Philip Morris International Inc. - FORM 8-K - EX-99.1 - EXHIBIT 99.1 - April 19, 2018

Attached files

file filename
EX-99.3 - EXHIBIT 99.3 - Philip Morris International Inc.a201804192018firstquarte.htm
EX-99.2 - EXHIBIT 99.2 - Philip Morris International Inc.earningscallscriptpm-ex992.htm
8-K - 8-K - Philip Morris International Inc.a2018-04x19form8xk.htm


Exhibit 99.1

PRESS RELEASE
 
pmilogoera01a01a01a13.jpg
 
 
 
 
 
Investor Relations:
 
Media:
 
 
New York: +1 (917) 663 2233
 
Lausanne: +41 (0)58 242 4500
 
 
Lausanne: +41 (0)58 242 4666
 
Email: Media@pmi.com
 
 
Email: InvestorRelations@pmi.com
 
 
 
 

PHILIP MORRIS INTERNATIONAL INC. (PMI) REPORTS 2018 FIRST-QUARTER RESULTS;
INCREASES, PRIMARILY TO REFLECT A LOWER EFFECTIVE TAX RATE, 2018 FULL-YEAR REPORTED DILUTED EPS, REFLECTING CURRENCY-NEUTRAL GROWTH OF APPROXIMATELY 8% TO 11% VS. 2017 ADJUSTED DILUTED EPS OF $4.72

2018 First-Quarter
•
Reported diluted earnings per share of $1.00, down by $0.02 or 2.0% versus $1.02 in 2017
•
Adjusted diluted earnings per share of $1.00, up by $0.02 or 2.0% versus $0.98 in 2017
•
Excluding favorable currency of $0.03, adjusted diluted earnings per share down by $0.01 or 1.0% versus $0.98 in 2017 as detailed in the attached Schedule 2
•
Cigarette and heated tobacco unit shipment volume of 173.8 billion, down by 2.3%, or by 1.1% excluding the net impact of total estimated inventory movements, reflecting:
•
Cigarette shipment volume of 164.3 billion units, down by 9.3 billion units or 5.3%
•
Heated tobacco unit shipment volume of 9.6 billion units, up by 5.1 billion units versus 2017
•
Net revenues of $6.9 billion, up by 13.7%
•
Excluding favorable currency of $327 million, net revenues up by 8.3% as detailed in the attached
Schedule 3
•
Operating income of $2.4 billion, up by 0.4%
•
Excluding favorable currency of $76 million, operating income down by 2.7% as detailed in the attached Schedule 4
•
Adjusted operating income, reflecting the items detailed in the attached Schedule 5, of $2.4 billion, up by 0.4%
•
Excluding favorable currency of $76 million, adjusted operating income down by 2.7% as detailed in the attached Schedule 5

2018 Full-Year Forecast
•
PMI increases, primarily to reflect a lower effective tax rate, its 2018 full-year reported diluted earnings per share forecast to be in a range of $5.25 to $5.40, at prevailing exchange rates, representing a projected increase of approximately 35% to 39% versus reported diluted earnings per share of $3.88 in 2017.
•
Excluding a favorable currency impact, at prevailing exchange rates, of approximately $0.16, the forecast range represents a projected increase of approximately 8% to 11% versus adjusted diluted earnings per share of $4.72 in 2017 as detailed in the attached Schedule 2.
•
This forecast assumes:
•
Currency-neutral net revenue growth of approximately 8.0%;
•
Operating cash flow of over $9.0 billion;
•
Capital expenditures of approximately $1.7 billion;




•
A full-year effective tax rate of approximately 26%; 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, and any unusual events. Factors described in the Forward-Looking and Cautionary Statements section of this release represent continuing risks to these projections.
2018 FIRST-QUARTER CONSOLIDATED RESULTS
NEW YORK, April 19, 2018 – Philip Morris International Inc. (NYSE: PM) today announced its 2018 first-quarter results.
"We began the year with strong, currency-neutral net revenue growth of more than 8% in the quarter, driven by higher volume for heated tobacco units and IQOS devices coupled with higher pricing from our combustible product portfolio," said André Calantzopoulos, Chief Executive Officer.
"Our increased full-year EPS guidance reflects the benefit of a lower effective tax rate and incorporates, at this early stage in the year, some caution regarding: on-going volume challenges in the GCC; the pricing environment in Russia; and less-rapid-than-initially-projected growth in sales of devices to consumers in Japan in the first quarter, as we are now reaching more conservative adult smoker segments that may require, at least at first, slightly more time for adoption. Even if this temporary dynamic in Japan persists, we remain on track to double our worldwide in-market sales of heated tobacco units compared to 2017."
"We are confident in our ability to deliver strong results this year and remain steadfast in our commitment to generously reward our shareholders."

Conference Call
A conference call, hosted by Martin King, Chief Financial Officer, will be webcast at 9:00 a.m., Eastern Time, on April 19, 2018. Access is at www.pmi.com/2018Q1earnings. 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.

Impact of U.S. Tax Reform            
PMI's 2018 full-year diluted earnings per share forecast assumes a full-year effective tax rate of approximately 26%. The reduction in this rate compared to the full-year effective tax rate of 28% communicated in February 2018 mainly reflects two factors:
•
further analysis and interpretation of the scope and impact of the Tax Cuts and Jobs Act (the “Act”), primarily related to foreign tax credit limitations due to the Act's Global Intangible Low Taxed Income provisions; and
•
revised foreign income tax estimates due to a change in the mix of our foreign earnings.
The Act has significant complexity, and our final full-year effective tax rate may differ from this assumption, due to, among other things, additional guidance that may be issued by the U.S. Treasury Department and the Internal Revenue Service, related interpretations and clarifications of tax law, and earnings mix by taxing jurisdiction.
Dividends
During the quarter, PMI declared a regular quarterly dividend of $1.07, representing an annualized rate of $4.28 per common share.



- -2 -

Key Terms, Definitions and Explanatory Notes
General
•
"PMI" refers to Philip Morris International Inc. and its subsidiaries. Trademarks and service marks that are the registered property of, or licensed by, the subsidiaries of PMI, are italicized.
•
Comparisons are made to the same prior-year period unless otherwise stated.
•
Unless otherwise stated, references to total industry, total market, PMI shipment volume and PMI market share performance reflect cigarettes and heated tobacco units.
•
[NEW] Key market data regarding total market size, PMI shipments and market share can be found in Appendix 1 provided with this press release.
•
References to total international market, defined as worldwide cigarette and heated tobacco unit volume excluding the United States, total industry, total market and market shares are PMI estimates for tax-paid products 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.
•
"OTP" is defined as "other tobacco products," primarily roll-your-own and make-your-own cigarettes, pipe tobacco, cigars and cigarillos, and does not include reduced-risk products.
•
"Combustible products" is the term PMI uses to refer to cigarettes and OTP, combined.
•
"Total shipment volume" is defined as the combined total of cigarette shipment volume and heated tobacco unit shipment volume.
•
[NEW] Effective January 1, 2018, PMI began managing its business in six reporting segments as follows: the European Union Region (EU); the Eastern Europe Region (EE); the Middle East & Africa Region (ME&A), which includes PMI Duty Free; the South & Southeast Asia Region (S&SA); the East Asia & Australia Region (EA&A); and the Latin America & Canada Region (LA&C).
•
"North Africa" is defined as Algeria, Egypt, Libya, Morocco and Tunisia.
•
[NEW] "The GCC" (Gulf Cooperation Council) is defined as Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates (UAE).

Financial
•
[NEW] 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 control is transferred to the customer, typically either upon shipment or delivery of goods.
•
[NEW] PMI has adopted Accounting Standard Update ASU 2014-09 "Revenue from Contracts with Customers" as of January 1, 2018 on a retrospective basis. PMI made an accounting policy election to exclude excise taxes collected from customers from the measurement of the transaction price, thereby presenting revenues, net of excise taxes in all periods. The underlying principles of the new standard, relating to the measurement of revenue and the timing of recognition, are closely aligned with PMI's current business model and practices.
•
[NEW] PMI adopted Accounting Standard Update ASU 2017-07 "Compensation - Retirement Benefits" as of January 1, 2018 on a retrospective basis. Previously, total pension and other employee benefit costs were included in operating income. Beginning January 1, 2018, only the service cost component is required to be shown in operating income, while all other cost components are presented in a new line item “pension and other employee benefit costs" below operating income.
•
[NEW] Prior to 2018, management evaluated business segment performance, and allocated resources, based on operating companies income, or OCI. Effective January 1, 2018, management began evaluating business segment performance, and allocating resources, based on operating income, or OI.
•
[NEW] "Cost of sales" consists principally of: tobacco leaf, non-tobacco raw materials, labor and manufacturing costs; shipping and handling costs; and the cost of IQOS devices produced by third-party electronics manufacturing service providers.  Estimated costs associated with IQOS warranty programs are generally provided for in cost of sales in the period the related revenues are recognized.
•
[NEW] "Marketing, administration and research costs" include the costs of marketing and selling our products, other costs generally not related to the manufacture of our products (including general corporate expenses), and costs incurred to develop new products. The most significant components of our marketing, administration and research costs are marketing and sales expenses and general and administrative expenses.

