Philip Morris International Inc. Reports 2019 Second-Quarter Reported Diluted EPS of $1.49 vs. $1.41 in 2018, Reflecting Currency-Neutral Like-for-Like Adjusted Diluted EPS Growth of 15.0%

Increases 2019 Full-Year Reported Diluted EPS Forecast to at Least $4.94 (from at Least $4.87) vs. $5.08 in 2018; Reflecting Currency-Neutral Like-for-Like Adjusted Diluted EPS Growth of at Least 9%

NEW YORK–(BUSINESS WIRE)–Regulatory News:

Philip Morris International Inc. (NYSE: PM) today announced its 2019 second-quarter results and increases its 2019 full-year reported diluted earnings per share forecast. Comparisons presented in this press release on a “like-for-like” basis reflect pro forma 2018 results, which have been adjusted for the deconsolidation of PMI’s Canadian subsidiary, Rothmans, Benson & Hedges, Inc. (RBH), effective March 22, 2019 (the date of deconsolidation). In addition, reflecting the deconsolidation, PMI’s total market share has been restated for previous periods.

2019 SECOND-QUARTER & YEAR-TO-DATE HIGHLIGHTS

2019 Second-Quarter

• Reported diluted EPS of $1.49, up by 5.7%; up by 10.6%, excluding currency
• Adjusted diluted EPS of $1.46, up by 3.5%; up by 15.0% on a like-for-like basis, excluding currency
• Cigarette and heated tobacco unit shipment volume down by 1.4% (down by 0.7% on a like-for-like basis), reflecting cigarette shipment volume down by 3.6% and heated tobacco unit shipment volume up by 37.0%
• Net revenues down by 0.3%; up by 9.0% on a like-for-like basis, excluding currency
• Operating income up by 3.0%; up by 8.4%, excluding currency
• Adjusted operating income up by 15.7% on a like-for-like basis, excluding currency
• Adjusted operating income margin, excluding currency, increased by 2.4 points to 41.4% on a like-for-like basis
• PMI declared a regular quarterly dividend of $1.14, representing an annualized rate of $4.56 per common share
• The U.S. Food and Drug Administration 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

2019 Six Months Year-to-Date

• Reported diluted EPS of $2.36, down by 2.1%; up by 3.3%, excluding currency
• Adjusted diluted EPS of $2.55, up by 5.8%; up by 15.0% on a like-for-like basis, excluding currency
• Cigarette and heated tobacco unit shipment volume down by 0.2% (up by 0.1% on a like-for-like basis), reflecting cigarette shipment volume down by 1.9% and heated tobacco unit shipment volume up by 29.2%
• Net revenues down by 1.2%; up by 6.2% on a like-for-like basis, excluding currency
• Operating income down by 5.1%; up by 0.5%, excluding currency
• Adjusted operating income up by 12.7% on a like-for-like basis, excluding currency
• Adjusted operating income margin, excluding currency, increased by 2.2 points to 39.4% on a like-for-like basis

“Building on our encouraging start to the year, we delivered another strong quarter that continues to demonstrate the soundness of our strategies and the quality of our execution,“ said André Calantzopoulos, Chief Executive Officer.

“Of particular note is our combined cigarette and heated tobacco unit shipment volume, which — for the first six months of the year — was up by 0.1% on a like-for-like basis. This positive performance was led by robust in-market heated tobacco unit year-to-date sales growth of 34.0%, making HEETS/HeatSticks, combined, a top-ten international tobacco brand, despite only being present in approximately one quarter of our markets. In the markets where they are sold, our heated tobacco brands held a sizable combined share of 5.0% year-to-date, driving a total international share of 2.1%, up by 0.6 points.”

“Our strong year-to-date results are the reason behind today’s announcement to increase our full-year guidance and raise our currency-neutral, like-for-like 2019 full-year adjusted diluted EPS growth rate by one percentage point to at least 9% in a further demonstration of our overall confidence in PMI’s short and long-term growth prospects. This projection includes additional investment behind our RRP portfolio to support geographic expansion and portfolio development that should help us enter 2020 in an even stronger position.”

PMI revises its full-year 2019 reported diluted EPS forecast to be at least $4.94 at prevailing exchange rates, compared to the previously communicated forecast of at least $4.87, versus $5.08 in 2018.

