Philip Morris International Inc · NYSE:PM
Philip Morris International — Q1 2018 Earnings Presentation
38 slides from Philip Morris International's earnings presentation, Apr 19, 2018
Slide 1: 2018 First-Quarter Results
2018 First-Quarter Results April 19, 2018 Exhibit 99.3
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 • Effective
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: Increasing EPS Guidance for PMI Effective Tax Rate
2018: Increasing EPS Guidance for PMI Effective Tax Rate • Increasing 2018 reported diluted EPS guidance to a range of $5.25 to $5.40 at prevailing exchange rates, compared to $3.88 in 2017: ⎼ Change reflects a lower estimated full-year effective tax rate of approximately 26% • Guidance includes 16
Slide 5: 2018: PMI Effective Tax Rate
Note: This estimate reflects our current capital structure, as well as our current interpretation of the new tax law, which may change as further regulations and clarifications become available. It also reflects current assumptions regarding earnings mix and tax rates by taxing jurisdiction, which m
Slide 6: 2018: Revised Guidance
2018: Revised Guidance • Revised guidance also incorporates some caution related to the evolution over the balance of the year of three elements, namely: ⎼ The timing of price increases in Russia (although the start to 2018 has been encouraging) ⎼ Slower-than-initially-projected RRP category growth
Slide 7: Q1, 2018: Strong Net Revenue Growth, ex-Currency
Q1, 2018: Strong Net Revenue Growth, ex-Currency 7 • Higher volume for heated tobacco units and IQOS devices across IQOS markets • Higher pricing for our combustible tobacco portfolio across all Regions, notably: ⎼ South & Southeast Asia ⎼ Latin America & Canada Source: PMI Financials or estimates 8
Slide 8: Q1, 2018: Financial Results, ex-Currency
Q1, 2018: Financial Results, ex-Currency 8 • Decline in adjusted OI mainly due to: ⎼ Impact of tax-driven cigarette industry volume decline, as well as the related down- trading and our corresponding market share decrease, in the GCC (principally Saudi Arabia) ⎼ Higher RRP investments (primarily EU
Slide 9: Q1, 2018: Financial Results, ex-Currency
Q1, 2018: Financial Results, ex-Currency 9 Source: PMI Financials or estimates 8.3 (2.7) (1.0) Net Revenues % Variance vs. PY Adjusted OI Adjusted Diluted EPS • Adjusted diluted EPS of $1.00, down by 1.0%, excluding three cents of favorable currency
Slide 10: Q1, 2018: Reported Diluted EPS Better-Than-Anticipated
Q1, 2018: Reported Diluted EPS Better-Than-Anticipated • Reported diluted EPS was 13 cents above our February forecast of $0.87 • Better-than-anticipated result was helped by: ⎼ The lower effective tax rate ⎼ Timing of certain RRP investments • Full-year 2018: ⎼ Our projection of net incremental inv
Slide 11: Q1, 2018: PMI Total Volume
Q1, 2018: PMI Total Volume 11 • PMI total volume down by 2.3%, or by 1.1% excluding estimated inventory movements (primarily in Japan and Saudi Arabia), principally due to: ⎼ Lower cigarette industry volume (notably in Japan, Russia and Saudi Arabia) ⎼ Partly offset by strong growth in heated tobacc
Slide 12: Japan: Heat-not-Burn Product Ownership
(a) As of December 2017 Note: Reflects ownership of any heat-not-burn (HnB) product Source: PMI Financials or estimates, and PMI Market Research (March 2018) 12 INNOVATORS ̴ EARLY ADOPTERS EARLY MAJORITY LATE MAJORITY LAGGARDS 75% 60% 40% 30% 15% ̴ ̴ ̴ ̴ Japan: Heat-not-Burn Product Ownership % of T
Slide 13: PMI: International Share Growth in Q1, 2018
