Philip Morris International Inc. (PMI) Reports 2013 First-Quarter Results; Revises 2013 Full-Year Re

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Philip Morris International Inc. (PMI) Reports 2013 First-Quarter Results;
Revises 2013 Full-Year Reported Diluted EPS Forecast for Currency Only;
Underlying Business Outlook Unchanged

NEW YORK--(BUSINESS WIRE)-- Regulatory News:

  • Reported diluted earnings per share of $1.28, up by $0.03 or 2.4% versus $1.25 in 2012
    • Excluding unfavorable currency of $0.07, reported diluted earnings per share up by 8.0% versus $1.25 in 2012 as detailed in the attached Schedule 9
  • Adjusted diluted earnings per share of $1.29, up by $0.04 or 3.2% versus $1.25 in 2012
    • Excluding unfavorable currency of $0.07, adjusted diluted earnings per share up by 8.8% as detailed in the attached Schedule 8
  • Cigarette shipment volume decline of 6.5%
    • Cigarette shipment volume decline of 2.1%, excluding the Philippines
  • Reported net revenues, excluding excise taxes, up by 1.8% to $7.6 billion
    • Excluding currency, reported net revenues, excluding excise taxes, up by 3.2%
  • Reported operating companies income down by 0.4% to $3.5 billion
    • Excluding currency, reported operating companies income up by 3.1%
  • Adjusted operating companies income, reflecting the items detailed in the attached Schedule 7, down by 0.6% to $3.5 billion
    • Excluding currency, adjusted operating companies income up by 2.9%
  • Reported operating income down by 0.5% to $3.4 billion
  • Repurchased 16.7 million shares of its common stock for $1.5 billion
  • PMI revises, for prevailing exchange rates only, its 2013 full-year reported diluted earnings per share forecast to be in a range of $5.55 to $5.65, versus $5.17 in 2012
    • Excluding an unfavorable currency impact, at prevailing exchange rates, of approximately $0.19 for the full-year 2013, reported diluted earnings per share are projected to increase by approximately 10-12% versus adjusted diluted earnings per share of $5.22 in 2012, as detailed in the attached Schedule 12.

Philip Morris International Inc. (NYSE / Euronext Paris: PM) today announced its 2013 first-quarter results.

"Our first quarter was relatively difficult, with our headline results marred by a number of known factors, including inventory movements, the 2012 leap year effect, currency and a slowly improving - but nevertheless substantial erosion in our - volume in the Philippines," said Louis C. Camilleri, Chairman and Chief Executive Officer.

"Despite this apparent weakness, our pricing actions and market share momentum provide us with the confidence to reiterate our annual constant-currency adjusted diluted EPS growth rate target of 10-12%."

Conference Call

A conference call, hosted by Jacek Olczak, Chief Financial Officer, with members of the investment community and news media, will be webcast at 9:00 a.m., Eastern Time, on April 18, 2013. Access is available at www.pmi.com/webcasts.

Dividends and Share Repurchase Program

During the first quarter, PMI spent $1.5 billion to repurchase 16.7 million shares, as shown in the table below.

 

Current $18 Billion, Three-Year Program

     

Value

   

Shares

($ Mio.)

000

August-September 20128939,825
October-December 20121,96022,380
January-March 2013

1,500

16,685

Total Under Program4,35348,890
 

Since May 2008, when PMI began its first share repurchase program, the company has spent an aggregate of $29.4 billion to repurchase 505.7 million shares at an average price of $58.05 per share, or 24.0% of the shares outstanding at the time of the spin-off in March 2008.

2013 Full-Year Forecast

PMI revises, for prevailing exchange rates only, its 2013 full-year reported diluted earnings per share forecast to be in a range of $5.55 to $5.65, versus $5.17 in 2012.

Excluding an unfavorable currency impact, at prevailing exchange rates, of approximately $0.19 for the full-year 2013, reported diluted earnings per share are projected to increase by approximately 10-12% versus adjusted diluted earnings per share of $5.22 in 2012, as detailed in the attached Schedule 12, unchanged from the constant-currency earnings per share forecast disclosed on February 20, 2013.

The $0.19 in unfavorable currency for the full-year 2013, based on prevailing exchange rates, represents an increase of $0.13 compared to the $0.06 of full-year unfavorable currency forecast previously disclosed on February 20, 2013.

