Philip Morris International (PMI) appointed Victoria Harker, an experienced US public-company CFO, to its Board of Directors (effective January 1, 2024)1. This appointment is important & meaningful. In our recent “PMI: Not All Roses” write-up, we highlighted financial planning & reporting issues as a major buy-side concern for the PMI shares. Thanks to her broad finance experience, Ms. Harker could bring the much needed guidance & supervision to PMI’s financial practices – thereby, helping PMI to take actions to minimize the regular (negative) adjustments made for the one-off items and currency fluctuations.
Recall: In the 2013-2023 period, PMI has made $0.28/share one-off item adjustment and $0.38/share FX adjustment per year on average – adding up to $0.66/share adjustment every year. This corresponds to ~10% of adjustment if we take the 2023 adjusted diluted EPS ($6.46-$6.55) guidance as a base.
In this 10-year period, PMI’s reported EPS grew with CAGR of 0.3% (i.e. remained practically the same) – whereas the adjusted EPS (i.e. adjusted for one-off items & currency variations) grew with CAGR of 9.6%. The discrepancy between the reported and adjusted EPS figures is the single most important reason why the PMI share price – so far – failed break out to the upside despite all the positive news.
We expected PMI’s new CFO to overhaul PMI’s financial practices to minimize the EPS adjustments. So far, he has kept the business running as usual: adjusting earnings in a way to deliver 10% adjusted growth. We see this appointment as PMI’s Board of Directors (“André”) hearing the investor concerns and taking a clear-cut action to send a signal (- that the issue is recognized and will be addressed).
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