Philip Morris International, Inc. (NYSE:PM) Q2 2019 Earnings Conference Call Transcript

Jul 18, 2019 • 09:00 am ET

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Philip Morris International, Inc. (NYSE:PM) Q2 2019 Earnings Conference Call Transcript

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Presentation
Operator
Operator

Good day, and welcome to the Philip Morris International Second Quarter 2019 Earnings Conference Call. Today's call is scheduled to last about one 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.

Executive
Nicholas Rolli

Welcome. Thank you for joining us. Earlier today, we issued a press release containing detailed information on our 2019 second quarter results. You may access the release on www.pmi.com 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.

Unless otherwise stated, all references to IQOS are to our IQOS heat-not-burn products. Comparisons presented on a like-for-like basis reflect pro forma 2018 results, which have been adjusted for the deconsolidation of our Canadian subsidiary, Rothmans, Benson & Hedges, Inc. effective March 22, 2019.

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 Martin King, our Chief Financial Officer. Martin?

Executive
Martin King

Thank you, Nick, and welcome, ladies and gentlemen. Building on our encouraging start to the year, we delivered very solid performance in the second quarter, notably reflecting positive momentum for both our combustible tobacco and smoke-free product portfolios; and strong currency-neutral adjusted financial results. Key among our strength in the second quarter was our volume performance. On a like-for-like basis, total shipment volume declined by 0.7% in the quarter and increased by 0.1% June year-to-date. This performance was better than we had anticipated, notably driven by the EU region. Heated tobacco unit shipment volume increased by 37% to 15.1 billion units in the quarter, driven by the EU region, Eastern Europe region and Japan.

Second quarter net revenues increased by 9% excluding currency on a like-for-like basis, driven by higher HTU shipment volume and favorable pricing for our combustible tobacco portfolio. Our performance was flattered by the timing of pricing in certain markets compared to the prior year, which contributed an estimated two percentage points to net revenue growth. RRP net revenues reached nearly $1.5 billion in the quarter or nearly 20% of PMI's total net revenues.

IQOS devices accounted for approximately 14% of RRP net revenues compared to approximately 19% in the second quarter of 2018. We recorded a strong like-for-like combustible pricing variance of over 6% in the quarter, driven notably by Germany, Indonesia, Japan, the Philippines, Russia and Turkey. We have recently increased our cigarette prices in markets such as Mexico and Ukraine, which should further contribute to a positive pricing variance over the balance of 2019.