This forecast includes a one-year gross productivity and cost savings target for 2013 of approximately $300 million and a share repurchase target for 2013 of $6.0 billion.

This forecast excludes the impact of any potential future acquisitions, unanticipated asset impairment and exit cost charges, and any unusual events.

The factors described in the Forward-Looking and Cautionary Statements section of this release represent continuing risks to these projections.

2013 FIRST-QUARTER CONSOLIDATED RESULTS

In this press release, "PMI" refers to Philip Morris International Inc. and its subsidiaries.References to total international cigarette market, defined as worldwide cigarette volume excluding the United States, total cigarette market, total market and market shares are PMI estimates based on the latest available data from a number of internal and external sources and may, in defined instances, exclude the People's Republic of China and/or PMI's duty-free business.The term "net revenues" refers to operating revenues from the sale of our products, excluding excise taxes and net of sales and promotion incentives.Operating companies income, or "OCI", is defined as operating income before general corporate expenses and the amortization of intangibles.PMI's management evaluates business segment performance and allocates resources based on OCI.Management also reviews OCI, OCI margins and earnings per share, or "EPS", on an adjusted basis (which may exclude the impact of currency and other items such as acquisitions, asset impairment and exit costs, discrete tax items and unusual items), earnings before interest, taxes, depreciation, and amortization, or "EBITDA", free cash flow, defined as net cash provided by operating activities less capital expenditures, and net debt.PMI believes it is appropriate to disclose these measures as they improve comparability and help investors analyze business performance and trends.Non-GAAP measures used in this release should be considered neither in isolation nor as a substitute for the financial measures prepared in accordance with U.S. GAAP.Comparisons are to the same prior-year period unless otherwise stated.For a reconciliation of non-GAAP measures to corresponding GAAP measures, see the relevant schedules provided with this release.

 

NET REVENUES

 

PMI Reported Net Revenues ($ Millions)

         

First-Quarter

Excl.

2013

2012

Change

Curr.

European Union$1,970$2,053(4.0)%(5.4)%
Eastern Europe, Middle East & Africa2,0431,83511.3%10.8%
Asia2,7902,7770.5%4.8%
Latin America & Canada

781

783

(0.3)%2.2%
Total PMI$7,584$7,4481.8%3.2%
 

Net revenues of $7.6 billion were up by 1.8%, despite unfavorable currency of $103 million. Excluding currency, net revenues increased by 3.2%, driven by favorable pricing of $531 million across all Regions, partially offset by unfavorable volume/mix of $292 million.

 

OPERATING COMPANIES INCOME

 

PMI Reported Operating Companies Income ($ Millions)

         

First-Quarter

Excl.

2013

2012

Change

Curr.

European Union$938$1,030(8.9)%(7.8)%
Eastern Europe, Middle East & Africa93581015.4%15.8%
Asia1,3421,407(4.6)%2.7%
Latin America & Canada

254

237

7.2%8.9%
Total PMI$3,469$3,484(0.4)%3.1%
 

Reported operating companies income was down by 0.4% to $3.5 billion, including unfavorable currency of $122 million. Excluding currency, operating companies income was up by 3.1%, driven by higher pricing, partly offset by unfavorable volume/mix of $231 million, higher manufacturing costs, principally in Indonesia, and increased investments behind new brand launches, notably two variants of LarkIce Mint 100s in Japan, and the annualization of business infrastructure investments in Russia.

Adjusted operating companies income declined by 0.6% as shown in the table below and detailed in Schedule 7. Adjusted operating companies income, excluding currency, increased by 2.9%.

 

PMI Operating Companies Income ($ Millions)

         

First-Quarter

 

2013

2012

Change

Reported OCI$3,469$3,484(0.4)%
Asset impairment & exit costs

(3)

(8)

Adjusted OCI$3,472$3,492(0.6)%
Adjusted OCI Margin*45.8%46.9%(1.1) p.p.
*Margins are calculated as adjusted OCI, divided by net revenues, excluding excise taxes.
 

Adjusted operating companies income margin, excluding currency, was down by 0.1 point to 46.8%, as detailed in Schedule 7.

