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    Philip Morris International Inc (PM)

    Business Description

    Philip Morris International Inc. (PMI) is a leading international tobacco company committed to creating a smoke-free future by expanding its portfolio beyond traditional tobacco and nicotine products. The company primarily sells cigarettes and smoke-free products, which include heat-not-burn, e-vapor, and oral nicotine products, as well as wellness and healthcare products through its Vectura Fertin Pharma business . PMI has invested significantly in developing innovative smoke-free products, with brands like IQOS and ZYN leading their smoke-free portfolio . The company's operations are organized into several geographical segments, focusing on different regions worldwide .

    1. Smoke-Free Products - Includes heat-not-burn, e-vapor, and oral nicotine products, with leading brands such as IQOS and ZYN driving the company's transition to a smoke-free future.
      • IQOS - A heat-not-burn product designed to provide a smoke-free alternative to traditional cigarettes.
      • ZYN - An oral nicotine product offering a smoke-free experience.
    2. Wellness and Healthcare - Focuses on inhaled therapeutics and oral delivery systems through the Vectura Fertin Pharma business, expanding PMI's reach beyond traditional tobacco products.
    3. Combustible Tobacco Products - Comprises traditional cigarettes and other tobacco products, continuing to contribute to the company's revenue.
    4. Geographical Segments - Organized into Europe, South and Southeast Asia, Commonwealth of Independent States, Middle East and Africa (SSEA, CIS & MEA), East Asia, Australia, and PMI Duty Free (EA, AU & PMI DF), and the Americas, allowing PMI to cater to diverse markets worldwide.

    Q3 2024 Summary

    Initial Price$101.98July 1, 2024
    Final Price$120.59October 1, 2024
    Price Change$18.61
    % Change+18.25%

    What went well

    • Strong Pricing Power with Volume Growth: Philip Morris International achieved a remarkable 9.7% price increase in Q3 for combustible cigarettes while also growing volumes and market share, demonstrating the strength of their brands and pricing power.
    • Continued Robust Growth of IQOS: IQOS adjusted in-market sales grew by almost 15% globally in Q3, with strong performance in Japan (around 14% growth) and a reacceleration in Europe after the flavor ban disruption. There is significant growth potential in new markets like Indonesia, Saudi Arabia, and Mexico, indicating promising future growth beyond traditional markets.
    • Strong Cash Flow Generation: PMI generated $8.2 billion in cash flow at the end of Q3, which is $2.3 billion above the prior year, underscoring the strong momentum of the business and providing opportunities for debt management and shareholder returns.

    What went wrong

    • Growing competition from vapor products in Europe: An analyst highlighted that in Europe, vapor is seeing greater success in fully converting smokers than heated tobacco, suggesting potential challenges for PMI's heated tobacco products .
    • Uncertain financial impact from Canadian litigation settlement: PMI stated it's too preliminary to determine if settlement payments will be tax-deductible, leaving financial implications unclear .
    • Challenges with illicit nicotine pouch products in the U.S.: PMI is encountering illicit products infringing on their patents, which could impact their nicotine pouch market share and revenue .

    Q&A Summary

    1. Cigarette Volume and Pricing Outlook
      Q: Will strong cigarette volumes and pricing continue in FY25?
      A: Management noted that cigarette volumes remain positive despite an 8% to 9% pricing increase. They attributed strong volumes to factors like lack of illicit trade in markets such as Brazil and Turkey. While they did not provide specific guidance for FY25, they acknowledged these factors may continue beyond 2024. They expect continued pricing power but advised not to assume the same level of increase in the future, emphasizing mid-single-digit growth over the medium term.

    2. IQOS Volume Trajectory
      Q: What's the outlook for IQOS shipment volumes and growth?
      A: Management highlighted a reacceleration in adjusted in-market sales for IQOS, reaching nearly 15% growth in Q3. Japan showed strong performance with around 14% growth, and Europe resumed double-digit growth following flavor ban disruptions. They expect shipments and adjusted in-market sales to align over time, with renewed momentum anticipated in Q4.

    3. ZYN Supply Constraints
      Q: When will ZYN supply issues be resolved?
      A: They expect to meet consumer demand for ZYN sometime in Q4, though full inventory replenishment will likely extend into 2025. Capacity is targeted to reach around 900 million cans for the full year 2025, increasing gradually. The impact on market share recovery is difficult to specify at this stage.

