Philip Morris International Inc. Q3 FY2024 earnings call

• Delivered excellent performance in Q3 with double-digit organic top and bottom-line growth, margin expansion, and accelerated adjusted diluted earnings per share growth.
• IQOS saw a significant step-up in HTU adjusted IMS volumes in Q3, with strong performance in Japan and reacceleration in Europe.
• ZYN increased U.S. production capacity to meet strong demand, leading to stabilization and sequential improvement in share performance.
• Combustibles had high single-digit net revenue and gross profit growth, driven by strong pricing, resilient volumes, and cost actions.
• IQOS in Japan delivered eighth consecutive quarter of double-digit progression, while in Europe, there was reacceleration in adjusted IMS growth.
• ZYN continued efforts to increase U.S. production capacity, with sequential U.S. volumes up over 40% year-on-year.
• E-vapor performance remained dynamic, reaching profitability at product contribution level in September.
• Wellness & Healthcare business: Agreement to sell Vectura Group, with progress made on inhaled therapeutics pipeline.

Smoke-free net revenues grew organically by +16.8%, with gross profit up by +20.2%, driving a 200 basis points expansion in gross margin. Combustible net revenue and gross profit growth accelerated to almost +9% organically, with combustible gross margins improving by +10 basis points organically and +20 basis points in dollar terms. Smoke-free gross margins were more than 450 basis points higher than combustibles in Q3 and more than 200 basis points higher year-to-date.

• Raised full-year volume outlook to +2% to +3% total shipment progression, with adjusted IMS HTU volume growth around +13% and shipment volumes of around 140 billion.
• U.S. ZYN shipment volumes forecasted in range of 570 million cans to 580 million cans.
• Increased organic net revenue growth outlook to around +9.5%, including strong double-digit growth in smoke-free net revenue.
• Raised adjusted organic OI growth forecast to +14% to +14.5% for the year.
• Currency-neutral adjusted diluted EPS growth forecasted to +14% to +15%, translating to range of $6.45 to $6.51 on a U.S. dollar basis.

• Currency fluctuations, such as weakness in the Egyptian Pound, Argentine Peso, and strong Swiss Franc.
• Regulatory challenges, including the EU single-use plastics directive and flavor bans impacting volumes.
• Illicit trade in tobacco and nicotine products, requiring significant resources to combat.
• Geopolitical factors affecting illicit volumes in various markets.

Q: Could you comment on IQOS volume trajectory, including reversal in Q4 and East Asia drivers?

A: IQOS saw adjusted in-market sales growth, with reacceleration in Europe and strong performance in Japan. Shipment trajectory may be disconnected from consumer off-take, but adjusted IMS expected to renew momentum in Q4.

Q: On ZYN, is supply set to fully restore this quarter and how quickly will market share be recaptured?

A: Expect supply to meet consumer demand in Q4, but full replenishment of inventory will happen gradually through 2025. Market share recovery expected as availability improves, but specific timelines unclear.

Q: Thoughts on cigarette markets internationally, pricing guidance, and excise tax hikes?

A: Pricing guidance increased to 8%-9%, but cautious on 2025 outlook. No material excise tax issues to flag currently, but more clarity expected at year-end.

Q: On e-cigarettes, ballpark revenue run rate?

A: Ballpark figures are in range, but exact revenue not commented on.

Q: Thoughts on vapor adoption and illicit nicotine products in U.S.?

A: No acceleration in vapor adoption seen. PMI commits significant resources to combat illicit trade in U.S., working with authorities and taking action against infringing products.

Q: Deleveraging guidance and refinancing plans?

A: Slight narrowing of deleveraging guidance due to euro strength, but cash flow generation strong. Open to refinancing in coming months.