Philip Morris International Inc · NYSE:PM
Philip Morris International — Q2 2019 Earnings Presentation
45 slides from Philip Morris International's earnings presentation, Jul 18, 2019
Slide 1: Delivering a Smoke-Free Future: 2019 Second-Quarter Results
Exhibit 99.3 Delivering a Smoke-Free Future 2019 Second-Quarter Results July 18, 2019
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
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: Delivered Very Solid Performance in Q2, 2019
Delivered Very Solid Performance in Q2, 2019 • Positive momentum for combustible tobacco and smoke-free product portfolios • Strong currency-neutral adjusted financial results Source: PMI Financials or estimates 4
Slide 5: Q2, 2019: Better-than-Anticipated Total PMI Volume Shipments
Q2, 2019: Better-than-Anticipated Total PMI Volume Shipments Like-for-Like Change vs. PY (billion units) Q2, 2019 H1, 2019 201.7 198.9 Total (0.7)% 0.1% 11.0 15.1 HTUs 37.0% 29.2% 190.7 183.8 Cigarettes (2.9)% (1.5)% Q2, 2018 Q2, 2019 Source: PMI Financials or estimates 5
Slide 6: Q2, 2019: Strong Adjusted Financial Results
Q2, 2019: Strong Adjusted Financial Results Growth vs. PY • Currency-neutral like-for-like net revenue (ex-currency, like-for-like basis) growth driven by: ⎼ Higher HTU shipment volume ⎼ Favorable pricing for combustible tobacco portfolio • Nearly $1.5 billion in RRP net revenues (or nearly 20% of P
Slide 7: Q2, 2019: Strong Combustible Tobacco Pricing
Q2, 2019: Strong Combustible Tobacco Pricing • Pricing variance of over 6%(a), on a like- for-like basis, driven notably by Germany, Indonesia, Japan, the Philippines, Russia and Turkey • Recently increased our cigarette prices in markets such as Mexico and Ukraine (a) Reflects combustible tobacco p
Slide 8: Q2, 2019: Strong Adjusted Financial Results
Q2, 2019: Strong Adjusted Financial Results Growth vs. PY • Currency-neutral like-for-like net revenue (ex-currency, like-for-like basis) growth driven by: ⎼ Higher HTU shipment volume ⎼ Favorable pricing for combustible tobacco portfolio • Nearly $1.5 billion in RRP net revenues (or nearly 20% of P
Slide 9: Q2, 2019: Strong Adjusted Financial Results
Q2, 2019: Strong Adjusted Financial Results Growth vs. PY • Currency-neutral like-for-like net revenue (ex-currency, like-for-like basis) growth driven by: ⎼ Higher HTU shipment volume ⎼ Favorable pricing for combustible tobacco portfolio • Nearly $1.5 billion in RRP net revenues (or nearly 20% of P
Slide 10: Q2, 2019: Continued Total Share Growth, Driven by HTUs
Q2, 2019: Continued Total Share Growth, Driven by HTUs PMI Total International SoM(a) +0.1pp 28.2% 28.3% 1.6% HTUs 2.1% 26.6% Cigarettes 26.2% 20% Q2, 2018 Q2, 2019 (a) Sales volume of PMI cigarettes and HTUs as a percentage of the total industry sales volume for cigarettes and HTUs Note: Current vi
Slide 11: Over 11 Million IQOS Users in Q2, 2019
Over 11 Million IQOS Users in Q2, 2019 (in millions) Total IQOS users(a) 11.3 10.4 Estimated users who 9.6 % have stopped smoking 8.8 and switched to IQOS(a) 8.3 7.6 6.9 5.2 4.1 2.9 70% 71% 71% 68% 67% 67% 67% 69% 70% 70% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2017 2018 2019 (a) See Glossary for definition S
Slide 12: EU Region: HEETS Sequential Share Growth Continues
EU Region: HEETS Sequential Share Growth Continues 2.4% 2.1% 1.7% 1.2% 1.0% 0.8% Q1 Q2 Q3 Q4 Q1 Q2 2018 2019 Source: PMI Financials or estimates 12
Slide 13: EU Region: HEETS Share Growth Across Markets
EU Region: HEETS Share Growth Across Markets Growth Growth Growth Q2, 2019 vs. PY Q2, 2019 vs. PY Q2, 2019 vs. PY Bulgaria 4.5% +2.5pp Hungary 1.0% +1.0pp Portugal 5.9% +3.4pp Croatia 3.6 +3.1 Italy 4.6 +2.7 Romania 2.2 +0.4 Czech Slovak 5.7 +3.9 Latvia 4.6 +4.3 7.2 +4.5 Republic Republic Germany 1.
