Philip Morris International, Inc. (NYSE:PM) Q4 2018 Earnings Conference Call - Final Transcript

Feb 07, 2019 • 01:00 pm ET


Philip Morris International, Inc. (NYSE:PM) Q4 2018 Earnings Conference Call - Final Transcript


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Good day, and welcome to the Philip Morris International Fourth Quarter 2018 and Year-end Earnings Conference Call. Today's call is scheduled to last about 1 hour including remarks by Philip Morris International management and the 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.

Nicholas Rolli

Welcome and thank you for joining us. Earlier today we issued a press release containing detailed information on our 2018 fourth quarter and full year results. You may access the release on or the PMI Investor Relations app.

A glossary of terms, including the definition for reduced-risk products, or RRPs, as well as adjustments, other calculations and reconciliations to the most directly comparable US GAAP measures, are at the end of today's webcast slides, which are posted on our website.

Today's remarks contain forward-looking statements and projections of future results. I direct your attention to the Forward-Looking and cautionary statements disclosure in today's presentation and press release for a review of the various factors that could cause actual results to differ materially from projections or forward-looking statements.

It's now my pleasure to introduce Andre Calantzopoulos, our Chief Executive Officer. Martin King, our Chief Financial Officer will join Andre for the question-and-answer period. Andre?

Andre Calantzopoulos

Thank you, Nick, and welcome, ladies and gentlemen. I would like to begin with some general thoughts on our performance in 2018. We achieved robust results from our combustible tobacco portfolio and nearly doubled our heated tobacco unit in-market sales volume, driven by growth in all IQOS markets. We fell short of our initial full-year net revenue growth target provided in February last year, which was almost entirely attributable to lower than-anticipated IQOS consumer acquisition in Japan and related distributor heated tobacco unit inventory adjustment.

In our view, this overshadowed an otherwise robust financial and strategic performance across the business. Clearly, and understandably, this contributed to the overall decline in our share price, which was also pressured by broader market concerns surrounding the industry and the consumer staples sector generally. While we recognize that the market is the ultimate judge, we find it difficult to understand the share price impact of certain developments in the industry last year, particularly those that were very US-centric and arguably less relevant to our international business.

Entering 2019, I believe that we have laid the foundation for a better business performance this year and beyond, thanks to significant investments in product portfolio development and organizational capabilities, including a state-of-the-art digital infrastructure to fuel our expansion. As I will cover in my remarks in a moment, the underlying strength of our combustible product portfolio remains undoubtedly intact, and our smoke-free products are the catalyst to accelerate our overall business growth.

Let me now take you through the main elements of our full-year results, starting with volume. Our total cigarette and heated tobacco unit shipment volume declined by 2.1%, notably reflecting the reduction in distributor heated tobacco unit inventory in Japan,