Note: Excluding China and the U.S. Source: PMI Financials or estimates PMI: International Share Growth in Q1, 2018 13 26.4 25.8 0.5 1.5 26.9 27.3 Q1, 2017 Q1, 2018 +0.4pp (%) Cigarettes Heated Tobacco Units
Slide 14: EU Region: Strong Growth of HEETS in Q1, 2018
0.1 0.8 38.4 38.2 Q1, 2017 Q1, 2018 Source: PMI Financials or estimates EU Region: Strong Growth of HEETS in Q1, 2018 14 • Total industry volume down by 4.1%, due mainly to the impact of price increases: ⎼ Full-year 2018: anticipate a decline of approximately 2% to 3% • Regional share decline, large
Slide 15: Russia: Favorable Pricing Variance in Q1, 2018
Source: PMI Financials or estimates, and Nielsen Russia: Favorable Pricing Variance in Q1, 2018 15 • Total industry volume down by 8.3%, due mainly to: ⎼ Impact of price increases and higher illicit trade ⎼ Full-year 2018: anticipate a decline of approximately 7% (consistent with 2017) • Cigarette s
Slide 16: Saudi Arabia: Significant Tax-Driven Industry Decline
Source: PMI Financials or estimates Saudi Arabia: Significant Tax-Driven Industry Decline 16 • Cigarette industry volume remains under considerable pressure following the June 2017 excise tax-driven price increases: ⎼ Q1, 2018: volume down by 40.8%; impacted by a further VAT-driven price increase in
Slide 17: Indonesia: Cigarette Market Share Growth in Q1, 2018
Source: PMI Financials or estimates Indonesia: Cigarette Market Share Growth in Q1, 2018 17 • Cigarette industry volume down by 2.3%, largely reflecting: ⎼ Soft consumer spending environment ⎼ Above-inflation excise tax-driven price increases ⎼ Full-year 2018: anticipate a decline of 1% to 3% • Ciga
Slide 18: Philippines: Further Profit Growth in Q1, 2018
Source: PMI Financials or estimates Philippines: Further Profit Growth in Q1, 2018 18 • Further profit growth from excise tax-driven price increases • Strong market share growth led by: ⎼ Fortune: benefitting from narrowed price gaps vs. lower-priced brands ⎼ Marlboro: solid performance following it
Slide 19: Japan: Strong HeatSticks National Share Momentum Continues
19 Japan: Strong HeatSticks National Share Momentum Continues Source: PMI Financials or estimates, and Tobacco Institute of Japan 7.1 10.0 11.9 13.9 15.8 Q1 Q2 Q3 Q4 Q1 2018 2017 (%)
Slide 20: Japan: Solid HeatSticks Offtake Share Performance in Sendai
Note: Offtake share represents select C-Store sales volume for HeatSticks as a percentage of the total retail sales volume for cigarettes and heated tobacco units in these C-Stores Source: PMI Financials or estimates Japan: Solid HeatSticks Offtake Share Performance in Sendai 20 13.8 20.3 Q1, 2017 6
Slide 21: Korea: Strong HEETS National Share Momentum Continues
21 Korea: Strong HEETS National Share Momentum Continues ̶ 0.2 2.5 5.5 7.3 Q1 Q2 Q3 Q4 Q1 2018 2017 (%) (a) As of Q1, 2018 Source: PMI Financials or estimates, and Hankook Research #5 Tobacco Brand(a)
Slide 22: Outside Asia: Growing PMI National HTU Market Shares
Outside Asia: Growing PMI National HTU Market Shares 22 0.5 0.6 0.7 1.2 1.5 Q1 Q2 Q3 Q4 0.9 0.9 1.0 1.2 1.6 Q1 Q2 Q3 Q4 0.4 0.7 0.8 1.9 2.7 Q1 Q2 Q3 Q4 0.6 1.0 1.4 2.8 3.5 Q1 Q2 Q3 Q4 0.4 0.5 0.8 1.5 2.2 Q1 Q2 Q3 Q4 Italy Switzerland Portugal Greece (%) 2017 2017 2018 Q1 2018 Q1 2017 2018 Q1 2017 20
Slide 23: Outside Asia: Growing PMI Focus Area HTU Offtake Shares
Outside Asia: Growing PMI Focus Area HTU Offtake Shares 23 Note: Underlying share data is unrounded Source: PMI Financials or estimates 0.5 0.6 0.8 1.4 2.6 Q1 Q2 Q3 Q4 0.1 0.6 1.4 2.1 3.0 Q1 Q2 Q3 Q4 ̶ ̶ 0.4 1.6 3.3 Q1 Q2 Q3 Q4 0.3 0.7 1.3 2.4 4.5 Q1 Q2 Q3 Q4 ̶ ̶ 0.6 1.8 3.1 Q1 Q2 Q3 Q4 0.3 0.4 0.6
