Philip Morris International Inc · NYSE:PM
Philip Morris International — Q3 2019 Earnings Presentation
50 slides from Philip Morris International's earnings presentation, Oct 17, 2019
Slide 1: Delivering a Smoke-Free Future: 2019 Third-Quarter Results
Exhibit 99.3 Delivering a Smoke-Free Future 2019 Third-Quarter Results October 17, 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: Q3, 2019: Strong Underlying Business Performance
Q3, 2019: Strong Underlying Business Performance Q3, 2019 Growth vs. PY • Includes better-than-anticipated timing (ex-currency, like-for-like basis) of pricing and costs vs. previously (July 18th) communicated assumptions Disclosure Actual • Reported results impacted by a $315 million after-tax char
Slide 5: Q3, 2019: Total PMI Volume
Q3, 2019: Total PMI Volume (Like-for-Like Change vs. PY) IMS Volume Decline Notably Due To: Shipments IMS(a) Pakistan Pakistan • Timing of excise tax increase announcements vs. last year (0.8)pp • Impact of price increases Turkey 2/3 (0.8)pp ̴ (1.4)% Turkey Indonesia (0.7)pp • Impact of two price in
Slide 6: Q3, 2019: PMI HTU Shipment Growth Continues
Q3, 2019: PMI HTU Shipment Growth Continues 16 billion units HTU IMS Volume: +28.3% vs. PY Source: PMI Financials or estimates 6
Slide 7: Q3, 2019: Adjusted Financial Results
Q3, 2019: Adjusted Financial Results Growth vs. PY • Currency-neutral like-for-like net revenue growth driven by: (ex-currency, like-for-like basis) ⎼ Higher HTU shipment volume ⎼ Favorable pricing for combustible tobacco portfolio ⎼ Partly offset by lower cigarette shipment volume 7.0% Net Adjusted
Slide 8: Q3, 2019: Strong Combustible Tobacco Pricing Variance
Q3, 2019: Strong Combustible Tobacco Pricing Variance of 5.9%(a) Driven notably by Germany, Indonesia, Mexico, the Philippines, Russia and Turkey (a) Reflects combustible tobacco pricing as a % of PY combustible tobacco net revenues, on a like-for-like basis Source: PMI Financials or estimates 8
Slide 9: Q3, 2019: Adjusted Financial Results
Q3, 2019: Adjusted Financial Results Growth vs. PY • Currency-neutral like-for-like net revenue growth driven by: (ex-currency, like-for-like basis) ⎼ Higher HTU shipment volume ⎼ Favorable pricing for combustible tobacco portfolio ⎼ Partly offset by lower cigarette shipment volume • 40bps currency-
Slide 10: Q3, 2019: Adjusted Financial Results
Q3, 2019: Adjusted Financial Results Growth vs. PY • Currency-neutral like-for-like net revenue growth driven by: (ex-currency, like-for-like basis) ⎼ Higher HTU shipment volume ⎼ Favorable pricing for combustible tobacco portfolio ⎼ Partly offset by lower cigarette shipment volume • 40bps currency-
Slide 11: Q3, 2019: Essentially Flat Total SoM; Strong HTU Growth
Q3, 2019: Essentially Flat Total SoM; Strong HTU Growth 28.9% Total PMI 28.8% 1.7% HTUs 2.3% +0.6pp 27.1% Cigarettes 26.5% (0.6)pp 20% Q3, 2018 Q3, 2019 Note: Excluding China and the U.S. Current view (reflecting the deconsolidation, PMI’s total market share has been restated for previous periods).
Slide 12: Q3, 2019: Strong Marlboro Cigarette Share Performance
Q3, 2019: Strong Marlboro Cigarette Share Performance 27.7% Total PMI 27.3% Other 10.0 Marlboro 10.2 +0.2pp Q3, 2018 Q3, 2019 Note: Excluding China and the U.S. Current view (reflecting the deconsolidation, PMI’s total market share has been restated for previous periods). Sales volume of PMI cigaret
Slide 13: Indonesia: PMI Cigarette Market Share
Indonesia: PMI Cigarette Market Share (%) 33.0 31.7 • Share decline primarily reflects the impact of widened price gaps Other between Sampoerna A (notably A Mild) and competitive brands, particularly at the bottom of the market 12.8 Sampoerna A 11.0 • We increased prices in late-2018 in anticipation
Slide 14: Q3, 2019: Surpassed 12 Million IQOS Users
Q3, 2019: Surpassed 12 Million IQOS Users (in millions) (a) Total IQOS users 12.4 Estimated users who are in various stages of conversion to IQOS(a) 11.3 Estimated users who have 10.4 stopped smoking and switched to IQOS(a) 9.6 8.8 8.3 7.6 67% 67% 67% 69% 70% 70% 71% 3.0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2018 20
Slide 15: IQOS Available for Sale in Markets Worldwide
IQOS Available for Sale in 51 Markets Worldwide Available for sale (a) (a) IQOS 2.4 Plus internationally, IQOS 2.4 in the U.S. Note: Status at October 17, 2019. Reflects markets where IQOS is available in key cities or nationwide. The number of markets includes Duty Free 15
Slide 16: IQOS Now Available in the U.S.
