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Philip Morris International Inc. (PMI) Reports 2022 Third-Quarter and September Year-to-Date Results

Delivered 2022 Third-Quarter Reported Diluted EPS of $1.34, Adjusted Diluted EPS of $1.53 and Pro Forma (Excluding Russia and Ukraine) Adjusted Diluted EPS of $1.33, Representing Currency-Neutral Growth of 8.3%; Targets 2022 Full-Year Reported Diluted EPS of $5.47 to $5.62, Adjusted Diluted EPS of $5.81 to $5.96 and Pro Forma Adjusted Diluted EPS of $5.22 to $5.33, Representing Currency-Neutral Growth of 10% to 12%

NEW YORK, October 20, 2022--(BUSINESS WIRE)--Regulatory News:

Philip Morris International Inc. (NYSE: PM) today announces its 2022 third-quarter and September year-to-date results. Growth rates presented in this press release on an organic basis reflect adjusted results, excluding currency, acquisitions and disposals. Given the uncertainty and volatility regarding the company’s operations in Russia and Ukraine, PMI is also providing figures and comparisons on a pro forma basis, which exclude the company’s operations in these two markets for all periods. A glossary of key terms, definitions and explanatory notes is included at the end of this press release. Adjustments, other calculations and reconciliations to the most directly comparable U.S. GAAP measures are included in the schedules to this press release.

2022 THIRD-QUARTER & YEAR-TO-DATE HIGHLIGHTS

Third-Quarter

Nine Months Year-to-Date

Reported

Pro Forma
Adjusted

Reported

Pro Forma
Adjusted

Total Shipment Volume Growth

0.6%

2.3%

1.7%

3.4%

HTU Shipment Volume (units billion)

27.5

22.4

77.1

62.6

- Growth

17.1%

21.9%

10.9%

15.8%

Net Revenue Growth (Decline)

(1.1)%

6.9%

(a)

1.3%

7.7%

(a)

Operating Income Growth (Decline)

(14.1)%

4.4%

(a)

(7.0)%

5.0%

(a)

OI Margin Increase (Decrease)

(5.5)pp

(1.0)pp

(a)

(3.5)pp

(1.1)pp

(a)

Diluted Earnings per Share

$1.34

$1.33

$4.27

$4.11

- Growth (Decline)

(13.5)%

8.3%

(b)

(4.7)%

9.7%

(b)

(a) On an organic basis

(b) Excluding currency

Third-Quarter

  • Net revenues from smoke-free products accounted for 30.1% of total net revenues, or 29.2% on a pro forma basis

  • Market share for heated tobacco units (HTUs) in IQOS markets up by 1.3 points to 7.7% on a pro forma basis

  • Pro forma total IQOS users at quarter-end estimated at approximately 19.5 million (up by 3.6 million or 22% versus September 30, 2021), of which approximately 13.5 million had switched to IQOS and stopped smoking

  • Increased regular quarterly dividend by 1.6% to $1.27 per share, or an annualized rate of $5.08 per share

Nine Months Year-to-Date

  • Net revenues from smoke-free products accounted for 30.4% of total net revenues, or 29.6% on a pro forma basis

  • Market share for HTUs in IQOS markets up by 1.2 points to 7.6% on a pro forma basis

"We delivered very strong performance in the third quarter, driving quarterly adjusted diluted EPS of $1.53 per share despite pressures related to currency, the supply chain and inflation," said Jacek Olczak, Chief Executive Officer.

"IQOS's excellent momentum continued in the quarter, with heated tobacco unit volume and share growth across all key geographies, driven in part by ILUMA's strong performance in initial launch markets. This was complemented by the robust performance of our combustible tobacco portfolio, reflecting essentially stable shipment volume, encouraging international market share growth and accelerated pricing."

