Philip Morris Debt, Cash, Liquidity And Credit Rating

Cash. Pixabay Image.

This article presents the debt and liquidity of Philip Morris International (NYSE:PMI).

Apart from the debt figures, we also look at Philip Morris’ cash and near-cash assets which primarily consist of cash & cash equivalents, and receivables.

The net debt, calculated as total debt less cash & cash equivalents, is another measure that we will find out.

For leverages, we will explore several ratios, including the debt-to-equity and debt-to-asset ratios.

Other leverage ratios such as the debt to sales and debt to EBITDA ratios are also examined.

Philip Morris’ ability to service its debt is another crucial area that needs to be analyzed as it may determine if lenders will extend credits and provide liquidity to the company.

In this aspect, we will look into Philip Morris’ interest coverage ratio, calculated as operating income (a GAAP measure), as well as the adjusted EBITDA (a non-GAAP measure), divided by interest expense net of interest income.

Finally, we will dig into Philip Morris’ debt maturities and the amount of debt due that needs to be repaid in the next 5 years.

Through Philip Morris’ pre-approved and committed credit facilities, we can find out if the company has sufficient liquidity to cover the necessary debt payments when they are due.

Without further ado, let’s start with the following topics!

Philip Morris Total Debt

Philip Morris total debt

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As of fiscal 2023 1Q, Philip Morris’ total debt outstanding was at a 6-year high of $47 billion USD.

Of this amount, nearly $7 billion is considered as current liabilities which means that this total amount will be due within a year.

Compared to 2 years ago, Philip Morris’ total debt in fiscal 2023 has increased by 70%.

The surge in indebtedness in fiscal 2022 was primarily due to the Swedish Match acquisition.

Philip Morris funded the acquisition through cash on hand and debt proceeds.

Philip Morris paid a total of $16 billion for the Swedish Match acquisition, of which $14.5 billion was paid in November 2022 and an additional $1.5 billion for the purchase of non-controlling interests.

Here is a quote extracted from the 2022 annual report regarding the Swedish Match acquisition.

• “The aggregate cash paid as of the acquisition date was $14,460 million (or $13,976 million net of cash acquired)…

  The cash paid in connection with the additional purchases of the noncontrolling interests after the acquisition date amounted to $1,495 million…”

Philip Morris Cash And Near-Cash Assets

Philip Morris cash and near-cash assets

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In terms of cash, Philip Morris’ cash and near-cash assets totaled slightly over $7 billion USD as of 2023 1Q.

Of this amount, only $2.4 billion was cash & cash equivalents while the rest was made up of receivables.

A trend worth mentioning is Philip Morris’ dwindling cash and near-cash assets over the years, suggesting that the company’s cash flow generation may have a hard time catching up with cash consumption.

Even with receivables included, Philip Morris’ total cash was only a drop in the bucket compared to its massive indebtedness.

Therefore, Philip Morris’ cash or near-cash assets alone were unable to cover the entire debt as of 2023 Q1.

Philip Morris Total Debt Less Cash & Cash Equivalents

Philip Morris net debt

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Philip Morris still owes a massive $44.7 billion to lenders as of fiscal 2023 1Q after accounting for cash & cash equivalents.

The worse part is that the company’s net debt has risen significantly since fiscal 2022, driven primarily by borrowings to acquire Swedish Match in fiscal 2022.

Philip Morris Net Debt To Adjusted EBITDA Ratio

Philip Morris net debt to adjusted EBITDA ratio

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With respect to the company’s adjusted EBITDA, Philip Morris’ leverage surged to a record high of 2.89X as of fiscal 2022.

What this ratio means is that the company carried $2.89 dollar of net debt for every $1 dollar of adjusted EBITDA.

Prior to 2022, Philip Morris’ leverage had been on a decline and reached a record low of 1.62X in fiscal 2021.

Because of the borrowings to acquire Swedish Match, Philip Morris had much higher leverage as of fiscal 2022.

Philip Morris Debt To Equity Ratio

Philip Morris debt to equity ratio

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Philip Morris carried negative equity due to years of massive capital returns to shareholders such as cash dividends and share buybacks.

Because of the negative equity, Philip Morris’ debt-to-equity ratio was also negative and totaled -668% as of fiscal 1Q 2023.

Philip Morris Debt To Asset Ratio

Philip Morris debt to asset ratio

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The debt-to-asset ratio reflects Philip Morris’ capital structure, also known as the debt structure.

As of fiscal 1Q 2023, the total debt alone accounts for a massive 68% of the company’s capital structure, suggesting that debt made up a large portion of the company’s total assets.

The worse part is that the ratio has been on the rise and was at a 6-year high as of fiscal 2023.

Again, Philip Morris’ leverage has dramatically risen since 2022, primarily driven by more borrowings in the same year for the Swedish Match acquisition.

Philip Morris Debt To Sales Ratio (Debt Margin)

Philip Morris debt to sales ratio

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With respect to sales revenue, Philip Morris’ debt ratio was 1.36X.

In other words, Philip Morris carried $1.36 dollar of debt for every $1 dollar of revenue.