IQOS Now Available in the U.S. Only heat-not-burn product authorized through FDA’s PMTA pathway as "appropriate for the protection of public health" 16
Slide 17: Global IQOS DUO Launch Initiated
Global IQOS 3 DUO Launch Initiated # Uses Before Recharging Holder 2 1 1 Average Holder Recharge Time 1min 50secs(a) 3mins 30secs 4mins 10secs after 1 use (a) Charging time from 0 to 1 use: 1min 50secs; from 1 to 2 uses: 3mins 25secs; from 0 to 2 uses: 5mins 15secs 17
Slide 18: Q3, 2019: PMI HTUs – Fourth-Largest Tobacco Brand in IQOS Markets
Q3, 2019: PMI HTUs – Fourth-Largest Tobacco Brand in IQOS Markets Share in IQOS Markets 10.8% 5.1% 4.0% #4 Marlboro Winston Rothmans PMI HTUs L&M Note: Excluding the U.S. Reflects sales volume as a percentage of the total industry sales volume for cigarettes and HTUs Source: PMI Financials or estima
Slide 19: EU Region: HEETS Share Growth Continues
EU Region: HEETS Share Growth Continues 2.5% Sequential Performance (vs. Q2, 2019) +1.3pp SoM: +0.1pp 1.2% IMS Volume: +9.3% Q3, 2018 Q3, 2019 Note: HTU market shares for select EU Region markets provided in the appendix Source: PMI Financials or estimates 19
Slide 20: Russia: Strong HEETS Share Growth Continues
Russia: Strong HEETS Share Growth Continues 4.0% Sequential Performance (vs. Q2, 2019) +2.9pp SoM: +1.1pp IMS Volume: +41.0% 1.1% Q3, 2018 Q3, 2019 Note: Includes Parliament HeatSticks in Q3, 2018 Source: PMI Financials or estimates 20
Slide 21: Japan: Initiatives Driving Step-up in PMI HTU Share Performance
Japan: H2, 2018 Initiatives Driving Step-up in PMI HTU Share Performance 17.0% 15.5% +1.5pp Sequential Performance (vs. Q2, 2019) SoM: +0.4pp Adjusted SoM: Stable(a) Q3, 2018 Q3, 2019 (a) Excluding the impact of estimated trade inventory movements Source: PMI Financials or estimates 21
Slide 22: Japan: PMI HTU Offtake Share Growth
Japan: PMI HTU Offtake Share Growth 2019 Weekly Offtake SoM 18.3% 17.8% 17.5% 17.4% Jun 30 Jul 28 Sept 1 Sept 29 Week Ending Note: Offtake shares represent select C-Store sales volume for PMI HTUs as a percentage of the total retail sales volume for cigarettes and HTUs in these C-Stores Source: PMI
Slide 23: Korea: A Highly Competitive Environment
Korea: A Highly Competitive Environment HEETS IMS SoM 2019 HEETS Weekly Offtake SoS Adjusted(a): 7.3% (1.0)pp 6.3% 7.4% 65.7% 64.7% (1.2)pp 63.5% 6.2% Q3, 2018 Q3, 2019 March 31 June 30 September 29 Week Ending (a) Excluding the impact of estimated trade inventory movements Source: PMI Financials or
Slide 24: 2019: Revising EPS Guidance for Russia Tax Audit Charge
2019: Revising EPS Guidance for Russia Tax Audit Charge • Revising our 2019 reported diluted EPS guidance, at prevailing exchange rates, to be at least $4.73, compared to $5.08 in 2018 • 21-cent decrease (vs. July 18th guidance) predominantly due to the $315 million after- tax charge in Russia • Gui
Slide 25: 2019: EPS Guidance
2019: EPS Guidance Full-Year ($/share) 2019 Adjusted Forecast 2018 Growth Reported Diluted EPS ≥ $4.73 (a) $5.08 - Tax items (0.04) 0.02 - Asset impairment and exit costs 0.04 ̶ - Canadian tobacco litigation-related expense 0.09 ̶ - Loss on deconsolidation of RBH 0.12 ̶ - Russia excise and VAT audit
Slide 26: 2019: Select Guidance Assumptions
2019: Select Guidance Assumptions Industry ̴ (2.5)% Total Volume excluding China and the U.S. PMI Total % %(a) Reflects impact of recent cigarette (1.0) -(1.5) price increases in select markets (notably the Philippines and Turkey) Shipments vs. ̴ (1.0)% previously PMI HTU Broadly in line with Invent
Slide 27: 2019: Select Guidance Assumptions (cont.)