"As a result of our strong year-to-date performance, we are raising the low end of our full-year pro forma growth outlook for adjusted net revenues, resulting in a range of 6.5% to 8% on an organic basis, and continue to expect full-year pro forma adjusted diluted EPS growth of 10% to 12%, excluding currency."

"Importantly, our smoke-free transformation continues at a rapid pace, reinforcing our aim to become a majority smoke-free company by net revenues in 2025. Today's exciting announcement regarding IQOS in the U.S. furthers this ambition, giving PMI full rights to commercialize IQOS in the largest smoke-free market globally as of April 30, 2024."

"Furthermore, we believe the best and final price in our revised offer for Swedish Match, announced earlier today, provides very compelling value for both sets of shareholders. Should the offer fail, we are well prepared to proceed autonomously to develop IQOS and the rest of our smoke-free portfolio in the U.S."

2022 THIRD-QUARTER SUMMARY

On a pro forma basis, adjusted net revenues increased by 6.9% in organic terms, primarily driven by total shipment volume growth of 2.3%, the continued favorable mix shift from cigarettes to smoke-free products, and a favorable total pricing variance.

Smoke-free product pro forma net revenues increased by 14.2 on an organic basis, mainly driven by HTU shipment volume growth of 21.9% (to reach 22.4 billion units), partly offset by lower device revenues and the impact of HTU pricing comparisons.

Combustible product pro forma adjusted net revenues increased by 4.1% on an organic basis, driven by a favorable pricing variance of 4.9%. Pro forma cigarette shipment volume declined slightly (-0.2%), while international cigarette share increased by 0.2 points to 25.3% on the same basis, including a 0.1 point increase for Marlboro.

Pro forma adjusted operating income margin declined by 1.0 point on an organic basis, primarily reflecting: (i) investment to further expand ILUMA and match underlying demand, (ii) the higher initial cost of ILUMA devices and related HTUs; (iii) the impact of supply chain disruptions, notably due to the war in Ukraine; and (iv) global cost inflation.

Despite these margin pressures, the company’s strong adjusted net revenue growth, coupled with the positive effects from higher pricing and operating cost efficiencies, drove pro forma adjusted diluted EPS of $1.33, reflecting currency-neutral growth of 8.3%. Adjusted diluted EPS of $1.53 increased by 8.2%, excluding currency, as shown in the table below.

Quarters Ended September 30,

2022

2021

Currency

Var. excl.
Currency

Reported Diluted EPS

$ 1.34

$ 1.55

$ (0.19)

(1.3)%

Asset impairment and exit costs

0.02

Amortization and impairment of intangibles (a)

0.08

0.01

Equity investee ownership dilution

(0.02)

Asset acquisition cost

0.03

Costs associated with Swedish Match AB offer

0.11

Adjusted Diluted EPS

$ 1.53

$ 1.59

$ (0.19)

8.2%

Less: Net earnings attributable to Russia and Ukraine

0.20

0.15

0.04

Pro Forma Adjusted Diluted EPS

$ 1.33

$ 1.44

$ (0.23)

8.3%

(a) Includes a non-cash impairment charge of $0.06 per share. See "Impairment of Acquired Intangibles" section on page 7 for more information.

2022 FULL-YEAR FORECAST

Full-Year

2022
Forecast

2021

Growth

Reported Diluted EPS

$5.47

-

$5.62

$ 5.83

Adjustments:

Asset impairment and exit costs

0.12

Equity investee ownership dilution

(0.04)

Amortization and impairment of intangibles

0.14

0.05

Saudi Arabia customs assessments

0.14

Charges related to the war in Ukraine

0.07

Fair value adj. for equity security investments (1)

0.03

Asset acquisition cost

0.03

Costs associated with Swedish Match AB offer

0.13

Tax items

(0.03)

Total Adjustments

0.34

0.30

Adjusted Diluted EPS

$5.81

-

$5.96

$ 6.13

Less: Net earnings attributable to Russia and Ukraine (2)