- -3 -

•
[NEW] "Cost/Other" in the Financial Summary table of total PMI and the six reporting segments of this release reflects the currency-neutral variances of: cost of sales (excluding the volume/mix cost component); marketing, administration and research costs; asset impairment and exit costs; and amortization of intangibles.
•
[NEW] "Adjusted Operating Income Margin" is calculated as adjusted operating income, divided by net revenues.
•
[NEW] "Adjusted EBITDA" is defined as earnings before interest, taxes, depreciation, amortization and equity (income)/loss in unconsolidated subsidiaries, excluding asset impairment and exit costs, and unusual items.
•
"Net debt" is defined as total debt, less cash and cash equivalents.
•
[NEW] Management reviews net revenues, OI, OI margins, operating cash flow 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, tax items and other special items.
•
Management reviews these measures because they exclude changes in currency exchange rates and other factors that may distort underlying business trends, thereby improving the comparability of PMI’s business performance between reporting periods. Furthermore, PMI uses several of these measures in its management compensation program to promote internal fairness and a disciplined assessment of performance against company targets. PMI discloses these measures to enable investors to view the business through the eyes of management.
•
Non-GAAP measures used in this release should neither be considered in isolation nor as a substitute for the financial measures prepared in accordance with U.S. GAAP. For a reconciliation of non-GAAP measures to the most directly comparable GAAP measures, see the relevant schedules provided with this press release.

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 continued smoking.  PMI has a range of RRPs in various stages of development, scientific assessment and commercialization. Because PMI's RRPs do not burn tobacco, they produce an aerosol that contains far lower quantities of harmful and potentially harmful constituents than found in cigarette smoke.
•
[NEW] IQOS is a precisely controlled heating device into which a specially designed and proprietary tobacco unit is inserted and heated to generate an aerosol.
•
"Heated tobacco units," or "HTUs," is the term PMI uses to refer to heated tobacco consumables, which include the company's HEETS, HEETS Marlboro and HEETS FROM MARLBORO, defined collectively as HEETS, as well as Marlboro HeatSticks and Parliament HeatSticks.
•
[NEW] Net revenues related to RRPs represent the sale of heated tobacco units, IQOS devices and related accessories, and other nicotine-containing products, primarily e-vapor products, including shipping and handling charges billed to customers, net of sales and promotion incentives, and excise taxes. PMI recognizes revenue when control is transferred to the customer, typically either upon shipment or delivery of goods.
 

- -4 -


SHIPMENT VOLUME

PMI Shipment Volume by Region
 
First-Quarter
(million units)
 
2018

2017

Change

Cigarettes
 
 
 
 
European Union
 
39,671

42,540

(6.7
)%
Eastern Europe
 
22,039

24,596

(10.4
)%
Middle East & Africa
 
29,248

31,978

(8.5
)%
South & Southeast Asia
 
40,218

37,899

6.1
 %
East Asia & Australia
 
14,091

17,243

(18.3
)%
Latin America & Canada
 
19,013

19,296

(1.5
)%
Total PMI
 
164,280

173,552

(5.3
)%
 
 
 
 
 
Heated Tobacco Units
 
 
 
 
European Union
 
928

184

+100%

Eastern Europe
 
564

54

+100%

Middle East & Africa
 
709

51

+100%

South & Southeast Asia
 
—

—

—
 %
East Asia & Australia
 
7,342

4,145

77.1
 %
Latin America & Canada
 
23

1

+100%

Total PMI
 
9,566

4,435

+100%

 
 
 
 
 
Cigarettes and Heated Tobacco Units
 
 
 
 
European Union
 
40,599

42,724

(5.0
)%
Eastern Europe
 
22,603

24,650

(8.3
)%
Middle East & Africa
 
29,957

32,029

(6.5
)%
South & Southeast Asia
 
40,218

37,899

6.1
 %
East Asia & Australia
 
21,433

21,388

0.2
 %
Latin America & Canada
 
19,036

19,297

(1.4
)%
Total PMI
 
173,846

177,987

(2.3
)%
PMI's total shipment volume decreased by 2.3%, principally due to:
•
the EU, reflecting lower cigarette shipment volume mainly in France, Germany and Poland;
•
Eastern Europe, reflecting lower cigarette shipment volume mainly in Russia and Ukraine; and
•
Middle East & Africa, reflecting lower cigarette shipment volume mainly in the GCC, notably Saudi Arabia, and North Africa, notably Algeria, partly offset by higher cigarette shipment volume mainly in Turkey and PMI Duty Free;
partly offset by
•
South & Southeast Asia, reflecting higher cigarette shipment volume, driven mainly by Pakistan and Thailand, partly offset by Indonesia; and
•
East Asia & Australia, reflecting higher heated tobacco unit shipment volume, driven by Japan and Korea.
Excluding the net unfavorable impact of total estimated distributor inventory movements of approximately 2.1 billion units, driven mainly by Japan and Saudi Arabia, PMI's total shipment volume decreased by 1.1%.     
PMI shipment volume by brand is shown in the table below.

- -5 -



PMI Shipment Volume by Brand
 
First-Quarter
(million units)
 
2018

2017

Change

Cigarettes
 
 
 
 
Marlboro
 
57,973

62,399

(7.1
)%
L&M
 
19,225

21,913

(12.3
)%
Chesterfield
 
13,875

11,544

20.2
 %
Philip Morris
 
10,659

10,608

0.5
 %
Sampoerna A
 
8,624

9,913

(13.0
)%
Parliament
 
8,460

9,199

(8.0
)%
Bond Street
 
6,975

8,485

(17.8
)%
Dji Sam Soe
 
6,696

4,459

50.2
 %
Lark
 
5,517

6,526

(15.5
)%
Fortune
 
3,583

2,882

24.3
 %
Others
 
22,693

25,624

(11.4
)%
Total Cigarettes
 
164,280

173,552

(5.3
)%
Heated Tobacco Units
 
9,566

4,435

+100.0%

Total PMI
 
173,846

177,987

(2.3
)%
 
 
 
 
 
Note: Sampoerna A includes Sampoerna.
PMI's cigarette shipment volume of the following brands decreased:
•
Marlboro, mainly due to Germany, Japan and Saudi Arabia, partly offset by Indonesia and Turkey;
•
L&M, mainly due to Germany, North Africa, Russia and Saudi Arabia, partly offset by Thailand;
•
Sampoerna A in Indonesia, partly reflecting the impact of its retail price increasing past its round pack price point in the fourth quarter of 2017;
•
Parliament, mainly due to Japan, Russia and Saudi Arabia, partly offset by Turkey;
•
Bond Street, mainly due to Russia and Ukraine;
•
Lark, mainly due to Japan, partly offset by Turkey; and
•
"Others," mainly due to: mid-price brands, notably Sampoerna U in Indonesia, partly reflecting the impact of above-inflation retail price increases; and the successful portfolio consolidation of local, low-price brands into international trademarks, notably in Russia; partly offset by low-price brands in Pakistan.
PMI's cigarette shipment volume of the following brands increased:
•
Chesterfield, mainly driven by Brazil, Colombia, Italy, Saudi Arabia and Turkey;
•
Philip Morris, mainly driven by Russia, partly offset by Argentina and Italy;
•
Dji Sam Soe in Indonesia, notably reflecting the continued strong performance of its Magnum Mild 16s variant launched in the second quarter of 2017; and
•
Fortune in the Philippines, reflecting the favorable impact of its narrowed retail price gap to competitors' products.
The increase in PMI's heated tobacco unit shipment volume was driven by East Asia & Australia, primarily Japan and Korea.


