Philip Morris International Inc · NYSE:PM
Philip Morris International — Q3 2017 Earnings Presentation
53 slides from Philip Morris International's earnings presentation, Oct 19, 2017
Slide 1: 2017 Third-Quarter Results
2017 Third-Quarter Results October 19, 2017 Designing a Smoke-Free Future Exhibit 99.3
Slide 2: Introduction
2 Introduction ● Unless otherwise stated, we will be talking about results for the third quarter of 2017 and comparing them to the same period in 2016 ● Unless otherwise stated, references to total industry, total market, PMI volume and PMI market share performance reflect cigarettes and PMI’s heate
Slide 3: Forward-Looking and Cautionary Statements
3 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 mat
Slide 4: Q3, 2017 Highlights
4 Q3, 2017 Highlights ● Very strong currency-neutral financial results (adjusted diluted EPS growth of 11.2%) ● Sequential quarterly improvement in our total shipment volume ● Higher total international market share(a) ● Continued positive momentum for IQOS ● Industry-wide dynamics in Saudi Arabia a
Slide 5: 2017 EPS Guidance
5 2017 EPS Guidance ● Revising 2017 reported diluted EPS guidance to $4.75 to $4.80, at prevailing exchange rates: - Now includes approximately 17 cents of unfavorable currency at prevailing exchange rates (vs. 14 cents previously) - Includes four cents for favorable tax item recorded in Q1, 2017 -
Slide 6: 2017 EPS Guidance: Key Components
6 2017 EPS Guidance: Key Components ● PMI volume decline of around 3% ● Currency-neutral net revenue growth of over 7% ● Moderate decline in currency-neutral adjusted OCI margin, primarily reflecting: - The impact of Saudi Arabia and Russia - Higher investments supporting the commercialization of IQ
Slide 7: PMI Volume: Sequential Improvement Continued in Q3, 2017
7 ● PMI volume down by 0.5%, or by 1.3% excluding inventory movements ● Sequential improvement in the decline notably reflected: - Strong growth from our heated tobacco products, driven by Japan and Korea - Cigarette volume growth in Indonesia and Pakistan - Deceleration in the cigarette volume decl
Slide 8: PMI Financial Results: Very Strong Performance, ex-Currency
8 PMI Financial Results: Very Strong Performance, ex-Currency Source: PMI Financials or estimates 1.7 7.0 9.0 Q3 % Growth (2017 vs. PY) ̶ 8.7 11.2 Q3 (1.7) 5.9 6.8 Q3 Net Revenues Adjusted OCI Adjusted Diluted EPS YTD Sept: 6.0% YTD Sept: 4.0% YTD Sept: 7.1% Q1 Q1 Q2 Q2 Q1 Q2
Slide 9: PMI Financial Results: Strong Sequential Growth Trend in RRP Net Revenues
9 55 123 212 343 435 615 947 Q1 Q2 Q3 Q4 Q1 Q2 Q3 PMI Financial Results: Strong Sequential Growth Trend in RRP Net Revenues Note: Net revenues exclude excise taxes. "Reduced-risk products," or "RRPs," is the term PMI uses to refer to products that present, are likely to present, or have the potentia
Slide 10: PMI Pricing Variance
10 ● Q3, 2017: favorable pricing variance in all Regions, driven mainly by Asia and Latin America & Canada ● YTD September, 2017: pricing variance of $1.1 billion: - Essentially no net pricing in Russia PMI Pricing Variance Source: PMI Financials or estimates 309 1,056 1,084 YTD September 2016 YTD S
Slide 11: PMI Market Share: Two Straight Quarters of Strong Sequential Growth
11 PMI Market Share: Two Straight Quarters of Strong Sequential Growth Note: Excluding China and the U.S. Source: PMI Financials or estimates 28.1 27.7 26.4 26.8 27.5 0.2 0.3 0.5 0.7 0.9 28.3 28.0 26.9 27.5 28.4 Q3 Q4 Q1 Q2 Q3 Cigarettes PMI International Market Share (%) 2016 2017 +0.6pp +0.9pp Hea
Slide 12: EU Region: Market Share Essentially Flat in Q3, 2017
12 38.1 38.0 Q3, 2016 Q3, 2017 Note: TPD stands for the EU Tobacco Products Directive Source: PMI Financials or estimates EU Region: Market Share Essentially Flat in Q3, 2017 ● Total industry volume down by 4.5%, partly due to estimated 2016 trade inventory movements related to the TPD ● YTD Septemb
Slide 13: Russia: Strong Share Performance in Competitive Environment
13 Note: Low includes super-low Source: PMI Financials or estimates, and Nielsen Russia: Strong Share Performance in Competitive Environment ● Total industry volume down by 7.9% in Q3, 2017, due largely to: - Impact of further excise tax-driven price increases - Recent growth in illicit trade ● Anti
Slide 14: Philippines: Strong Performance of Marlboro Continued in Q3, 2017