0.59

-

0.63

0.60

Pro Forma Adjusted Diluted EPS

$5.22

-

$5.33

$ 5.53

Less: Pro Forma Currency

(0.87)

Pro Forma Adjusted Diluted EPS, ex-currency

$6.09

-

$6.20

$ 5.53

10%

-

12%

1) Reflects the adjustment resulting from share price movements in PMI's investments in India and Sri Lanka, which are publicly traded entities that are not controlled or influenced by PMI

2) Includes a favorable currency variance of $0.07 per share for full-year 2022

Reported diluted EPS is forecast to be in a range of $5.47 to $5.62, at prevailing exchange rates, versus reported diluted EPS of $5.83 in 2021. Excluding (i) 2022 adjustments of $0.34 per share, (ii) net earnings attributable to Russia and Ukraine of $0.59 to $0.63 per share assumed for full-year 2022, and (iii) an adverse pro forma currency impact, at prevailing exchange rates, of $0.87 per share, this forecast represents a projected increase of 10% to 12% versus pro forma adjusted diluted EPS of $5.53 in 2021, as outlined in the above table.

2022 Full-Year Forecast Assumptions

This forecast assumes:

  • The full contribution of the company's operations in Russia and Ukraine for the entire year;

  • No asset impairment costs or further other charges related to the company's operations in Russia or Ukraine;

  • No contribution from the operations of Swedish Match in 2022 following the assumed transaction close in the fourth quarter and no further costs associated with the Swedish Match offer;

  • No impact on net earnings or operating cash flow related to PMI's agreement to obtain the full rights to IQOS in the U.S., as PMI is currently evaluating the impact of the agreement on the company's consolidated financial statements;

  • A continued gradual improvement in PMI's duty-free business outside Asia;

  • The impact of delayed production capacity build-up for ILUMA HTUs due to the decision to cancel manufacturing plans in Russia;

  • A pro forma estimated total international industry volume change, excluding China and the U.S., of approximately flat to +1%;

  • Pro forma total cigarette and HTU shipment volume growth for PMI of approximately 2% to 3%, compared to approximately 1.5% to 2.5% previously;

  • Pro forma HTU shipment volume of 89 to 91 billion units compared to 90 to 92 billion units previously (despite continued strong expected in-market sales volume growth), reflecting the impact of global supply chain disruptions, as well as production constraints for ILUMA HTU consumables in the face of better-than-anticipated performance for ILUMA;

  • Pro forma adjusted net revenue growth of approximately 6.5% to 8.0% on an organic basis (compared to 6.0% to 8.0% previously), which includes the adverse full-year impact of moving to highly inflationary accounting in Turkey, effective April 1st, of approximately 0.6 points;

  • A pro forma adjusted operating income margin change of -50 basis points to flat on an organic basis (compared to flat to +50 basis points previously), primarily reflecting:

    • the expectation of a lower gross margin primarily due to:

      • the significant growth in IQOS device volumes (notably in the first-half) as device supply constraints ease, reflecting the replenishment of channel inventories for user acquisition and supply for the accelerated device replacement cycle driven by ILUMA;

      • the higher initial cost of ILUMA devices and initial weight and cost of TEREA consumables, which are expected to decline over time, as with previous innovations;

      • higher logistics costs, including costs related to the use of air freight to support: (i) the strong up-take of ILUMA and related HTU consumables in Japan, and (ii) the re-sourcing of select cigarette brands for Japan due to the war in Ukraine;

      • investments behind the roll-out of ILUMA and to grow production capacity across PMI's smoke-free platforms; and

      • increasing inflation in raw material and energy prices, and additional supply chain costs due to war-related disruptions;

    • continued commercial reinvestment to support the company's growing portfolio of smoke-free alternatives;

    • largely offset by the continued favorable product mix shift from cigarettes to smoke-free products, coupled with the benefit of further operating leverage and accelerated operating efficiencies;