- -6 -


FINANCIAL SUMMARY

Financial Summary -
Quarters Ended March 31,
 
 
 
 
Change
Fav./(Unfav.)
 
Variance
Fav./(Unfav.)
 
2018
2017
 
Total
Excl.
Curr.
 
Total
Cur-
rency
Price
Vol/
Mix
Cost/
Other
(in millions)
 
 
 
Net Revenues
 
$ 6,896

$ 6,064

 
13.7
 %
8.3
 %
 
832

327

342

163

—

Cost of Sales
 
(2,615)

(2,177)

 
(20.1
)%
(13.9
)%
 
(438
)
(136
)
—

(335
)
33

Marketing, Administration and Research Costs
 
(1,833)

(1,449)

 
(26.5
)%
(18.6
)%
 
(384
)
(115
)
—

—

(269
)
Amortization of Intangibles
 
(22)

(22)

 
—
 %
—
 %
 
—

—

—

—

—

Operating Income
 
$ 2,426

$ 2,416

 
0.4
 %
(2.7
)%
 
10

76

342

(172
)
(236
)
Asset Impairment & Exit Costs
 
—

—

 
—
 %
—
 %
 
—

—

—

—

—

Adjusted Operating Income
 
$ 2,426

$ 2,416

 
0.4
 %
(2.7
)%
 
10

76

342

(172
)
(236
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted Operating Income Margin
 
35.2
%
39.8
%
 
(4.6)pp

(4.0)pp

 
 
 
 
 
 
NET REVENUES BY PRODUCT CATEGORY
PMI Net Revenues
 
First-Quarter
(in millions)
 
 
 
 
Excl.

 
 
2018

2017

Change

Curr.

Combustible Products
 
 
 
 
 
European Union
 
$ 1,836

$ 1,709

7.4
 %
(5.8
)%
Eastern Europe
 
527

513

2.8
 %
(2.6
)%
Middle East & Africa
 
884

957

(7.7
)%
(9.0
)%
South & Southeast Asia
 
1,081

1,031

4.8
 %
5.6
 %
East Asia & Australia
 
737

813

(9.4
)%
(12.2
)%
Latin America & Canada
 
704

605

16.3
 %
16.5
 %
Total PMI
 
$ 5,769

$ 5,629

2.5
 %
(2.5
)%
 
 
 
 
 
 
RRPs
 
 
 
 
 
European Union
 
$ 152

$ 31

+100%

+100%

Eastern Europe
 
40

3

+100%

+100%

Middle East & Africa
 
77

4

+100%

+100%

South & Southeast Asia
 
—

—

—
 %
—
 %
East Asia & Australia
 
854

396

+100%

+100%

Latin America & Canada
 
4

—

—
 %
—
 %
Total PMI
 
$ 1,127

$ 435

+100%

+100%

 
 
 
 
 
 
Combustible Products and RRPs
 
 
 
 
 
European Union
 
$ 1,988

$ 1,740

14.3
 %
0.2
 %
Eastern Europe
 
567

516

9.9
 %
4.3
 %
Middle East & Africa
 
961

961

—
 %
(1.5
)%
South & Southeast Asia
 
1,081

1,031

4.8
 %
5.6
 %
East Asia & Australia
 
1,591

1,210

31.5
 %
27.5
 %
Latin America & Canada
 
708

606

16.8
 %
17.0
 %
Total PMI
 
$ 6,896

$ 6,064

13.7
 %
8.3
 %
Note: Sum of product categories or Regions might not foot to total PMI due to rounding.

- -7 -


During the quarter, net revenues, excluding favorable currency, increased by 8.3%, driven by a favorable pricing variance from across all Regions, notably S&SA and LA&C, including higher IQOS device sales, mainly in EA&A, as well as favorable volume/mix, driven primarily by EA&A, despite the impact of the tax-driven cigarette industry volume decline and related down-trading in the GCC, principally Saudi Arabia.    
Operating income, excluding favorable currency, decreased by 2.7%, mainly due to: unfavorable volume/mix, largely due to the GCC, principally Saudi Arabia; higher marketing, administration and research costs, primarily reflecting increased investment behind reduced-risk products, predominantly in the EU; and the full-year contribution of $80 million to the Foundation for a Smoke-Free World; partly offset by a favorable pricing variance across all Regions and favorable manufacturing costs, notably in S&SA and EA&A.
Adjusted operating income margin, excluding currency, decreased by 4.0 points to 35.8%, reflecting the factors mentioned above, as detailed in the attached Schedule 6.

EUROPEAN UNION REGION

Financial Summary -
Quarters Ended March 31,
 
 
 
 
Change
Fav./(Unfav.)
 
Variance
Fav./(Unfav.)
 
2018
2017
 
Total
Excl.
Curr.
 
Total
Cur-
rency
Price
Vol/
Mix
Cost/
Other
(in millions)
 
 
 
Net Revenues
 
$ 1,988

$ 1,740

 
14.3
 %
0.2
 %
 
248

245

46

(43
)
—

 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Income
 
$ 740

$ 748

 
(1.1
)%
(15.8
)%
 
(8
)
110

46

(67
)
(97
)
Asset Impairment & Exit Costs
 
—

—

 
—
 %
—
 %
 
—

—

—

—

—

Adjusted Operating Income
 
$ 740

$ 748

 
(1.1
)%
(15.8
)%
 
(8
)
110

46

(67
)
(97
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted Operating Income Margin
 
37.2
%
43.0
%
 
(5.8)pp

(6.9)pp

 
 
 
 
 
 
During the quarter, net revenues, excluding favorable currency, increased by 0.2%, mainly reflecting: a favorable pricing variance, driven principally by Germany, Poland and the United Kingdom, partly offset by France; and unfavorable volume/mix, notably in France and Germany, partly offset by Italy.
Operating income, excluding favorable currency, decreased by 15.8%, mainly due to: unfavorable volume/mix, notably in France and Germany, and higher marketing, administration and research costs, primarily reflecting increased investment behind reduced-risk products across the Region, partly offset by a favorable pricing variance.
Adjusted operating income margin, excluding currency, decreased by 6.9 points to 36.1%, reflecting the factors mentioned above, as detailed on Schedule 6.

- -8 -



Total Market, PMI Shipment & Market Share Commentaries

European Union Key Data
 
First-Quarter
 
 
 
 
Change

 
 
2018

2017

% / pp

Total Market (billion units)
 
107.7

112.3

(4.1
)%
 
 
 
 
 
PMI Shipment Volume (million units)
 
 
 
 
Cigarettes
 
39,671

42,540

(6.7
)%
Heated Tobacco Units
 
928

184

+100.0%

Total EU
 
40,599

42,724

(5.0
)%
 
 
 
 
 
PMI Market Share
 
 
 
 
Marlboro
 
18.3
%
18.8
%
(0.5
)
L&M
 
6.7
%
7.0
%
(0.3
)
Chesterfield
 
5.9
%
6.1
%
(0.2
)
Philip Morris
 
3.1
%
3.2
%
(0.1
)
HEETS
 
0.8
%
0.1
%
0.7

Others
 
3.4
%
3.2
%
0.2

Total EU
 
38.2
%
38.4
%
(0.2
)
In the quarter, the estimated total market in the EU decreased by 4.1% to 107.7 billion units, or by 3.4% excluding the net impact of unfavorable estimated trade inventory movements, notably due to:
•
France, down by 9.4%, primarily reflecting the impact of significant excise-tax driven price increases in November 2017 and March 2018;
•
Germany, down by 7.9%, or by 3.0% excluding the net impact of estimated trade inventory movements largely related to the fourth quarter of 2017, primarily reflecting the impact of pricing in 2017 and in March 2018; and
•
Poland, down by 3.7%, or by 1.8% excluding the net impact of estimated trade inventory movements largely related to the fourth quarter of 2017.
PMI's total shipment volume decreased by 5.0% to 40.6 billion units, notably due to:
•
France, down by 8.9%, primarily due to a lower total market, partly offset by higher market share primarily driven by: Marlboro, partly resulting from the narrowing of its retail price gap with low price brands to €0.30/pack as of March 2018; and Philip Morris, reflecting its momentum during the first two months of 2018 driven by its price repositioning to €7.00/pack in November 2017;
•
Germany, down by 12.4%, primarily due to a lower total market and market share, reflecting the unfavorable impact of the estimated trade inventory movements; and
•
Poland, down by 9.2%, primarily due to: a lower total market, as well as lower market share, mainly due to: Marlboro, reflecting the impact of a widened retail price gap with the low price end of the market, as well as switching to reduced-risk products; and L&M, reflecting an unfavorable comparison with the first quarter of 2017 related to brand support;
partly offset by
•
Italy, up by 2.1%, driven by favorable comparisons to the first quarter of 2017 related to distributor inventory movements, as well as higher heated tobacco unit shipment volume; and

- -9 -


•
Spain, up by 1.9%, driven by favorable comparisons to the first quarter of 2017 related to distributor inventory movements.
PMI's total market share decreased by 0.2 points to 38.2%, with declines in Germany, mainly reflecting the unfavorable impact of the estimated trade inventory movements, and Poland, partly offset by gains in France, Italy, Romania and Spain.
   