14 28.4 31.9 Q3, 2016 Q3, 2017 Source: PMI Financials or estimates Philippines: Strong Performance of Marlboro Continued in Q3, 2017 ● Profitability growth driven primarily by higher pricing ● Price increases at the bottom of the market further narrowed price gaps to Marlboro and Fortune ● Marlboro
Slide 15: Indonesia: Stable Cigarette Industry Volume in Q3, 2017, ex-Inventory Movements
15 Note: "Whites" stands for non-kretek cigarettes Source: PMI Financials or estimates Indonesia: Stable Cigarette Industry Volume in Q3, 2017, ex-Inventory Movements ● Cigarette industry volume up by 6.5%, primarily reflecting favorable inventory movements related to the timing of Ramadan: - Stable
Slide 16: Japan: Spectacular Performance of IQOS Continued in Q3, 2017
16 Japan: Spectacular Performance of IQOS Continued in Q3, 2017 ● HeatSticks currently the #1 brand in our portfolio, and the #2 brand industry-wide ● Total industry volume down by 4.1% YTD September, 2017, excluding inventory movements ● On October 1st, increased retail selling prices for Marlboro
Slide 17: Japan: Continued Growth in HeatSticks Offtake Shares
17 Japan: Continued Growth in HeatSticks Offtake Shares Week ending: Jan-29 Apr-2 Jul-2 Oct-1 Variance Oct-1 vs. Jul-2 Fukuoka 7.4 8.9 11.4 13.3 +1.9pp Sendai 12.9 14.9 17.1 18.6 +1.5pp Tokyo 9.5 11.6 14.8 16.2 +1.4pp National 7.6 9.6 12.7 14.6 +1.9pp 2017 Weekly Offtake Shares (%) Note: Offtake sha
Slide 18: Japan: Beginning to Fully Supply the Market with HeatSticks
18 Source: PMI Financials or estimates Japan: Beginning to Fully Supply the Market with HeatSticks, though Device Availability Currently Constrained HeatSticks: ● Beginning to fully supply the market and build normal inventory levels commensurate with the growth in demand ● In Q3, 2017, we began the
Slide 19: IQOS: Exceptional Early Performance Continues in Korea
19 0.2 2.5 Q2, 2017 Q3, 2017 HEETS Market Share (%) ● Launched in Seoul in May 2017 ● Expanded distribution within Seoul and other major cities ● Approximate weighted distribution coverage(a) of around 30% as of September 2017 ● High awareness: exceeded 50% among adult smokers nationally within just
Slide 20: IQOS: Growing Heated Tobacco Unit National Market Shares
20 Italy Switzerland Portugal Romania Greece National SoM (%) Approximate Weighted Distribution Coverage(a) 74% 59% 36% 48% 73% (a) Portion of the national cigarette distribution coverage in which heated tobacco products are also sold (as of September 2017) Source: PMI Financials or estimates 0.1 0.
Slide 21: IQOS: Growing Heated Tobacco Unit Offtake Shares
21 Germany Spain Russia Ukraine Colombia Focus Area Offtake SoM (%) Focus Area (September 2017) 7 cities Barcelona & Madrid Moscow 5 cities Bogota Focus Area Cigarette Industry Volume Coverage(a) 12% 23% 7% 23% 9% 0.1 0.6 Q3 2016 Q3 2017 (a) Portion of cigarette industry volume covered by IQOS focus
Slide 22: Rewarding Our Shareholders: Attractive Dividend
22 $1.84 $4.28 2008 2017 Rewarding Our Shareholders: Attractive Dividend ● Dividends are the primary use of our operating cash flow(a) after capital expenditures ● Increased our dividend last month to an annualized rate of $4.28 per share ● Tenth consecutive year with a dividend increase: - Total in
Slide 23: Management Changes and New Geographic Segmentation
23 Note: A detailed split of the markets by Region is included in the glossary Management Changes and New Geographic Segmentation ● Intended to drive the company's transformation towards a smoke-free future while maintaining its financial performance ● Should enable faster decision-making and a grea
Slide 24: Conclusion: Strong Outlook for Full-Year 2017
24 Conclusion: Strong Outlook for Full-Year 2017 ● Very strong currency-neutral financial results in Q3, 2017, supported by a sequential improvement in our total shipment volume performance ● IQOS strong growth momentum continues: - Launched IQOS in key cities in 31 markets(a) - More than 3.7 millio
Slide 25: Questions & Answers
Have you downloaded the PMI Investor Relations App yet? The free IR App is available to download at the Apple App Store for iOS devices and at Google Play for Android mobile devices iOS Download Android Download Or go to: www.pmi.com/irapp 2017 Third-Quarter Results Questions & Answers Designing a S
Slide 26: Glossary and Designing a Smoke-Free Future