  • Wellness and Healthcare segment net revenues of around $275 million (including smoking cessation products), with an adjusted operating loss of around $100 million, primarily due to:

    • investments in research and development; and

    • expenses related to employee retention and recruitment programs;

  • Full-year amortization and impairment of acquired intangibles of $0.14 per share;

  • Operating cash flow of around $10.5 billion at prevailing exchange rates, subject to year-end working capital requirements;

  • Capital expenditures of approximately $1.0 billion;

  • An effective tax rate, excluding discrete tax events, of 21% to 22%; and

  • The impact on diluted EPS of year-to-date 2022 share repurchases.

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

IQOS in the U.S.

As announced in a separate press release today, PMI has reached an agreement with Altria Group, Inc. to end the companies’ commercial relationship covering IQOS in the U.S. as of April 30, 2024. Thereafter, PMI will have the full rights to commercialize IQOS in the U.S. As part of the agreement, PMI will pay a total cash consideration of $2.7 billion, of which $1.0 billion was paid at the inception of the agreement using available cash. The remaining $1.7 billion, plus interest, will be paid by July 2023 at the latest.

PMI is currently evaluating the impact of this agreement on its consolidated financial statements.

For more information, please refer to the aforementioned press release, available at www.pmi.com.

Swedish Match AB: Revised Offer with Best and Final Price

Earlier today, Philip Morris Holland Holdings B.V. (PMHH), an affiliate of PMI, announced an increase in the price in its recommended public offer to the shareholders of Swedish Match AB (Swedish Match) to SEK 116 in cash per share (compared to SEK 106 in cash per share previously).

The price in the revised offer represents a premium of 52.5% compared to the undisturbed Swedish Match closing share price of SEK 76.06 on May 9, 2022, and the offer price will not be further increased by PMHH. By this statement, PMHH cannot, in accordance with the Takeover Rules for Nasdaq Stockholm, increase the price in the revised offer any further. The revised offer remains subject to the 90% acceptance condition, which is critical to capture the full potential of the combination.

The price in the revised offer primarily reflects the higher net value to PMI related to the portion of Swedish Match’s cash flows generated in U.S. dollars, given currency movements since the initial offer was announced in May. PMI believes that the deterioration in the global economic outlook, equity markets and the interest rate environment since the time of the initial offer strengthens yet further the attractiveness of the revised offer to Swedish Match shareholders.

PMI expects the transaction to close in the fourth quarter of this year, subject to the terms and conditions of the offer being fulfilled or waived as further set out in the offer document. Public information regarding the offer is available on the offer website (www.smokefree-offer.com).

Should the offer fail, PMI will continue with its strategic alternatives to the Swedish Match combination, including its well-advanced plans for the U.S. commercialization of IQOS -- upon regaining full control after April 30, 2024 -- as well as its broader smoke-free portfolio.

War in Ukraine

Since the onset of the war in Ukraine, PMI's main priority has been the safety and security of its more than 1,300 employees and their families in the country. The company has helped to evacuate more than 1,000 people from Ukraine and relocate over 2,700 others from conflict zones to locations in the country away from the heaviest fighting; provided critical aid to employees who cannot leave or who decide to remain in Ukraine; and provided those who have left the country with a range of support in neighboring countries. The company is continuing to pay salaries to all its Ukrainian employees and is also providing substantial in-kind support to them and their families. In addition, PMI has contributed approximately $10 million in funds and donated essential items across the country.

On February 25th, PMI announced the temporary suspension of its operations in Ukraine, including at its factory, in Kharkiv. The company subsequently resumed some retail activities where safety allowed, in order to provide product availability and service to adult consumers, and began to supply the market from production centers outside Ukraine, as well as through contract manufacturing by a third party. PMI is applying increased security and safety measures for personnel. Production at the company's factory in Kharkiv remains suspended.

