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Philip Morris International (PM)

Participants
Nicholas Rolli Vice President of Investor Relations and Financial Communications
Martin King Chief Financial Officer
Chris Growe Stifel
Michael Lavery Piper Jaffray
Bonnie Herzog Wells Fargo
Robert Rampton UBS
Pamela Kaufman Morgan Stanley
Adam Spielman Citi
Vivien Azer Cowen
Gaurav Jain Barclays
Owen Bennett Jefferies
Call transcript
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Operator

Good day. And welcome to the Philip Morris International Third 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. sir. ahead, go Please

Nicholas Rolli

you release us. our containing quarter thank issued XXXX today, a results. news detailed for and Earlier joining we third Welcome information on

which Relations www.pmi.com, access comparable definition the U.S. posted most Web at calculations, products, are well are the release and may as reduced-risk glossary the on GAAP site. RRPs, today's adjustments, You PMI’s terms, measures, the for webcast Investor our end directly as app. or including reconciliations A of the slides, or on of other to

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

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

to pleasure introduce King, Financial Officer. our my Martin? now It's Chief Martin

Martin King

Thank and gentlemen. you, welcome Nick, ladies and

quarter reflect The include and performance. better-than-anticipated to underlying business results assumptions pricing our results costs quarter. timing third of previously to continued the compared communicated strong the Our for

VAT were period. and Our assessment taxes by final a by reported Tax Russia an on in million, the excise related to impacted XXXX of the results the quarter after-tax $XXX to charge in Authorities for Moscow XXXX

press on this release. in charge detail is today's Additional provided

volumes X.X%. third Total in declined by the shipment quarter

tobacco tobacco cigarette sales due volume our unit growth. quarter movements volume distributor during of in-market heated by heated lower XXXX, unit by volume, favorable inventory the X.X%, declined the the impact Japan net offset strong Excluding estimated to third inventory partly of reduction total reflecting in primarily

timing was in down to Pakistan, well three two-thirds which, due volume total XX%, broadly in announcements related. our two by largely as the timing In volume industry excise the markets, last in-market decline price impact were increases. Approximately to reflecting tax cigarette line of as the with of decreases of increase the of year, sales was approximately the decline compared

gaps impact In was increases share, pack Turkey, the our basis, competition. on our cigarette totaling In as the our primarily declined, price brands competition’s, a price to year, this and lower share, volume or market. the as lower our cigarette which vis-à-vis well per price two increases mainly disproportionately TRYX total roughly between due timing of mainly given Indonesia, decline of XX% due to volume weighted-average reflected our the impacted widened a

XX tobacco Heated in quarter. unit volume shipment the units reached billion

Eastern movements, and HTU of with XX.X our our Excluding HTU net EU of inventory in-market XX.X%, reduction XXXX units. driven HTU Europe inventory quarter by sales in volume shipment primarily in-market by billion Regions. favorable the in the the in sales to third-quarter volume impact increased volume was Japan, related line

RRP favorable net combustible currency, net increased partly billion in essentially offset for $X.X volume. cigarette lower tobacco have noting excluding Third-quarter by by $X.X portfolio, driven It revenues the total of pricing HTU X%, over higher our shipment and XXXX the volume that our reached revenues. shipment PMI's full-year September of billion net by quarter, XX% total. reached net or revenues RRP is year-to-date worth revenues

Indonesia, margin X.X% markets by operating by recorded relatively operating and increased the X%, favorable income income of Philippines, reflecting in basis, by We related driven in the a quarter volume currency-neutral with tobacco Russia, contribution margins, IQOS adjusted region. was primarily and despite the strong combustible RRPs of was increased behind Mexico, investment while basis approximately EU the points. from driven grew of notably Turkey. to margin incremental geographies achieved Germany, million net mix the XX quarter, a geographic in $XXX high HTUs, notably This adjusted by On expansion pricing variance unit

adjusted also Our by in per quarter-end. interest, Philippines the sizable diluted adjusted operating The compared not from margin operating share quarter and to X.X% the as incurred certain the reflected initially third of growth adjustable with earnings increased example, high expenditures Adjusted benefited income were excluding EPS currency XX%. quarter markets interest contribution from in timing with by the costs non-controlling income relative currency. lower growth planned a diluted non-controlling notably neutral the for of for

