Philip Morris International Reports 2024 Third-Quarter & First Nine-Months Results; Raises 2024 Guidance for Reported Diluted EPS to $6.20 - $6.26 and Adjusted Diluted EPS to $6.45 - $6.51

Third-Quarter Reported Diluted EPS grew 49.2% to $1.97, Adjusted Diluted EPS increased by 14.4% to $1.91 and grew by 18.0% excluding currency

Regulatory News:

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

"In the third quarter, we delivered exceptionally strong performance, with record quarterly net revenues and earnings per share," said Jacek Olczak, Chief Executive Officer.

"This reflects excellent momentum across all regions and categories, with a reacceleration in IQOS adjusted in-market sales growth, strong ZYN volumes, and resilient combustible performance."

"As a result of our strong year-to-date delivery, we are raising our full-year growth outlook for adjusted diluted EPS to a range of 14% to 15%, excluding currency."

• Smoke-free business (SFB): Quarterly shipments of smoke-free products (SFP), available in 92 markets, reached close to 40 billion units. The smoke-free business accounted for 38% of our total net revenues and 40% of gross profit (up by 1.9pp and 2.2pp respectively, versus third-quarter last year), and continues to deliver superior performance, with net revenues increasing by 14.2% (16.8% organically) and gross profit increasing by 15.9% (20.2% organically).
• Inhalable smoke-free products: IQOS continues strengthening its overall position as the second largest nicotine ‘brand' in markets where present (gaining 1.0pp of combined cigarette and HTU industry volumes) and driving the growth of the heat-not-burn category (reaching nearly 77% of global category volumes). HTU adjusted in-market sales (IMS) volume, which excludes the net impact of estimated distributor and wholesaler inventory movements, was up by an estimated 14.8%.
  • In Japan, ILUMA i fueled the growth of IQOS, with adjusted IMS up by 14.3%, the 8^th consecutive quarter of double-digit growth. IQOS HTU adjusted market share increased by 3.2pp to nearly 30%, driving the overall category to at least 50% of total nicotine offtake share in 8 major cites, including Tokyo and Yokohama.
  • In Europe, IQOS HTU adjusted market share increased by 0.8pp to 9.5%. Adjusted IMS growth reaccelerated to 11.3%, with Italy recovering well and 8 markets growing in excess of 20%, including Greece and Germany. Our portfolio of IQOS consumables continues to expand with both DELIA and LEVIA now being available in 9 markets each, with further launches planned in Q4.
  • Outside Europe and Japan, adjusted IMS growth accelerated and we grew offtake share in key cities across the globe, including Seoul, Toronto, Mexico City, Cairo, and Jakarta. Our strong growth in Indonesia benefits from the expansion of our geographic reach and consumables portfolio, with premium clove and capsule products.

In the vaping category, our focused strategy is delivering good results with excellent volume momentum and unit cost improvements. Europe is at the forefront, as the closed pod segment continues to take share from disposables. VEEV continues to lead the closed pod segment in several markets, including Italy, Romania, and the Czech Republic.

• Oral SFP²: Shipment volume increased by 24.7% in cans (22.2% in pouches or pouch equivalents), fueled by ZYN nicotine pouch growth in the U.S., where shipments reached 149.1 million cans, representing growth of 41.4% versus prior year as supply constraints start to ease. Outside the U.S., our nicotine pouch volume in cans grew by nearly 70%, with notable contributions from Pakistan and South Africa. The number of markets with ZYN presence increased to 30, including recent launches in Greece and Czech Republic.
• Combustibles: Net revenues grew by 5.2% (8.6% organically), driven by another quarter of high single-digit pricing and resilient industry volumes. Both our global brands portfolio and Marlboro achieved their highest quarterly market shares since the 2008 spin-off.
• Dividend: Increased regular quarterly dividend by 3.8% to $1.35 per share, or an annualized $5.40 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 October 22, 2024, and at www.pmi.com/2024Q3earnings.

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 $6.20 to $6.26, at prevailing exchange rates, versus reported diluted EPS of $5.02 in 2023. Excluding a total 2024 adjustment of $0.25 per share, this forecast represents a projected increase of 7.3% to 8.3% versus adjusted diluted EPS of $6.01 in 2023. Also excluding an adverse currency impact of $0.40, at prevailing exchange rates, this forecast represents a projected increase of 14.0% to 15.0% versus adjusted diluted EPS of $6.01 in 2023, as outlined in the above table.