As of September 30, 2022, PMI's Ukrainian operations have approximately $0.5 billion in total assets, excluding intercompany balances.

PMI employs more than 3,200 people in Russia and will continue to support its employees there, including paying their salaries, while continuing to fulfil its legal obligations. The company will continue to make decisions with employee safety and security as a priority.

On March 24th, PMI announced the concrete steps it had taken to suspend planned investments and scale down its manufacturing operations in Russia, including: the discontinuation of a number of cigarette products; the suspension of its marketing activities; the cancellation of all product launches planned for 2022, including ILUMA; and the cancellation of its plans to manufacture HTUs for ILUMA in Russia.

As previously announced, PMI intends to exit the Russian market in an orderly manner, as the complexities of continuing to operate in Russia increase, such as supply chain challenges and financial and banking sector restrictions. The company's Board of Directors and senior executives continue to actively work on options for doing so, in the context of an increasingly complex and rapidly changing regulatory and operating environment, including the requirement to obtain certain governmental approvals for any transaction.

As of September 30, 2022, PMI's Russian operations have approximately $2.6 billion in total assets, excluding intercompany balances.

PMI recorded pre-tax charges related to the war in Ukraine of approximately $6 million in the third quarter of 2022 and approximately $128 million in the September year-to-date period. This includes charges in Russia related to the cancellation of the planned launch of ILUMA and the planned production of related HTUs.

Impairment of Acquired Intangibles

PMI recorded a pre-tax impairment charge of $112 million as of September 30, 2022, reflecting the impact of general economic and market conditions resulting in a reduction in future estimated cash flows on certain products within the Wellness and Healthcare segment. The charge was recorded within cost of sales in the condensed consolidated statements of earnings and is excluded from adjusted results.

Conference Call

A conference call, hosted by Jacek Olczak, Chief Executive Officer, and Emmanuel Babeau, Chief Financial Officer, will be webcast at 9:00 a.m., Eastern Time, on October 20, 2022. Access the call at www.pmi.com/2022Q3earnings.

CONSOLIDATED SHIPMENT VOLUME & MARKET SHARE

PMI Shipment Volume by Region

Third-Quarter

Nine Months Year-to-Date

(million units)

2022

2021

Change

2022

2021

Change

Cigarettes

European Union

40,745

41,965

(2.9)%

118,465

120,238

(1.5)%

Eastern Europe

22,547

25,020

(9.9)%

61,694

67,771

(9.0)%

Middle East & Africa

34,336

35,166

(2.4)%

98,351

93,155

5.6%

South & Southeast Asia

37,176

35,578

4.5%

109,391

105,787

3.4%

East Asia & Australia

10,496

11,120

(5.6)%

32,440

33,450

(3.0)%

Americas

16,666

15,994

4.2%

47,541

46,092

3.1%

Total PMI

161,966

164,843

(1.7)%

467,882

466,493

0.3%

Heated Tobacco Units

European Union

10,211

7,058

44.7%

28,130

20,405

37.9%

Eastern Europe

6,487

6,119

6.0%

18,275

18,594

(1.7)%

Middle East & Africa

1,018

577

76.4%

3,073

1,485

+100%

South & Southeast Asia

125

79

58.2%

315

151

+100%

East Asia & Australia

9,542

9,435

1.1%

27,016

28,478

(5.1)%

Americas

125

221

(43.4)%

339

466

(27.3)%

Total PMI

27,508

23,489

17.1%

77,148

69,579

10.9%

Cigarettes and Heated Tobacco Units

European Union

50,956

49,023

3.9%

146,595

140,643

4.2%

Eastern Europe

29,034

31,139

(6.8)%

79,969

86,365

(7.4)%

Middle East & Africa

35,354

35,743

(1.1)%

101,424

94,640

7.2%

South & Southeast Asia

37,301

35,657

4.6%

109,706

105,938

3.6%

East Asia & Australia

20,038

20,555

(2.5)%

59,456

61,928

(4.0)%

Americas

16,791

16,215

3.6%

47,880

46,558

2.8%

Total PMI

189,474

188,332

0.6%

545,030

536,072

1.7%

Third-Quarter

PMI's total shipment volume increased by 0.6%, driven by a 17.1% increase in HTU shipments, partly offset by a 1.7% decline in cigarette shipments.

