Philip Morris International, Inc. (NYSE:PM) Q1 2017 Earnings Conference Call - Final Transcript

Apr 20, 2017 • 09:00 am ET

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Philip Morris International, Inc. (NYSE:PM) Q1 2017 Earnings Conference Call - Final Transcript

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Presentation
Executive
Jacek Olczak

industry volume in Pakistan and Philippines as well as the magnitude of unfavorable inventory movements in Italy and Spain. For the full year, we expect a combined decline of 3% to 4%, broadly in line with last year.

The expected improvement over the balance of 2017 is supported by 3 main factors: The lapping of challenging first half comparisons versus 2016 in select geographies, such as Argentina, the EU region and Turkey; a lower impact of estimated unfavorable inventory movements on a full year basis; and a significantly higher heated tobacco unit volume.

Despite the cigarette-driven volume decline, net revenues in the first quarter increased by 1.7%, excluding currency. This growth reflected favorable pricing, particularly in the Asia and EEMA regions as well as the higher heated tobacco unit and iQOS device sales. For the year, we continue to anticipate currency-neutral net revenue growth above 6%.

Adjusted OCI declined by 1.7%, excluding currency, primarily reflecting lower cigarette volume as well as significantly higher investments behind the commercialization of iQOS, notably in the EU region and Japan. Adjusted diluted EPS were flat at $0.98, with no currency impact, as the favorable effect of currency such as the Indonesian rupiah, Japanese yen, Russian ruble and Swiss franc were offset by the negative effect related to the Egyptian pound, Mexican peso and Turkish lira.

Our strong pricing variance represents 6.7% of first quarter 2016 net revenues and included positive contributions from all 4 regions. During the quarter, we announced or implemented price increases in a number of markets, notably Argentina, Germany, Indonesia and Turkey as well as others shown on this slide.

Our first quarter market share, excluding China and the U.S., declined by 0.9 points to 26.8%, due principally to brands in below-premium priced segment, such as low-priced Morven Gold in Pakistan, Fortune and Jackpot in the Philippines and Next/Dubliss in Russia. Our premium brands performed well in the quarter, contributing 0.2 points of market share growth, driven by the strong performance of our heated tobacco brands.

I will now discuss a few of our key geographies, beginning with the EU region. Industry volume declined by 2.8% in the quarter, consistent with the secular decrease in the market and our full year decline forecast of 2% to 3%. Our volume was down by 7.1% but was impacted by estimated unfavorable distributor cigarette inventory movement, notably related to the implementation of the Tobacco Products Directive in France, Italy and Spain. Excluding these inventory movements, our volume declined by 2.9%, broadly in line with the industry.

Our regional market share was essentially flat in the quarter, with growth in markets such as France, Germany, Poland and the U.K., offset by declines notably in Italy and Spain. In Italy, the sharp decline was due mainly to Philip Morris, reflecting the growth of the super-low price segment as well as Marlboro, which is the only major cigarette brand above the round EUR 5 per pack price point.

Marlboro was also impacted by the TPD's ban on