Philip Morris International Inc · NYSE:PM
Philip Morris International — Q3 2018 Earnings Presentation
46 slides from Philip Morris International's earnings presentation, Oct 18, 2018
Slide 1: 2018 Third-Quarter Results
Exhibit 99.3 2018 Third-Quarter Results October 18, 2018
Slide 2: Introduction
Introduction A glossary of key terms and definitions, including the definition for reduced-risk products, or "RRPs," as well as adjustments, other calculations and reconciliations to the most directly comparable U.S. GAAP measures, are at the end of today’s webcast slides, which are posted on our we
Slide 3: Forward-Looking and Cautionary Statements
Forward-Looking and Cautionary Statements • This presentation and related discussion contain 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 mater
Slide 4: 2018: Reaffirming EPS Guidance
2018: Reaffirming EPS Guidance • Reaffirming 2018 reported diluted EPS guidance range of $4.97 to $5.02, at prevailing exchange rates, compared to $3.88 in 2017 • Guidance includes 12 cents of unfavorable currency • Excluding the unfavorable currency, our guidance continues to represent a growth rat
Slide 5: 2018: Guidance Assumptions
2018: Guidance Assumptions PRICE Industry PMI Total PMI PMI Combustible Total Volume(a) Shipment Volume Net Revenues Product Pricing(b) ̴ (2.5)% ̴ (2)% ̴ 3% ̴ 7% PMI HTU Volume (billion units) Growth, ex-Currency Shipments In-Market Sales 41-42 44-45 (a) Excluding China and the U.S. (b) As a percent
Slide 6: 2018: Strong PMI Total Shipment Volume Growth, ex-Inventory Movements
2018: Strong PMI Total Shipment Volume Growth, ex-Inventory Movements 1.1% 0.3% Reported Reported Ex-inventory Ex-inventory movements(a) movements(a) (1.2)% (2.1)% Q3 YTD September (a) Distributor inventory movements as explained in the Glossary Note: Total shipment volume reflects cigarettes and HT
Slide 7: 2018: Distributor HTU Inventory Reconciliation
2018: Distributor HTU Inventory Reconciliation (billion units) Forecasts H1 Q3 YTD Sept Q4 FY 0.2 0.5 1.3 0.6 1.1 Other 0.3 (0.3) (4.3) (4.6) (4.3) Japan Total: 0.2 (3.7) (3.5) 0.5 (3.0) 2018 2.8 3.2 6.0 7.3 13.3 2017 Variance (6.9) (16.3) (2.6) (9.5) (6.8) '18 vs. '17 Inventory right-sized; poised
Slide 8: Q3, 2018: Financial Results, ex-Currency Growth vs. PY
Q3, 2018: Financial Results, ex-Currency Growth vs. PY • Net revenues increase driven by: Strong pricing for our combustible tobacco portfolio Partly offset by the impact of the HTU inventory ⎼ adjustment and an unfavorable combustible ⎼ tobacco volume/mix 3.3% Net Adjusted Adjusted Revenues OI Dilu
Slide 9: 2018: Net Revenue Growth Phasing for H2
2018: Net Revenue Growth Phasing for H2 (%) 2017 Variance vs. PY (ex-currency) 2018 18.8 9.4 8.3 9.0 4.4 3.3 ̴ 3 Forecast Forecast ̴ (5) H1 Q3 Q4 FY Source: PMI Financials or estimates 9
Slide 10: Q3, 2018: Financial Results, ex-Currency Growth vs. PY
Q3, 2018: Financial Results, ex-Currency Growth vs. PY • Adjusted OI increase reflecting: Price-driven growth in net revenues Favorable margin impact of lower IQOS device ⎼ sales ⎼ Lower manufacturing and marketing costs for combustible products ⎼ Partly offset by incremental RRP investments across
Slide 11: Q3, 2018: Financial Results, ex-Currency Growth vs. PY
Q3, 2018: Financial Results, ex-Currency Growth vs. PY • Reported diluted EPS of $1.44 increased by 13.4%: Driven by a favorable business performance Also benefited from lower effective tax rate and ⎼ lower interest expense ⎼ 3.3% 7.6% 20.5% Net Adjusted Adjusted Revenues OI Diluted EPS Source: PMI
Slide 12: PMI Total Share Growth, Driven by HTUs
PMI Total Share Growth, Driven by HTUs Q3 YTD September +0.5pp +0.6pp 29.0 30% 28.5 28.3 27.7 0.9 1.7 HTUs 0.7 1.6 27.6 27.3 Cigarettes 27.0 26.7 25% 2017 2018 2017 2018 Cigarettes 27.9% 27.9% 27.2% 27.3% Only(a) (a) Sales volume of PMI cigarettes as a percentage of the total industry sales volume f
Slide 13: Q3, 2018: Robust Cigarette Fundamentals