2024 Full-Year Forecast Assumptions

This forecast assumes:

• An estimated total international industry volume growth of up to 1% for cigarettes and HTUs, excluding China and the U.S.;
• Total cigarette, HTU and oral smoke-free product shipment volume growth for PMI of 2% to 3% driven by smoke-free products;
• HTU adjusted IMS to deliver around 13% growth for the full year, and HTU shipment volumes of around 140 billion units;
• Nicotine pouch shipment volume in the U.S. of 570 to 580 million cans;
• Net revenue growth of around 9.5% on an organic basis;
• Organic operating income growth of 14% to 14.5%;
• An acceleration in organic smoke-free net revenue and gross profit growth compared to 2023;
• Broadly unchanged net revenue and adjusted operating loss in the 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;
• No earnings impact from potential impairments of equity holdings, including potential impairment of PMI's Canadian affiliate, Rothmans, Benson & Hedges Inc.;
• Full-year amortization of acquired intangibles of $0.42 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 $1.1 to $1.2 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 around $1.4 billion, including further investments in ZYN capacity in the U.S.;
• Net debt to adjusted EBITDA ratio improvement of 0.3x to 0.4x at prevailing exchange rates as we continue to target a ratio of around 2x by the end of 2026; and
• No share repurchases in 2024

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

In September 2024, PMI announced the sale of its subsidiary Vectura Group Ltd. (Vectura) to Molex Asia Holdings Ltd., and the establishment of master service agreements to develop Vectura Fertin Pharma's inhaled therapeutics proprietary pipeline. The transaction is expected to close by the end of 2024, subject to regulatory approval, which may impact the timing, and other customary closing conditions. See PMI's Form 8-K dated September 17, 2024 for additional details. In the third quarter of 2024, PMI recorded an impairment charge of $198 million (previously estimated to be approximately $220 million at the time of announcement) related to Vectura's classification as held for sale.

The remaining units of Vectura Fertin Pharma will continue to operate as a separate company under PMI's ownership and will be given a new corporate identity. This business will focus on developing and commercializing oral consumer health and wellness offerings and inhaled prescription products for therapy areas that include pain management and cardiovascular emergencies.

In October 2024, PMI was informed by its deconsolidated Canadian affiliate, Rothmans, Benson & Hedges Inc. (RBH), that the court-appointed mediator and monitor in RBH's Companies' Creditors Arrangement Act (CCAA) proceeding filed a proposed plan of compromise and arrangement outlining certain terms of a comprehensive resolution of tobacco product-related claims and litigation in Canada against RBH and its affiliates. See PMI's Form 8-K dated October 18, 2024 for additional details.

A conference call hosted by Emmanuel Babeau, Chief Financial Officer, will be webcast at 9:00 a.m., Eastern Time, on October 22, 2024. Access the webcast at www.pmi.com/2024Q3earnings.

TOTAL MARKET, CONSOLIDATED SHIPMENT VOLUME & MARKET SHARE

Total Market Volume

Third-Quarter

Estimated international industry volume (excluding China and the U.S.) for cigarettes and HTUs increased by 1.3%, reflecting increases in the SSEA, CIS & MEA and Europe Regions, partly offset by decreases in the EA, AU & PMI DF and Americas Regions, as described in the Regional sections below.

Nine Months Year-to-Date

Estimated international industry volume (excluding China and the U.S.) for cigarettes and HTUs increased by 1.2%, reflecting an increase in the SSEA, CIS & MEA Region, partly offset by a decrease in the Americas Region, and broad stability in the EA, AU & PMI DF and Europe Regions, as described in the Regional sections below.

Consolidated Shipment Volume

Third-Quarter

PMI's total cigarette and HTU shipment volume increased by 2.6% (HTU shipments increased by 8.9%, and cigarette shipments increased by 1.3%), with increases across all regions except the Americas Region.

PMI's total oral product shipment volume in cans increased by 24.7%, predominantly reflecting growth in nicotine pouches.

Adjusted in-market sales for HTUs increased by 14.8%, including growth in Japan of 14.3% and Europe of 11.3%.

