
  • Adjusted operating income, reflecting the items detailed in the
    attached Schedule 6, of $11.4 billion, down by 1.8%

    • Excluding unfavorable currency of $214 million, adjusted operating
      income up by 0.1% as detailed in the attached Schedule 6
  • Operating cash flow of $9.5 billion
  • Capital expenditures of $1.4 billion
  • Regular quarterly dividend increase of 6.5% to an annualized rate of
    $4.56 per common share

2018 Fourth-Quarter

  • Reported diluted earnings per share of $1.23, up by $0.79 or +100%
    versus $0.44 in 2017

    • Excluding unfavorable currency of $0.09, reported diluted earnings
      per share up by $0.88 or +100% versus $0.44 in 2017 as detailed in
      the attached Schedule 2
  • Adjusted diluted earnings per share of $1.25, down by $0.07 or 5.3%
    versus $1.32 in 2017

    • Excluding unfavorable currency of $0.09, adjusted diluted earnings
      per share up by $0.02 or 1.5% versus $1.32 in 2017 as detailed in
      the attached Schedule 2
  • Cigarette and heated tobacco unit shipment volume of 202.4 billion
    units, down by 4.6%, or down by 0.9% excluding the net impact of
    estimated distributor inventory movements, reflecting:

    • Cigarette shipment volume of 190.2 billion units, down by 6.1
      billion units or 3.1%
    • Heated tobacco unit shipment volume of 12.2 billion units, down by
      3.5 billion units or 22.6%
  • Net revenues of $7.5 billion, down by 9.6%

    • Excluding unfavorable currency of $454 million, net revenues down
      by 4.1% as detailed in the attached Schedule 3
  • Operating income of $2.7 billion, down by 19.1%

    • Excluding unfavorable currency of $210 million, operating income
      down by 12.8% as detailed in the attached Schedule 5
  • Adjusted operating income, reflecting the items detailed in the
    attached Schedule 6, of $2.7 billion, down by 19.1%

    • Excluding unfavorable currency of $210 million, adjusted operating
      income down by 12.8% as detailed in the attached Schedule 6

2019 Full-Year Forecast

Methodology Change

Since becoming a public company in 2008, PMI has expressed its annual
reported diluted earnings per share forecast and the related adjusted
diluted EPS growth rate as a range. As PMI has previously communicated,
its reduced-risk product category performance is expected to play an
increasingly important role in the company’s future results. However,
its growth trajectory is inherently more difficult to predict with the
same level of accuracy compared to the performance of its cigarette
category. Specifically, the company anticipates periods of accelerated
growth and periods of slower growth for reduced-risk products, the
timing and drivers of which may be more difficult to predict compared to
those for cigarettes. Therefore, the company believes it is more prudent
to now forecast its annual reported diluted earnings per share, and the
related currency-neutral adjusted diluted EPS growth rate, by reference
to a minimum threshold of expected performance at the start of the year,
and provide more details as the year unfolds.

2019 Full-Year Forecast

Reported diluted earnings per share forecast to be at least $5.37, at
prevailing exchange rates, representing a projected increase of at least
5.7% versus reported diluted earnings per share of $5.08 in 2018.

  • Excluding an unfavorable currency impact, at prevailing exchange
    rates, of approximately $0.14 per share, this forecast represents a
    projected increase of at least 8.0% versus adjusted diluted earnings
    per share of $5.10 in 2018, as detailed in the attached Schedule 2.

2019 Full-Year Forecast Overview & Assumptions

This forecast assumes:

  • A total cigarette and heated tobacco unit shipment volume decline for
    PMI of approximately 1.5% to 2.0% versus an estimated total
    international industry volume decline, excluding China and the U.S.,
    of approximately 2.5% to 3.0%; and
  • Currency-neutral net revenue growth of at least 5.0%, which includes
    an adverse impact of approximately 0.6 points related to the move to
    highly inflationary accounting in Argentina resulting in the treatment
    of the U.S. dollar as the functional currency of the company’s
    Argentinian affiliates, described below.

This forecast further assumes:

  • An increase in full-year reported operating income margin of at least
    one percentage point, ex-currency, compared to 2018;
  • Operating cash flow of at least $10.0 billion, subject to year-end
    working capital requirements;
  • Capital expenditures of approximately $1.1 billion;
  • An effective tax rate of approximately 23%; 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 Tax Cuts
and Jobs Act, and any unusual events. Factors described in the
Forward-Looking and Cautionary Statements section of this release
represent continuing risks to these projections.

