Second-Quarter Reported Diluted EPS grew 52.5% to $1.54

Adjusted Diluted EPS decreased by 0.6% to $1.59; and grew by 10.6% excluding currency

Regulatory News:

Philip Morris International Inc. (PMI) (NYSE: PM) today announces its 2024 second-quarter and first-half results.¹

“The excellent momentum of our smoke-free business continued with an outstanding second-quarter and first-half performance,” said Jacek Olczak, Chief Executive Officer.

“The powerful combination of excellent underlying performance and proactive measures across all categories enabled our business to outperform once again, and we are on track for a strong 2024. As a result, we are raising our full-year guidance, despite currency headwinds.”

• Smoke-free business (SFB): The smoke-free business accounted for 38.1% of our total net revenues (up by 2.7pp versus second-quarter last year), with 36.5 million estimated adult users of our smoke-free products (up by 3.2 million versus December 2023), which are available in 90 markets. Our SFB continues to deliver superior performance, with net revenues increasing by 13.6% (18.3% organically) and gross profit increasing by 15.6% (22.2% organically).
• Inhalable smoke-free products (SFP): Total IQOS users at quarter-end were estimated at 30.8 million (up by 1.9 million versus December 2023), of which approximately 22.1 million had fully switched to IQOS and stopped smoking. The increase was broad-based, with notable gains in Japan following the launch of ILUMA i, as well as good progress in Europe (especially Greece, Hungary, Romania, Bulgaria, and Spain), South Korea, and low and middle income markets, notably Indonesia. Market share for HTUs in IQOS markets was up by 0.7pp to 8.1%. HTU adjusted in-market sales (IMS) volume, which excludes the net impact of estimated distributor and wholesaler inventory movements was up by an estimated 10.2%, in line with expectations.
  • In Japan, IQOS HTU market share increased by more than 3 percentage points to over 29%, and offtake share exceeded 30% for the first time in June. TEREA and SENTIA were the #1 and #3 nicotine brands respectively in the quarter. Adjusted IMS grew by 12.5%, the 7^th consecutive quarter of double-digit growth.
  • In Europe, IQOS HTU adjusted market share increased by 0.8pp to 9.8% with adjusted IMS growth of 6.8%, which, as expected, was impacted by the EU characterizing flavor ban, especially in Italy.

In the vaping category, our focused strategy is showing promising early results, with VEEV taking the #1 position in the closed pod segment in 5 European markets within 12 months of launch.

• Oral SFP²: Shipment volume increased by 23.5% in cans (20.0% in pouches or pouch equivalents), fueled by ZYN nicotine pouch growth in the U.S., where shipments reached 135.1 million cans, representing growth of 50.3% versus prior year. ZYN, despite supply constraints, performed in-line with the U.S. nicotine pouch category in terms of consumer offtake. Outside of the U.S., our nicotine pouch volume grew by over 50% with promising results in a number of new markets, notably Pakistan.
• Combustibles: Net revenues grew by 1.2% (organically by 4.8%), driven by another quarter of high single-digit pricing and resilient industry volumes. After 7 consecutive quarters of gross margin contraction, profitability recovered in Q2 with very robust expansion of 40 bps (50 bps on an organic basis), primarily driven by pricing.
• Dividend: We declared a regular quarterly dividend of $1.30 per share, or an annualized $5.20 per share.

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¹ Explanation of PMI's use of non-GAAP measures cited in this document and reconciliations to the most directly comparable U.S. GAAP measures can be found in the “Non-GAAP Measures, Glossary and Explanatory Notes” section of this release, in Exhibit 99.2 to the company's Form 8-K dated July 23, 2024, and at www.pmi.com/2024Q2earnings.

² Oral smoke-free products volume excludes snuff, snuff leaf and U.S. chew

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³ In pouches or pouch equivalents

Reported diluted EPS is forecast to be in a range of $5.89 to $6.01, at prevailing exchange rates, versus reported diluted EPS of $5.02 in 2023. Excluding a total 2024 adjustment of $0.44 per share, this forecast represents a projected increase of 5.3% to 7.3% versus adjusted diluted EPS of $ 6.01 in 2023. Also excluding an adverse currency impact of $0.34, at prevailing exchange rates, this forecast represents a projected increase of 11.0% to 13.0% versus adjusted diluted EPS of $6.01 in 2023, as outlined in the above table.