Glossary and Reconciliation of Non-GAAP Measures Designing a Smoke-Free Future
Slide 27: Glossary: General Terms
27 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
Slide 28: Glossary: Financial Terms
28 Glossary: Financial Terms ● Net revenues exclude excise taxes ● Net revenues, excluding excise taxes, related to combustible products refer to the operating revenues generated from the sale of these products, net of sales and promotion incentives ● "Operating Companies Income," or "OCI," is defin
Slide 29: Glossary: Reduced-Risk Products
29 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 vari
Slide 30: Glossary: Reduced-Risk Products
30 Glossary: Reduced-Risk Products ● Heated tobacco unit "offtake volume" represents the estimated retail offtake of heated tobacco units based on a selection of sales channels that vary by market, but notably include retail points of sale and e-commerce platforms ● Heated tobacco unit "offtake shar
Slide 31: PMI: New Geographic Segmentation (1/3)
31 PMI: New Geographic Segmentation (1/3) ● Andorra ● Austria ● Baltic States ● Belgium ● Bulgaria ● Canary Islands ● Croatia ● Czech Republic ● Denmark ● Finland ● France ● Germany ● Greece ● Hungary ● Iceland ● Italy ● Luxembourg ● Netherlands ● Norway ● Poland ● Portugal ● Romania ● Slovak Republ
Slide 32: PMI: New Geographic Segmentation (2/3)
32 PMI: New Geographic Segmentation (2/3) ● Algeria ● Central Africa ● Eastern Africa ● Egypt ● Indian Ocean Islands ● Iraq ● Jordan ● Kuwait ● Lebanon ● Libya ● Morocco ● Other GCC & Middle East ● Other Levant ● PMI Duty Free ● Saudi Arabia ● Southern Africa ● Tunisia ● Turkey ● Turkish Cyprus ● UA
Slide 33: PMI: New Geographic Segmentation (3/3)
33 PMI: New Geographic Segmentation (3/3) ● Afghanistan ● Bangladesh ● Cambodia ● East Timor ● India ● Indonesia ● Laos ● Maldives ● Other South Asia ● Pakistan ● Philippines ● Thailand ● Vietnam ● Argentina ● Bolivia ● Brazil ● Canada ● Caribbean ● Chile ● Colombia ● Costa Rica ● Dominican Republic
Slide 34: Reconciliation of Reported Diluted EPS to Adjusted Diluted EPS, excluding Currency
34 PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Reconciliation of Reported Diluted EPS to Adjusted Diluted EPS and Adjusted Diluted EPS, excluding Currency For the Quarters Ended September 30, (Unaudited) 2017 2016 % Change Reported Diluted EPS 1.27$ 1.25$ 1.
Slide 35: Reconciliation of Reported Diluted EPS to Reported Diluted EPS, excluding Currency
35 PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Reconciliation of Reported Diluted EPS to Reported Diluted EPS, excluding Currency For the Quarters Ended September 30, (Unaudited) 2017 2016 % Change Reported Diluted EPS 1.27$ 1.25$ 1.6% Less: Currency impact
Slide 36: Reconciliation of Reported Diluted EPS to Adjusted Diluted EPS
36 PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Reconciliation of Reported Diluted EPS to Adjusted Diluted EPS For the Year Ended December 31, (Unaudited) 2016 Reported Diluted EPS 4.48$ Adjustments: Asset impairment and exit costs - Tax items - Adjuste Dilut
Slide 37: Adjustments for the Impact of Currency and Acquisitions
37 PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Adjustments for the Impact of Currency and Acquisitions For the Quarters Ended March 31, ($ in millions) (Unaudited) Net Revenues Less Excise Taxes Net Revenues excluding Excise Taxes Less Currency Net Revenues
Slide 38: Reconciliation of Operating Companies Income to Adjusted OCI
38 (a) For the calculation of net revenues excluding excise taxes, currency and acquisitions, refer to previous slide PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Reconciliation of Operating Companies Income to Adjusted Operating Companies Income & Reconcilia
Slide 39: Reconciliation of Reported Diluted EPS to Adjusted Diluted EPS
39 PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Reconciliation of Reported Diluted EPS to Adjusted Diluted EPS and Adjusted Diluted EPS, excluding Currency For the Quarters Ended March 31, (Unaudited) 2017 2016 % Change Reported Diluted EPS 1.02$ 0.98$ 4.1% A
Slide 40: Adjustments for the Impact of Currency and Acquisitions
40 PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Adjustments for the Impact of Currency and Acquisitions For the Quarters Ended June 30, ($ in millions) (Unaudited) Net Revenues Less Excise Taxes Net Revenues excluding Excise Taxes Less Currency Net Revenues e