Our for offset the reflecting cigarettes, lower share, total tobacco was quarter, higher in third which excluding X.X%. China and market units, international share heated by the for share U.S., essentially reached stable

of in the Our out-switching in Indonesia, particularly lower declined Russia, and X.X reflecting IQOS, Mexico, points, share, category cigarette smoker EU and by notably to Argentina, share with adult the Japan Korea, coupled Turkey. region, continued

in the the increased by The Importantly, driven price Indonesia the widened of Arabia, reflects to Philippines, XX.X%, Sampoerna of notably Germany, particularly market. and Saudi Marlboro X.X A, share the gaps points competitive of decline at a and Turkey. cigarette category primarily between by impact bottom mild Russia, share the brand,

recall, our in tax XXXX a Indonesia that As materialize. excise increased in of we increase prices you did ultimately anticipation may year late not last

taxes largely competitors widened price brands their our with particularly government's year. decision unchanged, this following to leading prices, to Our leave the gaps excise maintained cigarette the

XXXX XX% increase has been average regulation an outlined recently issued, minimum in tax XX% the government price. in roll a of excise band with exercise yet formal cigarette no the Although, and

relatively however, difficult has announced each the volume steep gauge tax XXXX, individual broadly historical the potential the do with in it the tax XXXX. increase while is anticipated is in line with in stack increase for and not share pass impact levels. tax year, average in As percentage no two-year the yet excise of to is increase the the accurately note, government context that on We

or more the total balance some a to various the end. $XX.X IQOS now that X.X as We IQOS that estimate IQOS, million conversion. XX% detailed have approximately and with stages performance. discussion Turning smoking users in there of of were of estimate switched RRP users We million to of quarter further stopped

in Arab IQOS in States. markets, the the United in XX and commercially is now recent available launches following Emirates Belarus, United

by We through U.S. Altria. the arrangement launch are excited IQOS in with of the our commercial particularly

first XX initial to Georgia, store protection lead currently is only U.S. retail food pathway product PMTA opened health". men as, in the alternatives the Atlanta, milestone market "appropriate heat-not-burn drug million the the the for public market through providing of smoke. of better a authorized and marking The administration's IQOS and IQOS in has who historic the women U.S. in the on

As you are aware, the with Altria have ended. merger discussions

the to focus a launch with with closed, the we to free ongoing market. towards an definitively smoke cigarettes. This journey opportunity help IQOS have is smokers with switch adult both the DUO. on family Altria, enhanced IQOS X more designed the U.S. month, from IQOS was another in important chapter maximizing our features this latest step future relationship and took seamlessly edition of Last we companies Although, will in

IQOS uses X without DUO two allows consecutive holder. recharging the

it's strengthening compared faster IQOS the and IQOS our in charging plus. commercially currently leadership smoke While IQOS X.X position. year, significantly by end further X available of where be in available is is to is time this most Japan DUO IQOS rolled will markets X, free out and

combined would be these At this fourth brand tobacco third up them. of through markets share markets, not the IQOS quarter. you HTU take collectively of In performance commercialized, yet excluding been level, where quarter many in HTU has six share in a the the our our distributed X.X% now brands me the nationally of from despite U.S., total in Let IQOS the largest of last being number year. brands the recorded in

share In for the appendix of reflects continued EU as IQOS in detailed region areas the XX% where market the more we at industry each doubled broad than markets in approximately representing strength HTU a reach quarter This to total presentation. are commercializing of volume, the across today's X.X%. end share included in of range growth

the share On point by a basis, to sequential quarter. second X.X increased compared