 

SHIPMENT VOLUME & MARKET SHARE

 

PMI Cigarette Shipment Volume by Segment (Million Units)

         

First-Quarter

 

2013

 

2012

Change

European Union42,96747,789(10.1)%
Eastern Europe, Middle East & Africa66,83465,9281.4%
Asia72,61981,030(10.4)%
Latin America & Canada

22,527

24,343

(7.5)%
Total PMI204,947219,090(6.5)%
 

2013 First-Quarter

PMI's cigarette shipment volume of 204.9 billion units was down by 6.5%, reflecting: a challenging comparison to the first quarter of 2012 in which cigarette shipment volume grew by 5.3%, excluding acquisitions; the favorable impact of the leap year in the first quarter of 2012; the unfavorable reversal in the quarter of trade inventories built up in the fourth quarter of 2012 ahead of excise tax increases in 2013, notably in Turkey; in the EU, the unfavorable impact of excise tax-driven price increases, the weak economic and employment environment, the growth of the OTP category, and the increased prevalence of illicit trade; and, the unfavorable impact of the disruptive January 2013 excise tax increase in the Philippines which reduced PMI shipment volume by 10.0 billion units or 42.5%. Excluding the Philippines, PMI's cigarette shipment volume was down by 2.1%, or by 1.7% including other tobacco products (OTP) in cigarette equivalent units.

In the EU, PMI's cigarette shipment volume of 43.0 billion units decreased by 10.1%, predominantly due to the aforementioned factors, notably in southern Europe which accounted for approximately 60% of the total decline. In EEMA, PMI's cigarette shipment volume of 66.8 billion units grew by 1.4%, driven notably by North Africa, the Middle East, Russia and Ukraine, partly offset by Turkey. In Asia, PMI's cigarette shipment volume of 72.6 billion units decreased by 10.4%, largely reflecting the aforementioned unfavorable excise tax impact in the Philippines, partially offset by Indonesia and Japan. Excluding the Philippines, PMI's total cigarette shipment volume in Asia grew by 2.8%. In Latin America & Canada, PMI's cigarette shipment volume of 22.5 billion units decreased by 7.5%, due primarily to a lower total market in Argentina, Brazil and Mexico.

Total cigarette shipments of Marlboro of 68.7 billion units were down by 4.8%, due primarily to declines in: the EU, notably France and Spain, partly offset by Germany; EEMA, primarily Russia, Turkey and Ukraine, partly offset by Egypt; Asia, largely the Philippines, partly offset by Japan; and Latin America & Canada, mainly Argentina, Brazil and Mexico. Excluding the Philippines, total cigarette shipments of Marlboro declined by 2.2%.

Total cigarette shipments of L&M of 22.2 billion units were up by 4.3%, driven notably by Egypt, Russia and Saudi Arabia, partly offset by Germany and Turkey. Total cigarette shipments of Bond Street of 9.9 billion units decreased by 0.7%. Total cigarette shipments of Philip Morris of 8.5 billion units decreased by 11.4%, due primarily to Italy and the Philippines. Total cigarette shipments of Parliament of 9.8 billion units were up by 5.4%, fueled by Kazakhstan and Russia. Total cigarette shipments of Chesterfield of 7.7 billion units were down by 6.0%, due primarily to Italy, Russia, Spain and the Ukraine, partly offset by Germany. Total cigarette shipments of Lark of 6.8 billion units decreased by 8.3%, due predominantly to Turkey, partly offset by Japan.

Total shipment volume of other tobacco products (OTP), in cigarette equivalent units, grew by 8.8%, notably in Belgium, France and Spain. Total shipment volume for cigarettes and OTP combined was down by 6.0%.

PMI's market share grew in a number of key markets, including Algeria, Brazil, Canada, Colombia, Egypt, France, Germany, Hong Kong, Indonesia, Italy, Kazakhstan, the Netherlands, Poland, Saudi Arabia, Spain, Thailand, Turkey, Ukraine and the United Kingdom.

EUROPEAN UNION REGION (EU)

2013 First-Quarter

In the EU, net revenues decreased by 4.0% to $2.0 billion. Excluding favorable currency of $27 million, net revenues decreased by 5.4%, due to unfavorable volume/mix of $178 million, largely reflecting a lower total market, predominantly in Germany, Italy and Spain, partly offset by favorable pricing of $68 million, driven mainly by France, the Netherlands and Spain.

Operating companies income decreased by 8.9% to $938 million. Excluding unfavorable currency of $12 million, operating companies income decreased by 7.8%, principally reflecting unfavorable volume/mix of $140 million, partially offset by favorable pricing.