Q3, 2018: Robust Cigarette Fundamentals PMI Combustible Product Pricing Variance(a) ̴ 8% ̴ 7% KEY DRIVERS EU Region Indonesia Philippines Russia Q3, 2018 FY, 2018 Forecast (a) As a % of combustible product 2017 net revenues Source: PMI Financials or estimates 13
Slide 14: Q3, 2018: Robust Cigarette Fundamentals (cont.) - Saudi Arabia
Q3, 2018: Robust Cigarette Fundamentals (cont.) (%) PMI Cigarette SoM +6.1pp 41.7 Others 35.6 11.8 Chesterfield 8.3 SAUDI ARABIA 14.0 L&M 11.0 14.0 14.8 Marlboro Q3, 2017 Q3, 2018 Source: PMI Financials or estimates 14
Slide 15: Q3, 2018: Robust Cigarette Fundamentals (cont.) - Turkey
Q3, 2018: Robust Cigarette Fundamentals (cont.) (billion units) Cigarette industry Volume +11.3% 33 30 TURKEY Lower prevalence of illicit trade Q3, 2017 Q3, 2018 Source: PMI Financials or estimates 15
Slide 16: Q3, 2018: Robust Cigarette Fundamentals (cont.) - Philippines
Q3, 2018: Robust Cigarette Fundamentals (cont.) (%) PMI Cigarette SoM +1.2pp 68.3 69.5 Others 22.1 Fortune PHILIPPINES 18.6 32.0 33.7 Marlboro Q3, 2017 Q3, 2018 Source: PMI Financials or estimates 16
Slide 17: IQOS: Continued User and Share Growth
IQOS: Continued User and Share Growth (in millions) PMI HTU 1.7% 1.5% 1.6% International SoM(a) 1.2% 0.9% 8.8 Total users(b) 8.3 IQOS 7.7 6.9 5.2 Estimated users that 5.6 5.9 have stopped smoking 4.7 5.2 3.7 and switched to IQOS(c) Q3 Q4 Q1 Q2 Q3 2017 2018 (a) Sales volume of PMI HTUs as a percentag
Slide 18: IQOS: HeatSticks National Share in Japan
IQOS: HeatSticks National Share in Japan 7.5 6.6 6.0 6.3 5.2 4.3 2.9 15.8% 15.5% 15.5% PMI HTU IMS Volume 13.9% (billion units) 11.9% 10.0% 7.1% Q1 Q2 Q3 Q4 Q1 Q2 Q3 2017 2018 Source: PMI Financials or estimates, and Tobacco Institute of Japan 18
Slide 19: IQOS: HEETS National Share in Korea
IQOS: HEETS National Share in Korea 1.4 1.4 1.2 0.9 0.5 <0.1 8.0% PMI HTU IMS Volume 7.3% 7.4% (billion units) 5.5% 2.5% 0.2% ̶ Q1 Q2 Q3 Q4 Q1 Q2 Q3 2017 2018 Source: PMI Financials or estimates, and Hankook Research 19
Slide 20: IQOS: Steady Sequential Share Growth Continues in EU Region
IQOS: Steady Sequential Share Growth Continues in EU Region HEETS Regional Share 1.2% 1.0% 0.8% 0.6% 0.3% 0.2% 0.1% Q1 Q2 Q3 Q4 Q1 Q2 Q3 2017 2018 Source: PMI Financials or estimates 20
Slide 21: IQOS: Strong HTU Share Performance in Russia
IQOS: Strong HTU Share Performance in Russia 1.1% 0.8% 0.5% 0.2% 0.1% 0.1% 0.1% Q1 Q2 Q3 Q4 Q1 Q2 Q3 2017 2018 Note: HTU share reflects in-market sales (vs. Nielsen for cigarette share) Source: PMI Financials or estimates 21
Slide 22: 2018 Business Outlook Remains Intact
2018 Business Outlook Remains Intact • Solid Q3 results, ex-currency • 2018 business outlook remains intact, supported by: Robust fundamentals for combustible products Increasingly broad-based IQOS growth across geographies ⎼ ⎼ • Reaffirming 2018 reported diluted EPS guidance: Continues to represent
Slide 23: Questions & Answers
2018 Third-Quarter Results Questions & Answers Have you downloaded the PMI Investor Relations App yet? iOS Download Android Download The free IR App is available to download at the Apple App Store for iOS devices and at Google Play for Android mobile devices Or go to: www.pmi.com/irapp
Slide 24: Closing Remarks
Closing Remarks • Steadfast in our commitment to a successful transformation to a smoke-free future • Strong combustible tobacco business provides the foundation to accomplish our ambitious goals • RRPs are our most promising growth opportunity • Achievable three-year currency-neutral compound annua
Slide 25: 2018 Third-Quarter Results
2018 Third-Quarter Results October 18, 2018
Slide 26: Appendix, Glossary of Key Terms and Definitions, and Reconciliation of Non-GAAP Measures
Appendix, Glossary of Key Terms and Definitions, and Reconciliation of Non-GAAP Measures 26
Slide 27: Glossary: General Terms
Glossary: General Terms • "PMI" refers to Philip Morris International Inc. and its subsidiaries • Until March 28, 2008, PMI was a wholly owned subsidiary of Altria Group, Inc. ("Altria"). Since that time the company has been independent and is listed on the New York Stock Exchange (ticker symbol "PM
Slide 28: Glossary: General Terms (cont.)