Slide 14: Russia: Continued Strong HEETS Performance
Russia: Continued Strong HEETS Performance 1.7 1.4 1.1 0.7 0.5 0.2 3.0% HEETS IMS Volume 2.9% • Q1, 2019 share flattered by (billion units) the impact on the total market of seasonally lower cigarette industry volume 1.7% 1.1% 0.8% 0.5% Q1 Q2 Q3 Q4 Q1 Q2 2018 2019 Note: Includes Parliament HeatStick
Slide 15: Japan: H2, 2018 Initiatives Paying Off
Japan: H2, 2018 Initiatives Paying Off PMI HTU Adjusted SoM(a): 15.5% 16.6% 16.6% 16.9% 16.6% 15.8% 15.5% 15.5% 15.2% Q1 Q2 Q3 Q4 Q1 Q2 2018 2019 (a) Excluding the estimated impact of trade inventory movements Source: PMI Financials or estimates 15
Slide 16: Japan: HTU Category and PMI Offtake Share Growth
Japan: HTU Category and PMI Offtake Share Growth HTU Category PMI HTUs +0.2pp +0.1pp 24.5% 24.3% 17.4% 17.5% Mar’19 Jun’19 Mar’19 Jun’19 Note: 3mma is three-month moving average. HTU category and PMI HTU offtake shares represent select C-Store sales volume 3mma 3mma 3mma 3mma for industry HTUs and P
Slide 17: Korea: Stable Sequential HEETS Share
Korea: Stable Sequential HEETS Share Adjusted SoM(a): 7.8% 7.8% 7.0% 8.0% 8.5% 7.3% 7.4% 7.3% 7.3% Q1 Q2 Q3 Q4 Q1 Q2 2018 2019 (a) Excluding the estimated impact of trade inventory movements Source: PMI Financials or estimates 17
Slide 18: Encouraging Q2, 2019 HTU Offtake Shares in Key Cities
Encouraging Q2, 2019 HTU Offtake Shares in Key Cities PMI HTU Offtake Shares Change vs. PY +6.3pp +7.4pp +0.7pp +8.8pp +4.1pp +3.4pp +9.4pp +1.6pp 12.7% 13.2% 12.6% 12.7% 7.6% 5.9% 3.2% 3.3% Athens Bratislava Geneva Kiev Lisbon Milan Moscow Munich +5.9pp +4.6pp (1.1)pp +4.1pp +1.9pp +13.1pp +4.2pp +
Slide 19: U.S.: FDA Authorization of IQOS
U.S.: FDA Authorization of IQOS • On April 30th, the FDA confirmed that the marketing of IQOS is appropriate for the protection of public health and authorized it for sale in the U.S. • Exclusive license with Altria Group, Inc.: ⎼ Philip Morris USA has the market expertise and infrastructure to ensu
Slide 20: 2019: Raising Our EPS Guidance
2019: Raising Our EPS Guidance • Raising our 2019 reported diluted EPS guidance, at prevailing exchange rates, to be at least $4.94, compared to $5.08 in 2018 • $0.07 increase (vs. May 1st guidance), driven by: ⎼ Stronger business performance, primarily reflecting better shipment volume ⎼ A tax bene
Slide 21: 2019: EPS Guidance
2019: EPS Guidance Full-Year ($/share) 2019 Adjusted Forecast 2018 Growth Reported Diluted EPS ≥ $4.94 (a) $5.08 - Tax items (0.04) 0.02 - Asset impairment and exit costs 0.03 ̶ 0.20 - Canadian tobacco litigation-related expense 0.09 ̶ - Loss on deconsolidation of RBH 0.12 ̶ Adjusted Diluted EPS $5.