PMI’s 2019-2021 Targets

The company has communicated the following key targets related to the
three-year period 2019 to 2021:

  • Net revenue compound annual currency-neutral growth of at least 5%;
  • Adjusted diluted EPS compound annual currency-neutral growth of at
    least 8%; and
  • Heated tobacco unit volume of 90-100 billion units by 2021;

2018 FOURTH-QUARTER AND FULL-YEAR CONSOLIDATED RESULTS

Philip Morris International Inc. (NYSE: PM) today announced its 2018
fourth-quarter and full-year results.

“We closed out a challenging year with a robust financial and
strategic performance across the business.
Excluding inventory
movements largely associated with heated tobacco unit volume in Japan,
our total volume variance was flat — our best annual performance since
2012 — underpinned by a near doubling of global in-market sales of
heated tobacco units.
We grew our international market share by
0.5 points to reach 28.4%, and maintained a stable share of the
cigarette category, highlighting our ability to successfully manage our
transition to reduced-risk products,
said André
Calantzopoulos, Chief Executive Officer.

“Our total net revenues were driven by an exceptional cigarette
pricing variance of 7.6% and a strong contribution of more than $4
billion from our smoke-free products, despite the impact of the
inventory adjustments.
Our operating income was essentially flat,
excluding currency, primarily reflecting increased investment behind our
reduced-risk product portfolio.
Our robust, currency-neutral
double-digit adjusted EPS performance was assisted by a lower effective
tax rate and interest expense.”

“Thanks to the tremendous efforts of our employees around the world,
and significant investments in portfolio development and organizational
capabilities, including a state-of-the-art digital infrastructure to
fuel our expansion, we believe we have laid the foundation for an even
better performance in 2019.
The underlying strength of our
combustible tobacco business remains intact and our reduced-risk
products are the catalysts to accelerate our business growth and secure
the long term future of our company and the sustainability of our
earnings and dividend growth.”

Conference Call

A conference call, hosted by André Calantzopoulos, Chief Executive
Officer, and Martin King, Chief Financial Officer, will be webcast at
1:00 p.m., Eastern Time, on February 7, 2019. Access is at www.pmi.com/2018Q4earnings.
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.

Tax Items & Impact of U.S. Tax Reform

PMI completed its analysis of the Tax Cuts and Jobs Act during 2018 and
adjusted the 2017 provisional estimates to the final amounts based on
its 2017 U.S. federal income tax return as filed. Accordingly, in the
fourth quarter 2018, PMI recorded in its income tax provision a charge
of $31 million representing a current income tax charge of $185 million,
primarily due to an increase in its aggregate foreign cash position used
to determine its final 2017 transition tax liability, mostly offset by a
deferred income tax benefit of $154 million primarily due to the
recognition of deferred tax assets for net operating losses in the state
of New York. Updates to the provisional estimates have been recorded in
accordance with Staff Accounting Bulletin No. 118 (“SAB 118”).

PMI’s 2019 full-year diluted earnings per share forecast assumes a
full-year effective tax rate of approximately 23%, reflecting the
current analysis, interpretation and clarifications of the scope and
impact of the Tax Cuts and Jobs Act (the “Act”).

The Act has significant complexity, and PMI’s final full-year effective
tax rate may differ from this assumption, due to, among other things,
additional guidance that may be issued by the U.S. Treasury Department
and the Internal Revenue Service, related interpretations and
clarifications of tax law, in addition to repatriation cost differences
and earnings mix by taxing jurisdiction.

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. The move
to highly inflationary accounting in Argentina reduced PMI’s
currency-neutral net revenue growth by approximately 0.6 points in 2018.

Dividends

During 2018, PMI increased its regular quarterly dividend by 6.5%, from
$1.07 to $1.14, representing an annualized rate of $4.56 per common
share. Since its spin-off in March 2008, PMI has increased its regular
quarterly dividend by a compound annual growth rate of 9.5%, or by
147.8% from the initial annualized rate of $1.84 per common share.