EASTERN EUROPE REGION

Financial Summary -
Quarters Ended March 31,
 
 
 
 
Change
Fav./(Unfav.)
 
Variance
Fav./(Unfav.)
 
2018
2017
 
Total
Excl.
Curr.
 
Total
Cur-
rency
Price
Vol/
Mix
Cost/
Other
(in millions)
 
 
 
Net Revenues
 
$ 567

$ 516

 
9.9
 %
4.3
 %
 
51

29

60

(38
)
—

 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Income
 
$ 151

$ 159

 
(5.0
)%
(10.1
)%
 
(8
)
8

60

(47
)
(29
)
Asset Impairment & Exit Costs
 
—

—

 
—
 %
—
 %
 
—

—

—

—

—

Adjusted Operating Income
 
$ 151

$ 159

 
(5.0
)%
(10.1
)%
 
(8
)
8

60

(47
)
(29
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted Operating Income Margin
 
26.6
%
30.8
%
 
(4.2)pp

(4.2)pp

 
 
 
 
 
 
During the quarter, net revenues, excluding favorable currency, increased by 4.3%, principally driven by a favorable pricing variance, notably in Russia and Ukraine, partly offset by unfavorable volume/mix, primarily due to Russia.
Operating income, excluding favorable currency, decreased by 10.1%, principally due to: unfavorable volume/mix; higher manufacturing costs; and higher marketing, administration and research costs primarily reflecting increased investments behind IQOS in Russia; partly offset by a favorable pricing variance.
Adjusted operating income margin, excluding currency, decreased by 4.2 points to 26.6%, reflecting the factors mentioned above, as detailed on Schedule 6.

Total Market, PMI Shipment & Market Share Commentaries    
In the quarter, the estimated total market in Eastern Europe decreased, notably due to:
•
Russia, down by 8.3%, or by 7.3% excluding the unfavorable impact of estimated trade inventory movements, primarily reflecting the timing and impact of retail price increases in 2017 and the quarter, as well as an increase in the prevalence of illicit trade; and
•
Ukraine, down by 11.4%, or by 9.4% excluding the net impact of estimated trade inventory movements related to the fourth quarter of 2017, primarily reflecting the impact of excise tax-driven retail price increases in 2017 and the quarter.

PMI Shipment Volume
 
First-Quarter
(million units)
 
2018

2017

Change

Cigarettes
 
22,039

24,596

(10.4
)%
Heated Tobacco Units
 
564

54

+100.0%

Total Eastern Europe
 
22,603

24,650

(8.3
)%
PMI's total shipment volume decreased by 8.3% to 22.6 billion units, notably in:

- -10 -


•
Russia, down by 13.9%, or by 12.7% excluding the unfavorable impact of estimated inventory movements, mainly due to the lower total market; lower market share, largely due to Bond Street, partly reflecting the impact of down-trading to competitive products in the low price segment, partly offset by higher share of premium-priced brands; and
•
Ukraine, down by 9.5%, mainly due to the lower total market;
partly offset by
•
higher heated tobacco unit shipment volume, notably in Russia and Ukraine.
    
MIDDLE EAST & AFRICA REGION

Financial Summary -
Quarters Ended March 31,
 
 
 
 
Change
Fav./(Unfav.)
 
Variance
Fav./(Unfav.)
 
2018
2017
 
Total
Excl.
Curr.
 
Total
Cur-
rency
Price
Vol/
Mix
Cost/
Other
(in millions)
 
 
 
Net Revenues
 
$ 961

$ 961

 
—
 %
(1.5
)%
 
—

14

19

(33
)
—

 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Income
 
$ 374

$ 491

 
(23.8
)%
(17.3
)%
 
(117
)
(32
)
19

(50
)
(54
)
Asset Impairment & Exit Costs
 
—

—

 
—
 %
—
 %
 
—

—

—

—

—

Adjusted Operating Income
 
$ 374

$ 491

 
(23.8
)%
(17.3
)%
 
(117
)
(32
)
19

(50
)
(54
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted Operating Income Margin
 
38.9
%
51.1
%
 
(12.2)pp

(8.2)pp

 
 
 
 
 
 
During the quarter, net revenues, excluding favorable currency decreased by 1.5%, principally due to unfavorable volume/mix, primarily due to Saudi Arabia, partly offset by Turkey. The unfavorable volume/mix was partly offset by a favorable pricing variance, driven mainly by Saudi Arabia, partly offset by Turkey.
Operating income, excluding unfavorable currency, decreased by 17.3%, predominantly due to unfavorable volume/mix and higher marketing, administration and research costs primarily related to Saudi Arabia, partly offset by a favorable pricing variance.
Adjusted operating income margin, excluding currency, decreased by 8.2 points to 42.9%, reflecting the factors mentioned above, as detailed on Schedule 6.

Total Market, PMI Shipment & Market Share Commentaries    
In the quarter, the estimated total market in the Middle East & Africa decreased, notably due to:
•
Algeria, down by 26.7%, or by 4.4% excluding the net unfavorable impact of estimated trade inventory movements, primarily reflecting an increase in the prevalence of illicit trade;
•
Saudi Arabia, down by 40.8%, primarily reflecting the impact of retail price increases in 2017 and the quarter following the introduction of the new excise tax in June 2017 and VAT in January 2018;
partly offset by
•
Turkey, up by 12.4%, primarily reflecting a lower prevalence of illicit trade.


- -11 -


PMI Shipment Volume
 
First-Quarter
(million units)
 
2018

2017

Change

Cigarettes
 
29,248

31,978

(8.5
)%
Heated Tobacco Units
 
709

51

+100.0%

Total Middle East & Africa
 
29,957

32,029

(6.5
)%
PMI's total shipment volume decreased by 6.5% to 30.0 billion units, notably in:
•
Algeria, down by 29.1%, mainly reflecting the lower total market; and
•
Saudi Arabia, down by 74.5%, or by 57.9% excluding the unfavorable impact of adjustments to distributor inventory levels in the quarter, reflecting the lower total market and market share due to the impact of the aforementioned excise tax and VAT increases on retail prices;
partly offset by
•
Turkey, up by 16.8%, reflecting a higher total market and market share; and
•
higher heated tobacco shipment volume, notably in PMI Duty Free.    

SOUTH & SOUTHEAST ASIA REGION

Financial Summary -
Quarters Ended March 31,
 
 
 
 
Change
Fav./(Unfav.)
 
Variance
Fav./(Unfav.)
 
2018
2017
 
Total
Excl.
Curr.
 
Total
Cur-
rency
Price
Vol/
Mix
Cost/
Other
(in millions)
 
 
 
Net Revenues
 
$ 1,081

$ 1,031

 
4.8
%
5.6
%
 
50

(8
)
102

(44
)
—

 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Income
 
$ 429

$ 370

 
15.9
%
19.2
%
 
59

(12
)
102

(54
)
23

Asset Impairment & Exit Costs
 
—

—

 
—
%
—
%
 
—

—

—

—

—

Adjusted Operating Income
 
$ 429

$ 370

 
15.9
%
19.2
%
 
59

(12
)
102

(54
)
23

 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted Operating Income Margin
 
39.7
%
35.9
%
 
3.8pp

4.6pp

 
 
 
 
 
 
During the quarter, net revenues, excluding unfavorable currency, increased by 5.6%, reflecting: a favorable pricing variance, driven principally by Indonesia and the Philippines, partly offset by Thailand. The favorable pricing variance was partly offset by unfavorable volume/mix, largely due to Indonesia, partly offset by Pakistan and Thailand.
Operating income, excluding unfavorable currency, increased by 19.2%, mainly driven by a favorable pricing variance, as well as a favorable manufacturing and marketing, administration and research cost comparison, notably in Indonesia and the Philippines. The favorable pricing variance and cost comparison were partly offset by unfavorable volume/mix, mainly in Indonesia, partly offset by Pakistan and Thailand.
Adjusted operating income margin, excluding currency, increased by 4.6 points to 40.5%, reflecting the factors mentioned above, as detailed on Schedule 6.