Slide 22: 2019: Improved Total Volume Forecasts
2019: Improved Total Volume Forecasts (% change vs. PY) Previous New Previous New ̴ (1.0)% (1.5)% (2.0)% (2.5)% ̴ (2.5)% (3.0)% PMI(a) Industry(b) (a) Shipment volume, on a like-for-like basis (b) Excluding China and the U.S. Note: Reflects cigarettes and HTUs Source: PMI Financials or estimates 22
Slide 23: 2019: Net Revenues and Pricing Assumptions
2019: Net Revenues and Pricing Assumptions • Currency-neutral like-for-like net revenue growth of at least 6% (vs. at least 5%, previously) • Now expect IQOS device net revenues to account for less than 20% of our total RRP net revenues (vs. 20% to 25% range communicated previously), primarily refle
Slide 24: 2019: Investing Further Behind IQOS
2019: Investing Further Behind IQOS • Positive top-line momentum provides opportunity to further increase or advance investments behind IQOS, in order to: ⎼ Accelerate product and commercial development ⎼ Expand distribution in existing and new geographies in H2 ⎼ Further enhance IQOS 3 device in 20
Slide 25: Q3, 2019: EPS Outlook
Q3, 2019: EPS Outlook • Expect adjusted diluted EPS to be essentially flat, ex-currency, compared to our pro forma adjusted diluted EPS of $1.35 in Q3, 2018 • Assumes a currency-neutral like-for-like net revenue growth rate slightly below our full-year assumption of at least 6% • Reflects higher exp
Slide 26: 2019: Cash Flow
2019: Cash Flow Operating ̴ $9.5(a) Cash Flow billion Total Capital Expenditures ̴ $1.1 billion (a) Subject to year-end working capital requirements Note: Operating cash flow is defined as net cash provided by operating activities Source: PMI Financials or estimates 26
Slide 27: Building on a Promising Start to 2019
Building on a Promising Start to 2019 • Very solid like-for-like Q2 performance • Fundamentals supporting our strong combustible tobacco portfolio are intact • Favorable momentum for IQOS continues across geographies: ⎼ Confidence in HTU shipment volume target of 90 to 100 billion units by 2021 • On
Slide 28: Questions & Answers
Delivering a Smoke-Free Future 2019 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:
Slide 29: Delivering a Smoke-Free Future: 2019 Second-Quarter Results
Delivering a Smoke-Free Future 2019 Second-Quarter Results July 18, 2019
Slide 30: Glossary of Key Terms and Definitions, and Reconciliation of Non-GAAP Measures
Glossary of Key Terms and Definitions, 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: General Terms (cont.)
Glossary: General Terms (cont.) • "EU" is defined as the European Union Region • "EE" is defined as the Eastern Europe Region • "ME&A" is defined as the Middle East & Africa Region and includes PMI's duty free business • "S&SA" is defined as the South & Southeast Asia Region • "EA&A" is defined as t
Slide 33: 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 34: 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 35: Glossary: Reduced-Risk Products (cont.)
Glossary: Reduced-Risk Products (cont.) • National market share for HTUs is defined as the total sales volume for HTUs as a percentage of the total estimated sales volume for cigarettes and HTUs • "Total IQOS users" means the estimated number of Legal Age (minimum 18-year-old) IQOS users that used P
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 June 30, 2019 20
Slide 37: Adjustments for the Impact of RBH, excluding Currency
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Adjustments for the Impact of RBH, excluding Currency (Unaudited) Quarters Ended June 30, 2019 2018 % Change Adjusted Diluted EPS (a) $ 1.46 $ 1.41 3.5% Net earnings attributable to RBH (0.08) Adjusted Diluted EPS
Slide 38: Net Revenues by Product Category and Adjustments
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Net Revenues by Product Category and Adjustments of Net Revenues for the Impact of Currency and Acquisitions ($ in millions) / (Unaudited) Net Net Revenues Excluding Net Revenues Quarters Ended Net Excluding Curren
Slide 39: Adjustments for the Impact of RBH: Net Revenues
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Adjustments for the Impact of RBH, excluding Currency ($ in millions) / (Unaudited) Quarters Ended June 30, 2019 2018 % Change Net Revenues $ 7,699 $ 7,726 (0.3)%(0.3) Net Revenues attributable to RBH (253) Net Rev
Slide 40: 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 41: Adjustments for the Impact of RBH: Operating Income
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Adjustments for the Impact of RBH, excluding Currency ($ in millions) / (Unaudited) Quarters Ended June 30, 2019 2018 % Change Operating Income $ 3,187 $ 3,093 3.0% Asset impairment and exit costs (23) - Adjusted O
Slide 42: 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 43: Adjustments for the Impact of RBH: Operating Income Margin
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Adjustments for the Impact of RBH, excluding Currency ($ in millions) / (Unaudited) Quarters Ended June 30, 2019 2018 % Change Adjusted Operating Income (a) $ 3,210 $ 3,093 3.83.8% Net Revenues $ 7,699 $ 7,726 (0.3
Slide 44: Reconciliation of Reported Diluted EPS to Pro Forma Adjusted Diluted EPS
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Reconciliation of Reported Diluted EPS to Pro Forma Adjusted Diluted EPS (Unaudited) Quarter Quarter Six Months Quarter Nine Months Quarter Year Quarter Ended Ended Ended Ended Ended Ended Ended Ended Mar 31, Jun 3
Slide 45: Delivering a Smoke-Free Future: 2019 Second-Quarter Results
Delivering a Smoke-Free Future 2019 Second-Quarter Results July 18, 2019
Philip Morris International — Q2 2019 Earnings Presentation on 6ix