sales Given end summer increased seasonality, the reflecting industry sales quarter. second sequential this for momentum market sequentially volume higher versus X% favorable cigarette that point, of understates this To we believe the the by share impact performance HEETS. the HEETS of over volume

second in quarter HEETS to X%. Russia market X.X the X.X HEETS up by was consistent in share by our the the XX% adult quarter performance in pace smokers in with of over while a points HEETS increased the by strong with On its versus quarter, and share billion continued growth reach basis sequential increased IQOS points units. X.X to reach geographic sales expansion. share

second now quarter. IQOS estimated are We approximately the by of the to compared the market commercializing in half volume cities, total of end XX% at representing an industry

last of brands our off total tax step initiatives The quarter. price HTU we reach after performance. quarter HEETS was and HeatSticks for increased introduced the or by second up to On XX% trade a advance in points year adjusting sequential by during a Japan, estimated and the in continued share the to for X.X and of share the our that pay the loading drove X.X Xst basis, of October our for impact in points stable up increases. share In

the Importantly, reaching our during of share by off weekly end sequentially XX% take the over September. increased quarter,

share first of that Xst, of growth acknowledge the shares period in our week we ahead toward While been our consumer impacted continues may favorably October off this take the the month. of end the have by loading

HTU competitive as We increased progressed. the performance year are by share in of our the encouraged has face activity

accounting market approximately the category position. churn, IQOS number line-ups. believe reinforce will in HTU XX% consumables IQOS with to be IQOS DUO family's and devices line our share smoke-free competitive the XX% despite the of by growing only of extensions leadership for HeatSticks of around and While category This of contributed We the will HEETS SKUs. has launch remains recent leader X further complemented

area second Share In or are category. highly HEETS declined versus the also Korea, that competitive, third in quarter and share remains taste by for the down in was tobacco X cigarette also X.X present flavors heated quarter. sequentially the in related non-menthol dimensions the point an by basis. adjusted the HEETS points on new particularly category of

off flavor However, launches of line-up. segment of take we the to over recent early by the see expanded supported signs quarter, course stabilization the share HEETS that third in began

do upon tobacco of we regard, the leadership X IQOS's are this look position. to we and heated we encouraged to by While In forward of benefits DUO. trend, work build category's upcoming IQOS a reinforce this roll-out have lot the to

to our full-year now outlook. Turning

$X.XX are least guidance compared to today's noted our we reported in earlier. release, our The was exchange predominantly decrease, on least at in be to at to prior prevailing million rates of $XXX at July $X.XX. EPS the revising charge announced XXXX after-tax guidance $X.XX, press As Russia, XXth due diluted

guidance impact, exchange currency share. Our of rates, to an $X.XX per continues include approximately unfavorable at prevailing

and forma $X.XX least forecast earnings per diluted X% of adjustments continues versus tax reporting XXXX. adjusted share to items this of pro outlined a increase represent projected the on excluding currency-neutral slide, After at our our in

China excluding X.X%, an Our guidance assume decline in industry XXXX approximately the to U.S. volume and continues total of

recent As reflects X.X%, of X% outlook. a now previously. markets, result increases X% approximately revision This Philippines total solely shipment a notably cigarette volume changes and decline Turkey, we rate shipment the assume volume selected to in price cigarette full-year full-year our to of versus

We this continue our inventory on any basis. to full-year with volume in sales aggregate essentially individual line anticipate in broadly an markets, HTU offsetting shipments with volume HTU in-market movements year

We reflects impact are now by This our of combustible which neutral shipment maintaining of revised variance the assumption X%. target. pricing net currency volume of offset revenue total previously, year approximately effectively to above tobacco full a X%, growth X% compared higher of our at is least

assumption adjusted to operating investments basis least XXX neutral points from million, $XXX our approximately excluding the behind at income we are refining continue approximately expansion currency, we net anticipate RRPs incremental year basis to margin previously. XXX points currency of for While