Total Market, PMI Shipment & Market Share Commentaries
In the quarter, the estimated total market in South & Southeast Asia increased, notably driven by:
•
Pakistan, up over 100% or approximately 8.4 billion units, or by 31.4% excluding the favorable impact of estimated trade inventory movements, notably reflecting an increase in the duty-paid market driven by a reduction in the prevalence of illicit trade resulting from excise tax reform in May 2017;

- -12 -


partly offset by
•
Indonesia, down by 2.3%, reflecting soft consumer spending and above inflation excise tax-driven retail price increases in the quarter;
•
the Philippines, down by 7.8%, reflecting the impact of excise tax-driven retail price increases in 2017 and an approximately 25% excise-tax driven increase to the industry weighted average retail pack price in the quarter; and
•
Thailand, down by 8.9%, primarily reflecting the impact of excise tax-driven price increases in the quarter.
    
PMI Shipment Volume
 
First-Quarter
(million units)
 
2018

2017

Change

Cigarettes
 
40,218

37,899

6.1
%
Heated Tobacco Units
 
—

—

—
%
Total South & Southeast Asia
 
40,218

37,899

6.1
%
PMI's total shipment volume increased by 6.1% to 40.2 billion units, mainly driven by:
•
Pakistan, up over 100%, reflecting the higher total market, primarily driven by the reduction in the prevalence of illicit trade and the favorable impact of estimated trade inventory movements; and
•
Thailand, up by 45.9%, mainly reflecting higher market share driven by the price repositioning of L&M;
partly offset by
•
Indonesia, down by 1.8%, mainly due to the lower total market, partially offset by higher market share, driven by Marlboro Filter Black 20s and Dji Sam Soe Magnum Mild 16s; and
•
the Philippines, down by 1.4%, mainly due to the lower total market, largely offset by higher market share.

EAST ASIA & AUSTRALIA REGION

Financial Summary -
Quarters Ended March 31,
 
 
 
 
Change
Fav./(Unfav.)
 
Variance
Fav./(Unfav.)
 
2018
2017
 
Total
Excl.
Curr.
 
Total
Cur-
rency
Price
Vol/
Mix
Cost/
Other
(in millions)
 
 
 
Net Revenues
 
$ 1,591

$ 1,210

 
31.5
%
27.5
%
 
381

48

15

318

—

 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Income
 
$ 515

$ 472

 
9.1
%
5.7
%
 
43

16

15

46

(34
)
Asset Impairment & Exit Costs
 
—

—

 
—
%
—
%
 
—

—

—

—

—

Adjusted Operating Income
 
$ 515

$ 472

 
9.1
%
5.7
%
 
43

16

15

46

(34
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted Operating Income Margin
 
32.4
%
39.0
%
 
(6.6)pp

(6.7)pp

 
 
 
 
 
 
During the quarter, net revenues, excluding favorable currency, increased by 27.5%, reflecting a favorable pricing variance, driven principally by Australia and Japan, as well as a favorable volume/mix, driven by heated tobacco unit volume in Japan and Korea.
Operating income, excluding favorable currency, increased by 5.7%, mainly driven by a favorable pricing variance, favorable volume/mix, mainly in Korea, and a favorable manufacturing cost comparison driven by Japan, partly offset by higher marketing, administration and research costs, principally related to increased investment behind reduced-risk products in Japan and Korea and affiliate reorganization costs in Australia.

- -13 -


Adjusted operating income margin, excluding currency, decreased by 6.7 points to 32.3%, reflecting the factors mentioned above, as detailed on Schedule 6.

Total Market, PMI Shipment & Market Share Commentaries    
In the quarter, the estimated total market in East Asia & Australia decreased, notably due to:
•
Australia, down by 8.4%, primarily reflecting the impact of excise tax-driven retail price increases in 2017 and in the quarter;
•
Japan, down by 2.3%, primarily reflecting the decline of the total estimated cigarette market; and
•
Taiwan, down by 20.2%, primarily reflecting the impact of excise tax-driven retail price increases in June 2017.

PMI Shipment Volume
 
First-Quarter
(million units)
 
2018

2017

Change

Cigarettes
 
14,091

17,243

(18.3
)%
Heated Tobacco Units
 
7,342

4,145

77.1
 %
Total East Asia & Australia
 
21,433

21,388

0.2
 %
PMI's total shipment volume increased by 0.2% to 21.4 billion units, or by 11.2% excluding the unfavorable impact of an estimated 1.0 billion cigarette units and 1.4 billion heated tobacco units of distributor inventory movements in Japan compared to the first quarter of 2017, driven by:
•
higher heated tobacco unit shipment volume in Japan and Korea, reflecting higher market share;
largely offset by
•
lower cigarette shipment in Japan and Korea, down by 25.8% and 6.1%, respectively, primarily reflecting the lower total cigarette market and lower cigarette market share.

LATIN AMERICA & CANADA REGION

Financial Summary -
Quarters Ended March 31,
 
 
 
 
Change
Fav./(Unfav.)
 
Variance
Fav./(Unfav.)
 
2018
2017
 
Total
Excl.
Curr.
 
Total
Cur-
rency
Price
Vol/
Mix
Cost/
Other
(in millions)
 
 
 
Net Revenues
 
$ 708

$ 606

 
16.8
%
17.0
%
 
102

(1
)
100

3

—

 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Income
 
$ 217

$ 176

 
23.3
%
31.3
%
 
41

(14
)
100

—

(45
)
Asset Impairment & Exit Costs
 
—

—

 
—
%
—
%
 
—

—

—

—

—

Adjusted Operating Income
 
$ 217

$ 176

 
23.3
%
31.3
%
 
41

(14
)
100

—

(45
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted Operating Income Margin
 
30.6
%
29.0
%
 
1.6pp

3.6pp

 
 
 
 
 
 
During the quarter, net revenues, excluding unfavorable currency, increased by 17.0%, reflecting a favorable pricing variance across the Region, notably Argentina, Canada and Mexico.
Operating income, excluding unfavorable currency, increased by 31.3%, largely reflecting a favorable pricing variance, partly offset by higher manufacturing costs, mainly in Argentina, and higher marketing, administration and research costs, partly related to increased investment behind reduced-risk products in the Region.
Adjusted operating income margin, excluding currency, increased by 3.6 points to 32.6%, principally driven by the factors mentioned above, as detailed on Schedule 6.

- -14 -



Total Market, PMI Shipment & Market Share Commentaries    
In the quarter, the estimated total market in Latin America & Canada decreased, notably due to:
•
Brazil, down by 8.0%, primarily reflecting the impact of retail price increases in 2017;
•
Colombia, down by 15.7%, primarily reflecting the impact of excise tax-driven retail price increases of approximately 25%; and
•
Mexico, down by 2.7%, primarily reflecting the impact of the retail price increases in January 2018.

PMI Shipment Volume
 
First-Quarter
(million units)
 
2018

2017

Change

Cigarettes
 
19,013

19,296

(1.5
)%
Heated Tobacco Units
 
23

1

+100.0%

Total Latin America & Canada
 
19,036

19,297

(1.4
)%
PMI's total shipment volume decreased by 1.4% to 19.0 billion units, notably in:
•
Argentina, down by 1.7%, reflecting the lower total market and lower market share; and
•
Mexico, down by 4.0%, reflecting the lower total market and lower market share.


- -15 -


Philip Morris International: Who We Are
We are a leading international tobacco company engaged in the manufacture and sale of cigarettes and other nicotine-containing products in markets outside the United States of America.  We’re building our future on smoke-free products that are a much better consumer choice than continuing to smoke cigarettes.  Through multidisciplinary capabilities in product development, state-of-the-art facilities and scientific substantiation, we aim to ensure that our smoke-free products meet adult consumer preferences and rigorous regulatory requirements. Our vision is that these products ultimately replace cigarettes to the benefit of adult smokers, society, our company and our shareholders.  For more information, see www.pmi.com and www.pmiscience.com.