Nine Months Year-to-Date

PMI's total cigarette and HTU shipment volume increased by 2.7% (HTU shipments increased by 13.9%, while cigarette shipments were broadly stable).

PMI's total oral product shipment volume in cans increased by 28.9%, primarily reflecting growth in nicotine pouches.

Adjusted in-market sales for HTUs increased by 12.6%, including growth in Japan of 13.4% and Europe of 9.2%.

International Share of Market - Cigarettes and HTUs

CONSOLIDATED FINANCIAL SUMMARY

Third-Quarter

Net revenues increased by 11.6% on an organic basis, mainly reflecting: a favorable pricing variance, primarily due to higher combustible tobacco pricing; and favorable volume/mix, mainly driven by higher smoke-free products volume.

Adjusted operating income increased by 13.8% on an organic basis, mainly reflecting: the same factors as for net revenues, notwithstanding unfavorable cigarette mix; partly offset by higher manufacturing costs, notably related to tobacco leaf, and higher marketing, administration and research costs.

Nine Months Year-to-Date

Adjusted net revenues increased by 10.7% 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 15.8% on an organic basis, mainly reflecting: the same factors as for net revenues; 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, 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

Third-Quarter

The estimated total market for cigarettes and HTUs in the Region increased by 1.8% to 148.6 billion units, reflecting a 0.6% increase for cigarettes and continued HTU growth. The increase in the estimated total market was predominantly due to Ukraine (up by 9.4%), Italy (up by 3.5%) and Spain (up by 3.8%), partly offset by France (down by 10.9%), the Netherlands (down by 25.6%), and Belgium (down by 16.2%).

Nine Months Year-to-Date

The estimated total market for cigarettes and HTUs in the Region was broadly stable, reflecting a 1.5% decrease for cigarettes, largely offset by an increase for HTUs. The decrease in the estimated total market was predominantly due to France (down by 12.8%), the United Kingdom (down by 11.0%), and the Netherlands (down by 18.7%), partly offset by Bulgaria (up by 7.9%), Greece (up by 8.2%), and Poland (up by 1.9%).

Third-Quarter

PMI's total cigarette and HTU shipment volume in the Region increased by 2.5% to 57.9 billion units. Total cigarette and HTU shipment volume increased notably in Ukraine (up by 12.3%) and Poland (up by 5.7%), and decreased notably in Belgium (down by 25.8%) as well as the Netherlands (down by 24.9%).

PMI's estimated HTU adjusted in-market sales volume in the Region increased by 11.3% in the quarter, reflecting continued growth momentum for IQOS.

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

Oral SFP shipments increased by 4.2%, primarily driven by nicotine pouches (up by 23.5%).

Nine Months Year-to-Date

PMI's total cigarette and HTU shipment volume in the Region increased by 1.0% to 162.8 billion units. Total cigarette and HTU shipment volume increased notably in Poland (up by 7.1%) and Ukraine (up by 8.7%), and decreased notably in France (down by 18.4%) as well as the Netherlands (down by 18.2%).

PMI's estimated HTU adjusted in-market sales volume in the Region increased by 9.2%, 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 pp on an adjusted basis.

Oral SFP shipments increased by 6.0%, driven by growth of nicotine pouches (up by 34.4%).

Financial Summary

Third-Quarter

Net revenues increased by 8.7% 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 adverse cigarette mix.

Adjusted operating income increased by 8.4% on an organic basis, primarily reflecting: the same factors as for net revenues; partly offset by higher marketing, administration and research costs.

Nine Months Year-to-Date

Net revenues increased by 7.7% on an organic basis, primarily driven by the same factors as for the quarter.

Adjusted operating income increased by 9.3% on an organic basis, primarily 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

Third-Quarter

The estimated total market for cigarettes and HTUs in the Region increased by 2.0% to 399.4 billion units. The increase in the estimated total market was mainly due to Egypt (up by 32.4%), Russia (up by 8.3%), and Turkey (up by 9.4%), partly offset by Bangladesh (down by 30.8%), Indonesia (down by 3.3%), and Thailand (down by 17.0%).

Nine Months Year-to-Date

The estimated total market for cigarettes and HTUs in the Region increased by 2.4% to 1,167.0 billion units. The increase in the estimated total market was mainly due to Turkey (up by 10.4%), Russia (up by 6.4%), and Egypt (up by 9.4%), partly offset by Bangladesh (down by 4.9%), Thailand (down by 15.4%), and the Philippines (down by 5.4%).