Adjusted operating companies income decreased by 8.9%, as shown in the table below and detailed on Schedule 7. Adjusted operating companies income, excluding currency, decreased by 7.8%.

 

EU Operating Companies Income ($ Millions)

       

First-Quarter

  

2013

2012

Change

Reported OCI$938$1,030(8.9)%
Asset impairment & exit costs

0

0

Adjusted OCI$938$1,030(8.9)%
Adjusted OCI Margin*47.6%50.2%(2.6) p.p.

*Margins are calculated as adjusted OCI, divided by net revenues, excluding excise taxes.

Adjusted operating companies income margin, excluding currency, was down by 1.3 points to 48.9%, as detailed on Schedule 7, primarily as a result of the aforementioned unfavorable volume/mix.

The total cigarette market in the EU declined by 10.5% to 112.5 billion units, due primarily to tax-driven price increases, the unfavorable economic and employment environment, particularly in southern Europe, the growth of the OTP category, and the increased prevalence of illicit trade. The total OTP market in the EU was up by 0.8% to 38.8 billion cigarette equivalent units, driven by the fine cut category, up by 2.1% to 33.9 billion cigarette equivalent units.

Although PMI's cigarette shipment volume in the EU declined by 10.1%, due principally to a lower total market across the Region, PMI's market share was up by 0.7 points to 38.1%. While shipment volume of Marlboro decreased by 5.8%, mainly due to a lower total market, market share was up by 0.7 points to 18.7%, mainly reflecting flat or growing share across 70% of the Region's markets. Despite a shipment volume decline for L&M of 9.7%, market share was flat at 6.6%. Shipment volume of Chesterfield was up by 1.6% and market share was up by 0.2 points to 3.7%, driven by gains notably in Austria, the Czech Republic, Portugal and the United Kingdom, partly offset by Germany. Although shipment volume of Philip Morris declined by 14.5%, market share was up by 0.3 points to 1.9%, with gains notably in France, Italy and Portugal.

PMI's shipments of OTP, in cigarette equivalent units, grew by 6.9%, reflecting a higher total market and share. PMI's OTP total market share was 12.8%, up by 0.7 points, driven by gains in the fine cut category, notably in Belgium, up by 0.8 points to 16.9%, France, up by 1.2 points to 26.4%, Greece, up by 0.6 points to 11.7%, Italy, up by 3.3 points to 30.5% and Spain, up by 4.0 points to 13.5%.

EU Key Market Commentaries

In France, the total cigarette market was down by 8.6% to 11.5 billion units, mainly reflecting the unfavorable impact of price increases in the fourth quarter of 2012, an increase in illicit trade, growth of the OTP category, and a weakening economy. Although PMI's shipments were down by 5.0%, market share was up by 0.4 points to 40.0%, mainly driven by the resilience of premium Philip Morris,up by 1.0 point to 9.2%, and the growth of Chesterfield,up by 0.2 points to 3.4%. Market shares of Marlboro and L&M were down by 0.2 and 0.4 points to 24.5% and 2.5%, respectively. The total fine cut category was up by 6.5% to 3.4 billion cigarette equivalent units. PMI's market share of the fine cut category was up by 1.2 points to 26.4%.

In Germany, the total cigarette market was down by 6.6% to 18.7 billion units, primarily reflecting a challenging comparison to the first quarter of 2012, in which the total cigarette market was up by 3.1%, and the unfavorable reversal in the quarter of trade inventory movements of competitors' products in December 2012 ahead of the January 2013 excise tax increase. Although PMI's shipments were down by 6.2%, market share was up by 0.2 points to 36.1%, with Marlboro up by 1.5 points to 22.3%, offset by L&M,down by 0.7 points to 10.5% and Chesterfield, down by 0.7 points to 1.6%. The total fine cut category was up by 1.2% to 9.9 billion cigarette equivalent units. PMI's market share of the fine cut category was flat at 14.9%.