2024 Full-Year Forecast Assumptions

This forecast assumes:

• A broadly stable total international industry volume for cigarettes and HTUs, excluding China and the U.S.;
• Total cigarette, HTU and oral smoke-free product shipment volume growth for PMI of 1% to 2% driven by smoke-free products;
• A second half acceleration in HTU adjusted IMS to deliver around 13% growth for the full year, and HTU shipment volumes of around 140 billion units. This assumes no volumes in Taiwan and a slightly greater impact from consumer adjustment to the EU characterizing flavor ban than previously assumed;
• Nicotine pouch shipment volume in the U.S. of 560 to 580 million cans;
• Net revenue growth of 7.5% to 9% on an organic basis;
• Organic operating income growth of 11% to 13%;
• An acceleration in organic smoke-free net revenue and gross profit growth compared to 2023;
• Broadly unchanged net revenue and adjusted operating loss in Wellness and Healthcare segment compared to 2023;
• No earnings impact from the May 15, 2024 Fiscal Court in Dusseldorf ruling related to the legality of a supplemental tax surcharge on HTUs in Germany, which went into effect in 2022. On June 19, 2024, a German subsidiary of PMI submitted an appeal;
• Full-year amortization of acquired intangibles of $0.43 per share, which includes an estimate of amortization of IQOS commercialization rights in the U.S. following the closing of the agreement to end our commercial relationship with Altria Group, Inc. covering IQOS in the U.S. effective May 1, 2024;
• Net financing costs of approximately $1.3 billion;
• An effective tax rate, excluding discrete tax events, of approximately 21% to 22%;
• Operating cash flow of approximately $11 billion at prevailing exchange rates, subject to year-end working capital requirements;
• Capital expenditures of approximately $1.3 to $1.4 billion, including further investments in ZYN capacity in the U.S.;
• Net debt to adjusted EBITDA ratio improvement of 0.3x to 0.5x at prevailing exchange rates as we continue to target a ratio of around 2x by the end of 2026;
• No share repurchases in 2024; and
• A strong second-half performance, with third quarter adjusted diluted EPS of $1.77 to $1.82 including an estimated adverse currency impact of 2 cents at prevailing exchange rates.

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

A conference call hosted by Emmanuel Babeau, Chief Financial Officer, will be webcast at 9:00 a.m., Eastern Time, on July 23, 2024. Access the webcast at www.pmi.com/2024Q2earnings.

TOTAL MARKET, CONSOLIDATED SHIPMENT VOLUME & MARKET SHARE

Total Market Volume

Second-Quarter

Estimated international industry volume (excluding China and the U.S.) for cigarettes and HTUs increased by 1.5%, reflecting increases in the SSEA, CIS & MEA Region, partly offset by decreases in the Europe, Americas and EA, AU & PMI DF Regions, as described in the Regional sections below.

Six Months Year-to-Date

Estimated international industry volume (excluding China and the U.S.) for cigarettes and HTUs increased by 1.1%, reflecting increase in the SSEA, CIS & MEA Region, partly offset by decreases in the Europe and Americas Regions, and broadly stable in the EA, AU & PMI DF Region, as described in the Regional sections below.

Consolidated Shipment Volume

Second-Quarter

PMI's total cigarette and HTU shipment volume increased by 2.5% (HTU shipments increased by 13.1%, and cigarette shipments increased by 0.4%), with increases across all regions except the Americas.

PMI’s total oral product shipment volume in cans increased by 23.5%, predominantly reflecting growth in nicotine pouches.

Adjusted in-market sales for HTUs increased by 10.2%, including growth in Japan of 12.5% and Europe of 6.8%.

Six Months Year-to-Date

PMI's total cigarette and HTU shipment volume increased by 2.8% (HTU shipments increased by 16.8%, while cigarette shipments were stable).

PMI’s total oral product shipment volume in cans increased by 31.2%, primarily reflecting growth in nicotine pouches.

Adjusted in-market sales for HTUs increased by 11.4%, including growth in Japan of 12.9% and Europe of 8.0%. A net favorable impact of estimated distributor inventory movements for HTU shipments was driven most significantly by additional shipments to Japan in light of disruption to Red Sea shipping routes.

International Share of Market - Cigarettes and HTUs

CONSOLIDATED FINANCIAL SUMMARY

Second-Quarter

Net revenues increased by 9.6% on an organic basis, mainly reflecting: a favorable pricing variance, primarily due to higher combustible tobacco pricing; and favorable volume/mix, driven by higher smoke-free products volume.

Adjusted operating income increased by 12.5% on an organic basis, mainly reflecting: the favorable pricing variance; and favorable volume/mix, mainly driven by smoke-free products volume, notwithstanding unfavorable cigarette mix; partly offset by higher costs, predominantly marketing, administration and research costs.

Six Months Year-to-Date

Adjusted net revenues increased by 10.2% on an organic basis, mainly reflecting: a favorable pricing variance, primarily driven by higher combustible tobacco pricing; and favorable volume/mix, driven by higher smoke-free products volume, partly offset by unfavorable cigarette mix.