This revised full-year guidance reflects:

• The net impact of the loss on deconsolidation of PMI’s Canadian subsidiary Rothmans, Benson & Hedges Inc. (RBH) under U.S. GAAP of approximately $0.12 per share, recorded in the first quarter of 2019, which is a non-cash item, as well as the Canadian tobacco litigation-related expense of approximately $0.09 per share;
• The exclusion, announced on March 22, 2019, of RBH’s previously anticipated net earnings from PMI’s consolidated financial statements, from March 22, 2019 (the date of deconsolidation) to December 31, 2019, of approximately $0.28 per share;
• Asset impairment and exit costs of approximately $0.03 per share resulting from plant closures as part of global manufacturing infrastructure optimization, reflecting: $0.01 per share related to Pakistan recorded in the first quarter of 2019; and $0.02 per share related to Colombia ($0.01 per share recorded in the second quarter of 2019 and $0.01 per share anticipated in the third quarter of 2019);
• A favorable tax item of $0.04 per share related to a reduction in estimated U.S. federal income tax on dividend repatriation for the years 2015-2018;
• An unfavorable currency impact, at prevailing exchange rates, of approximately $0.14;
• A full-year effective tax rate of approximately 23%, excluding discrete tax items and Loss on Deconsolidation of RBH; and
• A projected increase of at least 9%, excluding currency, versus pro forma adjusted diluted earnings per share of $4.84 in 2018, as detailed in the attached Schedule 3 and as shown in the 2019 EPS Forecast table above.

2019 Full-Year Forecast Overview & Assumptions

This forecast assumes:

• A total cigarette and heated tobacco unit shipment volume decline for PMI of approximately 1.0%, on a like-for-like basis, compared to the previously disclosed range of approximately 1.5% to 2.0%;
• An estimated total international industry volume decline, excluding China and the U.S., at the lower end of the previously disclosed range of approximately 2.5% to 3.0%; and
• Currency-neutral net revenue growth of at least 6% on a like-for-like basis, compared to the previously disclosed assumption of at least 5%, which includes an adverse impact of approximately 0.7 points related to the move to highly inflationary accounting in Argentina resulting in the treatment of the U.S. dollar as the functional currency of the company’s Argentinian affiliates.

This forecast further assumes:

• Net incremental investment behind RRPs of approximately $400 million for the full year 2019, compared to the previously disclosed estimate of approximately $300 million. Approximately half of the total net incremental investment of $400 million is expected in the third quarter;
• An increase in full-year currency-neutral, like-for-like adjusted operating income margin of at least 100 basis points compared to 2018;
• Operating cash flow of approximately $9.5 billion, subject to year-end working capital requirements;
• Capital expenditures of approximately $1.1 billion; and
• No share repurchases.

This forecast excludes the impact of any future acquisitions, unanticipated asset impairment and exit cost charges, future changes in currency exchange rates, further developments related to the Tax Cuts and Jobs Act, further developments pertaining to the judgment in the two Québec Class Action lawsuits and the Companies’ Creditors Arrangement Act (CCAA) protection granted to RBH and any unusual events. This forecast also excludes the contemplated proposal, previously communicated by PMI’s local affiliate, to end cigarette production in Berlin, Germany, by January 2020. Factors described in the Forward-Looking and Cautionary Statements section of this release represent continuing risks to these projections.

FDA Authorization for Sale of 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 follows its comprehensive assessment of PMI’s premarket tobacco product applications (PMTAs) submitted to the Agency in 2017.

PMI will bring IQOS to the U.S. through an exclusive license with Altria Group, Inc., whose subsidiary, Philip Morris USA, will market the product and comply with the provisions set forth in the FDA’s marketing order, and has the expertise and infrastructure to ensure a successful launch, beginning with the initial lead market of Atlanta, Georgia.

For additional information about the FDA’s marketing order, see the FDA News Release of April 30, 2019, set out at the end of this release.

Conference Call

A conference call, hosted by Martin King, Chief Financial Officer, will be webcast at 9:00 a.m., Eastern Time, on July 18, 2019. Access is at www.pmi.com/2019Q2earnings. The audio webcast may also be accessed on iOS or Android devices by downloading PMI’s free Investor Relations Mobile Application at www.pmi.com/irapp.

CONSOLIDATED SHIPMENT VOLUME & MARKET SHARE

Second-Quarter

PMI’s total shipment volume decreased by 1.4%, or by 0.7% on a like-for-like basis, principally due to:

• Middle East & Africa, reflecting lower cigarette shipment volume, notably Saudi Arabia and Turkey, partly offset by Egypt;
• East Asia & Australia, reflecting lower cigarette shipment volume in Japan and lower cigarette and heated tobacco unit shipment volume in Korea, partly offset by higher heated tobacco unit shipment volume in Japan; and
• Latin America & Canada, reflecting lower cigarette shipment volume, principally in Argentina, Canada (reflecting the impact of the deconsolidation of RBH), and Venezuela, partly offset by Mexico. On a like-for-like basis, PMI’s total shipment volume in the Region decreased by 1.4%;

partly offset by

• the EU, reflecting higher heated tobacco unit shipment volume across the Region, partly offset by lower cigarette shipment volume, notably France, Germany and Italy, partially offset by Poland;
• Eastern Europe, reflecting higher heated tobacco unit shipment volume across the Region, notably Russia and Ukraine, partly offset by lower cigarette shipment volume, mainly Russia and Ukraine; and
• South & Southeast Asia, reflecting higher cigarette shipment volume, principally in Pakistan and Thailand.

