Philip Morris International, Inc. (NYSE:PM) Q1 2017 Earnings Conference Call - Final Transcript
Apr 20, 2017 • 09:00 am ET
Good day, and welcome to the Philip Morris International First Quarter 2017 Earnings Conference Call. Today's call is scheduled to last about 1 hour, including remarks by Philip Morris International management and a question-and-answer session. (Operator Instructions)
I will now turn the call over to Mr. Nick Rolli, Vice President of Investor Relations and Financial Communications. Please go ahead, sir.
Welcome. Thank you for joining us. Earlier today, we issued a press release containing detailed information on our 2017 first quarter results. You may access the release on www.pmi.com or the PMI Investor Relations app.
During our call today, please note the following unless otherwise stated. First, we'll be talking about results for the first quarter of 2017 and comparing them to the same period in 2016. Second, all references to total industry, PMI volume and PMI market share performance now reflects cigarettes and PMI's heated tobacco units for those markets that have commercial sales of iQOS. A glossary of terms, adjustments and other calculations as well as reconciliations to the most directly comparable U.S. GAAP measures are at the end of today's webcast slides, which are posted on our website.
Reduced-Risk Products, or RRPs, is the term we use to refer to products that present, are likely to present or have the potential to present less risk of harm to smokers who switch to these products versus continuing smoking.
(Forward-Looking Cautionary Statements)
It's now my pleasure to introduce Jacek Olczak, our Chief Financial Officer. Jacek?
Thank you, Nick, and welcome, ladies and gentlemen. And as announced this morning, we're increasing our 2017 reported diluted EPS guidance at the prevailing exchange rate by $0.04 to a range of $4.84 to $4.99 for a favorable tax item only. Our guidance continues to include $0.08 of unfavorable currency. Excluding currency and the tax item, our guidance represents a growth rate of approximately 9% to 12% compared to our adjusted diluted EPS of $4.48 in 2016.
As a reminder, we expect our currency-neutral financial growth to be skewed toward the second half of 2017, notably reflecting increased heated tobacco unit capacity and improving returns on our RRP investment as the year unfolds.
Let me now take you through our first quarter results, beginning with our combined cigarette and heated tobacco unit shipment volume, which declined by 9.4% or 7.8%, excluding estimated inventory movement. The decline was due primarily to the impact of lower cigarette industry volume, partly reflecting the macroeconomic environment in Indonesia, Pakistan, the Philippines and Russia as well as the high prevalence of illicit trade in Pakistan and the Philippines.
As seen on the left side of the slide, over half of the total decline consisted of low-price segment volumes, some of which contributed very little, if any, unit margin. This limited the impact on our profitability and differs dramatically from the overall price segment split of our premium position portfolio, as shown on the right.
Our first quarter volume decline was slightly larger than anticipated due to essentially to the lower