Philip Morris International Inc · NYSE:PM
Philip Morris International — Q2 2018 Earnings Presentation
48 slides from Philip Morris International's earnings presentation, Jul 19, 2018
Slide 1: 2018 Second-Quarter Results
Exhibit 99.3 2018 Second-Quarter Results July 19, 2018
Slide 2: Introduction
Introduction • A glossary of terms, 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 website 2
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: PMI: Our Business Outlook
PMI: Our Business Outlook • Robust combustible tobacco business: ⎼ Strong pricing environment ⎼ Improving volume trends • RRPs, our largest growth opportunity: ⎼ IQOS tracking below our very high initial expectations for 2018, primarily due to the current growth trajectory in Japan ⎼ IQOS’s year-on-
Slide 5: Q2, 2018: PMI Total Volume
Q2, 2018: PMI Total Volume • Up by 0.9%, or by 0.6% ex-inventory movements • H1, 2018: down by 0.6%, and EA&A essentially flat ex-inventory Region 46% 4.6 movements billion unit 54% Outside increase EA&A Region Q2, 2018 PMI HTU Volume Growth vs. PY Note: PMI total volume includes cigarettes and HTUs
Slide 6: Q2, 2018: PMI Cigarette Volume
Q2, 2018: PMI Cigarette Volume • PMI cigarette volume down, due notably Variance (2018 vs. PY) to: ⎼ Russia ⎼ Saudi Arabia (5.3)% Q1 ⎼ Growing impact of adult smoker outswitching to our HTUs ⎼ Partly offset by cigarette volume growth in a number of markets, notably Pakistan and Turkey (1.5)% Q2 Sour
Slide 7: Q2, 2018: Financial Results Growth vs. PY
Q2, 2018: Financial Results Growth vs. PY(a) • Net revenue growth(a) driven by: ⎼ Strong pricing for our combustible tobacco portfolio ⎼ Higher volume of IQOS devices and HTUs 8.3% Net Revenues (a) Excluding currency Source: PMI Financials or estimates 7
Slide 8: Q2, 2018: Strong Combustible Pricing
Q2, 2018: Strong Combustible Pricing As a % of • More than 8% in Q2, 2018 Combustible Product PY Net Revenues • Driven by Argentina, Canada, Germany, 7.5% Indonesia, the Philippines and Russia 6.9% H1, 2017 H1, 2018 Source: PMI Financials or estimates 8
Slide 9: Q2, 2018: Financial Results Growth vs. PY
Q2, 2018: Financial Results Growth vs. PY(a) • Adjusted OI growth(a) reflects: ⎼ Growth in net revenues and lower manufacturing costs in the EA&A Region ⎼ Partly offset by incremental RRP investments in all IQOS launch markets • Adjusted OI margin: +0.5pp, ex-currency 8.3% 9.8% Net Adjusted Revenues
Slide 10: Q2, 2018: Financial Results Growth vs. PY
Q2, 2018: Financial Results Growth vs. PY(a) • Adjusted diluted EPS growth(a) benefited from: ⎼ Lower estimated full-year effective tax rate: • Q2: approximately 22% • Full-year 2018 estimate: approximately 24% ⎼ Lower interest expense in Q2: • Primarily reflects the impact of our ongoing efforts to
Slide 11: PMI: Total International Market Share
PMI: Total International Market Share +0.8pp 28.4% +0.9pp to 1.6% 27.6% Stable at 26.9% Q2, 2017 Q2, 2018 Note: Excluding China and the U.S. Totals do not foot due to rounding Source: PMI Financials or estimates 11
Slide 12: Russia: Strong Pricing in Q2, 2018
Russia: Strong Pricing in Q2, 2018 • Mainly driven by the annualization of pricing announced in H2, 2017, and further supported by price increases earlier this year • Main driver of EE Region's 14.7% combustible pricing variance in H1, 2018 • Closely monitoring the pricing environment, particularly
Slide 13: Saudi Arabia: Sequential Improvement in Volume Decline
Saudi Arabia: Sequential Improvement in Volume Decline Cigarette Industry and Cigarette Volume PMI IMS Cigarette Volume (Variance vs. PY) Industry PMI IMS • Q2, 2018: remained under pressure, but improved sequentially: ⎼ Excise tax-driven price increases from June 2017 finally lapped (23.8)% • H2, 2
Slide 14: PMI: Cigarette Performance in Select Key Markets
PMI: Cigarette Performance in Select Key Markets Q2, 2018 Variance vs. PY Industry Volume PMI Volume PMI SoM Germany (1.5)% 1.5% +1.0pp Indonesia (0.6) 0.7 +0.4 Philippines (0.7) 3.9 +3.1 Turkey 11.0 11.3 (0.4)(a) (a) QTD May Source: PMI Financials or estimates, and Nielsen 14
Slide 15: Japan: HeatSticks National Share
Japan: HeatSticks National Share 6.6 6.3 6.0 5.2 15.8% HeatSticks 15.5% IMS Volume 4.3 13.9% (billion units) 11.9% 2.9 10.0% 7.1% Q1 Q2 Q3 Q4 Q1 Q2 2017 2018 Source: PMI Financials or estimates, and Tobacco Institute of Japan 15
Slide 16: Japan: Heated Tobacco Category Usage Among All Tobacco Users
Japan: Heated Tobacco Category Usage Among All Tobacco Users 2015 2016 2017 2018 October March June 32.5% 34.7% 3.9% Note: Past seven-day usage of any heated tobacco product (IQOS, glo, Ploom TECH) among all adult tobacco users in Japan. Reflects a three-month moving average Source: PMI Financials o
Slide 17: Japan: Heated Tobacco Weekly Offtake Shares in Select Cities
Japan: Heated Tobacco Weekly Offtake Shares in Select Cities (%) Heated Tobacco PMI Share of Competitor HeatSticks Category Heated Tobacco Category Product Launch Fukuoka Sendai 100.0 Tokyo 78.7 73.6 74.9 70.1 67.4 70.0 59.8 62.3 31.6 28.3 29.6 25.3 22.3 24.8 14.5 21.5 15.0 15.0 11.4 20.0 19.7 18.6
Slide 18: Korea: HEETS National Share Growth