In Italy, the total cigarette market was down by 9.5% to 16.8 billion units, reflecting the impact of price increases in March 2012, an unfavorable economic environment, and an increase in illicit trade. Although PMI's shipments were down by 14.5%, largely due to the lower total market and unfavorable distributor inventory movements, market share was up by 0.6 points to 53.2%, with Marlboro, up by 0.9 points to 25.6%, driven by both the Red and Gold families. Market share of Philip Morris was up by 0.7 points to 1.9%, benefiting from the 2012 launch of Philip Morris Selection in the low-price segment, and share of Chesterfield grew by 0.1 point to 3.6%, partially offset by Diana in the low-price segment, down by 0.8 points to 12.0%, impacted by the availability of non-duty paid products. The total fine cut category was down by 3.6% to 1.4 billion cigarette equivalent units, reflecting the 2012 excise tax-driven reduction of the price gap differential with cigarettes. PMI's market share of the fine cut category was up by 3.3 points to 30.5%, driven by the launch of Marlboro Red and Gold fine cut.

In Poland, the total cigarette market was down by 10.4% to 11.7 billion units, mainly reflecting the unfavorable impact of the availability of non-duty paid OTP products, as well as a challenging comparison to the first quarter of 2012 in which the total cigarette market was up by 1.0%. Although PMI's shipments were down by 9.0%, market share was up by 0.5 points to 33.3%, benefiting from the 2012 launch of two new Marlboro super slims variants. Market shares of Marlboro, Chesterfield and L&M were up by 0.7, 0.1 and 0.9 points to 10.1%, 1.8% and 15.8%, respectively. The total fine cut category was down by 18.0% to 1.0 billion cigarette equivalent units, reflecting the prevalence of the aforementioned non-duty paid OTP products. PMI's market share of the fine cut category was down by 1.7 points to 16.5%.

In Spain, the total cigarette market was down by 15.0% to 10.9 billion units, mainly reflecting the impact of price increases in 2012 and the first quarter of 2013, the unfavorable economic environment, the growth of the OTP category and illicit trade, and a challenging comparison to the first quarter of 2012 in which the total cigarette market was up by 0.7%. Although PMI's shipments were down by 21.5%, driven by the total market contraction and unfavorable distributor inventory movements, PMI market share was up by 0.2 points to 30.4%, with higher share of Marlboro, up by 0.2 points to 14.1%, and Chesterfield, up by 0.3 points to 9.2%, partly offset by L&M, down by 0.1 point to 6.4% and Philip Morris, down by 0.2 points to 0.5%. The total fine cut category was up by 43.3% to 2.6 billion cigarette equivalent units. PMI's market share of the fine cut category was up by 4.0 points to 13.5%.

EASTERN EUROPE, MIDDLE EAST & AFRICA REGION (EEMA)

2013 First-Quarter

In EEMA, net revenues increased by 11.3% to $2.0 billion. Excluding favorable currency of $10 million, net revenues increased by 10.8%, reflecting favorable pricing of $194 million, principally in Russia, Turkey and Ukraine, and favorable volume/mix of $4 million.

Operating companies income increased by 15.4% to $935 million. Excluding unfavorable currency of $3 million, operating companies income increased by 15.8%, due primarily to higher pricing, and favorable volume/mix of $3 million, partly offset by higher costs, principally related to the annualization of investments in business infrastructure in Russia.

Adjusted operating companies income increased by 15.4%, as shown in the table below and detailed on Schedule 7. Adjusted operating companies income, excluding currency, increased by 15.8%.

 

EEMA Operating Companies Income ($ Millions)

           

First-Quarter

 

2013

2012

Change

Reported OCI$935$81015.4%
Asset impairment & exit costs

0

0

Adjusted OCI$935$81015.4%
Adjusted OCI Margin*45.8%44.1%1.7 p.p.

*Margins are calculated as adjusted OCI, divided by net revenues, excluding excise taxes.

Adjusted operating companies income margin, excluding currency, was up by 2.0 points to 46.1%, as detailed on Schedule 7.

PMI's cigarette shipment volume in EEMA increased by 1.4%, mainly reflecting improved market conditions and higher share in Egypt, partly offset by the reversal in the quarter of trade inventory movements in the fourth quarter of 2012 particularly ahead of the January 2013 excise tax increase in Turkey.

Although PMI's cigarette shipment volume of Marlboro was down by 0.9%, shipment volume of premium brands grew by 0.8%, driven by Parliament, up by 7.8%.

EEMA Key Market Commentaries

In Russia, PMI's shipment volume in the first quarter increased by 1.8%, reflecting the timing of favor

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