SHIPMENT VOLUME & MARKET SHARE

PMI Shipment Volume by Region     Fourth-Quarter   Full-Year
(million units) 2018   2017   Change 2018   2017   Change
Cigarettes
European Union 43,744 45,881 (4.7)% 179,622 187,293 (4.1)%
Eastern Europe 28,424 30,972 (8.2)% 108,718 119,398 (8.9)%
Middle East & Africa 35,774 35,360 1.2% 136,605 136,759 (0.1)%
South & Southeast Asia 47,623 46,945 1.4% 178,469 171,600 4.0%
East Asia & Australia 12,772 14,289 (10.6)% 56,163 62,653 (10.4)%
Latin America & Canada 21,909 22,922 (4.4)% 80,738 84,223 (4.1)%
Total PMI 190,246 196,369 (3.1)% 740,315 761,926 (2.8)%
 
Heated Tobacco Units
European Union 2,124 849 +100% 5,977 1,889 +100%
Eastern Europe 2,312 323 +100% 4,979 674 +100%
Middle East & Africa 571 497 14.9% 3,403 907 +100%
South & Southeast Asia —% —%
East Asia & Australia 7,111 14,032 (49.3)% 26,866 32,729 (17.9)%
Latin America & Canada 49 15 +100% 147 27 +100%
Total PMI 12,167 15,716 (22.6)% 41,372 36,226 14.2%
 
Cigarettes and Heated Tobacco Units
European Union 45,868 46,730 (1.8)% 185,599 189,182 (1.9)%
Eastern Europe 30,736 31,295 (1.8)% 113,697 120,072 (5.3)%
Middle East & Africa 36,345 35,857 1.4% 140,008 137,666 1.7%
South & Southeast Asia 47,623 46,945 1.4% 178,469 171,600 4.0%
East Asia & Australia 19,883 28,321 (29.8)% 83,029 95,382 (13.0)%
Latin America & Canada 21,958 22,937 (4.3)% 80,885 84,250 (4.0)%
Total PMI 202,413 212,085 (4.6)% 781,687 798,152 (2.1)%
 

Full-Year

Estimated international cigarette and heated tobacco unit volume,
excluding China and the United States, of 2.8 trillion, decreased by
1.6%, mainly due to the EU, EE, EA&A and LA&C, partly offset by ME&A and
S&SA, as described in the Regional sections below.

PMI’s total shipment volume decreased by 2.1%, due to:

  • the EU, primarily reflecting lower cigarette shipment volume in
    France, Germany and Italy, partly offset by higher heated tobacco unit
    shipment volume across the Region, notably in Italy;
  • Eastern Europe, reflecting lower cigarette shipment volume,
    principally in Russia and Ukraine, partly offset by higher heated
    tobacco unit shipment volume across the Region, notably in Russia;
  • East Asia & Australia, reflecting lower cigarette shipment volume,
    principally in Japan and Korea; lower heated tobacco unit shipment
    volume in Japan, reflecting the net impact of estimated distributor
    inventory movements described in the East Asia & Australia Region
    section below; partly offset by higher heated tobacco unit shipment
    volume in Korea; and
  • Latin America & Canada, reflecting lower cigarette shipment volume,
    notably in Argentina and Colombia;

partly offset by

  • Middle East & Africa, reflecting essentially flat cigarette shipment
    volume, with declines, notably in Saudi Arabia and the UAE, almost
    completely offset by higher cigarette shipment volume, notably in
    Turkey, as well as by higher heated tobacco unit shipment volume,
    mainly in PMI Duty Free; and
  • South & Southeast Asia, reflecting higher cigarette shipment volume,
    principally in Pakistan, the Philippines and Thailand.

Excluding the net impact of estimated distributor inventory movements of
approximately 16.6 billion units, due primarily to heated tobacco unit
inventories in Japan, reflecting unfavorable cigarette and heated
tobacco unit inventory movements of approximately 0.4 billion and 16.2
billion units, respectively, PMI’s total shipment volume was flat.

Fourth-Quarter

PMI’s total shipment volume decreased by 4.6%, principally due to:

  • the EU, reflecting lower cigarette shipment volume, principally in
    France, Italy and Spain, partly offset by higher heated tobacco unit
    shipment volume across the Region;
  • Eastern Europe, reflecting lower cigarette shipment volume,
    principally in Russia and Ukraine, partly offset by higher heated
    tobacco unit shipment volume, mainly in Russia;
  • East Asia & Australia, reflecting lower cigarette shipment volume,
    notably in Japan and Korea; lower heated tobacco unit shipment volume
    in Japan, primarily reflecting the net impact of estimated distributor
    inventory movements described in the East Asia & Australia Region
    section below; partly offset by higher heated tobacco unit shipment
    volume in Korea; and
  • Latin America & Canada, reflecting lower cigarette shipment volume,
    principally in Argentina, Colombia and Venezuela, partly offset by
    Brazil;

partly offset by

  • Middle East & Africa, primarily reflecting higher cigarette shipment
    volume, principally the GCC, notably Saudi Arabia, North Africa,
    notably Egypt, as well as Turkey, partly offset by lower cigarette
    shipment volume in PMI Duty Free; and
  • South & South East Asia, reflecting higher cigarette shipment volume,
    principally in the Philippines and Thailand, partly offset by Pakistan.