Slide 24: 2018: Operating Cash Flow; Capital Expenditures
2018: Operating Cash Flow; Capital Expenditures Operating Cash Flow(a) • Continue to target operating cash flow of over $9.0 billion, supported by: ⎼ Growth of our RRP portfolio ⎼ Enduring strength of our combustible tobacco brands • Plan to use cash primarily for: ⎼ Capital expenditures to support
Slide 25: Solid Capital Structure
Solid Capital Structure • Remain committed to restoring, over time, our leverage multiples to the ranges associated with our current credit rating 25 Long-Term Credit Rating and Outlook Moody’s A2 Stable Standard & Poor’s A Stable
Slide 26: Conclusion: 2018 Business Outlook Remains Strong
Conclusion: 2018 Business Outlook Remains Strong • Better-than-expected Q1 results: ⎼ Delta compared to our February forecast driven mainly by a lower effective tax rate and the timing of certain RRP investments • Leading combustible tobacco portfolio: ⎼ Continues to support strong pricing, while co
Slide 27: 2018 First-Quarter Results Questions & Answers
2018 First-Quarter Results Questions & Answers iOS Download Android Download 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 Or go to: www.pmi.com/irapp
Slide 28: Appendix, Glossary and Reconciliation of Non-GAAP Measures
28 Appendix, Glossary and Reconciliation of Non-GAAP Measures
Slide 29: 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 30: 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 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: New Geographic Segmentation: European Union and Eastern Europe
• Andorra • Austria • Baltic States • Belgium • Bulgaria • Canary Islands • Croatia • Czech Republic • Denmark • Finland • France • Germany • Greece • Hungary • Iceland 32 • Italy • Luxembourg • Netherlands • Norway • Poland • Portugal • Romania • Slovak Republic • Slovenia • Spain • Sweden • Switze
Slide 33: New Geographic Segmentation: Middle East & Africa
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries New Geographic Segmentation (effective January 1, 2018) • Algeria • Bahrain • Central Africa(a) • Duty Free • Eastern Africa(b) • Egypt • Iraq • Jordan • Kuwait • Lebanon • Libya • Morocco • Oman • Palestine Auth. Area • Qatar 33 • Saudi Arabia • Sou
Slide 34: New Geographic Segmentation: East Asia & Australia, Latin America & Canada
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries New Geographic Segmentation (effective January 1, 2018) 34 East Asia & Australia Latin America & Canada (a) South Pacific includes Christmas Islands, French Polynesia, Marshall Islands, Nauru, New Caledonia, Palau, Papua New Guinea, Tonga, Vanuatu an
Slide 35: Reconciliation of Non-GAAP Measures
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures 35 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 March 31, 201
Slide 36: Reconciliation of Non-GAAP Measures
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures 36 Adjustments of Net Revenues for the Impact of Currency and Acquisitions ($ in millions) / (Unaudited) Net Revenues Currency Net Revenues excluding Currency Acquisitions Net Revenues excluding Currency & Acquisit
Slide 37: Reconciliation of Non-GAAP Measures
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures 37 Reconciliation of Operating Income to Adjusted Operating Income, excluding Currency and Acquisitions ($ in millions) / (Unaudited) Operating Income Asset Impairment & Exit Costs Adjusted Operating Income Currenc
Slide 38: 2018 First-Quarter Results
2018 First-Quarter Results April 19, 2018
Philip Morris International — Q1 2018 Earnings Presentation on 6ix