On a pro forma basis, PMI's total shipment volume increased by 2.3%, as detailed in Appendix 3, reflecting a 21.9% increase for HTUs, partly offset by a 0.2% decrease for cigarettes. PMI's total shipment volume in the Eastern Europe Region increased by 6.8%, on the same basis, as shown in Appendix 4.

For additional detail on PMI's shipment volume performance by Region, please refer to the "Total Market, PMI Shipment & Market Share Commentaries" sections for PMI's regional operating segments.

Impact of Inventory Movements

The net unfavorable impact of estimated distributor inventory movements was immaterial in the quarter, with PMI’s total in-market sales increasing by 0.8%, or by 2.5% on a pro forma basis -- both essentially in-line with the respective shipment volumes.

PMI's total HTU in-market sales volume in the quarter was 27.9 billion units, or 22.7 billion units on a pro forma basis, representing growth of 13.5% and 18.2%, respectively.

Nine Months Year-to-Date

PMI's total shipment volume increased by 1.7%, driven by increases of 10.9% and 0.3% for HTUs and cigarettes, respectively.

On a pro forma basis, PMI's total shipment volume increased by 3.4%, as detailed in Appendix 3, reflecting increases of 15.8% and 1.8% for HTUs and cigarettes, respectively. PMI's total shipment volume in the Eastern Europe Region increased by 2.5%, on the same basis, as shown in Appendix 4.

For additional detail on PMI's shipment volume performance by Region, please refer to the "Total Market, PMI Shipment & Market Share Commentaries" sections for PMI's regional operating segments.

Impact of Inventory Movements

The net unfavorable impact of estimated distributor inventory movements was immaterial in the period, with PMI’s total in-market sales increasing by 1.8%, or by 3.4% on a pro forma basis -- both essentially in-line with the respective shipment volumes.

PMI's total HTU in-market sales volume in the nine months year-to-date was 78.5 billion units, or 63.3 billion units on a pro forma basis, representing growth of 14.0% and 19.2%, respectively.

PMI Shipment Volume by Brand

PMI Shipment Volume by Brand

Third-Quarter

Nine Months Year-to-Date

(million units)

2022

2021

Change

2022

2021

Change

Cigarettes

Marlboro

64,041

65,139

(1.7)%

183,977

177,287

3.8%

L&M

21,037

21,564

(2.4)%

62,257

64,028

(2.8)%

Chesterfield

17,369

15,994

8.6%

50,060

43,021

16.4%

Parliament

11,890

11,556

2.9%

32,001

30,535

4.8%

Philip Morris

10,255

11,107

(7.7)%

30,325

31,881

(4.9)%

Others

37,374

39,483

(5.3)%

109,262

119,741

(8.8)%

Total Cigarettes

161,966

164,843

(1.7)%

467,882

466,493

0.3%

Heated Tobacco Units

27,508

23,489

17.1%

77,148

69,579

10.9%

Total PMI

189,474

188,332

0.6%

545,030

536,072

1.7%

Note: Philip Morris includes Philip Morris/Dubliss.

Third-Quarter

Shipment volume for PMI's HTU brands increased, primarily driven by the EU, Eastern Europe and Middle East & Africa Regions.

PMI's cigarette shipment volume of the following brands increased:

  • Chesterfield, mainly driven by the Eastern Europe and South & Southeast Asia Regions, partly offset by the Middle East & Africa Region; and

  • Parliament, primarily driven by the Middle East & Africa Region.