Slide 41: Reconciliation of Operating Companies Income to Adjusted OCI
41 PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures (a) For the calculation of net revenues excluding excise taxes, currency and acquisitions, refer to previous slide Reconciliation of Operating Companies Income to Adjusted Operating Companies Income & Reconcilia
Slide 42: Reconciliation of Reported Diluted EPS to Adjusted Diluted EPS
42 PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Reconciliation of Reported Diluted EPS to Adjusted Diluted EPS and Adjusted Diluted EPS, excluding Currency For the Quarters Ended June 30, (Unaudited) 2017 2016 % Change Reported Diluted EPS 1.14$ 1.15$ (0.9)%
Slide 43: Adjustments for the Impact of Currency and Acquisitions
43 PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Adjustments for the Impact of Currency and Acquisitions For the Quarters Ended September 30, ($ in millions) (Unaudited) Net Revenues Less Excise Taxes Net Revenues excluding Excise Taxes Less Currency Net Reven
Slide 44: Reconciliation of Operating Companies Income to Adjusted OCI
44 PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures (a) For the calculation of net revenues excluding excise taxes, currency and acquisitions, refer to previous slide Reconciliation of Operating Companies Income to Adjusted Operating Companies Income & Reconcilia
Slide 45: Adjustments for the Impact of Currency and Acquisitions
45 PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Adjustments for the Impact of Currency and Acquisitions For the Nine Months Ended September 30, ($ in millions) (Unaudited) Net Revenues Less Excise Taxes Net Revenues excluding Excise Taxes Less Currency Net Re
Slide 46: Reconciliation of Operating Companies Income to Adjusted OCI
46 PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures (a) For the calculation of net revenues excluding excise taxes, currency and acquisitions, refer to previous slide Reconciliation of Operating Companies Income to Adjusted Operating Companies Income & Reconcilia
Slide 47: Reconciliation of Reported Diluted EPS to Adjusted Diluted EPS
47 PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Reconciliation of Reported Diluted EPS to Adjusted Diluted EPS and Adjusted Diluted EPS, excluding Currency For the Nine Months Ended September 30, (Unaudited) 2017 2016 % Change Reported Diluted EPS 3.43$ 3.38$
Slide 48: Reconciliation of Reported Diluted EPS to Reported Diluted EPS, excluding Currency
48 PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Reconciliation of Reported Diluted EPS to Reported Diluted EPS, excluding Currency For the Nine Months Ended September 30, (Unaudited) 2017 2016 % Change Reported Diluted EPS 3.43$ 3.38$ 1.5% Less: Currency impa
Slide 49: Selected Financial Data by Product Category
49 First Second Third Fourth Quarter Quarter Quarter Quarter Full-Year Net Revenues Combustible Products(a) 16,732$ 18,917$ 19,721$ 18,844$ 74,214$ Reduced-Risk Products(b) 56 124 214 345 739 (c) PMI Total 16,788$ 19,041$ 19,935$ 19,189$ 74,953$ Net Revenues excluding Excise Taxes(e) Combustible Pro
Slide 50: Selected Financial Data by Product Category
50 PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Selected Financial Data by Product Category For the Quarters Ended March 31, ($ in millions) (Unaudited) (a) Net revenue amounts for our combustible products refer to the operating revenues generated from the sa
Slide 51: Selected Financial Data by Product Category
51 PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Selected Financial Data by Product Category For the Quarters Ended June 30, ($ in millions) (Unaudited) Net Revenues(a) Less Excise Taxes(c) Net Revenues excluding Excise Taxes Less Currency Net Revenues excludi
Slide 52: Selected Financial Data by Product Category
52 PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Selected Financial Data by Product Category For the Quarters Ended September 30, ($ in millions) (Unaudited) (a) Net revenue amounts for our combustible products refer to the operating revenues generated from th
Slide 53: 2017 Third-Quarter Results
2017 Third-Quarter Results October 19, 2017 Designing a Smoke-Free Future
Philip Morris International — Q3 2017 Earnings Presentation on 6ix