Adjusted operating income increased by 17.0% on an organic basis, mainly reflecting: the favorable pricing variance, predominantly driven by higher combustible tobacco pricing; and favorable volume/mix, mainly driven by higher smoke-free products volume; partly offset by higher marketing, administration and research costs (primarily due to inflationary impacts, notably related to wages, and higher commercial investments), as well as higher manufacturing costs (primarily due to inflationary impacts, notably related to tobacco leaf and the impact of the EU single-use plastics directive, partly offset by productivity).

EUROPE REGION

Total Market, PMI Shipment & Market Share Commentaries

Second-Quarter

The estimated total market for cigarettes and HTUs in the Region decreased by 1.7% to 138.0 billion units, reflecting a 2.8% decline for cigarettes, partly offset by an increase for HTUs. The decrease in the estimated total market was predominantly due to France (down by 11.4%), the UK (down by 15.4%), Germany (down by 3.3%), and the Netherlands (down by 20.7%), partly offset by Bulgaria (up by 10.6%), Romania (up by 5.0%), and Greece (up by 8.3%).

Six Months Year-to-Date

The estimated total market for cigarettes and HTUs in the Region decreased by 1.2% to 262.1 billion units, reflecting a 2.6% decline for cigarettes, partly offset by an increase for HTUs. The decrease in the estimated total market was predominantly due to France (down by 13.8%), the UK (down by 13.3%), and the Netherlands (down by 15.5%), partly offset by Bulgaria (up by 9.7%), Poland (up by 2.3%), Romania (up by 3.9%), and Greece (up by 7.1%).

Second-Quarter

PMI's total cigarette and HTU shipment volume in the Region increased by 1.7% to 56.4 billion units. Total cigarette and HTU shipment volume increased notably in Italy (up by 7.6%), mainly driven by cigarettes, and Poland (up by 6.0%), and decreased notably in France (down by 11.7%) and the Netherlands (down by 19.5%), both driven by cigarettes.

PMI's estimated HTU adjusted in-market sales volume in the Region increased by 6.8% in the quarter, reflecting continued growth momentum for IQOS, partly offset by the impact from the EU characterizing flavor ban.

PMI's HTU share of the total cigarette and HTU market in the Region increased by 0.8 points on an adjusted basis.

Oral SFP shipments decreased by 1.6% with decline of snus (down by 5.6%), partly offset by nicotine pouches (up by 26.9%).

Six Months Year-to-Date

PMI's total cigarette and HTU shipment volume in the Region increased by 0.1% to 104.8 billion units. Total cigarette and HTU shipment volume increased notably in Poland (up by 7.9%), Greece (up by 9.6%), and Germany (up by 1.9%), and decreased notably in France (down by 21.7%) and the Netherlands (down by 15.2%), both driven by cigarettes.

PMI's estimated HTU adjusted in-market sales volume in the Region increased by 8.0%, reflecting continued growth momentum for IQOS, partly offset by the impact from the EU characterizing flavor ban.

PMI's HTU share of the total cigarette and HTU market in the Region increased by 0.9 points on an adjusted basis.

Oral SFP shipments increased by 6.9%, driven by growth of nicotine pouches (up by 40.2%) and snus (up by 2.5%).

Financial Summary

Second-Quarter

Net revenues increased by 7.0% on an organic basis, reflecting: a favorable pricing variance, mainly driven by higher combustible tobacco pricing; and favorable volume/mix, primarily driven by higher HTU volume, partly offset by lower cigarettes volume.

Adjusted operating income increased by 6.0% on an organic basis, reflecting: a favorable pricing variance, mainly driven by higher combustible tobacco pricing; partly offset by higher marketing, administration and research costs as well as manufacturing costs, including the impact of the EU single-use plastics directive.

Six Months Year-to-Date

Net revenues increased by 7.1% on an organic basis, primarily driven by the same factors as for the quarter.

Adjusted operating income increased by 9.9% on an organic basis, reflecting: a favorable pricing variance, mainly driven by higher combustible tobacco pricing; and favorable volume/mix, primarily driven by higher HTU volume, notwithstanding lower cigarette volume; partly offset by higher marketing, administration and research costs as well as manufacturing costs, including the impact of the EU single-use plastics directive.

SSEA, CIS & MEA REGION

Total Market, PMI Shipment & Market Share Commentaries

Second-Quarter

The estimated total market for cigarettes and HTUs in the Region increased by 3.7% to 393.9 billion units. The increase in the estimated total market was mainly due to Russia (up by 6.2%), Pakistan (up by 42.4%), Egypt (up by 18.6%), Bangladesh (up by 8.5%), and Turkey (up by 4.1%), partly offset by Thailand (down by 19.5%) and Kazakhstan (down by 8.8%).