Third-Quarter

PMI's total cigarette and HTU shipment volume in the Region increased by 3.2% to 98.6 billion units, mainly driven by Turkey (up by 13.1%), partly offset by Indonesia (down by 8.9%). PMI's estimated HTU adjusted in-market sales volume increased by 20.9%, with 17.1% HTU shipment volume growth.

Nine Months Year-to-Date

PMI's total cigarette and HTU shipment volume in the Region increased by 4.3% to 279.2 billion units, mainly driven by Turkey (up by 14.9%), partly offset by Indonesia (down by 4.6%). PMI's estimated HTU adjusted in-market sales volume increased by 15.5%, with 15.8% HTU shipment volume growth.

Financial Summary

Third-Quarter

Net revenues increased by 12.1% on an organic basis, primarily reflecting: a favorable pricing variance, predominantly driven by higher combustible tobacco pricing; and favorable volume/mix, driven by HTU performance.

Adjusted operating income increased by 28.5% on an organic basis, primarily reflecting: the same factors as for net revenues; partly offset by higher manufacturing costs (primarily due to higher cost of tobacco leaf).

Nine Months Year-to-Date

Adjusted net revenues increased by 12.3% on an organic basis, primarily reflecting: a favorable pricing variance, predominantly driven by higher combustible tobacco pricing; and favorable volume/mix, driven by higher cigarette and HTU volume as well as favorable mix.

Adjusted operating income increased by 24.7% on an organic basis, primarily reflecting: a favorable pricing variance, predominantly 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

Third-Quarter

The estimated total market for cigarettes and HTUs in the Region, excluding China, decreased by 1.4% to 82.2 billion units, with a decrease in cigarettes, partly offset by HTU growth. The decrease in the estimated total market was mainly driven by Taiwan (down by 10.0%) and Korea (down by 3.2%), partly offset by International Duty Free (up by 7.2%) and Japan (up by 0.9%).

Nine Months Year-to-Date

The estimated total market for cigarettes and HTUs in the Region, excluding China, was broadly stable, with a decrease in cigarettes, largely offset by HTU growth. The decrease in the estimated total market was mainly driven by Australia (down by 29.0%) and Korea (down by 2.5%), partly offset by International Duty Free (up by 10.9%) and Japan (up by 1.0%).

Third-Quarter

PMI's total cigarette and HTU shipment volume in the Region increased by 2.4% to 26.7 billion units, driven by Japan (up by 1.5%), partly offset by Australia (down by 30.0%).

PMI's estimated HTU adjusted in-market sales volume in the Region increased by 15.5% in the quarter, including growth in Japan of 14.3%.

Nine Months Year-to-Date

PMI's total cigarette and HTU shipment volume in the Region increased by 4.1% to 81.2 billion units, driven by Japan (up by 8.9%), partly offset by Australia (down by 28.2%).

PMI's estimated HTU adjusted in-market sales volume in the Region increased by 14.7%, including growth in Japan of 13.4%.

Financial Summary

Third-Quarter

Net revenues increased by 7.4% 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 4.5% on an organic basis, reflecting: favorable pricing variance, partly offset by unfavorable volume/mix, driven by cigarettes, and higher marketing, administration and research costs.

Nine Months Year-to-Date

Net revenues increased by 10.5% 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 15.8% on an organic basis, primarily driven by the same factors as for net revenues.

AMERICAS REGION

Total Market, PMI Shipment & Market Share Commentaries

Third-Quarter

The estimated total market for cigarettes and HTUs in the Region, excluding the U.S., decreased by 0.7% to 46.5 billion units, primarily reflecting a decline in the cigarette market. The decrease in the estimated total market was mainly due to Canada (down by 15.4%) and Mexico (down by 5.8%), partly offset by Brazil (up by 12.3%).

Nine Months Year-to-Date

The estimated total market for cigarettes and HTUs in the Region, excluding the U.S., decreased by 2.1% to 136.1 billion units, primarily reflecting a decline for cigarettes. The decrease in the estimated total market was mainly due to Argentina (down by 11.5%) and Canada (down by 13.1%), partly offset by Brazil (up by 8.5%).