Excluding the net impact of estimated distributor inventory movements of
approximately 7.8 billion units, due primarily to heated tobacco unit
inventories in Japan, reflecting unfavorable cigarette and heated
tobacco unit inventory movements of approximately 1.1 billion and 6.7
billion units, respectively, PMI’s total shipment volume decreased by
0.9%.

PMI shipment volume by brand is shown in the table below.

PMI Shipment Volume by Brand     Fourth-Quarter   Full-Year
(million units) 2018   2017   Change 2018   2017   Change
Cigarettes
Marlboro 68,436 70,251 (2.6)% 264,423 270,366 (2.2)%
L&M 23,038 21,726 6.0% 89,789 90,817 (1.1)%
Chesterfield 14,831 14,764 0.5% 59,452 55,075 7.9%
Philip Morris 13,177 12,389 6.4% 49,864 48,522 2.8%
Sampoerna A 10,391 11,724 (11.4)% 39,522 42,736 (7.5)%
Parliament 10,656 12,243 (13.0)% 41,697 43,965 (5.2)%
Bond Street 8,212 9,312 (11.8)% 32,173 37,987 (15.3)%
Dji Sam Soe 8,044 7,065 13.9% 29,195 22,757 28.3%
Lark 5,417 5,904 (8.2)% 23,021 24,530 (6.2)%
Fortune 4,805 3,691 30.2% 16,596 13,451 23.4%
Others 23,239 27,300 (14.9)% 94,583 111,720 (15.3)%
Total Cigarettes 190,246 196,369 (3.1)% 740,315 761,926 (2.8)%
Heated Tobacco Units 12,167 15,716 (22.6)% 41,372 36,226 14.2%
Total PMI 202,413 212,085 (4.6)% 781,687 798,152 (2.1)%
Note: Sampoerna A includes Sampoerna; Philip Morris
includes Philip Morris/Dubliss; and Lark includes Lark
Harmony
.
 

Full-Year

PMI’s cigarette shipment volume decreased, partly reflecting the impact
of out-switching to heated tobacco units largely from premium and
mid-price cigarette brands. PMI’s cigarette shipment volume of the
following brands decreased:

  • Marlboro, mainly due to France, the GCC, notably Saudi
    Arabia and the UAE, Italy, Japan and Korea, partly offset by
    Indonesia, North Africa and Turkey;
  • L&M, mainly due to the GCC, notably Saudi Arabia, as well
    as North Africa, Russia and Turkey, partly offset by Kazakhstan,
    Serbia and Thailand;
  • Sampoerna A in Indonesia, mainly reflecting the impact of its
    retail price increasing past its round pack price point in the fourth
    quarter of 2017;
  • Parliament, mainly due to Korea and Russia, partly offset by
    Turkey;
  • Bond Street, mainly due to Kazakhstan, Russia and Ukraine;
  • Lark, mainly due to Japan, partly offset by Turkey; and
  • “Others,” mainly due to: mid-price brands, notably Sampoerna
    U
    in Indonesia, partly reflecting the impact of above-inflation
    retail price increases; the successful portfolio consolidation of
    local brands into international trademarks, notably in Brazil,
    Colombia, Mexico and Russia; low-price Jackpot in the
    Philippines, reflecting up-trading as a result of narrowed price gaps;
    partly offset by low-price Hope in the Philippines and Morven
    in Pakistan.

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

  • Chesterfield, mainly driven by Argentina, Brazil, Colombia, the
    GCC, notably Saudi Arabia, Mexico and Turkey, partly offset by
    Portugal, Russia and Venezuela;
  • Philip Morris, mainly driven by Russia, partly offset by
    Argentina, Italy and the Philippines;
  • Dji Sam Soe in Indonesia, notably reflecting the continued
    strong performance of its Magnum Mild 16s variant launched in
    the second quarter of 2017; and
  • Fortune in the Philippines, reflecting the favorable impact of
    its narrowed retail price gap to competitors’ products.

PMI’s heated tobacco unit shipment volume increased, reflecting
favorable heated tobacco unit volume across the EU, notably Italy, as
well as Korea, PMI Duty Free and Russia, partly offset by unfavorable
heated tobacco unit volume in Japan, reflecting the net impact of
estimated distributor inventory movements.

