Global Tobacco Giants and Currency Fluctuations

Revenue Impact of Currency Fluctuations

Currency fluctuations have negatively impacted Philip Morris's financial condition, with unfavorable variances affecting growth and earnings. Despite dynamic growth in HTU shipments and strong profit forecasts, exchange rate volatility has led to significant transactional impacts and reduced operating income and earnings per share.

"This impact of currency fluctuations could negatively impact our financial condition and results of operations." --- (PM, sec filing, 2024/Q1)

"We include a table of estimated currency impact by quarter in the appendix. This Q3 forecast notably reflects another quarter of dynamic growth with HTU shipment of 34 billion to 35 billion units and an acceleration in HTU adjusted IMS growth. Given expectation for a strong full year profit delivery, we are forecasting operating cash flow of around $11 billion which is at the upper end of our previous forecast range at prevailing exchange rate and subject to year-end working capital requirement." --- (PM, earning call, 2024/Q2)

"This represents plus 10.6% growth excluding a larger-than-expected unfavorable currency variance of $0.18, which includes a small transactional impact from exchange rate volatility at quarter end." --- (PM, earning call, 2024/Q2)

"Operating income increased by 19.8%. Operating income, excluding currency, increased by 18.7%, primarily reflecting: a favorable comparison to 2023 of $47 million related to asset impairment and exit costs, a favorable pricing variance, mainly driven by higher combustible tobacco pricing; and favorable volume/mix, primarily driven by higher HTU volume and favorable HTU mix, partly offset by lower cigarette volume, as well as unfavorable cigarette mix; partly offset by higher manufacturing costs, including the impact of the EU single-use plastics directive." --- (PM, sec filing, 2024/Q1)

"Indeed, we delivered adjusted diluted earnings per share of $1.50, representing plus 23.2% growth excluding an unfavorable currency impact of $0.20." --- (PM, earning call, 2024/Q1)

Regional Performance Variations Due to Currency Changes

Philip Morris International's regional performance is significantly impacted by currency fluctuations, with adverse effects on EPS and operating cash flow. Competitors may be less affected by these changes, highlighting the variability in regional performance due to currency dynamics.

"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." --- (PM, press release, 2024/07/23)

"Some competitors have different profit, volume and regulatory objectives, some international competitors may be less susceptible than PMI to changes in currency exchange rates, and some competitors may sell products in circumvention of applicable regulations that compete directly with our products." --- (PM, sec filing, 2024/Q1)

"Operating cash flow of $10 to $11 billion at prevailing exchange rates, subject to year-end working capital requirements; Capital expenditures of approximately $1.2 billion, partly reflecting 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 first-half performance, with second quarter adjusted diluted EPS of $1.50 to $1.55, including an estimated adverse currency impact of 14 cents at prevailing exchange rates." --- (PM, press release, 2024/04/23)

"So we said it at the beginning of the year and then we're at CAGNY, we want to deliver performance in dollar terms." --- (PM, earning call, 2024/Q1)

"Also worth highlighting is the successful contribution of Duty Free, where we are increasingly leveraging our multi-category portfolio to expand share in a growing market as travel recovers in Asia. Our fundamental HTU growth outlook for the year has not changed." --- (PM, earning call, 2024/Q2)

Pricing Adjustments in Response to Currency Movements

Global tobacco companies, like Philip Morris and Altria, are adjusting prices to counteract currency fluctuations. Philip Morris forecasts a 6-7% price increase for the year, while Altria's USSTC raised prices by $0.11 per can. These adjustments help offset FX headwinds and maintain favorable pricing variances.

"The pricing environment remains favorable, and we now forecast a full-year increase of 6% to 7%, with annualization effects lessening in H2." --- (PM, earning call, 2024/Q1)

"Pricing Actions USSTC executed the following pricing actions during 2024 and 2023: ▪ Effective January 23, 2024, USSTC increased the list price on its Copenhagen , Skoal and Red Seal brands by $0.11 per can." --- (MO, sec filing, 2024/Q1)

"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." --- (PM, press release, 2024/07/23)

"And it's striking to me that amongst some of those companies, even a commoditized U.S. toilet paper company has done a better job this quarter of offsetting these incremental emerging market FX headwinds with sort of rapidly responding with incremental price increases to offset those headwinds." --- (PM, earning call, 2024/Q1)

"So one can argue that by increasing the premium cigarette prices, which haven't increased now in two years, you can accelerate the down trading to IQOS." --- (PM, earning call, 2024/Q1)

Competitive Positioning and Currency Effects

Philip Morris and Altria face significant challenges in maintaining competitive positioning due to potential adverse effects on unit margins, product standards, and illicit trade. Philip Morris has demonstrated strong market share in Italy and the Czech Republic and remains competitive in the heated tobacco market.

"If we cease to be successful in these efforts, SFP unit margins may be materially adversely affected, which in turn may have a material adverse effect on our results of operations, revenues, cash flows, and profitability." --- (PM, sec filing, 2024/Q1)

"If any one or more of the foregoing potential product standards were to become final and was appealed and upheld in the courts, it could have a material adverse effect on our business, results of operations, cash flows or financial position, including a material adverse effect on the carrying value of certain of our assets such as our cigar trademarks." --- (MO, sec filing, 2024/Q1)

"right positioning for us to make progress. We have demonstrated in the first countries where we implemented that, for instance, Italy and Czech Republic, that we are able to take on the closed pod system more than 30% of the market." --- (PM, conference, 2024/05/07)

"It is possible that if this private sector activity becomes more widespread it could have an adverse effect on our business, results of operations, cash flows or financial position. Illicit Trade in Tobacco Products" --- (MO, sec filing, 2024/Q1)

"and being able to deploy that at scale. We are more competitive on heated tobacco." --- (PM, conference, 2024/05/07)