Forward-Looking and Cautionary Statements
This press release contains 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 materialize, or underlying assumptions prove inaccurate, actual results could vary materially from those contained in such forward-looking statements. Pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, PMI is identifying important factors that, individually or in the aggregate, could cause actual results and outcomes to differ materially from those contained in any forward-looking statements made by PMI.
PMI's business risks include: excise tax increases and discriminatory tax structures; increasing marketing and regulatory restrictions that could reduce our competitiveness, eliminate our ability to communicate with adult consumers, or ban certain of our products; health concerns relating to the use of tobacco products and exposure to environmental tobacco smoke; litigation related to tobacco use; intense competition; the effects of global and individual country economic, regulatory and political developments, natural disasters and conflicts; changes in adult smoker behavior; lost revenues as a result of counterfeiting, contraband and cross-border purchases; governmental investigations; unfavorable currency exchange rates and currency devaluations, and limitations on the ability to repatriate funds; adverse changes in applicable corporate tax laws; adverse changes in the cost and quality of tobacco and other agricultural products and raw materials; and the integrity of its information systems. PMI's future profitability may also be adversely affected should it be unsuccessful in its attempts to produce and commercialize reduced-risk products or if regulation or taxation do not differentiate between such products and cigarettes; if it is unable to successfully introduce new products, promote brand equity, enter new markets or improve its margins through increased prices and productivity gains; if it is unable to expand its brand portfolio internally or through acquisitions and the development of strategic business relationships; or if it is unable to attract and retain the best global talent.
PMI is further subject to other risks detailed from time to time in its publicly filed documents, including the Form 10-K for the year ended December 31, 2017. PMI cautions that the foregoing list of important factors is not a complete discussion of all potential risks and uncertainties. PMI does not undertake to update any forward-looking statement that it may make from time to time, except in the normal course of its public disclosure obligations.


- -16 -


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Appendix 1
 
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries
Key Market Data
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarters Ended March 31,
Market
 
Total Market,
bio units
 
PMI Shipments, bio units
 
PMI Market Share, %
 
 
Total
 
Cigarette
 
HTU
 
Total
 
HTU
 
2018
2017
% Change
 
2018
2017
% Change
 
2018
2017
% Change
 
2018
2017
% Change
 
2018
2017
pp Change
 
2018
2017
pp Change
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
European Union
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
France
 
9.8

10.8

(9.4
)
 
4.3

4.7

(8.9
)
 
4.3

4.7

(8.8
)
 
—

—

—

 
44.4

42.8

1.6

 
0.1

—

0.1

Germany
 
16.1

17.5

(7.9
)
 
5.8

6.7

(12.4
)
 
5.8

6.7

(13.2
)
 
0.1

—

—

 
36.3

38.2

(1.9
)
 
0.4

—

0.4

Italy
 
16.1

16.2

(0.9
)
 
8.0

7.8

2.1

 
7.7

7.7

(0.4
)
 
0.3

0.1

+100

 
52.1

51.7

0.4

 
1.5

0.5

1.0

Poland
 
9.8

10.2

(3.7
)
 
3.9

4.3

(9.2
)
 
3.9

4.3

(10.3
)
 
—

—

—

 
39.7

42.1

(2.4
)
 
0.5

—

0.5

Spain
 
9.9

9.9

0.3

 
3.2

3.2

1.9

 
3.2

3.2

2.2

 
—

—

—

 
32.3

32.1

0.2

 
0.3

0.1

0.2

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Eastern Europe
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Russia
(1)
 
51.2

55.8

(8.3
)
 
12.8

14.8

(13.9
)
 
12.5

14.8

(15.5
)
 
0.3

—

—

 
26.3

27.4

(1.1
)
 
—

—

—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Middle East & Africa
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Saudi Arabia
 
4.9

8.2

(40.8
)
 
1.1

4.2

(74.5
)
 
1.1

4.2

(74.5
)
 
—

—

—

 
41.6

54.1

(12.5
)
 
—

—

—

Turkey
(1)
 
24.7

22.0

12.4

 
11.5

9.8

16.8

 
11.5

9.8

16.8

 
—

—

—

 
43.1

42.9

0.2

 
—

—

—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
South & Southeast Asia
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Indonesia
 
69.3

71.0

(2.3
)
 
23.0

23.4

(1.8
)
 
23.0

23.4

(1.8
)
 
—

—

—

 
33.2

33.0

0.2

 
—

—

—

Philippines
 
15.3

16.6

(7.8
)
 
10.8

11.0

(1.4
)
 
10.8

11.0

(1.4
)
 
—

—

—

 
70.5

65.9

4.6

 
—

—

—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
East Asia & Australia
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Australia
 
2.9

3.2

(8.4
)
 
0.8

0.9

(5.6
)
 
0.8

0.9

(5.6
)
 
—

—

—

 
28.7

27.8

0.9

 
—

—

—

Japan
 
39.7

40.6

(2.3
)
 
14.1

14.8

(4.9
)
 
7.9

10.7

(25.8
)
 
6.2

4.1

49.3

 
34.7

30.0

4.7

 
15.8

7.1

8.7

Korea
 
15.8

16.1

(2.2
)
 
4.0

3.0

31.7

 
2.9

3.0

(6.1
)
 
1.2

—

—

 
25.5

19.1

6.4

 
7.3

—

7.3

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Latin America & Canada
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Argentina
 
9.2

9.3

(1.0
)
 
6.8

6.9

(1.7
)
 
6.8

6.9

(1.7
)
 
—

—

—

 
74.2

74.8

(0.6
)
 
—

—

—

Canada
 
4.7

4.8

(3.6
)
 
1.8

1.8

2.5

 
1.8

1.8

2.2

 
—

—

—

 
39.0

35.2

3.8

 
0.1

—

0.1

Mexico
 
7.6

7.9

(2.7
)
 
4.9

5.1

(4.0
)
 
4.9

5.1

(4.0
)
 
—

—

—

 
63.5

64.4

(0.9
)
 
—

—

—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) PMI Cigarette Market Share February QTD as measured by Nielsen
Note: % change for Total Market and PMI shipments is computed based on million units




 
 
 
 
 
 
 
Schedule 1
 
 
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries
Diluted Earnings Per Share (EPS)
($ in millions, except per share data) / (Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
Diluted EPS
 
Quarters Ended
 
 
 
March 31,
 
 
2018 Diluted Earnings Per Share (1)
 
 
 
$
1.00
 
 
 
 
 
2017 Diluted Earnings Per Share (1)
 
 
 
$
1.02
 
 
 
 
 
Change
 
 
 
$
(0.02
)
 
 
 
 
% Change
 
 
 
(2.0
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
Reconciliation:
 
 
 
 
 
 
 
 
2017 Diluted Earnings Per Share (1)
 
 
 
$
1.02
 
 
 
 
 
2017 Asset impairment and exit costs
 
 
 
—
 
 
 
 
 
2017 Tax items
 
 
 
(0.04
)
 
 
 
 
2018 Asset impairment and exit costs
 
 
 
—
 
 
 
 
 
2018 Tax items
 
 
 
—
 
 
 
 
 
Currency
 
 
 
0.03
 
 
 
 
 
Interest
 
 
 
—
 
 
 
 
 
Change in tax rate
 
 
 
0.03
 
 
 
 
 
Operations (2)
 
 
 
(0.04
)
 
 
 
 
2018 Diluted Earnings Per Share (1)
 
 
 
$
1.00
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) Basic and diluted EPS were calculated using the following (in millions):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarters Ended
 
 
 
 
March 31,
 
 
 
 
2018
 
 
2017
 
 
 
Net Earnings attributable to PMI
 
$ 1,556
 
$ 1,590
 
 
Less distributed and undistributed earnings attributable
to share-based payment awards
 
3
 
 
3
 
 
 
Net Earnings for basic and diluted EPS
 
$ 1,553
 
$ 1,587
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted-average shares for basic EPS
 
1,553
 
 
1,552
 
 
 
Plus Contingently Issuable Performance Stock Units
 
1
 
 
1
 
 
 
Weighted-average shares for diluted EPS
 
1,554
 
 
1,553
 
 
 
 
 
 
 
 
 
 
 
 
 
(2) Includes the impact of shares outstanding and share-based payments




 
 
 
 
 
 
 
Schedule 2
 
 
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 March 31,
 
 
 
 
 
 
 
2018

2017

% Change

 
 
 
 