PMI's cigarette shipment volume of the following brands decreased:

  • Marlboro, mainly due to the EU and Eastern Europe Regions, partly offset by the Americas Region;

  • L&M, primarily due to the Eastern Europe Region; and

  • Philip Morris, mainly due to the Eastern Europe Region, partly offset by the East Asia & Australia Region.

The cigarette shipment volume decline for "Others" was mainly due to: Bond Street (primarily Eastern Europe) and Lark (mainly Japan and Turkey), partly offset by Dji Sam Soe (Indonesia).

On a pro forma basis, PMI's cigarette shipment volume increased by 1.5% for Chesterfield, 7.9% for Parliament and 6.1% for Philip Morris, and decreased by 0.4% for Marlboro and 0.5% for L&M.

Nine Months Year-to-Date

Shipment volume for PMI's HTU brands increased, primarily driven by the EU and Middle East & Africa Regions, partly offset by the East Asia & Australia Region.

PMI's cigarette shipment volume of the following brands increased:

  • Marlboro, mainly driven by the Eastern Europe, Middle East & Africa and Americas Regions, partly offset by the EU Region;

  • Chesterfield, primarily driven by the Eastern Europe and South & Southeast Asia Regions; and

  • Parliament, mainly driven by the Middle East & Africa Region.

PMI's cigarette shipment volume of the following brands decreased:

  • L&M, primarily due to the EU, Eastern Europe and South & Southeast Asia Regions, partly offset by the Americas Region; and

  • Philip Morris, mainly due to the Eastern Europe Region, partly offset by the East Asia & Australia Region.

The cigarette shipment volume decline for "Others" was mainly due to: Bond Street (primarily Eastern Europe) and Lark (mainly Japan and Turkey), partly offset by Dji Sam Soe (Indonesia) and Sampoerna A (Indonesia).

On a pro forma basis, PMI's cigarette shipment volume increased by 3.3% for Marlboro, 6.8% for Chesterfield, 9.4% for Parliament and 12.3% for Philip Morris, and decreased by 1.1% for L&M.

Pro Forma International Share of Market

Pro Forma

Third-Quarter

Nine Months Year-to-Date

2022

2021

Change
(pp)

2022

2021

Change
(pp)

Total International Market Share (1)

27.7%

27.2%

0.5

27.2%

26.6%

0.6

Cigarettes

24.1%

24.1%

23.7%

23.6%

0.1

HTU

3.7%

3.1%

0.6

3.6%

3.0%

0.6

Cigarette over Cigarette Market Share (2)

25.3%

25.1%

0.2

24.8%

24.6%

0.2

Note: Excludes Russia and Ukraine

(1) Defined as PMI's cigarette and heated tobacco unit in-market sales volume as a percentage of total industry cigarette and heated tobacco unit sales volume, excluding China and the U.S., including cigarillos in Japan

(2) Defined as PMI's cigarette in-market sales volume as a percentage of total industry cigarette sales volume, excluding China and the U.S., including cigarillos in Japan

CONSOLIDATED FINANCIAL SUMMARY

Third-Quarter

Financial Summary -

Quarters Ended September 30,

Change
Fav./(Unfav.)

Variance
Fav./(Unfav.)

2022

2021

Total

Excl.
Curr. &
Acquis.

Total

Cur-
rency

Acqui-
sitions

Price

Vol/

Mix

Cost/
Other

(in millions)

Net Revenues

$

8,032

$

8,122

(1.1

)%

6.7

%

(90

)

(687

)

50

216

316

15

Cost of Sales

(2,935

)

(2,596

)

(13.1

)%

(17.8

)%

(339

)

198

(74

)

(188

)

(275

)

Marketing, Administration and Research Costs

(2,129

)

(2,071

)

(2.8

)%

(8.2

)%

(58

)

111

(169

)

Operating Income

$

2,968

$

3,455

(14.1

)%

(2.5

)%

(487

)

(378

)

(24

)