Impact of Inventory Movements

On a like-for-like basis, excluding the net unfavorable impact of estimated distributor inventory movements of approximately 0.2 billion units, PMI’s total in-market sales declined by 0.6%, due to a 2.6% decline of cigarette in-market sales, partially offset by a 33.3% increase in heated tobacco unit in-market sales.

Six Months Year-to-Date

PMI’s total shipment volume decreased by 0.2%, or increased by 0.1% on a like-for-like basis, due to:

• Eastern Europe, reflecting lower cigarette shipment volume, principally in Russia and Ukraine, partly offset by higher heated tobacco unit shipment volume across the Region, notably Kazakhstan, Russia and Ukraine;
• East Asia & Australia, reflecting lower cigarette shipment volume in Japan, lower cigarette and heated tobacco unit shipment volume in Korea, partly offset by higher heated tobacco unit shipment volume in Japan; and
• Latin America & Canada, reflecting lower cigarette shipment volume, principally in Argentina, Canada (primarily reflecting the impact of the deconsolidation of RBH), and Venezuela, partly offset by Mexico. On a like-for-like basis, PMI’s total shipment volume in the Region decreased by 4.4%;

partly offset by

• the EU, reflecting higher heated tobacco unit shipment volume across the Region, and higher cigarette shipment volume in Poland and Spain, partly offset by lower cigarette shipment volume in France and Italy;
• Middle East & Africa, primarily reflecting higher cigarette shipment volume, notably Egypt, Saudi Arabia and Turkey, partly offset by lower cigarette shipment volume in PMI Duty Free and Tunisia; and
• South & Southeast Asia, reflecting higher cigarette shipment volume, principally in Pakistan, the Philippines and Thailand, partly offset by Indonesia.

Impact of Inventory Movements

On a like-for-like basis, excluding the net unfavorable impact of estimated distributor inventory movements of approximately 1.3 billion units, PMI’s total in-market sales growth was 0.5%, driven by a 34.0% increase in heated tobacco unit in-market sales, partly offset by a 1.4% decline of cigarette in-market sales.

PMI Shipment Volume by Brand

Second-Quarter

PMI’s cigarette shipment volume of the following brands decreased:

• Marlboro, mainly due to Italy and Japan, partly reflecting the impact of out-switching to heated tobacco units, as well as France and Saudi Arabia, partly offset by Indonesia, Mexico, the Philippines and Turkey;
• Chesterfield, mainly due to Argentina, Russia, Saudi Arabia, Turkey and Venezuela, partly offset by Brazil, Mexico and Morocco;
• Parliament, mainly due to Russia and Turkey;
• Sampoerna A in Indonesia, mainly reflecting the impact of retail price increases resulting in widened price gaps with competitors’ products and the impact of estimated trade inventory movements following the absence of an excise tax increase in January 2019;
• Bond Street, mainly due to Russia and Ukraine;
• Lark, mainly due to Turkey;
• Fortune in the Philippines, mainly reflecting up-trading to Marlboro resulting from a narrowed price gap; and
• “Others,” notably due to: the impact of the deconsolidation of RBH in Canada; mid-price Sampoerna U in Indonesia, partly reflecting the impact of above-inflation retail price increases; and low-price brands, notably in Russia, partly offset by low-price brands in Pakistan.

The increase in PMI’s heated tobacco unit shipment volume was mainly driven by the EU, notably Italy, Eastern Europe, notably Russia and Ukraine, as well as Japan, partly offset by Korea and PMI Duty Free.

PMI’s cigarette shipment volume of the following brands increased:

• L&M, mainly driven by Egypt and Thailand, partly offset by Russia, Saudi Arabia and Turkey;
• Philip Morris, mainly driven by Indonesia and Russia, partly offset by Argentina; and
• Dji Sam Soe in Indonesia, driven by the strong performance of the DSS Magnum Mild 16 variant and the introduction of 20s and 50s variants.