Fourth-Quarter

PMI’s cigarette shipment volume decreased, partly reflecting the impact
of out-switching to heated tobacco units largely from premium and
mid-price cigarette brands. PMI’s cigarette shipment volume of the
following brands decreased:

  • Marlboro, mainly due to Italy, Japan and PMI Duty Free,
    partly offset by the GCC, notably Saudi Arabia, as well as Indonesia,
    North Africa and Turkey;
  • Sampoerna A in Indonesia, mainly reflecting the impact of its
    retail price increasing past its round pack price point in the fourth
    quarter of 2017;
  • Parliament, mainly due to Russia, partly offset by Turkey;
  • Bond Street, mainly due to Kazakhstan, Russia and Ukraine;
  • Lark, mainly due to Japan and Turkey; and
  • “Others,” mainly due to: mid-price brands, notably Sampoerna
    U
    in Indonesia, partly reflecting the impact of above-inflation
    retail price increases; the successful portfolio consolidation of
    local brands into international trademarks, notably in Mexico and
    Russia; and low-price Jackpot in the Philippines, reflecting
    up-trading as a result of narrowed price gaps, partly offset by
    low-price Hope in the Philippines.

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

  • L&M, mainly driven by the GCC, notably Saudi Arabia, as
    well as Thailand, partly offset by Russia and Turkey;
  • Chesterfield, mainly driven by Brazil, Mexico and Turkey,
    partly offset by the GCC, notably Saudi Arabia, as well as Venezuela;
  • Philip Morris, mainly driven by Russia, partly offset by
    Argentina and the Philippines;
  • Dji Sam Soe in Indonesia, notably reflecting the continued
    strong performance of its Magnum Mild 16s variant; and
  • Fortune in the Philippines, reflecting the favorable impact of
    its narrowed retail price gap to competitors’ products.

PMI’s heated tobacco unit shipment volume decreased, due to unfavorable
heated tobacco unit volume in Japan, reflecting the net impact of
estimated distributor inventory movements, partly offset by favorable
heated tobacco unit volume across the EU, as well as Korea and Russia.

Full-Year International Share of Market (excluding China and the
United States)

PMI’s 2018 total international market share, defined as PMI’s cigarette
and heated tobacco unit sales volume as a percentage of total industry
cigarette and heated tobacco unit sales volume, increased by 0.5 points
to 28.4%, reflecting:

  • Total international cigarette market share of 26.8%, down by 0.3
    points; and
  • Total international heated tobacco unit market share of 1.6%, up by
    0.8 points.

PMI’s total international cigarette market share, defined as PMI’s
cigarette sales volume as a percentage of total industry cigarette sales
volume, was flat at 27.4%.

In 2018, PMI owned six of the world’s top 15 international cigarette
brands, with international cigarette market shares as follows: Marlboro,
9.7%; L&M, 3.3%; Chesterfield, 2.2%; Philip Morris,
1.8%; Parliament, 1.6%; and Bond Street, 1.2%.

FINANCIAL SUMMARY

Full-Year

Financial Summary –
Years Ended December 31,
            Change
Fav./(Unfav.)
  Variance
Fav./(Unfav.)
2018 2017 Total   Excl.
Curr.
Total   Cur-
rency
  Price   Vol/
Mix
  Cost/
Other
(in millions)            
Net Revenues $ 29,625 $ 28,748 3.1% 3.4% 877 (103) 1,488 (724) 216
Cost of Sales (10,758) (10,432) (3.1)% (2.3)% (326) (83) (180) (63)

Marketing, Administration and
Research Costs

(7,408)

(6,647)

(11.4)% (11.0)% (761) (29) (732)
Amortization of Intangibles (82)   (88) 6.8%   5.7% 6   1       5
Operating Income $ 11,377 $ 11,581 (1.8)% 0.1% (204) (214) 1,488 (904) (574)
Asset Impairment & Exit Costs   —%   —%        
Adjusted Operating Income $ 11,377 $ 11,581 (1.8)% 0.1% (204) (214) 1,488 (904) (574)
 

Adjusted Operating Income
Margin

38.4% 40.3% (1.9)pp (1.3)pp

“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. This
immaterial presentational change, made in conjunction
with
the new revenue recognition standard, is prospective only.

 

Contacts

Investor Relations:
New York: +1 (917) 663 2233
Lausanne: +41
(0)58 242 4666
Email: InvestorRelations@pmi.com

Media:
Lausanne: +41 (0)58 242 4500
Email: Iro.Antoniadou@pmi.com

Read full story here

error: Content is protected !!