    4. Deleveraging and Refinancing Plans
      Q: What's impacting deleveraging and any refinancing plans?
      A: The slight narrowing of deleveraging guidance is due to euro strength affecting debt calculations. Year-to-date cash flow generation is $8.2 billion, an increase of $2.3 billion over the prior year. Management is considering refinancing options in the coming months but did not elaborate further.

    5. E-Cigarette Shipments and Revenue
      Q: Can you detail e-cigarette shipments and run rate?
      A: Using the conversion of 1 milliliter equals 10 sticks, management confirmed shipments of 1.2 billion e-cigarettes year-to-date. While they did not comment on revenue specifics, they acknowledged that the analyst's estimates were not far off.

    6. Vapor Adoption vs. Heated Tobacco
      Q: Is vapor adoption accelerating compared to heated tobacco?
      A: Management does not see any acceleration in vaping adoption. They emphasized that heated tobacco products have much higher conversion rates for smokers due to a more similar experience. The vaping market faces regulatory challenges and concerns over underage consumption, impacting its growth.

    7. Illicit Nicotine Pouches in the U.S.
      Q: What actions are taken against illicit nicotine pouches?
      A: The company is actively fighting illicit trade by working with authorities and taking measures like terminating sales to sources of illicit products. They send cease and desist letters to distributors and retailers when necessary and invest significantly in combating illicit activities.

    8. Canadian Litigation Settlement
      Q: Will the settlement payments be tax-deductible?
      A: Management stated it's too early to determine the tax deductibility of the Canadian litigation settlement payments. They will provide more information once final terms are settled but could not specify when that will be.

    Key Metrics

    View all financials →
    Revenue by Segment - in Millions of USDFY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024
    European Union--------
    Eastern Europe, Middle East & Africa--------
    Asia--------
    Latin America & Canada--------
    Combustible Tobacco5,2235,7905,8325,48922,3345,4075,8586,134
    Smoke-Free Products2,7963,1773,3093,55812,8403,3863,6103,777
    - Smoke-Free excl. Wellness2,7103,1013,2343,48912,5343,2963,5303,701
    - Wellness and Healthcare86767569306908076
    Swedish Match5816655686822,496---
    Total Revenue8,0198,9679,1419,04735,1748,7939,4689,911
    Revenue by Geography - in Millions of USDFY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024
    Europe2,9103,4023,6723,61413,5983,3653,8154,121
    SSEA, CIS & MEA2,4772,6682,7772,70710,6292,6582,7712,964
    EA, AU & PMI DF1,5201,6801,5711,436,2011,6841,6731,602
    European Union--------
    Eastern Europe--------
    Middle East & Africa--------
    South & Southeast Asia--------
    East Asia & Australia--------
    Latin America & Canada--------
    Americas4454764785451,9449961,1291,148
    Other--------
    Swedish Match5816655686822,496---
    Wellness and Healthcare86767569306908076
    - Eastern Europe, Middle East & Africa--------
    - Asia--------
    Total Revenue8,0198,9679,1419,04735,1748,7939,4689,911
    KPIs - MetricFY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024
    **PMI Shipments (billion units)**171.1188.4193.6185.1-176.3193.2198.6
    **PMI Market Share (%)**27.428.528.928.6-28.028.729.5
    **Nicotine Pouch Shipment Volume (million cans)**73.289.9105.4116.3-145.7135.1149.6
    **HTU Adjusted In-Market Sales Volume (% Increase)**1619.714.413.9-12.510.214.8