 
Reported Diluted EPS
 
$ 1.00
$ 1.02
(2.0
)%
 
 
 
 
 
Currency
 
0.03

 
 
 
 
 
 
 
Reported Diluted EPS, excluding Currency
 
$ 0.97
$ 1.02
(4.9
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarters Ended March 31,
 
 
Year Ended
 
 
 
 
2018

2017

% Change

 
 
2017
 
 
Reported Diluted EPS
 
$ 1.00
$ 1.02
(2.0
)%
 
 
$ 3.88
 
 
Asset impairment and exit costs
 
—

—

 
 
 
—

 
 
Tax items
 
—

(0.04
)
 
 
 
0.84

 
 
Adjusted Diluted EPS
 
$ 1.00
$ 0.98
2.0
 %
 
 
$ 4.72
 
 
Currency
 
0.03

 
 
 
 
 
 
 
Adjusted Diluted EPS, excluding Currency
 
$ 0.97
$ 0.98
(1.0
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
 




 
 
 
 
 
 
 
 
 
 
 
Schedule 3
 
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
Revenues
Currency
Net
Revenues
excluding Currency
Acquisitions
Net
Revenues excluding Currency & Acquisitions
 
Quarters Ended
March 31,
 
Net
Revenues
 
Total
Excluding Currency
Excluding Currency & Acquisitions
 
 
 
 
 
 
 
 
 
 
 
 
 
2018
 
Combustible Products
 
2017
 
% Change
$ 1,836
$ 226
$ 1,610
—
$ 1,610
 
European Union
 
$ 1,709
 
7.4
 %
(5.8
)%
(5.8
)%
527

27

500

—

500

 
Eastern Europe
 
513

 
2.8
 %
(2.6
)%
(2.6
)%
884

12

871

—

871

 
Middle East & Africa
 
957

 
(7.7
)%
(9.0
)%
(9.0
)%
1,081

(8
)
1,089

—

1,089

 
South & Southeast Asia
 
1,031

 
4.8
 %
5.6
 %
5.6
 %
737

22

715

—

715

 
East Asia & Australia
 
813

 
(9.4
)%
(12.2
)%
(12.2
)%
704

(1
)
705

—

705

 
Latin America & Canada
 
605

 
16.3
 %
16.5
 %
16.5
 %
$ 5,769
$ 279
$ 5,490
—
$ 5,490
 
Total Combustible
 
$ 5,629
 
2.5
 %
(2.5
)%
(2.5
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
2018
 
Reduced-Risk Products
 
2017
 
% Change
$ 152
$ 19
$ 133
—
$ 133
 
European Union
 
$ 31
 
+100%

+100%

+100%

40

2

38

—

38

 
Eastern Europe
 
3

 
+100%

+100%

+100%

77

2

76

—

76

 
Middle East & Africa
 
4

 
+100%

+100%

+100%

—

—

—

—

—

 
South & Southeast Asia
 
—

 
—
 %
—
 %
—
 %
854

26

828

—

828

 
East Asia & Australia
 
396

 
+100%

+100%

+100%

4

—

4

—

4

 
Latin America & Canada
 
—

 
—
 %
—
 %
—
 %
$ 1,127
$ 48
$ 1,079
—
$ 1,079
 
Total RRPs
 
$ 435
 
+100%

+100%

+100%

 
 
 
 
 
 
 
 
 
 
 
 
 
2018
 
PMI
 
2017
 
% Change
$ 1,988
$ 245
$ 1,743
—
$ 1,743
 
European Union
 
$ 1,740
 
14.3
 %
0.2
 %
0.2
 %
567

29

538

—

538

 
Eastern Europe
 
516

 
9.9
 %
4.3
 %
4.3
 %
961

14

947

—

947

 
Middle East & Africa
 
961

 
—
 %
(1.5
)%
(1.5
)%
1,081

(8
)
1,089

—

1,089

 
South & Southeast Asia
 
1,031

 
4.8
 %
5.6
 %
5.6
 %
1,591

48

1,543

—

1,543

 
East Asia & Australia
 
1,210

 
31.5
 %
27.5
 %
27.5
 %
708

(1
)
709

—

709

 
Latin America & Canada
 
606

 
16.8
 %
17.0
 %
17.0
 %
$ 6,896
$ 327
$ 6,569
—
$ 6,569
 
Total PMI
 
$ 6,064
 
13.7
 %
8.3
 %
8.3
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
Note: Sum of product categories or Regions might not foot to total PMI due to roundings. “-“ indicates amounts between -$0.5 million and +$0.5 million.




 
 
 
 
 
 
 
 
 
 
 
Schedule 4
 
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries
Reconciliation of Non-GAAP Measures
Adjustments of Operating Income for the Impact of Currency and Acquisitions
($ in millions) / (Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Income
Currency
Operating Income excluding Currency
Acquisitions
Operating Income excluding Currency & Acquisitions
 
 
 
Operating Income
 
Total
Excluding Currency
Excluding Currency & Acquisitions
 
 
 
 
 
 
 
 
 
 
 
 
 
2018
 
Quarters Ended
March 31,
 
2017
 
% Change
$ 740
$ 110
$ 630
—
$ 630
 
European Union
 
$ 748
 
(1.1
)%
(15.8
)%
(15.8
)%
151

8

143

—

143

 
Eastern Europe
 
159

 
(5.0
)%
(10.1
)%
(10.1
)%
374

(32
)
406

—

406

 
Middle East & Africa
 
491

 
(23.8
)%
(17.3
)%
(17.3
)%
429

(12
)
441

—

441

 
South & Southeast Asia
 
370

 
15.9
 %
19.2
 %
19.2
 %
515

16

499

—

499

 
East Asia & Australia
 
472

 
9.1
 %
5.7
 %
5.7
 %
217

(14
)
231

—

231

 
Latin America & Canada
 
176

 
23.3
 %
31.3
 %
31.3
 %
$ 2,426
$ 76
$ 2,350
—
$ 2,350
 
Total PMI
 
$ 2,416
 
0.4
 %
(2.7
)%
(2.7
)%





 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Schedule 5
 
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)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Income
Asset Impairment
& Exit Costs
Adjusted Operating Income
Currency
Adjusted Operating Income excluding Currency
Acqui-sitions
Adjusted Operating Income excluding Currency
& Acqui-sitions
 
 
 
Operating Income
Asset Impairment
& Exit Costs
Adjusted Operating Income
 
Total
Excluding Currency
Excluding Currency
& Acqui-sitions
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2018
Quarters Ended
March 31,
2017
 
% Change
$ 740
—
$ 740
$ 110
$ 630
—
$ 630
 
European Union
 
$ 748

—
$ 748

 
(1.1
)%
(15.8
)%
(15.8
)%
151

—

151

8

143

—

143

 
Eastern Europe
 
159

—

159

 
(5.0
)%
(10.1
)%
(10.1
)%
374

—

374

(32
)
406

—

406

 
Middle East & Africa
 
491

—

491

 
(23.8
)%
(17.3
)%
(17.3
)%
429

—

429

(12
)
441

—

441

 
South & Southeast Asia
 
370

—

370

 
15.9
 %
19.2
 %
19.2
 %
515

—

515

16

499

—

499

 
East Asia & Australia
 
472

—

472

 
9.1
 %
5.7
 %
5.7
 %
217

—

217

(14
)
231

—

231

 
Latin America & Canada
 
176

—

176

 
23.3
 %
31.3
 %
31.3
 %
$ 2,426
—
$ 2,426
$ 76
$ 2,350
—
$ 2,350
 
Total PMI
 
$ 2,416

—
$ 2,416

 
0.4
 %
(2.7
)%
(2.7
)%




 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Schedule 6
 
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 Operating Income
(1)
Net Revenues
Adjusted Operating Income
Margin
 
Adjusted Operating Income
excluding Currency
(1)
Net Revenues excluding Currency
(2)
Adjusted Operating Income Margin excluding Currency
 
Adjusted Operating Income excluding Currency & Acqui-sitions (1)
Net Revenues excluding Currency & Acqui-sitions (2)
Adjusted Operating Income Margin excluding Currency & Acqui-sitions
 
 
 
Adjusted Operating
Income
(1)
Net
Revenues
Adjusted Operating Income
Margin
 
Adjusted Operating Income
Margin
Adjusted Operating Income Margin excluding Currency
Adjusted Operating Income Margin excluding Currency & Acqui-sitions
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2018
Quarters Ended
March 31,
2017
 