216

128

(429

)

Asset Impairment & Exit Costs (1)

(43

)

+100

%

+100

%

43

43

Amortization and Impairment of Intangibles (2)

(139

)

(18

)

-(100

)%

-(100

)%

(121

)

(7

)

(114

)

Charges related to the war in Ukraine (3)

(6

)

%

%

(6

)

(6

)

Costs associated with Swedish Match AB offer (1)

(217

)

%

%

(217

)

(217

)

Asset Acquisition Cost (1)

(51

)

+100

%

+100

%

51

51

Adjusted Operating Income

$

3,330

$

3,567

(6.6

)%

4.4

%

(237

)

(378

)

(17

)

216

128

(186

)

Adjusted Operating Income Margin

41.5

%

43.9

%

(2.4

)pp

(0.9

)pp

(1) Included in Marketing, Administration and Research Costs above.

(2) Q3 2022 amount includes an impairment charge of $112 million, which is included in cost of sales above.

(3) Included in Marketing, Administration and Research Costs ($6 million) above.

Net revenues increased by 6.7% on an organic basis, mainly reflecting: favorable volume/mix, primarily driven by higher HTU volume, partly offset by lower cigarette volume and unfavorable device mix; and a favorable pricing variance, driven by higher combustible tobacco pricing, partly offset by lower device pricing and lower HTU (net) pricing.

During the quarter, Russia and Ukraine accounted for nearly 10% of PMI's total net revenues. Pro forma adjusted net revenues increased by 6.9% on an organic basis, as detailed in Schedule 11.

Operating income decreased by 2.5%, excluding currency and acquisitions, primarily reflecting: the impact of 2022 costs associated with the Swedish Match AB offer, as well as higher amortization and impairment of intangibles, partly offset by favorable comparisons versus the prior year period related to asset acquisition cost and asset impairment and exit costs.

Adjusted operating income increased by 4.4% on an organic basis, mainly reflecting: a favorable pricing variance; and favorable volume/mix, primarily driven by higher HTU volume, partly offset by lower cigarette volume, unfavorable HTU mix and unfavorable cigarette mix; partly offset by higher manufacturing costs (mainly due to higher logistics costs and other inflationary impacts, partially offset by productivity); and higher marketing, administration and research costs. Adjusted operating income margin decreased by 0.9 points on an organic basis.

Pro forma adjusted operating income increased by 4.4% on an organic basis, while pro forma adjusted operating income margin decreased by 1.0 point, on the same basis, as detailed in Schedule 11.

Nine Months Year-to-Date

Financial Summary -

Nine Months Ended September 30,

Change
Fav./(Unfav.)

Variance
Fav./(Unfav.)

2022

2021

Total

Excl.
Curr. &
Acquis.

Total

Cur-
rency

Acqui-
sitions

Price

Vol/
Mix

Cost/
Other

(in millions)

Net Revenues

$

23,610

$

23,301

1.3

%

8.1

%

309

(1,778

)

199

466

1,143

279

Saudi Arabia Customs Assessments

(246

)

+100

%

+100

%

246

246

Adjusted Net Revenues

$

23,610

$

23,547

0.3

%

7.0

%

63

(1,778

)

199

466

1,143

33

Net Revenues (1)

$

23,610

$

23,301

1.3

%

8.1

%

309

(1,778

)

199

466

1,143

279

Cost of Sales

(8,191

)

(7,223

)

(13.4

)%

(17.2

)%

(968

)

439

(167

)

(768

)

(472

)

Marketing, Administration and Research Costs

(6,097

)

(6,050

)

(0.8

)%

(3.1

)%

(47

)

247

(106

)

(188

)

Operating Income

$

9,322

$

10,028

(7.0

)%

4.6

%

(706

)

(1,092

)

(74

)

466

375

(381

)

Asset Impairment & Exit Costs (2)

(170

)

+100

%

+100

%

170