Korea: HEETS National Share Growth 8.0% 7.3% 5.5% 2.5% 0.2% ̶ Q1 Q2 Q3 Q4 Q1 Q2 2017 2018 Source: PMI Financials or estimates, and Hankook Research 18
Slide 19: EU Region: IQOS Continues its Steady Share Growth
EU Region: IQOS Continues its Steady Share Growth • HEETS up by 0.8 points in Q2, 2018 (vs. HEETS Regional Share PY), supported by strong performances 1.0% across IQOS launch markets, most 0.8% notably ⎼ Greece: +3.1 points to 4.1% 0.6% ⎼ Italy: +1.3 points to 1.9% • Marketing focus behind IQOS limi
Slide 20: EU Region: Growing IQOS User Base
EU Region: Growing IQOS User Base IQOS Users (Average, in millions) 1.2 0.9 0.6 0.4 0.3 Q2 Q3 Q4 Q1 Q2 2017 2018 Note: Average IQOS users (over last four weeks of the quarter) who used HEETS for at least 5% of their daily tobacco consumption over the past seven days Source: PMI Financials or estimat
Slide 21: 2018: Volume Outlook
2018: Volume Outlook • Anticipate total industry volume decline of 2% to 3%(a) • Continue to expect a decline in our total shipment volume of approximately 2%: ⎼ Now anticipate a change in the composition (higher cigarette volume / lower HTU volume vs. our prior forecast) • Global HTU IMS volume est
Slide 22: 2018: Revised Net Revenue Growth, ex-Currency
2018: Revised Net Revenue Growth, ex-Currency Previous forecast ̴ 8% • Lower shipments of: - IQOS devices ̴ (2.5)pp - HTUs ̴ (2.0)pp • Highly inflationary accounting for Argentina ̴ (0.5)pp • Better performance of cigarettes ̴ +0.5pp Latest forecast 3% to 4% Source: PMI Financials or estimates 22
Slide 23: 2018: Net Revenue Variance, ex-Currency
2018: Net Revenue Variance, ex-Currency 2017 % Variance vs. PY 2018 18.8 9.4 8.3 8.3 9.0 7.0 3 to 4 1.7 ̴ 1 Forecast Forecast Forecast ̴ (4) Q1 Q2 Q3 Q4 FY Source: PMI Financials or estimates 23
Slide 24: 2018: Revising EPS Guidance
2018: Revising EPS Guidance • Revising 2018 reported diluted EPS guidance to a range of $5.02 to $5.12 at prevailing exchange rates, compared to $3.88 in 2017 • Change primarily reflects: ⎼ Lower anticipated HTU shipments in Japan ⎼ Unfavorable impact of currency ⎼ Partly offset by a lower estimated
Slide 25: 2018: Currency Impact on EPS Guidance
2018: Currency Impact on EPS Guidance ($ per share) May 9th July 19th Variance Euro 0.07 0.07 ̶ Japanese Yen 0.06 0.03 (0.03) South Korean Won 0.02 0.01 (0.01) Argentine Peso (0.04) (0.06) (0.02) Turkish Lira (0.04) (0.05) (0.01) Indonesian Rupiah (0.03) (0.04) (0.01) Russian Ruble (0.04) (0.04) ̶ O
Slide 26: 2018: Cash Flow and Capital Expenditures
2018: Cash Flow and Capital Expenditures • Target operating cash flow(a) of approximately $9.0 billion, subject to currency movements and year-end working capital requirements • Now anticipate capital expenditures of approximately $1.5 billion (vs. $1.7 billion, previously) (a) Net cash provided by
Slide 27: Rewarding Our Shareholders: Attractive Dividend
Rewarding Our Shareholders: Attractive Dividend • Dividends are the primary use of our PMI Dividend operating cash flow(a) after capital CAGR: 9.5% $4.56 expenditures • Increased our dividend by 6.5% in June 2018 to an annualized rate of $4.56 per share • Eleventh consecutive year with a dividend $1
Slide 28: Conclusion
Conclusion • Robust combustible tobacco fundamentals: ⎼ Strong pricing ⎼ Moderate cigarette industry volume decline • Confident that RRPs constitute our largest growth opportunity: ⎼ IQOS’s year-on-year performance across geographies remains very strong ⎼ In Japan, we are implementing the right mark
Slide 29: 2018 Second-Quarter Results Questions & Answers
2018 Second-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 30: Appendix, Glossary and Reconciliation of Non-GAAP Measures
Appendix, Glossary and Reconciliation of Non-GAAP Measures 30
Slide 31: 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 32: 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 33: 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 34: Glossary: Reduced-Risk Products
Glossary: Reduced-Risk Products • 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
Slide 35: 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 36: 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 37: 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 38: Adjustments of Net Revenues for the Impact of 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 39: 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 40: 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 41: Reconciliation of Reported 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 June 30, 2018 20
Slide 42: Adjustments of Net Revenues for the Impact of 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 the Impact of 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 44: Adjustments of Net Revenues for the Impact of 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 the Impact of 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 46: Adjustments of Net Revenues for the Impact of 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 47: Adjustments of Net Revenues for the Impact of 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 48: 2018 Second-Quarter Results
2018 Second-Quarter Results July 19, 2018
Philip Morris International — Q2 2018 Earnings Presentation on 6ix