Q3 2024 Earnings Summary
- Strong Pricing Power with Volume Growth: Philip Morris International achieved a remarkable 9.7% price increase in Q3 for combustible cigarettes while also growing volumes and market share, demonstrating the strength of their brands and pricing power.
- Continued Robust Growth of IQOS: IQOS adjusted in-market sales grew by almost 15% globally in Q3, with strong performance in Japan (around 14% growth) and a reacceleration in Europe after the flavor ban disruption. There is significant growth potential in new markets like Indonesia, Saudi Arabia, and Mexico, indicating promising future growth beyond traditional markets.
- Strong Cash Flow Generation: PMI generated $8.2 billion in cash flow at the end of Q3, which is $2.3 billion above the prior year, underscoring the strong momentum of the business and providing opportunities for debt management and shareholder returns.
- Growing competition from vapor products in Europe: An analyst highlighted that in Europe, vapor is seeing greater success in fully converting smokers than heated tobacco, suggesting potential challenges for PMI's heated tobacco products .
- Uncertain financial impact from Canadian litigation settlement: PMI stated it's too preliminary to determine if settlement payments will be tax-deductible, leaving financial implications unclear .
- Challenges with illicit nicotine pouch products in the U.S.: PMI is encountering illicit products infringing on their patents, which could impact their nicotine pouch market share and revenue .
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Adjusted Diluted EPS | Q3 2024 | $1.77 to $1.82 | $1.97 | Beat |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Strong pricing power in combustibles | Q2 2024: Achieved +8.7% H1 pricing, raised forecast to +7%–8%. Q1 2024: +7.9% pricing. Q4 2023: Pricing of nearly 9% not expected to repeat in 2024. | Pricing of +9.7%; raised full-year guidance to +8%–9%. | Consistently emphasized pricing strength, with higher guidance in Q3. |
IQOS growth and expansion | Q2: 11.4% H1 growth; expansions to 90+ markets. Q1: +21% shipments; global ILUMA rollout. Q4 2023: 28.6M users; wide market expansion. | 14.8% YoY growth in HTU-adjusted IMS. Strong in Japan (+14%), reacceleration in Europe, new product rollouts. | Ongoing double-digit expansion, with short-term disruptions but steady momentum. |
ZYN supply constraints | Q2: Supply chain issues; plans to meet demand by Q4. Q1: Strong demand (~80% growth), limited volume impact. Q4 2023: No mention. | Expect to align shipments and demand in Q4, full inventory recovery by 2025. Capacity targeting 900M cans. | Recurrent topic, with clearer timeline in Q3 and extended resolution into 2025. |
Regulatory uncertainty and legal risks (ZYN) | Q2: Concerns over illicit sales and subpoena in DC. Q1/Q4: No specific updates. | No mention for Q3 2024. | Topic dropped after Q2. |
Strong cash flow generation | Q2: Forecasted ~$11B operating cash flow. Q1: Key driver for deleveraging. Q4 2023: $9.2B in 2023, targeting $10–$11B in 2024. | Generated $8.2B by Q3 (up $2.3B YoY). | Continues to strengthen year over year. |
Potential impact of Canadian litigation | No prior mentions in Q2, Q1, or Q4 2023. | Mediator’s plan totals $23.5B for the industry, uncertain reconsolidation benefits. | New topic introduced in Q3. |
Deceleration in IQOS shipments in some mkts | Q2: Slight deceleration from flavor-ban and Taiwan delays. Q1: Slower in Central Europe. Q4 2023: +6% shipments vs. +14% IMS. | Decline to high single-digit shipment growth due to timing but strong in-market sales in Japan. | Ongoing caution, but IMS remains robust. |
Regulatory changes in the EU (flavor ban) | Q2: Impacted Italy’s HTU volumes. Q1: ~2B stick impact across 11 markets. Q4 2023: Minimal long-term structural change. | Forecasting a 2B-unit headwind. | Consistent negative but regarded as a short-term adjustment. |
VEEV e-vapor product and PMTA strategy | Q2: #1 closed-pod in several EU markets; no immediate U.S. PMTA plan. Q1: Focus on limited key markets. Q4 2023: No mention. | Reached profitability at product contribution level; no PMTA discussion. | Gaining traction in Europe; strategy unchanged for U.S. |
Under-monetization of cigarette business | Q2: Discussed possible underpricing vs. market share gains. Q1/Q4 2023: No mention. | No mention in Q3. | Dropped after Q2. |
