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Revises, for a Tax Charge of $0.20 Per Share in Russia, 2019 Full-Year Reported Diluted EPS Forecast to at Least $4.73 vs. $5.08 in 2018, Reflecting Currency-Neutral Like-For-Like Adjusted Diluted EPS Growth of at Least 9.0%
NEW YORK–(BUSINESS WIRE)–Philip Morris International Inc. (NYSE: PM) today announces its 2019 third-quarter results and revises 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 THIRD-QUARTER & YEAR-TO-DATE HIGHLIGHTS
2019 Third-Quarter
2019 Nine Months Year-to-Date
“Our third quarter results continued to reflect strong underlying business performance and include the better-than-anticipated timing of pricing and costs compared to our previously communicated assumptions for the quarter,“ said André Calantzopoulos, Chief Executive Officer.
“The exciting global growth of our heated tobacco products drove our resilient total shipment performance, despite certain timing issues related to our combustible portfolio. The quality of our execution across the business drove growth against each of the key metrics of net revenues, operating income, margin, as well as earnings per share — both in the quarter and year-to-date — on a currency-neutral, adjusted like-for-like basis.”
“Importantly, IQOS was introduced in the U.S. this quarter, where it is currently the only FDA-authorized heat-not-burn product.”
“While we expect our net revenue and adjusted operating income growth in the fourth quarter to be in line with our year-to-date results, our currency-neutral adjusted EPS growth is anticipated to be lower than our year-to-date performance, primarily due to an unfavorable income tax rate comparison and a high relative adjusted operating income growth contribution from markets with sizable non-controlling interests. Nevertheless, we are fully on track to deliver our target of full-year currency-neutral, like-for-like adjusted diluted EPS growth of at least 9%.”
2019 FULL-YEAR FORECAST
|
Full-Year |
||||||||
2019 EPS Forecast |
2019 |
|
2018 |
Adjusted |
|||||
|
|
|
|
|
|
|
|
||
Reported Diluted EPS |
≥ |
$4.73 |
(a) |
$5.08 |
|
|
|
||
2018 Tax items |
|
— |
|
0.02 |
|
|
|
||
2019 Tax items |
|
(0.04) |
|
— |
|
|
|
||
2019 Asset impairment and exit costs |
|
0.04 |
|
— |
|
|
|
||
2019 Canadian tobacco litigation-related expense |
|
0.09 |
|
— |
|
|
|
||
2019 Loss on deconsolidation of RBH |
|
0.12 |
|
— |
|
|
|
||
2019 Russia excise and VAT audit charge |
|
0.20 |
|
— |
|
|
|
||
Adjusted Diluted EPS |
|
$5.14 |
|
$5.10 |
|
|
|
||
Net earnings attributable to RBH |
|
|
|
(0.26) |
(b) |
|
|
||
Adjusted Diluted EPS |
|
$5.14 |
|
$4.84 |
(c) |
|
|
||
Currency |
|
(0.14) |
|
|
|
|
|
||
Adjusted Diluted EPS, excluding currency |
≥ |
$5.28 |
|
$4.84 |
(c) |
≥ |
9% |
(a) Reflects the exclusion of previously anticipated net EPS of approximately $0.28 attributable to RBH from March 22, 2019 through December 31, 2019. The impact relating to the eight-day stub period was not material. |
PMI revises its full-year 2019 reported diluted EPS forecast to be at least $4.73 at prevailing exchange rates, compared to the previously communicated forecast of at least $4.94, versus $5.08 in 2018.
This revised full-year guidance reflects:
Russia Excise & VAT Audit Charge
The Moscow Tax Inspectorate for Major Taxpayers (MTI) conducted an audit of AO Philip Morris Izhora (PM Izhora), our Russian affiliate, for the 2015-2017 financial years. On July 26, 2019, MTI issued its initial assessment, claiming that intercompany sales of cigarettes between PM Izhora and another Russian affiliate prior to excise tax increases and submission by PM Izhora of the maximum retail sales price notifications for cigarettes to the tax authorities were improper under Russian tax laws and resulted in underpayment of excise taxes and VAT. In August 2019, PM Izhora submitted its objections disagreeing with MTI’s allegations set forth in the initial assessment and MTI’s methodology for calculating the alleged underpayments. MTI accepted some of PM Izhora’s arguments and in September 2019, issued the final tax assessment claiming an underpayment of RUB 24.3 billion (approximately $374 million) including penalties and interest. In accordance with Russian tax laws, PM Izhora paid the entire amount of MTI’s final assessment. PMI recorded a pre-tax charge of $374 million, representing $315 million net of income tax and an earnings per share charge of approximately $0.20. Under the Russian law, PM Izhora has until mid-September 2020 to challenge the final tax assessment to the Federal Tax Service and is considering whether to pursue such a challenge.