Glossary: General Terms (cont.) • 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 move
Slide 29: Glossary: Financial Terms
Glossary: Financial Terms • 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 contro
Slide 30: Glossary: Financial Terms (cont.)
Glossary: Financial Terms (cont.) • 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
Slide 31: Glossary: Reduced-Risk Products
Glossary: Reduced-Risk Products • "Reduced-risk products," or "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 continued smoking. PMI has a range of RRPs in various
Slide 32: Glossary: Reduced-Risk Products (cont.)
Glossary: Reduced-Risk Products (cont.) • "Converted IQOS Users" means the estimated number of Legal Age (minimum 18-year-old) IQOS users that used HeatSticks /HEETS heated tobacco units for over 95% of their daily tobacco consumption over the past seven days • "Predominant IQOS Users" means the est
Slide 33: New Geographic Segmentation (effective January 1, 2018)
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries New Geographic Segmentation (effective January 1, 2018) European Union Eastern Europe • Andorra • Italy • Albania • Tajikistan • Austria • Luxembourg • Armenia • Turkmenistan • Baltic States • Netherlands • Belarus • Ukraine • Belgium • Norway • Bosn
Slide 34: New Geographic Segmentation (effective January 1, 2018)
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries New Geographic Segmentation (effective January 1, 2018) Middle East & Africa South & Southeast Asia • Algeria • Saudi Arabia • Afghanistan • Bahrain • Southern Africa(c) • Bangladesh • Central Africa(a) • Tunisia • Cambodia • Duty Free • Turkey • Eas
Slide 35: New Geographic Segmentation (effective January 1, 2018)
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries New Geographic Segmentation (effective January 1, 2018) East Asia & Australia Latin America & Canada • Australia • Argentina • Panama • Hong Kong • Bolivia • Paraguay • Japan • Brazil • Peru • Macau • Canada • Uruguay • Malaysia • Caribbean(b) • Vene
Slide 36: Reconciliation of Reported Diluted EPS to Adjusted Diluted EPS
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 September 30, 20
Slide 37: Adjustments of Net Revenues for Currency and Acquisitions
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Adjustments of Net Revenues for the Impact of Currency and Acquisitions ($ in millions) / (Unaudited) Net Net Revenues Excluding Net Revenues Quarters Ended Net Excluding Currency Acquisitions excluding Total Curre
Slide 38: Reconciliation of Operating Income to Adjusted Operating Income
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) Adjusted Adjusted Operating Excluding Asset Adjusted Operating Income Asset Adjuste
Slide 39: Reconciliation of Adjusted Operating Income Margin
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 Adjusted Adjusted Adjusted Adjusted Net Operating Adjusted Operating Net Operating Adju
Slide 40: Adjustments of Net Revenues for Currency and Acquisitions
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Adjustments of Net Revenues for the Impact of Currency and Acquisitions ($ in millions) / (Unaudited) Net Net Revenues Excluding Net Revenues Nine Months Ended Net Excluding Currency Acquisitions excluding Total Cu
Slide 41: Adjustments of Net Revenues for Currency and Acquisitions
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Adjustments of Net Revenues for the Impact of Currency and Acquisitions ($ in millions) / (Unaudited) Net Net Revenues Excluding Net Revenues Six Months Ended Net Excluding Currency Acquisitions excluding Total Cur
Slide 42: Adjustments of Net Revenues for Currency and Acquisitions
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Adjustments of Net Revenues for the Impact of Currency and Acquisitions ($ in millions) / (Unaudited) Net Net Revenues Excluding Net Revenues Quarters Ended Net Excluding Currency Acquisitions excluding Total Curre
Slide 43: Adjustments of Net Revenues for Currency and Acquisitions
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Adjustments of Net Revenues for the Impact of Currency and Acquisitions ($ in millions) / (Unaudited) Net Net Revenues Excluding Net Revenues Years Ended Net Excluding Currency Acquisitions excluding Total Currency
Slide 44: Adjustments of Net Revenues for Currency and Acquisitions
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Adjustments of Net Revenues for the Impact of Currency and Acquisitions ($ in millions) / (Unaudited) Net Net Revenues Excluding Net Revenues Quarters Ended Net Excluding Currency Acquisitions excluding Total Curre
Slide 45: Adjustments of Net Revenues for Currency and Acquisitions
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Adjustments of Net Revenues for the Impact of Currency and Acquisitions ($ in millions) / (Unaudited) Net Net Revenues Excluding Net Revenues Six Months Ended Net Excluding Currency Acquisitions excluding Total Cur
Slide 46: 2018 Third-Quarter Results
2018 Third-Quarter Results October 18, 2018
Philip Morris International — Q3 2018 Earnings Presentation on 6ix