Proceeding with caution

Philip Morris International has revised its full-year 2019 reported diluted earnings per share forecast following the publication of a Canadian appeals-court judgment in respect of two class-actions in Quebec.

In a statement posted on its website, PMI said that on March 1, 2019, the Court of Appeal of Québec in Montreal had issued its judgment in two class action lawsuits against Rothmans, Benson & Hedges (RBH), a subsidiary of PMI, as well as Imperial Tobacco Canada (a British American Tobacco subsidiary), and JTI-Macdonald. PMI was not a party to the cases.

‘In 2015, the trial court ruled in favor of plaintiffs and found that the estimated class members’ damages totaled approximately C$15.6 billion including interest,’ the statement said. ‘In its decision, the Court of Appeal largely affirmed the total amount of compensatory and punitive damages including the trial court’s order for the defendants to deposit a portion of the damages, approximately C$1.1 billion, into trust accounts within 60 days. RBH’s share of the deposit is approximately C$257 million. RBH previously deposited C$226 million as security with the Court of Appeal. RBH will seek leave to appeal this judgment to the Supreme Court of Canada…

‘As a result of this decision against RBH, PMI will incur in its consolidated results a pre-tax charge of approximately $194 million, representing approximately $142 million net of tax, in the first quarter of 2019, recorded as tobacco litigation-related expenses. The charge reflects PMI’s assessment of the portion of the judgment that it believes is probable and estimable at this time and corresponds to the trust account deposit required by the court.

‘The company is monitoring developments in these proceedings and further assessing the situation, as there is a significant lack of clarity with respect to several factors, including the actual number of claimants, the associated administrative process for verification of their applications, further proceedings, and actions by parties to these proceedings. Therefore, the ultimate liability may differ significantly from this amount.

‘As a result of this charge, PMI today revises its full-year 2019 reported diluted earnings per share forecast to be at least $5.28 at the exchange rates prevailing at the time of PMI’s earnings release of February 7, 2019.  Excluding the impact of this charge of approximately $0.09 per share and an unfavorable currency impact, at the then prevailing exchange rates, of approximately $0.14 per share, this forecast represents a projected increase of at least 8.0 percent versus adjusted diluted earnings per share of $5.10 in 2018 (calculated as reported diluted EPS of $5.08, plus tax items of $0.02 per share primarily related to the implementation of the Tax Cuts and Jobs Act).’