% Points Change
$ 740
$ 1,988
37.2
%
 
$ 630
$ 1,743
36.1
%
 
$ 630
$ 1,743
36.1
%
 
European Union
 
$ 748
$ 1,740
43.0
%
 
(5.8
)
(6.9
)
(6.9
)
151
567
26.6
%
 
143
538
26.6
%
 
143
538
26.6
%
 
Eastern Europe
 
159
516
30.8
%
 
(4.2
)
(4.2
)
(4.2
)
374
961
38.9
%
 
406
947
42.9
%
 
406
947
42.9
%
 
Middle East & Africa
 
491
961
51.1
%
 
(12.2
)
(8.2
)
(8.2
)
429
1,081
39.7
%
 
441
1,089
40.5
%
 
441
1,089
40.5
%
 
South & Southeast Asia
 
370
1,031
35.9
%
 
3.8

4.6

4.6

515
1,591
32.4
%
 
499
1,543
32.3
%
 
499
1,543
32.3
%
 
East Asia & Australia
 
472
1,210
39.0
%
 
(6.6
)
(6.7
)
(6.7
)
217
708
30.6
%
 
231
709
32.6
%
 
231
709
32.6
%
 
Latin America & Canada
 
176
606
29.0
%
 
1.6

3.6

3.6

$ 2,426
$ 6,896
35.2
%
 
$ 2,350
$ 6,569
35.8
%
 
$ 2,350
$ 6,569
35.8
%
 
Total PMI
 
$ 2,416
$ 6,064
39.8
%
 
(4.6
)
(4.0
)
(4.0
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) For the calculation of Adjusted Operating Income and Adjusted Operating Income excluding currency and acquisitions refer to Schedule 5
(2) For the calculation of Net Revenues excluding currency and acquisitions refer to Schedule 3





 
 
 
 
Schedule 7
 
 
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries
Condensed Statements of Earnings
($ in millions, except per share data) / (Unaudited)
 
 
 
 
 
 
 
 
 
 
Quarters Ended March 31,
 
 
 
 
2018

2017

Change
Fav./(Unfav.)
 
 
Revenues including Excise Taxes
 
$ 18,426
$ 16,556
11.3
 %
 
 
Excise Taxes on products
 
11,530

10,492

(9.9
)%
 
 
Net Revenues
 
6,896

6,064

13.7
 %
 
 
Cost of sales
 
2,615

2,177

(20.1
)%
 
 
Gross profit
 
4,281

3,887

10.1
 %
 
 
Marketing, administration and research costs
 
1,833

1,449

(26.5
)%
 
 
Asset impairment and exit costs
 
—

—


 
 
Amortization of intangibles
 
22

22


 
 
Operating Income
 
2,426

2,416

0.4
 %
 
 
Interest expense, net
 
227

219

(3.7
)%
 
 
Pension and other employee benefit costs
 
6

20

70.0
 %
 
 
Earnings before income taxes
 
2,193

2,177

0.7
 %
 
 
Provision for income taxes
 
559

541

(3.3
)%
 
 
Equity investments and securities (income)/loss, net
 
(13
)
(22
)


 
 
Net Earnings
 
1,647

1,658

(0.7
)%
 
 
Net Earnings attributable to noncontrolling interests
 
91

68


 
 
Net Earnings attributable to PMI
 
$ 1,556
$ 1,590
(2.1
)%
 
 
 
 
 
 
 
 
 
Per share data (1):
 
 
 
 
 
 
  Basic Earnings Per Share
 
$ 1.00
$ 1.02
(2.0
)%
 
 
  Diluted Earnings Per Share
 
$ 1.00
$ 1.02
(2.0
)%
 
 
 
 
 
 
 
 
(1) Net Earnings and weighted-average shares used in the basic and diluted Earnings Per Share computations for the quarters ended March 31, 2018 and 2017 are shown on Schedule 1, Footnote 1.




 
 
 
 
 
Schedule 8
 
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries
Condensed Balance Sheets
($ in millions, except ratios) / (Unaudited)
 
 
 
 
 
 
 
 
 
March 31,
 
December 31,
 
 
2018
 
2017
Assets
 
 
 
 
 
 
Cash and cash equivalents
 
 
$
7,200

 
 
$
8,447

All other current assets
 
 
13,393

 
 
13,147

Property, plant and equipment, net
 
 
7,459

 
 
7,271

Goodwill
 
 
7,667

 
 
7,666

Other intangible assets, net
 
 
2,455

 
 
2,432

Investments in unconsolidated subsidiaries and equity securities
 
 
1,395

 
 
1,074

Other assets
 
 
3,501

 
 
2,931

Total assets
 
 
$
43,070

 
 
$
42,968

 
 
 
 
 
 
 
Liabilities and Stockholders' (Deficit) Equity
 
 
 
 
 
 
Short-term borrowings
 
 
$
608

 
 
$
499

Current portion of long-term debt
 
 
4,662

 
 
2,506

All other current liabilities
 
 
12,418

 
 
12,957

Long-term debt
 
 
29,578

 
 
31,334

Deferred income taxes
 
 
822

 
 
799

Other long-term liabilities
 
 
5,464

 
 
5,103

Total liabilities
 
 
53,552

 
 
53,198

 
 
 
 
 
 
 
Total PMI stockholders' deficit
 
 
(12,350
)
 
 
(12,086
)
Noncontrolling interests
 
 
1,868

 
 
1,856

Total stockholders' (deficit) equity
 
 
(10,482
)
 
 
(10,230
)
Total liabilities and stockholders' (deficit) equity
 
 
$
43,070

 
 
$
42,968





 
 
 
 
 
 
 
 
 
 
Schedule 9
 
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries
Reconciliation of Non-GAAP Measures
Calculation of Total Debt to Adjusted EBITDA and Net Debt to Adjusted EBITDA Ratios
($ in millions, except ratios) / (Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Year Ended March 31, 2018
 
 
Year Ended December 31, 2017
 
 
April ~ December
January ~ March
12 months
 
 
 
 
2017
2018
rolling
 
 
Net Earnings
 
 
$
4,683

 
$
1,647

 
$
6,330

 
 
 
$
6,341

Equity (income)/loss in unconsolidated subsidiaries, net
 
 
(37
)
 
(11
)
 
(48
)
 
 
 
(59
)
Provision for income taxes
 
 
3,766

 
559

 
4,325

 
 
 
4,307

Interest expense, net
 
 
695

 
227

 
922

 
 
 
914

Depreciation and amortization
 
 
678

 
242

 
920

 
 
 
875

Asset impairment and exit costs
 
 
—

 
—

 
—

 
 
 
—

Adjusted EBITDA
 
 
$
9,785

 
$
2,664

 
$
12,449

 
 
 
$
12,378

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
March 31,
 
 
December 31,
 
 
 
 
 
 
2018
 
 
2017
Short-term borrowings
 
 
 
 
 
 
$
608

 
 
 
$
499

Current portion of long-term debt
 
 
 
 
 
 
4,662

 
 
 
2,506

Long-term debt
 
 
 
 
 
 
29,578

 
 
 
31,334

Total Debt
 
 
 
 
 
 
$
34,848

 
 
 
$
34,339

Cash and cash equivalents
 
 
 
 
 
 
7,200

 
 
 
8,447

Net Debt
 
 
 
 
 
 
$
27,648

 
 
 
$
25,892

 
 
 
 
 
 
 
 
 
 
 
 
Ratios:
 
 
 
 
 
 
 
 
 
 
 
Total Debt to Adjusted EBITDA
 
 
 
 
 
 
2.80

 
 
 
2.77

Net Debt to Adjusted EBITDA
 
 
 
 
 
 
2.22

 
 
 
2.09





 
 
 
 
 
Schedule 10

 
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries
Reconciliation of Non-GAAP Measures
Reconciliation of Operating Cash Flow to Operating Cash Flow, excluding Currency
($ in millions) / (Unaudited)
 
 
 
 
 
 
 
 
 
 
Quarters Ended March 31,
 
 
 
 
2018

2017
% Change

 
 
Net cash provided by operating activities (1)
 
$ 1,380
$ 843
63.7
%
 
 
Currency
 
137

 
 
 
 
Net cash provided by operating activities, excluding currency
 
$ 1,243
$ 843
47.4
%
 
 
 
 
 
 
 
 
(1) Operating cash flow



Philip Morris International Inc. Reports