2019 Full-Year Forecast Overview & Assumptions
This forecast assumes:
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, as part of global manufacturing infrastructure optimization. Until the consultation process is concluded, the closure of the Berlin facility is not considered probable (under U.S. GAAP), and the total potential costs associated with this contemplated proposal, which are expected to be significant, cannot be determined. As a result, no related costs were recorded in the third quarter of 2019. If the consultation process is successfully concluded, PMI would expect, at that time, to record charges, which would include employee severance costs, asset costs, including accelerated depreciation, and impairment and other closure related costs. The amount and timing of the income statement recognition of these amounts and the related cash flows will depend on a number of factors including the timing of the completion of the consultation process as well as the negotiated elements of the associated social plan. The Berlin facility has a projected 2019 production capacity of approximately 40 billion units. Approximately 950 employees are anticipated to be impacted under this contemplated proposal.
Factors described in the Forward-Looking and Cautionary Statements section of this release represent continuing risks to these projections.
Conference Call
A conference call, hosted by Martin King, Chief Financial Officer, will be webcast at 9:00 a.m., Eastern Time, on October 17, 2019. Access is at www.pmi.com/2019Q3earnings. 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
PMI Shipment Volume by Region |
Third-Quarter |
Nine Months Year-to-Date |
||||
(million units) |
2019 |
2018 |
Change |
2019 |
2018 |
Change |
Cigarettes |
|
|
|
|
|
|
European Union |
47,238 |
48,223 |
(2.0)% |
133,093 |
135,878 |
(2.0)% |
Eastern Europe |
27,379 |
29,801 |
(8.1)% |
74,779 |
80,294 |
(6.9)% |
Middle East & Africa |
36,994 |
37,406 |
(1.1)% |
101,957 |
100,831 |
1.1% |
South & Southeast Asia |
42,362 |
45,840 |
(7.6)% |
130,230 |
130,846 |
(0.5)% |
East Asia & Australia |
12,692 |
14,186 |
(10.5)% |
38,650 |
43,391 |
(10.9)% |
Latin America & Canada |
16,854 |
19,612 |
(14.1)% |
52,906 |
58,829 |
(10.1)% |
Total PMI |
183,519 |
195,068 |
(5.9)% |
531,615 |
550,069 |
(3.4)% |
|
|
|
|
|
|
|
Heated Tobacco Units |
|
|
|
|
|
|
European Union |
3,474 |
1,730 |
+100% |
8,810 |
3,853 |
+100% |
Eastern Europe |
3,858 |
1,152 |
+100% |
8,213 |
2,667 |
+100% |
Middle East & Africa |
588 |
1,152 |
(49.0)% |
2,061 |
2,832 |
(27.2)% |
South & Southeast Asia |
— |
— |
—% |
— |
— |
—% |
East Asia & Australia |
7,976 |
4,575 |
74.3% |
23,253 |
19,755 |
17.7% |
Latin America & Canada (1) |
89 |
43 |
+100% |
202 |
98 |
+100% |
Total PMI |
15,985 |
8,652 |
84.8% |
42,539 |
29,205 |
45.7% |
|
|
|
|
|
|
|
Cigarettes and Heated Tobacco Units |
|
|
|
|
|
|
European Union |
50,712 |
49,953 |
1.5% |
141,903 |
139,731 |
1.6% |
Eastern Europe |
31,237 |
30,953 |
0.9% |
82,992 |
82,961 |
—% |
Middle East & Africa |
37,582 |
38,558 |
(2.5)% |
104,018 |
103,663 |
0.3% |
South & Southeast Asia |
42,362 |
45,840 |
(7.6)% |
130,230 |
130,846 |
(0.5)% |
East Asia & Australia |
20,668 |
18,761 |
10.2% |
61,903 |
63,146 |
(2.0)% |
Latin America & Canada |
16,943 |
19,655 |
(13.8)% |
53,108 |
58,927 |
(9.9)% |
Total PMI |
199,504 |
203,720 |
(2.1)% |
574,154 |
579,274 |
(0.9)% |
(1) Includes shipments to Altria Group, Inc., commencing in the third quarter of 2019, for sale in the United States under license. |
Third-Quarter
PMI’s total shipment volume decreased by 2.1%, or by 1.4% on a like-for-like basis, principally due to:
partly offset by
Impact of Inventory Movements
On a like-for-like basis, excluding the net favorable impact of estimated distributor inventory movements of approximately 4.8 billion units, PMI’s total in-market sales declined by 3.6% due to a 5.7% decline of cigarette in-market sales, partially offset by a 28.3% increase in heated tobacco unit in-market sales.