    Executive Team

    NamePositionStart DateShort Bio
    Jacek OlczakChief Executive OfficerMay 2021Jacek Olczak is the Chief Executive Officer of Philip Morris International Inc. (PMI). He previously served as the Chief Operating Officer from January 2018 until May 2021, and as the Chief Financial Officer from August 2012 until December 31, 2017. Mr. Olczak joined PMI's Polish affiliate in 1993 .
    Massimo AndolinaPresident, Europe RegionJanuary 2023Massimo Andolina is the President, Europe Region at PMI. He was previously the Senior Vice President, Operations from January 2018. He joined PMI in 2008 as Director, Operations Planning, and has held various roles within the company .
    Emmanuel BabeauChief Financial OfficerMay 2020Emmanuel Babeau was appointed as the Chief Financial Officer of PMI in May 2020. Before joining PMI, he served as the Deputy Chief Executive Officer of Schneider Electric, responsible for Finance and Legal Affairs .
    Werner BarthPresident, Combustibles Category & Global Combustibles MarketingNovember 2021Werner Barth was appointed as the President, Combustibles Category & Global Combustibles Marketing at PMI in November 2021. He joined PMI in 1990 as a Marketing Trainee at Philip Morris Germany and has held various roles in marketing and general management .
    Lars DahlgrenPresident, Smoke-Free Oral Products & CEO of Swedish MatchJanuary 2023Lars Dahlgren was appointed as the President, Smoke-Free Oral Products and CEO of Swedish Match in January 2023. Before PMI's acquisition of Swedish Match, he served as the President and CEO of Swedish Match from June 2008 .
    Frederic de WildePresident, South and Southeast Asia, CIS, Middle East and Africa RegionsJanuary 2023Frederic de Wilde was appointed as the President, South and Southeast Asia, CIS, Middle East and Africa Regions at PMI in January 2023. He joined PMI in 1992 as a Brand Manager for L&M at Philip Morris Belgium and has held various roles in marketing, sales, and general management .
    Reginaldo DobrowolskiVice President and ControllerAugust 2021Reginaldo Dobrowolski was appointed as Vice President and Controller at PMI in August 2021. He previously served as Vice President, Corporate Financial Planning, Data & Reporting from May 2019 until August 2021 .
    Yann GuérinSenior Vice President and General CounselJuly 2023Yann Guérin was appointed as Senior Vice President and General Counsel at PMI in July 2023. He has held various legal roles across PMI's businesses since joining the company in 2006 .
    Stacey KennedyPresident, Americas Region & CEO of PMI's U.S. BusinessJanuary 2023Stacey Kennedy was appointed as the President, Americas Region & CEO of PMI's U.S. Business in January 2023. She previously served as the President, South and Southeast Asia Region from January 2018 .
    Paul RileyPresident, East Asia, Australia, and PMI Duty Free RegionJanuary 2023Paul Riley was appointed as the President, East Asia, Australia, and PMI Duty Free Region in January 2023. He joined Philip Morris Australia in 1988 and has held various positions in Australia, Hong Kong, and Japan .
    Stefano VolpettiPresident, Smoke-Free Inhalable Products & Chief Consumer OfficerJanuary 2023Stefano Volpetti was appointed as the President, Smoke-Free Inhalable Products & Chief Consumer Officer at PMI in January 2023. He joined PMI in June 2019 as Chief Consumer Officer .

    Questions to Ask Management

    1. One of your peers highlighted that in Europe, vapor is seeing greater success in fully converting smokers than heated tobacco; what are your latest thoughts on this topic, and are you seeing an acceleration in vapor adoption as you roll out VEEV in several markets?

    2. Regarding the illicit nicotine pouches entering the U.S. market that may infringe on your patents, could you expand on what measures you are currently taking or expect to take, and how do you think this will differ from the current environment we see in vapor in the U.S.?

    3. Considering your increased pricing guidance of 8% to 9% and yet positive volumes in combustible cigarettes, shouldn't FY '25 also be a strong year for cigarette volumes and pricing internationally, and can you touch on any disruptive excise tax hikes expected in the next few months?

    4. It looks like you modestly took down the top end of your potential deleveraging for this year; could you address what drove that, and with sizable maturities over 2025, are you considering pulling some of that refinancing forward into the remainder of this year, given where markets are opportunistically?

    5. With the ongoing supply constraints for ZYN in the U.S., what measures are you taking to match consumer demand, and how confident are you in your capacity expansion plans to meet future growth?

    Share Repurchase Program

    Program DetailsProgram 1
    Approval DateJune 11, 2021
    End Date/DurationJuly 21, 2024
    Total additional amount$7 billion
    Remaining authorization$6,016,847,275
    DetailsProgram suspended on May 11, 2022, due to the acquisition of Swedish Match. No repurchases in 2023 and 2024.

    Past Guidance

    Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Volume Growth: +2% to +3% total shipment progression; adjusted IMS HTU volume growth of around +13%; shipment volumes of around 140 billion units .
      2. U.S. ZYN Shipment Volume: 570 million to 580 million cans .
      3. Organic Net Revenue Growth: +9.5% .
      4. Adjusted Organic Operating Income (OI) Growth: +14% to +14.5% .
      5. Currency-Neutral Adjusted Diluted EPS Growth: +14% to +15%, translating into $6.45 to $6.51 .
      6. U.S. Dollar Basis Growth: +7% to +8% .
      7. Operating Cash Flow: $11 billion .
      8. Net Debt to Adjusted EBITDA Ratio: 0.3 to 0.4x improvement, aiming for around 2x by the end of 2026 .