In to volume in IQOS previously. compared in RRP longer to XX% EU total impact revenues to IQOS year we favorable in of IQOS markets. to latest of device net approximately relatively XX% that impact geographic This retail versions, lifespan the geographies, now of contribution greater notably compared and full of the note margin the addition, primarily select the changes prior reflects the HTU region, price the markets please high devices devices below expect be mix

of our requirements. The Russia. We operating cash billion, now subject the approximately year-end the compared billion to to $X working Separately, to charge expenditures prior billion, impact approximately $X.X change, reflects year billion we assumptions compared capital of previously. expect XXXX approximately of approximately now anticipate after-tax flow $X.X $X.X of full capital in

quarterly rate after Last to dividend use $X.XX per capital cash approximately we Dividends total $X.X our share. $X.X dividend annually. operating month, approximately flow or of to This quarterly primary billion remain the increased expenditures. by of X.X% equates a our billion,

To close performance. anticipated I full on guidance touch assumptions, our to would year on and fourth like quarter our

with adjusted be year-to-date net our in operating Importantly, we expect line and income revenue growth neutral to September currency results.

However, lower the following be our to EPS due diluted currency year-to-date neutral growth factors. performance our adjusted will than September

of rate clarifications the sizable continued full tax comparison income income And of growth fourth which year to unfavorable benefitted non-controlling versus high from the relative XXXX, related rate percentage contribution X reform. impact tax points U.S. tax our operating the interest. quarter month during roughly three of from An further with a markets adjusted

We fourth pro quarter growth two as quarter approximately diluted to drag diluted rate our X compared adjusted forma these on factors to adjusted a the percentage of share per EPS points expect serve in our currency neutral earnings fourth $X.XX of XXXX. of

metrics for recorded and business quarter, the of continues portfolio intact. against strong our each EPS billion third quality shipment HTU to a the geographies, reflecting operating combustible our by underlying strong volume margin across diluted The XXXX. net of in target in momentum IQOS neutral income, To XXX units confidence our our performance conclude, favorable supporting we key on The of basis. tobacco billion the XX adjusted execution currency fundamentals of revenues, supporting further are

We of are the launch excited IQOS IQOS the in global of launch U.S. and X by DUO. the recent

are full-year growth adjusted our revenues XXXX at least growth Finally, maintaining anticipated full currency year X%, of and basis, our XXXX X%. net least neutral for for of at on a rate EPS diluted we assumption

I'm happy your to Thank now you. questions. take

Operator

you. Thank

question-and-answer of Stifel. [Operator of comes portion not We conduct Chris first Growe will instructions] Our from a line the conference. question of

Chris Growe

coming certain negative quarter level through from first more to if that Is combustible the this a have did that to certainly just and you to -- business but guidance implication markets I therefore a and do just I understand you is for was pricing on and the year for timing implication, call I'm there I in to you'd a you, was. tax little those out, sorry missed want the think more volume My high there said relation, increases were good . in a or job you for question in explaining color that just there them, the get volume?

Martin King

And are a Yes, on and the back the TRYX.XX. and two a And April, of call increase Remember, tax the took scrutiny quite we've time, Turkey out TRYX in to from another did the other inflation the TRYX followed we immediately. time, also, competitors of bit on pass markets Philippines. move the we was at shortly which able August, government. competitors been and had a amidst the other lot lost take we about not share. Turkey, also At immediately in thereafter, now to in

in situation. And to seeing soon pricing you're with can, it taking a late. come so, basically we fact opportunity we're bit in the little We're take but our as Turkey as

and been the Now, tax full little we've to pass a able more. bit

what turkey So, have after the having to a would done. normally we in we're delay from pricing track bit on

pesos August, the pricing clear, you're in seeing with have to on us now to once out to XX of that come, because And started a tax we clarity trade August, call effect the move Philippines. try pack from pack, increase. per will already the the Philippines, late the was tend XX second and tax to pesos take ahead of in volume buy take one that also to more some tax the from benefits and the is to There in that increase January is The tax goes announced XXXX. per tax and

we're half pretty our look We the the those And So against full well pricing pricing see back share at to saying at we -- markets. obviously of little in volume couple with anticipate down X.X. we're the in year two where a moving a But very X.X, with the second year. get picture, are volume the of And first year actually as where to balance. decline more positive us you and were can look It's X%. you good taking of X it. a industry the stand we situations now if half at through for be pricing doing overall

bigger mix nice between share, it's you So long when and picture a at very pricing. term, the balanced look volume,

