Philip Morris International Inc. (NYSE:PM) released its fourth-quarter 2022 financial results, showing that both its top and bottom lines improved year over year and beat each Consensus Estimate.

Beginning with the first quarter of 2023, the company will present financial information using its new regional structure, which was introduced in November 2022. By reducing the number of regions from six to four, the corporation will probably move closer to its objective of operating primarily (in terms of net revenues) smoke-free by 2025.

Detailed Quarter

Adjusted profits per share (EPS) were $1.39, a 1.5% year-over-year increase. The $1.54 EPS increased 14.9% on a reported basis. The consensus estimate was $1.29.

On an organic basis, net revenues of $8,152 million rose by 7.5%. The top line came in at almost $7,480 million over the Consensus Estimate. An improved volume/mix and stronger pricing variance supported the year-over-year growth (mainly due to increased combustible tobacco pricing). Net revenues increased 7.9% organically when Ukraine and Russia were excluded.

Net sales of combustible products during the quarter increased 1.3% to $5,214 million (on an organic basis). Sales of non-smoking goods increased 23% to $2,866 million (excluding Wellness and Healthcare). In the fourth quarter, net revenues from the Wellness and Healthcare sector totaled $72 million, an 18.8% organic decline.

Net revenues from smoke-free products made up 36% of the company’s overall revenues for the quarter. At the conclusion of the fourth, it was estimated that there were around 24.9 million IQOS customers overall (including nearly 17.8 million who switched to IQOS and stopped smoking).

To reach almost 186 billion units, the total amount of cigarettes and heated tobacco units shipped increased by 1.2%. While the shipment of heated tobacco increased 26.1% year over year to 32 billion units, the shipment of cigarettes fell 2.8% to roughly 154 billion units in the third quarter. Net sales increased 7.9% on an organic basis, while total shipping volumes increased 2.6% when Ukraine and Russia were excluded.

While the corresponding margin stayed constant year over year at 36.5% on an organic basis, adjusted operating income increased 7.5% on an organic basis to $2,976 million. The better volume/mix and pricing variance were largely offset by rising marketing, administrative, and research expenditures as well as higher manufacturing costs (mostly as a result of rising logistics costs and other inflationary pressures, which were partially offset by productivity).

Performance by Region

To $2,890 million, net revenues in the European Union rose 11.2% organically. A better volume/mix supported this, while unfavorable pricing somewhat offset it (stemming from reduced HTU net pricing). To 46,810 million units, total shipment volumes increased 3.1%.

Net revenues in Eastern Europe rose organically by 5.9% to $992 million on better pricing variance, partially offset by a poor volume/mix. To 26,297 million units, total export volumes decreased by 6%.

Net revenues increased 3.4% to $924 million in the Middle East and Africa as a result of a favorable volume/mix. The region’s overall cargo volumes increased 4.9% to 37,142 million units.

South and Southeast Asia saw a 9.4% organic increase in revenue to $1,100 million. This was brought about by reduced pricing variance, which was somewhat offset by a modest volume/mix decline. 34,745 million units were shipped, a 4.1% decrease.

On an organic basis, East Asia & Australia’s revenues increased 6% to $1,322 million as a result of the improved volume/mix and pricing variance. 22,428 million units were shipped overall, an 11.3% increase.

Organic revenue growth in America was 23% to $536 million on the back of favorable pricing variance offset by unfavorable volume/mix. To 18,625 million units, total shipment volumes increased by 0.1%.

Results from Swedish Match, from November 11, 2022, through December 31, 2022, are included in the fourth quarter and annual results for the Swedish Match operating segment. On November 11, 2022, Swedish Match transferred ownership to Philip Morris. The segment generated $316 million in revenue during this time.

Philip Morris and KT&G announced a long-term agreement on January 30, 2023, with the goal of continuing to market the latter’s cutting-edge smoke-free products and consumables on a distinctive, global scale (excluding South Korea). The 15-year agreement should help Philip Morris expand its line of smoke-free products.

Philip Morris had $3,207 million in cash and cash equivalents at the end of the quarter. As of December 31, 2022, it has a stockholders’ deficit of $6,311 million, $34,875 million in long-term debt, and no cash on hand.

In 2023, management projects operating cash flow of between $10 and $11 billion, with an estimated $1.3 billion in capital expenditures. In the range of 20.5-21.5%, the adjusted effective tax rate is anticipated. In 2023, the firm announced that it will refrain from repurchasing shares.

On February 25, 2022, Philip Morris made a temporary suspension of its operations in Ukraine, including its factory in Kharkiv, known. According to safety, the corporation resumed certain retail operations in the second quarter. However, Kharkiv’s company factory’s manufacturing is still not running. For Russia, the PM announced (in March 2022) specific actions to halt planned investments and reduce manufacturing activities there.

Guidance

The management anticipates a top- and bottom-line rebound in 2023, which is probably more concentrated in the second half. In the first half, the management anticipates some margin pressure. The full impact of management’s operations in Russia and Ukraine is accounted for in its 2023 guidance.

Excluding China and the United States, the volume growth of the entire international industry is predicted to be in the range of 1% to 2%. The growth in the overall volume of cigarettes and HTU shipments is most expected to be between flat and 1%. Between 125 and 130 billion HTUs are expected to be shipped.

Philip Morris anticipates that net revenues will rise by roughly 7-8.5% on an organic basis in 2023. It’s probable that the organic operating margin increase will decrease by 50 to 150 basis points.

The Wellness and Healthcare segment’s net revenues are projected by management to be around $300 million for the entire year. Additionally, it anticipates Swedish Match’s current activities to perform well.

From 222 onward, the company anticipates an increase in net interest costs of about $200 million. Including a currency headwind of 10 cents per share, Philip Morris anticipates first-quarter EPS in the range of $1.28 to $1.33. This is due to reduced margins, low single digit organic top-line growth, and HTU shipment volumes of about 26 to 28 billion units.

Philip Morris stock increased 8.6% over the last three months, outpacing the industry’s 4.9% gain.

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