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Philip Morris International Inc. (PMI) Reports 2012 Second-Quarter Results; Reaffirms 2012 Full-Year Reported Diluted EPS

Stocks in this article: PM PMI

During the quarter, PMI announced a new three-year share repurchase program of $18 billion, anticipated to commence on August 1, 2012, following completion of the existing three-year program of $12 billion which began in May 2010, and which will conclude ahead of schedule.

PMI has a share repurchase target for 2012 of $6.0 billion.

2012 Full-Year Forecast

PMI reaffirms, at prevailing exchange rates, its 2012 full-year reported diluted earnings per share forecast to be in a range of $5.10 to $5.20, versus $4.85 in 2011. Forecasted total unfavorable currency of approximately $0.27 per share for the full-year 2012 is up by an additional $0.02 per share compared to the unfavorable currency forecast previously announced on June 21, 2012. This additional forecasted unfavorable currency of $0.02 per share is expected to be fully offset by an anticipated improvement in business performance driven largely by Asia and EEMA. On a currency neutral basis, reported diluted earnings per share in 2012 are projected to increase by approximately 10% to 12% versus adjusted diluted earnings per share of $4.88 in 2011.

This guidance 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.

2012 SECOND-QUARTER CONSOLIDATED RESULTS

In this press release, “PMI” refers to Philip Morris International Inc. and its subsidiaries. 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, operating 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 and discrete tax 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. 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. 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 Net Revenues ($ Millions)

     

Second-Quarter

       

Six Months Year-To-Date

        Excl.             Excl.

2012

2011

Change

Curr.

2012

2011

Change

Curr.

European Union $2,285 $2,497 (8.5)% (0.7)% $4,338 $4,498 (3.6)% 2.0%
Eastern Europe, Middle East & Africa 2,151 2,012 6.9% 13.2% 3,986 3,699 7.8% 13.2%
Asia 2,855 2,936 (2.8)% (1.8)% 5,632 5,259 7.1% 6.2%
Latin America & Canada

829

828

0.1% 6.3%

1,612

1,608

0.2% 5.8%
Total PMI $8,120 $8,273 (1.8)% 3.0% $15,568 $15,064 3.3% 6.6%
 

Net revenues of $8.1 billion were down by 1.8%, including unfavorable currency of $402 million. Excluding currency, net revenues increased by 3.0%, driven by favorable pricing of $463 million, partly offset by unfavorable volume/mix of $225 million. Excluding currency and acquisitions, net revenues increased by 2.9%, despite the challenging comparison to the second quarter of 2011 which included additional PMI shipments to Japan of 6.3 billion units, driven by the disruption of PMI's principal competitor’s supply chain following the tragic events of March of that year.

 

OPERATING COMPANIES INCOME

 

PMI Operating Companies Income ($ Millions)

     

Second-Quarter

       

Six Months Year-To-Date

        Excl.             Excl.

2012

2011

Change

Curr.

2012

2011

Change

Curr.

European Union $1,117 $1,280 (12.7)% (2.6)% $2,147 $2,286 (6.1)% 0.7%
Eastern Europe, Middle East & Africa 948 835 13.5% 23.1% 1,758 1,557 12.9% 20.9%
Asia 1,364 1,398 (2.4)% (2.6)% 2,771 2,491 11.2% 9.0%
Latin America & Canada

249

268

(7.1)% 2.2%

486

519

(6.4)% 1.7%
Total PMI $3,678 $3,781 (2.7)% 3.4% $7,162 $6,853 4.5% 8.4%
 

Reported operating companies income was down by 2.7% to $3.7 billion, including unfavorable currency of $232 million. Excluding currency, operating companies income was up by 3.4%, driven by higher pricing, partly offset by unfavorable volume/mix of $245 million, higher manufacturing costs and increased investments behind the new Marlboro advertising campaign, notably in Germany and Switzerland, new brand launches, notably Marlboro Edge in Japan and Marlboro ClearTaste in Russia, business infrastructure in Russia and anti-illicit trade investments, including organizational infrastructure and the recently announced agreement with Interpol. Adjusted operating companies income declined by 2.5% as shown in the table below and detailed on Schedule 11. Adjusted operating companies income, excluding currency and acquisitions, increased by 3.5%.

PMI Operating Companies Income ($ Millions)

                             

Second-Quarter

Six Months Year-To-Date

2012

2011

Change

2012

2011

Change

Reported OCI $3,678 $3,781 (2.7)% $7,162 $6,853 4.5%
Asset impairment & exit costs

(8

)

(1

)

(16

)

(17

)

Adjusted OCI $3,686 $3,782 (2.5)% $7,178 $6,870 4.5%
Adjusted OCI Margin*

45.4%

 

45.7%

 

(0.3) p.p.

46.1%

 

45.6%

 

0.5 p.p.

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

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