Six Months Year-to-Date

The estimated total market for cigarettes and HTUs in the Region increased by 2.5% to 767.0 billion units. The increase in the estimated total market was mainly due to Turkey (up by 10.3%), Russia (up by 5.3%), Indonesia (up by 3.1%), and Bangladesh (up by 6.5%), partly offset by Thailand (down by 14.1%) and Philippines (down by 7.9%).

Second-Quarter

PMI's total cigarette and HTU shipment volume in the Region increased by 4.5% to 94.3 billion units, mainly driven by Turkey (up by 9.7%) and Saudi Arabia (up by 68.9% due to inventory movements), partly offset by Indonesia (down by 6.4%), Thailand (down by 24.9%) and the Philippines (down by 9.7%). PMI's estimated HTU adjusted in-market sales volume increased by 11.4%, with 18.5% HTU shipment volume growth. HTU shipment growth in Russia primarily reflects timing and cross-border dynamics, with limited underlying growth.

Six Months Year-to-Date

PMI's total cigarette and HTU shipment volume in the Region increased by 4.8% to 180.6 billion units, mainly driven by Turkey (up by 16.0%), partly offset by the Philippines (down by 14.2%). PMI's estimated HTU adjusted in-market sales volume increased by 13.1%, with 15.2% HTU shipment volume growth.

Financial Summary

Second-Quarter

Net revenues increased by 13.3% on an organic basis, primarily reflecting: a favorable pricing variance, mainly driven by higher combustible tobacco pricing; and favorable volume/mix, driven by higher HTU and cigarettes volume, as well as favorable HTU and cigarette mix.

Adjusted operating income increased by 25.9% on an organic basis, primarily reflecting: a favorable pricing variance, mainly driven by higher combustible tobacco pricing; and favorable volume/mix, driven by higher smoke-free products and cigarettes volume, notwithstanding unfavorable cigarette mix; partly offset by higher manufacturing costs (primarily due to higher cost of tobacco leaf).

Six Months Year-to-Date

Adjusted net revenues increased by 12.4% on an organic basis, primarily reflecting: a favorable pricing variance, mainly driven by higher combustible tobacco pricing; and favorable volume/mix, driven by higher cigarette and HTU volume and favorable cigarettes mix.

Adjusted operating income increased by 22.8% on an organic basis, primarily reflecting: a favorable pricing variance, mainly driven by higher combustible tobacco pricing; and favorable volume/mix, driven by higher cigarette and HTU volume, notwithstanding unfavorable cigarette mix; partly offset by higher manufacturing costs (primarily due to higher cost of tobacco leaf).

EA, AU AND PMI DF REGION

Total Market, PMI Shipment & Market Share Commentaries

Second-Quarter

The estimated total market for cigarettes and HTUs in the Region, excluding China, decreased by 0.7% to 80.2 billion units, with a decline in cigarettes, partly offset by HTU growth. The decrease in the estimated total market was mainly driven by Australia (down by 29.1%), South Korea (down by 1.9%), and Taiwan (down by 4.2%), partly offset by International Duty Free (up by 8.5%) and Japan (up by 0.9%).

Six Months Year-to-Date

The estimated total market for cigarettes and HTUs in the Region, excluding China, was stable at 156.0 billion units, with HTU growth partly offset by a decline in cigarettes. The increase in the estimated total market was mainly driven by International Duty Free (up by 12.4%) and Japan (up by 1.0%), partly offset by Australia (down by 29.4%).

Second-Quarter

PMI's total cigarette and HTU shipment volume in the Region increased by 1.0% to 27.3 billion units, driven by Japan (up by 5.0%), partly offset by Australia (down by 28.5%).

PMI's estimated HTU adjusted in-market sales volume in the Region increased by 13.3% in the quarter, including growth in Japan of 12.5%.

Six Months Year-to-Date

PMI's total cigarette and HTU shipment volume in the Region increased by 5.0% to 54.5 billion units, driven by Japan (up by 12.6%), partly offset by Australia (down by 27.2%).

PMI's estimated HTU adjusted in-market sales volume in the Region increased by 14.1%, including growth in Japan of 12.9%.

Financial Summary

Second-Quarter

Net revenues increased by 6.7% on an organic basis, reflecting: a favorable pricing variance and favorable volume/mix, mainly driven by higher HTU volume, partly offset by lower cigarette volume.

Adjusted operating income increased by 10.8% on an organic basis, primarily driven by the same factors as for net revenues.

Six Months Year-to-Date