International Share of Market

PMI’s total international market share (excluding China and the United States), defined as PMI’s cigarette and heated tobacco unit sales volume as a percentage of total industry cigarette and heated tobacco unit sales volume, increased by 0.1 point to 28.3%, reflecting:

• Total international cigarette market share of 26.2%, down by 0.4 points; and
• Total international heated tobacco unit market share of 2.1%, up by 0.5 points.

PMI’s total international cigarette market share, defined as PMI’s cigarette sales volume as a percentage of total industry cigarette sales volume, was 26.9%, down by 0.3 points.

Six Months Year-to-Date

PMI’s cigarette shipment volume of the following brands decreased:

• Chesterfield, mainly due to Argentina, Italy, Russia and Venezuela, partly offset by Brazil, Mexico, Morocco and Poland;
• Parliament, mainly due to Korea and Russia, partly offset by Turkey;
• Sampoerna A in Indonesia, reflecting the same factors as in the quarter;
• Bond Street, mainly due to Russia and Ukraine;
• Lark, mainly due to Japan and Turkey;
• Fortune in the Philippines, mainly reflecting up-trading to Marlboro resulting from a narrowed price gap; and
• “Others,” notably due to: the impact of the deconsolidation of RBH in Canada; mid-price Sampoerna U in Indonesia, partly reflecting the impact of above-inflation retail price increases; and low-price brands, notably in Mexico and Russia, partly offset by mid and low-price brands in Pakistan.

The increase in PMI’s heated tobacco unit shipment volume was mainly driven by: the EU, notably Italy, Eastern Europe, notably Russia and Ukraine, and Japan; partly offset by Korea and PMI Duty Free.

PMI’s cigarette shipment volume of the following brands increased:

• Marlboro, mainly driven by Indonesia, Mexico, the Philippines, Saudi Arabia and Turkey, partially offset by Italy and Japan, partly reflecting the impact of out-switching to heated tobacco units, as well as France and PMI Duty Free;
• L&M, mainly driven by Egypt, Saudi Arabia and Thailand, partly offset by Russia and Turkey;
• Philip Morris, mainly driven by Indonesia and Russia, partly offset by Argentina; and
• Dji Sam Soe in Indonesia, driven by the same factors as for the quarter.

International Share of Market

PMI’s total international market share (excluding China and the United States), defined as PMI’s cigarette and heated tobacco unit sales volume as a percentage of total industry cigarette and heated tobacco unit sales volume, increased by 0.5 points to 28.2%, reflecting:

• Total international cigarette market share of 26.1%, down by 0.1 point; and
• Total international heated tobacco unit market share of 2.1%, up by 0.6 points.

PMI’s total international cigarette market share, defined as PMI’s cigarette sales volume as a percentage of total industry cigarette sales volume, was 26.8%, up by 0.1 point.

CONSOLIDATED FINANCIAL SUMMARY

Second-Quarter

Net revenues, excluding unfavorable currency, increased by 5.4%, mainly reflecting: a favorable pricing variance, driven notably by Germany, Indonesia, Japan, the Philippines and Turkey, partly offset by Argentina; as well as a favorable volume/mix, mainly driven by favorable volume/mix of heated tobacco units, notably in the EU and Eastern Europe, partly offset by unfavorable volume/mix of cigarettes, mainly in the EU and East Asia & Australia. The currency-neutral growth in net revenues of 5.4% came despite the unfavorable impact of $248 million, shown in “Cost/Other,” predominantly resulting from the deconsolidation of RBH. On a like-for-like basis, net revenues, excluding unfavorable currency, increased by 9.0%, as detailed in the attached Schedule 9.

Operating income, excluding unfavorable currency, increased by 8.4%. Excluding asset impairment and exit charges related to a plant closure in Colombia as part of global manufacturing infrastructure optimization, adjusted operating income, excluding unfavorable currency, increased by 9.1%, primarily reflecting: a favorable pricing variance; favorable volume/mix, notably in the EU; partly offset by higher manufacturing costs, higher marketing, administration and research costs and the net unfavorable impact resulting from the deconsolidation of RBH shown in “Cost/Other.” On a like-for-like basis, adjusted operating income, excluding unfavorable currency, increased by 15.7%, as detailed in the attached Schedule 9.

Adjusted operating income margin, excluding currency, increased by 1.4 points to 41.4%, reflecting the factors mentioned above, as detailed in the attached Schedule 8, or by 2.4 points to 41.4% on a like-for-like basis, as detailed in the attached Schedule 9.

Contacts

Investor Relations:

New York: +1 (917) 663 2233

Lausanne: +41 (0)58 242 4666

Email: InvestorRelations@pmi.com

Media:

Lausanne: +41 (0)58 242 4500

Email: Iro.Antoniadou@pmi.com

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