Release Date: July 23, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Philip Morris International Inc (PM, Financial) reported record H1 organic topline and operating income growth, excluding the pandemic recovery year of 2021.
- Strong performance from IQOS, with shipment and adjusted in-market sales volume growth above or in line with expectations.
- ZYN continued its impressive growth trajectory with Q2 US volumes growing by over 50%, despite recent supply tensions and increased pricing.
- Combustible business overdelivered with a return to gross margin expansion ahead of plan in Q2 after two years of significant inflationary headwinds.
- H1 adjusted diluted EPS grew by an impressive 16.8% in constant currency and by 4% in dollar terms.
Negative Points
- The company faced a significant currency headwind of over 12%, impacting H1 adjusted diluted EPS growth.
- The ongoing delay in approval for commercialization in Taiwan has created an incremental headwind of around 2 billion units to the full-year adjusted IMS forecast.
- The implementation of the characterizing flavor ban in Europe, particularly in Italy, had a more pronounced impact than anticipated.
- ZYN faced short-term supply chain constraints, impacting volume growth.
- Geographic mix was negative, primarily due to combustible volumes increasing in lower-margin markets where smoke-free alternatives are small or not available.
Q & A Highlights
Q: Can you elaborate on the cigarette pricing strategy and market share gains?
A: Emmanuel Babeau, Chief Financial Officer: We have achieved an 8.7% price increase for combustibles in H1, driven by market-specific strategies. Despite the inflationary environment stabilizing, we are optimizing our pricing potential by leveraging our strong portfolio and market positions.
Q: What is the expected ZYN capacity by Q4 2024?
A: Emmanuel Babeau, Chief Financial Officer: We aim for a production capacity of around 900 million cans for 2025. We are gradually increasing capacity each quarter, and while we won't specify exact Q4 figures, we are confident in meeting consumer demand by then.
Q: Why did you lower your HTU shipment volume outlook despite raising top and bottom-line growth expectations?
A: Emmanuel Babeau, Chief Financial Officer: The revision is primarily due to delays in Taiwan's regulatory approval, accounting for most of the 2 billion unit reduction. Additionally, the EU flavor ban had a slightly greater impact than expected, particularly in Italy.
Q: How is the new ILUMA i device performing in Japan, and what are your plans for its rollout?
A: Emmanuel Babeau, Chief Financial Officer: ILUMA i has shown positive consumer reception and new user acquisition in Japan. We plan to launch it in a few other countries in H2. The device enhances user experience and loyalty, contributing positively to market growth.
Q: Can you provide more details on the growth of oral pouches in international markets?
A: Emmanuel Babeau, Chief Financial Officer: International nicotine pouch volumes grew over 60% in H1, matching US growth. We see potential in markets like the Nordics, Europe (e.g., UK, Austria), and global markets (e.g., Pakistan, South Africa, Mexico).
Q: How do you see the development of the vapor category outside the US, particularly post the EU flavor ban?
A: Emmanuel Babeau, Chief Financial Officer: The vaping category continues to grow as an alternative for nicotine users, though it is more appealing to new users than converting smokers. We haven't seen significant shifts to vaping post-flavor ban in Europe, and we continue to focus on responsible marketing and product development.
Q: What are your plans for the IQOS ILUMA tests in the US, and how will they differ from previous launches?
A: Emmanuel Babeau, Chief Financial Officer: We plan a limited launch in a few cities to fine-tune our approach before a broader rollout post-PMTA approval, expected in H2 2025. We will leverage successful strategies from other markets, focusing on direct consumer engagement and strong retail partnerships.
Q: How do you address the issue of European ZYN products being sold in the US without PMTA approval?
A: Emmanuel Babeau, Chief Financial Officer: We are committed to compliance and are taking steps to control product flows. We are monitoring the situation closely and expect authorities to act against any illicit products entering the market.
Q: What gives you confidence in the projected ZYN volume growth despite current supply constraints?
A: Emmanuel Babeau, Chief Financial Officer: Our confidence is based on strong consumer demand and our ongoing efforts to increase production capacity. We aim to meet the target of 560-580 million cans for 2024 and have plans to expand capacity further in 2025.
Q: What are your plans for expanding VEEV in the US?
A: Emmanuel Babeau, Chief Financial Officer: Currently, we are focusing on IQOS and do not have immediate plans to file a PMTA for VEEV. We are concentrating on developing a successful and profitable business in existing markets before considering expansion into the US.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