Persistent currency headwinds | Q2: Over 12% headwind in H1. Q1: $0.09 impact from Egypt’s pound. Q4 2023: Argentine peso devaluation. | $0.06 EPS impact (Egyptian pound, Argentine peso); $0.40 FY impact forecast. | Continues across periods, mitigated by pricing and cost initiatives. |
Non-recurring benefits from HTU shipments | Q2: ~0.5B extra from Red Sea disruption. Q1: +1B from temporary factor. Q4 2023: Prior-year inventory buildup. | No mention in Q3. | No current additional benefits noted in Q3. |
Supplementary excise tax in Germany (HTU) | Q1: Purely German matter; awaiting finance court decision. Q2/Q4 2023: No updates. | No mention in Q3. | No further developments mentioned. |
Margin expansion from smoke-free products | Q2: Smoke-free fueling healthy margin expansion. Q1: Strong margin gains from IQOS/ZYN. Q4 2023: +340 bps from smoke-free. | 450+ bps margin advantage vs. combustibles; core driver of profit growth. | Key theme, consistent margin driver. |
Increased competition from disposables | Q2: No direct mention. Q4 2023: Disposables popular in U.S./U.K., less so in EU. | Acknowledged irresponsible marketing of disposables; no major shift in user adoption. | Moderate but growing concern in select markets. |
-
Cigarette Volume and Pricing Outlook
Q: Will strong cigarette volumes and pricing continue in FY25?
A: Management noted that cigarette volumes remain positive despite an 8% to 9% pricing increase. They attributed strong volumes to factors like lack of illicit trade in markets such as Brazil and Turkey. While they did not provide specific guidance for FY25, they acknowledged these factors may continue beyond 2024. They expect continued pricing power but advised not to assume the same level of increase in the future, emphasizing mid-single-digit growth over the medium term. -
IQOS Volume Trajectory
Q: What's the outlook for IQOS shipment volumes and growth?
A: Management highlighted a reacceleration in adjusted in-market sales for IQOS, reaching nearly 15% growth in Q3. Japan showed strong performance with around 14% growth, and Europe resumed double-digit growth following flavor ban disruptions. They expect shipments and adjusted in-market sales to align over time, with renewed momentum anticipated in Q4. -
ZYN Supply Constraints
Q: When will ZYN supply issues be resolved?
A: They expect to meet consumer demand for ZYN sometime in Q4, though full inventory replenishment will likely extend into 2025. Capacity is targeted to reach around 900 million cans for the full year 2025, increasing gradually. The impact on market share recovery is difficult to specify at this stage. -
Deleveraging and Refinancing Plans
Q: What's impacting deleveraging and any refinancing plans?
A: The slight narrowing of deleveraging guidance is due to euro strength affecting debt calculations. Year-to-date cash flow generation is $8.2 billion, an increase of $2.3 billion over the prior year. Management is considering refinancing options in the coming months but did not elaborate further. -
E-Cigarette Shipments and Revenue
Q: Can you detail e-cigarette shipments and run rate?
A: Using the conversion of 1 milliliter equals 10 sticks, management confirmed shipments of 1.2 billion e-cigarettes year-to-date. While they did not comment on revenue specifics, they acknowledged that the analyst's estimates were not far off. -
Vapor Adoption vs. Heated Tobacco
Q: Is vapor adoption accelerating compared to heated tobacco?
A: Management does not see any acceleration in vaping adoption. They emphasized that heated tobacco products have much higher conversion rates for smokers due to a more similar experience. The vaping market faces regulatory challenges and concerns over underage consumption, impacting its growth. -
Illicit Nicotine Pouches in the U.S.
Q: What actions are taken against illicit nicotine pouches?
A: The company is actively fighting illicit trade by working with authorities and taking measures like terminating sales to sources of illicit products. They send cease and desist letters to distributors and retailers when necessary and invest significantly in combating illicit activities. -
Canadian Litigation Settlement
Q: Will the settlement payments be tax-deductible?
A: Management stated it's too early to determine the tax deductibility of the Canadian litigation settlement payments. They will provide more information once final terms are settled but could not specify when that will be.