2019: Select Guidance Assumptions (cont.) Net Net Incremental Revenue Growth Investments in RRPs % ≥6 ̴ $400 million ex-currency, like-for-like basis ex-currency Combustible Tobacco Adjusted OI Pricing Variance(a) Margin Expansion ̴ 6% ̴ 150bps like-for-like basis ex-currency, like-for-like basis (v
Slide 28: 2019: Cash Flow
2019: Cash Flow • Anticipate operating cash flow of approximately $9.2 billion, subject to year-end working capital requirements (vs. approximately $9.5 billion, previously): ⎼ Change reflects the impact of the after-tax charge in Russia • Expect capital expenditures of approximately $1 billion (vs.
Slide 29: Q4, 2019: Outlook
Q4, 2019: Outlook Net Revenues and Adjusted Operating Income • We expect like-for-like currency-neutral growth to be in line with YTD September, 2019 results Adjusted Diluted EPS • Like-for-like currency-neutral growth will be lower than our YTD September, 2019 performance due to the following facto
Slide 30: Strong Underlying Q3 Performance
Strong Underlying Q3 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 a currency-neutral like-for-like basis, mainta
Slide 31: Questions & Answers
Delivering a Smoke-Free Future 2019 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:
Slide 32: Delivering a Smoke-Free Future: 2019 Third-Quarter Results
Delivering a Smoke-Free Future 2019 Third-Quarter Results October 17, 2019
Slide 33: Appendix, Glossary and Reconciliation of Non-GAAP Measures
Appendix, Glossary of Key Terms and Definitions, and Reconciliation of Non-GAAP Measures 33
Slide 34: EU Region: HEETS Share Growth Across Markets
EU Region: HEETS Share Growth Across Markets Growth Growth Growth Q3, 2019 vs. PY Q3, 2019 vs. PY Q3, 2019 vs. PY Bulgaria 3.7% +0.6pp Hungary 2.2% +2.2pp Portugal 6.2% +3.4pp Croatia 3.1 +2.2 Italy 4.6 +2.6 Romania 2.1 +0.5 Czech Slovak 5.8 +3.3 Latvia 5.9 +5.2 7.0 +3.6 Republic Republic Germany 1.
Slide 35: 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 36: 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 37: 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 38: 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 continuing smoking. PMI has a range of RRPs in variou
Slide 39: Glossary: Reduced-Risk Products (cont.)
Glossary: Reduced-Risk Products (cont.) • "Total IQOS users" means the estimated number of Legal Age (minimum 18-year-old) IQOS users that used PMI HTUs for at least 5% of their daily tobacco consumption over the past seven days • "Converted IQOS Users" means the estimated number of Legal Age (minim
Slide 40: Glossary: IQOS in the United States
Glossary: IQOS in the United States • On April 30, 2019, the U.S. Food and Drug Administration (FDA) announced that the marketing of IQOS, PMI's electrically heated tobacco system, is appropriate for the protection of public health and authorized it for sale in the United States. The FDA’s decision
Slide 41: 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 42: 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 September 30, 2019 2018 % Change Adjusted Diluted EPS (a) $ 1.43 $ 1.44 (0.7)% Net earnings attributable to RBH (0.09) Adjusted Dilut
Slide 43: Net Revenues by Product Category
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 44: 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 ($ in millions) / (Unaudited) Quarters Ended September 30, 2019 2018 % Change Net Revenues $ 7,642 $ 7,504 1.8% Net Revenues attributable to RBH (253) Net Reven
Slide 45: 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 46: 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 ($ in millions) / (Unaudited) Quarters Ended September 30, 2019 2018 % Change Operating Income $ 2,788 $ 3,156 (11.7)% Asset impairment and exit costs (22) - Ru
Slide 47: Adjusted Operating Income Margin, excluding Currency and Acquisitions
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 48: 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 ($ in millions) / (Unaudited) Quarters Ended September 30, 2019 2018 % Change Adjusted Operating Income(a) $ 3,184 $ 3,156 0.9% Net Revenues $ 7,642 $ 7,504 1.8
Slide 49: 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 50: Delivering a Smoke-Free Future: 2019 Third-Quarter Results
Delivering a Smoke-Free Future 2019 Third-Quarter Results October 17, 2019
Philip Morris International — Q3 2019 Earnings Presentation on 6ix