Philip Morris Q3 Profit Tops Estimates; Net Revenues Down 1.5%

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Raises 2020 Full-Year Reported Diluted EPS Forecast to a Range of $5.03 to $5.08, or $5.05 to $5.10 on an Adjusted Basis, Reflecting Organic Growth of Around 5% to 6%

Philip Morris International Inc. today announces its 2020 third-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. Growth rates presented in this press release on an organic basis for consolidated financial results reflect currency-neutral underlying results and “like-for-like” comparisons, where applicable.

Philip Morris Q3 Profit Tops Estimates; Net Revenues Down 1.5%

Adjustments, other calculations and reconciliations to the most directly comparable U.S. GAAP measures are included in the schedules to this press release.

2020 THIRD-QUARTER & YEAR-TO-DATE HIGHLIGHTS

2020 Third-Quarter

  • Reported diluted EPS of $1.48, up by 21.3%; up by 28.7%, excluding currency
  • Adjusted diluted EPS of $1.42, down by 0.7%; up by 5.6% on an organic basis
  • Cigarette and heated tobacco unit shipment volume down by 7.6% (reflecting cigarette shipment volume down by 9.8%, and heated tobacco unit shipment volume up by 18.7% to 19.0 billion units)
  • Market share for heated tobacco units in IQOS markets, excluding the U.S., up by 1.5 points to 6.0%
  • Net revenues down by 2.6%; down by 1.5% on an organic basis
  • Operating income up by 16.3%; up by 20.9%, excluding currency
  • Adjusted operating income up by 5.8% on an organic basis
  • Adjusted operating income margin up by 3.1 points to 44.8% on an organic basis
  • Total IQOS users at quarter-end estimated at approximately 16.4 million, of which approximately 11.7 million have stopped smoking and switched to IQOS
  • Increased the regular quarterly dividend per share by 2.6% to an annualized rate of $4.80

2020 Nine Months Year-to-Date

  • Reported diluted EPS of $3.90, up by 9.2%; up by 17.1%, excluding currency
  • Adjusted diluted EPS of $3.92, down by 1.3%; up by 7.4% on an organic basis
  • Cigarette and heated tobacco unit shipment volume down by 8.0% (reflecting cigarette shipment volume down by 10.9%, and heated tobacco unit shipment volume up by 27.9% to 54.4 billion units); down by 7.8% on a like-for-like basis
  • Market share for heated tobacco units in IQOS markets, excluding the U.S., up by 1.7 points to 6.0%
  • Net revenues down by 3.8%; down by 0.9% on an organic basis
  • Operating income up by 9.2%; up by 14.5%, excluding currency
  • Adjusted operating income up by 5.6% on an organic basis
  • Adjusted operating income margin up by 2.6 points to 42.6% on an organic basis
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“We delivered stronger-than-anticipated results in the third quarter, despite the ongoing challenges of the pandemic, with adjusted diluted EPS growth of 5.6% on an organic basis,” said André Calantzopoulos, Chief Executive Officer.

“The sustained momentum of IQOS was excellent, with an estimated 16.4 million total users at the end of September and smoke-free products accounting for nearly one-fourth of our total net revenues in the quarter. Furthermore, our combustible tobacco business recorded an improved sequential performance, supported by better underlying total industry volumes across both developed and emerging markets.”

“Despite continued headwinds for our duty-free business and in Indonesia, we are raising our full-year 2020 guidance and now anticipate adjusted diluted EPS growth of around 5% to 6% on an organic basis, compared to a range of approximately 3.5% to 5.0% previously.”

COVID-19: Business Continuity Update

Since the onset of the COVID-19 pandemic, 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—accounting for less than 5% of PMI’s total cigarette production capacity worldwide—are temporarily impacted by government-mandated shutdowns or production limitations;
  • There are adequate inventories, based on existing sales trends, of PMI finished goods across all key markets for cigarettes and across all IQOS markets for heated tobacco units and tobacco heating devices;
  • PMI does not anticipate out-of-stock situations in any major operating income markets and generally expects consumers to have adequate access to its products; and
  • 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.
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2020 FULL-YEAR FORECAST

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PMI raises its full-year 2020 reported diluted EPS forecast to a range of $5.03 to $5.08, at prevailing exchange rates, compared to the previously communicated forecast range of $4.92 to $4.99, provided on September 10th.

This revision primarily reflects:

  • A favorable tax reporting item of $0.06 per share, recorded in the third quarter of 2020, related to U.S. tax regulations under the Tax Cuts and Jobs Act of 2017;
  • Better-than-anticipated third-quarter total industry volume, notably in the EU Region and Indonesia, and the corresponding impact on PMI shipment volume; and
  • A smaller expected fourth-quarter cigarette industry volume decline in Indonesia, and the corresponding impact on PMI shipment volume.
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Excluding an unfavorable currency impact, at prevailing exchange rates, of approximately $0.32 per share (compared to approximately $0.31 per share assumed previously), the favorable tax item of $0.06 per share, asset impairment and exit costs of $0.04 per share and the fair value adjustment for equity security investments of $0.04 per share, this forecast represents a projected increase of around 5% to 6% versus pro forma adjusted diluted EPS 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 remainder 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 year end;
  • Full enforcement of minimum retail selling price requirements in Indonesia by the end of 2020, at the earliest;
  • An estimated total international industry volume decline, excluding China and the U.S., of approximately 7% to 8%, compared to approximately 7% to 9% assumed previously;
  • A total cigarette and heated tobacco unit shipment volume decline for PMI of approximately 8% to 9% on a like-for-like basis, compared to approximately 8% to 10% assumed previously;
  • 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 net revenue decline in the low single digits on an organic basis. Excluding Indonesia and PMI Duty Free, this assumes net revenue growth in the low single digits on the same basis;
  • An increase in adjusted operating income margin of around 200 basis points on an organic basis, compared to more than 150 basis points assumed previously;
  • Operating cash flow of at least $9.0 billion, subject to year-end working capital requirements and currency movements;
  • Fourth-quarter reported diluted EPS of around $1.16, including an unfavorable currency impact, at prevailing exchange rates, of approximately $0.04 per share, notably reflecting:
    • Broadly stable underlying consumption trends compared to the third quarter of 2020; and
    • The impact of certain costs that were initially planned for the third quarter of 2020 but are now expected in the fourth quarter.
  • Capital expenditures of approximately $0.6 billion, compared to approximately $0.7 billion assumed previously;
  • An effective tax rate, excluding discrete tax events, of 22% to 23%, compared to approximately 22% assumed previously; and
  • No share repurchases.
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Philip Morris Q3 Profit Tops Estimates; Net Revenues Down 1.5% - Brand SpurPhilip Morris Q3 Profit Tops Estimates; Net Revenues Down 1.5% - Brand Spur

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Philip Morris Q3 Profit Tops Estimates; Net Revenues Down 1.5% - Brand SpurPhilip Morris Q3 Profit Tops Estimates; Net Revenues Down 1.5% - Brand Spur

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