    Q2 2024 Earnings Call

    • Issued Period: Q2 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Organic Net Revenue Growth: +7.5% to +9% .
      2. Organic Operating Income Growth: +11% to +13% .
      3. Currency-Neutral Adjusted Diluted EPS Growth: +11% to +13%, translating into $6.33 to $6.45 .
      4. USD EPS Growth: +5% to +7% .
      5. Operating Cash Flow: Around $11 billion .
      6. Capital Expenditure: $1.3 billion to $1.4 billion .
      7. Net Debt to Adjusted EBITDA Ratio: 0.3x to 0.5x improvement, aiming for around 2x by the end of 2026 .
      8. HTU Shipment Volume: Around 140 billion units .
      9. U.S. ZYN Shipment Range: 560 million to 580 million cans .
      10. Combustible Price Variance: +7% to +8% .

    Q1 2024 Earnings Call

    • Issued Period: Q1 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Currency-Neutral Growth Forecast: Robust growth in dollar terms despite currency headwinds .
      2. U.S. Shipment Forecast: 516 million cans .
      3. Smoke-Free Net Revenue: Close to $15 billion .
      4. Organic Net Revenue Growth: 7% to 8.5% .
      5. Organic Operating Income Growth: 10% to 12% .
      6. Currency-Neutral Adjusted Diluted EPS Growth: 9% to 11%, translating into $6.19 to $6.31 .
      7. HTU Shipment Volume for Q2: 34 million to 35 billion .
      8. Currency-Neutral Adjusted Diluted EPS for Q2: $1.50 to $1.55 .
      9. Net Debt to Adjusted EBITDA Ratio: 0.3 to 0.5x improvement, aiming for around 2x by the end of 2026 .
      10. Organic OI Margin Expansion: 370 basis point expansion in Q1 .

    Q4 2023 Earnings Call

    • Issued Period: Q4 2023
    • Guided Period: FY 2024
    • Guidance:
      1. Gross Margin and Operating Margin: Expectation for expansion .
      2. Adjusted Diluted EPS: +9%, translating into $6.32 to $6.44 .
      3. Operating Cash Flow: $10 billion to $11 billion .
      4. Capital Expenditure: Around $1.2 billion .
      5. Net Debt to Adjusted EBITDA Ratio: 0.3 to 0.5x improvement, aiming for around 2x by the end of the year .
      6. Smoke-Free Products: Acceleration in growth for net revenues and gross profit .
      7. HTU Shipment Volume: More than 140 billion units .
      8. Organic Net Revenue Growth: +6.5% to +8% .
      9. Organic Operating Income Growth: +8% to +9.5% .
      10. Smoke-Free Gross Profit Growth: Acceleration from +19% in 2023 .
      11. Adjusted IMS Volume Growth: +14% to +16% .
      12. U.S. Volume Growth: Around 520 million tonnes .
      13. Pricing: Mid-single-digit increase for combustibles .

    Competitors

    Competitors mentioned in the company's latest 10K filing.

    • British American Tobacco plc - Competitor in the tobacco industry .
    • Japan Tobacco Inc. - Competitor in the tobacco industry .
    • Imperial Brands plc - Competitor in the tobacco industry .
    • New market entrants - Particularly with respect to innovative products .
    • Several regional and local tobacco companies - Competitors in various regions .
    • State-owned tobacco enterprises - Principally in Algeria, Egypt, China, Taiwan, Thailand, and Vietnam .

    Latest news

    Recent developments and announcements about PM.

    Financial Actions

      Debt Issuance

      ·
      Dec 17, 2024, 9:33 PM

      Philip Morris International Inc. (PMI) has recently entered into a credit agreement for a senior unsecured revolving credit facility amounting to €1.5 billion (approximately $1.6 billion). This agreement, effective from January 29, 2025, involves several lenders with Citibank Europe PLC, UK Branch acting as the facility agent. The facility is set to expire on January 29, 2028, unless extended. The interest rates for borrowings under this facility will be based on prevailing market rates, and the funds are intended for general corporate purposes, including meeting working capital requirements .

      This financial obligation could potentially impact PMI's balance sheet by increasing its liabilities due to the borrowed amount. However, as it is a revolving credit facility, PMI has the flexibility to borrow, repay, and reborrow funds as needed, which can aid in managing liquidity and financial health effectively. The agreement includes customary events of default, such as nonpayment of principal or interest, which, if triggered, could lead to the acceleration of outstanding loans and termination of lender commitments .