This ratio also has risen dramatically in 2022, illustrating the company’s record high indebtedness.

Philip Morris Debt To Adjusted EBITDA Ratio

Philip Morris total debt to adjusted EBITDA ratio

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With respect to the adjusted EBITDA, Philip Morris’ debt ratio was much higher at 3.12X.

At this ratio, Philip Morris carried $3.12 dollar of debt for every $1 dollar of adjusted EBITDA.

Similarly, this ratio also soared to a record high in fiscal 2022 when the company took on more debt to acquire Swedish Match.

Philip Morris Operating Profit To Interest Expense Ratio

Philip Morris operating income to interest expense ratio

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Despite the seemingly high debt levels, Philip Morris International had been able to cover its debt expenses in all fiscal years as shown in the chart above.

As seen, Philip Morris’ operating profit, a GAAP measure, had sufficiently covered all debt expenses by a large margin, notably at more than 10.0X.

The interest coverage ratio hit a record figure of 20.8X as of fiscal 2022.

The comfortable interest coverage ratio suggests that Philip Morris International is capable of producing sufficient profits to service its debt.

Philip Morris Adjusted EBITDA To Interest Expense Ratio

Philip Morris adjusted EBITDA to interest expense ratio

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With respect to the adjusted EBITDA, Philip Morris’ interest coverage ratio was even higher, topping 23.47X in fiscal 2022, a 6-year high.

Therefore, Philip Morris can definitely service its debt despite having a high debt level.

Philip Morris Debt Payments Due

Philip Morris long-term debt maturities

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An analysis of Philip Morris’ debt and leverage will not be conclusive without a mention of the corresponding long-term debt maturity date.

As shown in the snapshot above, Philip Morris’ long-term debt due in the next 3 years (from 2023 to 2025) totaled nearly $14 billion USD.

For fiscal 2023 alone, total long-term debt due amounts to $2.6 billion USD.

This amount has not included the short-term borrowings yet.

For short-term borrowings, the 2022 4Q balance sheet shows that $5.6 billion of short-term debt is due in 2023.

Therefore, the total debt due for fiscal 2023 alone amounts to more than $8 billion.

Does Philip Morris have enough liquidity to meet the respective debt payments in 2023?

We will find out in the next section.

Philip Morris Sources Of Liquidity

Philip Morris’ total liquidity as of 31 Dec 2022.

Philip Morris’ sources of liquidity include cash and cash equivalents, revolving credit facilities, commercial paper programs, and net cash from operating activities.

The following quotes are extracted from the 2022 annual report regarding Philip Morris’ liquidity sources.

• “We utilize long-term and short-term debt financing, including a commercial paper program that is regularly used to finance ongoing liquidity requirements, as part of our overall cash management strategy.

  We expect that the combination of our long-term and short-term debt financing, the commercial paper program, and the committed credit facilities, coupled with our operating cash flows, will enable us to meet our liquidity requirements.”

Even without long-term and short-term debt financing, Philip Morris has more than $30 billion of liquidity which is more than enough to deal with the $8 billion debt due in fiscal 2023.

Going forward, Philip Morris should be able to meet its debt obligations given the available liquidity shown in the table above.

Besides, the company’s long-term debt due in the next 5 years (from 2024 to 2027) averages only $5 billion per year.

In short, Philip Morris should have no problems meeting its debt obligations.

Philip Morris Credit Rating

Philip Morris’ credit ratings as of 31 March 2023.

As of 31 March 2023, Philip Morris’ credit rating from Standard & Poor’s was A- for long-term debt obligations and A-2 for short-term debt obligations, with a stable outlook.

Standard & Poor’s credit rating definitions can be found here – Investopedia and Hargreaves Lansdown.

The company’s credit rating from Moody’s Investors Service was A2 for long-term debt obligations and P-1 for short-term debt obligations, with a stable outlook.

Moody’s credit rating definitions can be found here – Moody’s.

For credit rating with Fitch, Philip Morris’ scored an A for long-term debt obligations and an F-1 for short-term debt obligations, with a stable outlook.

Fitch credit rating definitions can be found here – Fitch.

In short, Philip Morris had excellent credit ratings from all rating institutions and they were all within the investment grade category.

Conclusion

In summary, Philip Morris had $43 billion of debt as of 2022, and the amount shot to $47 billion as of 1Q 2023.

The rise in debt levels in 2022 was driven mainly by more borrowings for the Swedish March takeover.

Since 2022, all debt ratios had risen dramatically and were at a 6-year high in 2022 and 2023, suggesting the company’s above-average leverage compared to its historical figures.

Despite the seemingly high indebtedness, Philip Morris had been able to meet its interest expenses and had enough liquidity to deal with the debt payments due.

Moreover, the company had excellent credit ratings, all of which were in the investment-grade category as of 1Q 2023.

References and Credits

1. All financial figures presented in this article were obtained and referenced from Philip Morris’ earnings reports, financial documents, SEC filings, press releases, etc, which are available in PMI Investor Relations.

2. Featured images in this article are obtained from Pixabay.

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