PMI(PM) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported excellent organic revenue growth of +11.6%, driven by shipment volume growth of +2.9%, positive smoke-free category mix, and pricing [6][7] - Adjusted diluted earnings per share grew by +18.0% in currency-neutral terms, despite an unfavorable currency impact of $0.06 [6][7] - Year-to-date, adjusted diluted earnings per share growth reached +17.2% in currency-neutral terms, with double-digit organic top-line growth [8] Business Line Data and Key Metrics Changes - Smoke-free net revenues and gross profit grew organically by +16.8% and +20.2% respectively, driving 200 basis points of gross margin expansion [9] - Combustible net revenue and gross profit growth accelerated to almost +9% organically, with gross margins improving by +10 basis points [10] - The oral smoke-free business saw Q3 shipment volumes grow by +22.2%, with ZYN powering U.S. growth of +41.4% [12] Market Data and Key Metrics Changes - In Japan, adjusted HTU IMS growth was +14%, reaching 10.9 billion units on a four-quarter moving average, with a market share increase to 29.8% [19] - In Europe, adjusted IMS growth reaccelerated to +11.3%, with notable growth in markets like Italy, Greece, and Romania [17] - The U.S. nicotine pouch market saw ZYN's category share stabilize and then resume growth, with shipments expected to match consumer demand in Q4 [21][22] Company Strategy and Development Direction - The company is focused on expanding its smoke-free product portfolio, with IQOS generating over$ 10 billion in annual net revenues and significant growth potential [15][16] - The strategy includes increasing production capacity for ZYN in response to strong demand, with a target of around 900 million cans for 2025 [22] - The company is committed to sustainability, aiming for carbon neutrality in operations and increasing access to smoke-free products in low and middle-income countries [33][32] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in continued strong performance, raising full-year guidance for volume, organic sales growth, and adjusted diluted EPS growth to +14% to +15% [36][34] - The company anticipates robust growth in Q4, despite a challenging top-line comparison, and plans to increase commercial investments behind smoke-free brands [37] - Management highlighted the importance of addressing illicit trade and maintaining strong governance and supply chain controls [24] Other Important Information - The company raised its dividend for the 17th consecutive year, reflecting a strong cash generation profile [39] - The divestment of Vectura Group is expected to close by the end of the year, allowing the company to focus on its inhaled therapeutics pipeline [28] Q&A Session Summary Question: IQOS volume trajectory and East Asia performance - Management noted that adjusted in-market sales for IQOS showed a reacceleration, particularly in Japan and Europe, despite shipment volume deceleration [40][41][42] Question: ZYN supply constraints and market share recovery - Management confirmed that supply levels for ZYN are expected to meet consumer demand in Q4, with gradual recovery of market share anticipated [46][47] Question: International cigarette market pricing and volume outlook - Management refrained from commenting on 2025 but acknowledged strong volume growth and pricing in 2024, with no significant excise tax hikes currently anticipated [49][51] Question: E-cigarette revenue run rate and profitability - Management confirmed the conversion factor for e-cigarettes and acknowledged that the revenue run rate is in line with expectations, though specific revenue figures were not disclosed [52] Question: Vaping market adoption and illicit trade measures - Management stated that vaping adoption is not accelerating significantly and emphasized the company's commitment to combating illicit trade through various measures [56][57]