The net favorable impact of estimated distributor inventory movements of approximately 4.8 billion units was driven by 3.8 billion heated tobacco units (mainly reflecting a favorable comparison with the third quarter of 2018 in which IQOS consumable inventories in Japan were reduced), and 1.0 billion cigarettes, driven partly by Japan.
Nine Months Year-to-Date
PMI’s total shipment volume decreased by 0.9%, or by 0.4% on a like-for-like basis, due to:
partly offset by
PMI’s total shipment volume in Eastern Europe was flat, reflecting higher heated tobacco unit shipment volume across the Region, notably in Kazakhstan, Russia and Ukraine, offset by lower cigarette shipment volume, primarily in Russia and Ukraine.
Impact of Inventory Movements
On a like-for-like basis, excluding the net favorable impact of estimated distributor inventory movements of approximately 3.6 billion units, PMI’s total in-market sales declined by 1.0% due to a 2.9% decline of cigarette in-market sales, partly offset by a 31.8% increase in heated tobacco unit in-market sales.
The net favorable impact of estimated distributor inventory movements of approximately 3.6 billion units reflected 2.9 billion heated tobacco units, driven primarily by Japan, partly offset by PMI Duty Free and Russia, and 0.7 billion cigarettes, driven primarily by the EU Region and Saudi Arabia, partly offset by North Africa and Thailand.
PMI Shipment Volume by Brand
PMI Shipment Volume by Brand |
Third-Quarter |
Nine Months Year-to-Date |
||||
(million units) |
2019 |
2018 |
Change |
2019 |
2018 |
Change |
Cigarettes |
|
|
|
|
|
|
Marlboro |
68,859 |
69,121 |
(0.4)% |
196,883 |
195,987 |
0.5% |
L&M |
24,428 |
24,329 |
0.4% |
69,765 |
66,751 |
4.5% |
Chesterfield |
15,001 |
15,821 |
(5.2)% |
43,502 |
44,622 |
(2.5)% |
Philip Morris |
13,275 |
13,505 |
(1.7)% |
36,949 |
36,687 |
0.7% |
Parliament |
10,407 |
11,588 |
(10.2)% |
29,085 |
31,041 |
(6.3)% |
Sampoerna A |
8,756 |
10,333 |
(15.3)% |
26,012 |
29,131 |
(10.7)% |
Dji Sam Soe |
8,599 |
7,578 |
13.5% |
23,089 |
21,151 |
9.2% |
Bond Street |
7,687 |
8,595 |
(10.6)% |
21,099 |
23,960 |
(11.9)% |
Lark |
4,955 |
6,058 |
(18.2)% |
15,575 |
17,604 |
(11.5)% |
Fortune |
3,215 |
4,052 |
(20.7)% |
9,702 |
11,791 |
(17.7)% |
Others |
18,337 |
24,088 |
(23.9)% |
59,954 |
71,344 |
(16.0)% |
Total Cigarettes |
183,519 |
195,068 |
(5.9)% |
531,615 |
550,069 |
(3.4)% |
Heated Tobacco Units (1) |
15,985 |
8,652 |
84.8% |
42,539 |
29,205 |
45.7% |
Total PMI |
199,504 |
203,720 |
(2.1)% |
574,154 |
579,274 |
(0.9)% |
(1) Includes shipments to Altria Group, Inc., commencing in the third quarter of 2019, for sale in the United States under license. |
||||||
Note: Sampoerna A includes Sampoerna; Philip Morris includes Philip Morris/Dubliss; and Lark includes Lark Harmony. |
Third-Quarter
PMI’s cigarette shipment volume of the following brands decreased:
The increase in PMI’s heated tobacco unit shipment volume was mainly driven by the EU, notably Italy, Eastern Europe, notably Kazakhstan, 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:
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, decreased by 0.1 point to 28.8%, reflecting:
PMI’s total international cigarette market share, defined as PMI’s cigarette sales volume as a percentage of total industry cigarette sales volume, was 27.3%, down by 0.4 points, mainly reflecting: out-switching to IQOS, notably in the EU Region, Japan and Russia; and lower cigarette market share, notably in Argentina, Indonesia, Korea, Mexico and Turkey.
Nine Months Year-to-Date
PMI’s cigarette shipment volume of the following brands decreased:
The increase in PMI’s heated tobacco unit shipment volume was mainly driven by: the EU, notably Italy, Eastern Europe, notably Kazakhstan, Russia and Ukraine, and Japan, partly offset by Korea and PMI Duty Free.
PMI’s cigarette shipment volume of the following brands increased:
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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