Philip Morris International Inc

Good day, and thank you for standing by. Welcome to the Philip Morris International 2024 First Quarter Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, James Bouchenot, Vice President of Investor Relations. Please go ahead.

Welcome. Thank you for joining us. Earlier today, we issued a press release containing detailed information on our 2024 first quarter results. The press release is available on our website at PMI.com. A glossary of terms, including the definition for smoke-free products, as well as adjustments, other calculations, and reconciliations to the most directly comparable U.S. GAAP measures for non-GAAP financial measures cited in this presentation, are available in Exhibit 99.2 to the company's Form 8K, dated April 23, 2024, and on our Investor Relations 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. I'm joined today by Emmanuel Babot, Chief Financial Officer, and Jennifer Motles, Chief Sustainability Officer. Over to you, Emmanuel.

Thank you, James, and welcome, everyone. In Q1, we delivered outstanding performance that exceeded our expectations with double-digit growth in organic net revenue and operating income, as well as currency-neutral adjusted deleted earning per share, all supported by robust volume growth. Excellent smoke-free business momentum continues, with plus 25 organic growth in net revenues and plus 38 in gross profit as icos operating leverage and zin mix contribute positively icos continues to advance rapidly with growth of plus 13 in adjusted in market sales volumes and plus 21 percent in shipments ICOS Illuma is a key driver of this progress and is now available in 64 markets, representing nearly 100% of ICOS volumes outside Russia. ZIN also continued its considerable growth in Q1, with U.S. volumes up plus 80%. Importantly, this top-line performance translated into strong operating income growth and margin expansion, both organically and in dollar terms. This was notably driven by accelerating profitability in both our ICOs and in businesses, in addition to improving combustible performance. We faced higher than expected currency headwinds in the quarter, primarily due to the devaluation of the Egyptian pounds. We are taking mitigating actions, including additional pricing and accelerated cost initiatives, which allowed us to deliver Q1 adjusted deleted EPS above our prior expectation despite these pressures. While the prior year quarter was favorable for certain growth comparison, this exceptional start to the year set the stage for us to deliver significantly better than expected 2024 currency neutral growth and robust growth in US dollar at prevailing rates. Turning to the headline numbers, very good shipment volume growth of plus 3.6%, supported organic top line growth of plus 11, or plus 8.6%, including currency. This reflects continued excellent high cost and ZIN momentum, as well as strong combustible pricing. Operating income grew by plus 22.2% organically versus a softer prior year quarter, notably driven by gross margin expansion and a deceleration in SG&A growth. As a result, our organic OI margin expanded by plus 3.7 percentage points. In dollar terms, adjusted OI grew by plus 11.3%, and adjusted OI margin expanded by 90 basis points. we outperform our q1 adjusted eps outlook due to three main factors the first is the net revenue and profit impact of better volumes following the industry leading performance of zine the strong shipment growth of icos htus including some higher than expected time benefit and a resilient combustible delivery Second is the benefit of our pricing action to mitigate currency headwinds. And third is on cost, including some timing benefit and a step-up focus on manufacturing and back-office efficiencies to prioritize growth investments. The majority of the outperformance was driven by underlying business dynamics, which bodes well for the remainder of the year. Indeed, we delivered adjusted deleted earning per share of $1.50, representing plus 23.2% growth, excluding an unfavorable currency impact of $0.20. This includes $0.09 from the devaluation of the Egyptian pounds, including a transactional impact of $0.06, primarily related to the balance sheet remeasurement of foreign currency payables. With increased liquidity in the Egyptian pounds, we are now reducing our balance sheet exposure, and this should be complete in the coming weeks. Focusing now on volumes, our Q1 HTU shipments of 33.1 billion units exceeded our outlook with robust underlying growth across geographies and a higher than anticipated timing impact of shipment to Japan. The incremental trading impact was around 1 billion units and was primarily related to red seed disruption. While uncertain, we assume this will normalize in the second half of the year. As mentioned previously, we believe the best indicator of underlying HTU growth is adjusted in-market sales as the closest metric to consumer off-take. Adjusted IMS volume grew nicely by plus 12.5%. including the expected impact from the characterizing flavor ban in Europe. We continue to see strong high-cost momentum with excellent growth in Japan, robust underlying fundamentals in Europe, and a growing contribution from newer markets such as Indonesia. We continue to target the plus 14 to plus 16 adjusted IMS growth for the year and with around plus 10% growth in Q2, followed by an H2 acceleration driven by the timing of commercial programs, Illuma uptake, newer market, and a less demanding prior year comparison. Total smoke-free volume growth of plus 22% includes the impressive expansion of our overall smoke-free portfolio, powered by ZIN, with pouch equivalent shipment volumes up by plus 35.8%. U.S. Zin shipments grew by plus 80% to 132 million cans. Cigarette shipments declined by a modest 0.4% in the first quarter, with a notable positive contribution from Turkey as we increased share in a strong overall market. Let me now walk through the drivers of our Q1 net revenues. As I mentioned, volume grew by a remarkable plus 3.6%, including oral. Pricing contributed plus 5.5 points of growth, primarily from combustible, as well as pricing of around plus 3% on HTUs. Smoke-free category mix added plus 3.1 percentage points to the top line, reflecting the higher net revenue per unit of icos and to an even greater extent zine oral smoke free product overall boosted our organic net revenue growth by plus 2.2 points showcasing its role as a meaningful accelerator to report a positive contribution from our vive ev per business which was still small in the context of the group delivered good revenue growth. In 2023, there was a negative geographic mix within our combustible business. Our margin market, often without smoke-free product, grew faster, and smoke-free product accelerated cigarette decline elsewhere.