8-K: Philip Morris International Raises 2024 EPS Forecast Due to Currency Impact, Reaffirms Underlying Growth

Philip Morris International has increased its full-year 2024 reported diluted EPS forecast due to favorable currency exchange rates, while maintaining its currency-neutral adjusted diluted EPS growth forecast of 9.0% to 11.0%.

Summary

• Philip Morris International (PMI) presented at the 2024 Deutsche Bank Global Consumer Conference, with CFO Emmanuel Babeau hosting a live webcast.
• The company has raised its 2024 full-year reported diluted EPS forecast to a range of $5.77 to $5.89, solely due to currency exchange rate benefits.
• The adjusted diluted EPS forecast is now $6.26 to $6.38, representing a 4.2% to 6.2% increase compared to $6.01 in 2023.
• Excluding a $0.29 per share adverse currency impact, the adjusted diluted EPS growth remains at 9.0% to 11.0%.
• PMI's smoke-free products accounted for approximately 37% of the company's total full-year 2023 net revenues.
• The company expects strong first-half results, driven by the momentum of IQOS and ZYN, and the resilience of the combustible business.
• PMI anticipates shipping approximately 560 million cans of ZYN in 2024 and is planning a new U.S. manufacturing site to support further growth in 2025 and beyond.

Sentiment

Score: 7

Explanation: The document is generally positive, highlighting strong performance in smoke-free products and an increased EPS forecast. However, the increase is primarily due to currency benefits, and there are some risks and supply chain issues mentioned.

Positives

• The company is experiencing strong momentum in its smoke-free product categories, particularly IQOS and ZYN.
• PMI is seeing continued demand growth for ZYN in the U.S. market.
• The combustible business is showing resilience.
• PMI is on track for strong first-half and full-year performance.
• The company is recognized for its sustainable transformation, ranking #1 on Forbes 2024 net zero leaders list.

Negatives

• The reported diluted EPS increase is solely due to currency benefits, not underlying business performance.
• There are short-term supply tensions for ZYN in the U.S. market, although capacity expansion is underway.
• The company faces risks related to excise tax increases, regulatory restrictions, and health concerns related to tobacco and nicotine products.

Risks

• PMI faces risks from excise tax increases and discriminatory tax structures.
• Increasing marketing and regulatory restrictions could reduce competitiveness or ban products in certain markets.
• Health concerns related to tobacco and nicotine use and exposure to environmental tobacco smoke pose a risk.
• Litigation related to tobacco and/or nicotine use and intellectual property is a potential risk.
• Intense competition and global economic, regulatory, and political developments could impact the business.
• The impact and consequences of Russia's invasion of Ukraine are a risk.
• Changes in adult smoker behavior and the impact of natural disasters and pandemics could affect PMI's business.
• Lost revenues from counterfeiting, contraband, and cross-border purchases are a concern.
• Unfavorable currency exchange rates and limitations on repatriating funds are risks.
• Adverse changes in corporate tax laws and the cost and availability of raw materials could impact profitability.
• The integrity of information systems and effectiveness of data privacy policies are also risks.
• The company's future profitability may be adversely affected if it is unsuccessful in growing smoke-free products or if regulations do not differentiate between smoke-free products and cigarettes.

Future Outlook

PMI expects strong first-half results and has raised its full-year EPS forecast for currency only, while reaffirming its currency-neutral adjusted diluted EPS growth forecast of 9.0% to 11.0%. The company is also planning for a new U.S. manufacturing site to support further growth in 2025 and beyond.

Management Comments

• Emmanuel Babeau, Chief Financial Officer, stated that after an excellent first-quarter performance, they continue to expect strong first-half results.
• Emmanuel Babeau also mentioned that the 2024 full-year EPS forecast is underpinned by the strong momentum of IQOS and ZYN, and the resilience of the combustible business.

Industry Context

This announcement highlights PMI's continued shift towards smoke-free products, aligning with the broader industry trend of reducing reliance on traditional cigarettes. The strong performance of IQOS and ZYN positions PMI as a leader in the reduced-risk product category, while the resilience of the combustible business provides a stable revenue base.

Comparison to Industry Standards

• PMI's focus on smoke-free products is similar to strategies adopted by other major tobacco companies like British American Tobacco and Japan Tobacco International, who are also investing heavily in next-generation products.
• The growth rates of IQOS and ZYN are notable, with few parallels in the consumer goods industry, suggesting a strong competitive advantage in the reduced-risk product market.
• The company's investment in manufacturing capacity for ZYN in the U.S. is a response to high demand, similar to how other companies in the nicotine pouch sector are expanding production to meet market needs.
• PMI's commitment to a smoke-free future and its investments in scientific research are comparable to the efforts of other industry players to develop and market less harmful alternatives to traditional cigarettes.

Stakeholder Impact

• Shareholders will likely react positively to the increased EPS forecast, although the currency-driven nature of the increase may temper enthusiasm.
• Employees may be encouraged by the company's strong performance and focus on growth.
• Customers will benefit from the continued availability of smoke-free products, particularly IQOS and ZYN.
• Suppliers may see increased demand for raw materials and components as PMI expands its production capacity.
• Creditors may view the company's financial performance favorably, potentially leading to more favorable lending terms.

Next Steps

• PMI will continue to expand capacity at its existing U.S. plant to alleviate short-term supply tensions for ZYN.
• The company is planning for a new U.S. manufacturing site to support further growth in 2025 and beyond.
• PMI will continue to focus on delivering superior growth in both organic and USD terms.

Key Dates

Keywords

Philip Morris International, PMI, EPS, IQOS, ZYN, Smoke-free products, Currency, Deutsche Bank Global Consumer Conference, Tobacco, Nicotine