Chris Growe

and I you relation a are my question, And I right just here, numbers math is second if -- right. if IQOS have had to my in RRPs. could, a if

builds, to in we shipments your fourth you come for think inventory -- in-market Does for roughly have that I'm factor year-to-date. did should sales inventory your quarter as out You your had the to a RRPs get in You that trying the year? about that mention being shipments. approximate

revenue to with about quarter? numbers. degree to think in then RRP changes, fourth sort So, And degree I to which the two of put have grow, the inventory do that occur, your quarter, on around want which could in they if weigh any to you that just the should those color given that these just the

Martin King

RRP build no will be clear There Let this be and been year. inventory no me HTU crystal build on for inventory there inventory. has

and sales. in-market the year and of same, our sales were -- they even XX.X XX in-market of billion will Our and shipments quarter, billion we full also shipments had the the in for be approximately

you're is maybe inventories it quarter, Japan, seeing, think drew particular, in last in we Chris, down some in third X around What billion I there's confusion, the year units.

back anticipate, flat reference on the you can is end the so should to ex-inventory inventory. cigarettes. forth. for HTUs really inventories the what And don't lean year, end saying make fact, compare the our is by and in year We is or comparisons so this equal. So, X apples-to-apples, in last HTUs it any builds the year, to But are of we fairly inventory essentially to year add billion that

Operator

Lavery comes Piper of line Michael the Our from Jaffray. next question of

Michael Lavery

market? the How up. headwind do category for cited And called of ahead, a a Indonesia, gaps should in know don’t you the you're the you look quarter, what I tier just quarter? headwinds reconcile this give of the looking of just sit at the Looking yet, can volume what you've detail you a out outlook with think like? then sense for that that slightly have you year, the we price you've the for where in tax as but standpoint, some on from might XXXX but terms

Martin King

for slightly. Indonesia, So, so the up this market far overall year is

no expect are you very muted As pricing, losing share. increase would with some and tax we

script, causing doing the As our also it's lower hurting as brands the the is erosion between end well as low gap we're trades at initiatives down. share very being premium volume in but the our but share, we and the We we're as mix loss. mentioned new some some by by have within portfolio, price mix, dragged tiers that do our overall well, price

And shipments are for in in our year-to-date so as coming negative year slightly are well. the slightly negative coming --

it the for up been the the price far of point government from XX%, going It's been issues. the view also released, and to the banderole positive government have number particularly hasn't to final used biggest has have for year. the though close move mix as market price, gaps situation the not as the a very problem in would the low that by cause effect taxed tax. go mix this revenue as own Now forward, minimum and end of of They've as they're some going that Indonesia, said increase the would said which of issue, well because our would XX%. collection, They've by

that tiers. the point Now total and year lower full two that XX%, when going period increase you the disaster individual hard by of not amount than we also price it's the both from at XX% volume, pass view. actual of to details, the retail tax of on the But overall realize forward, a over the increased on the look is until it's estimate, but see

a works challenge normally price next we the market the have Although, of without of pricing the increases. year the we going into lot annualization lots small have of with that of because of way will year Indonesian

big So resetting positive. issue, guess Indonesia, this the a having address I net of picture, the is some chance perhaps gaps, longer term to mixed

over the year the relatively as potential to period a the pricing overall to lack increase coming of all annualization challenge volume on and due opposed for time. of at However, larger the be impact next the on size will once

unfolds. we'll it But So us opportunities some well. as see wait Indonesia gives and what

Michael Lavery

And as more down about to should some the sense give cigarillos. think of that a you've that And on segment? from Japan, is for just from headwinds of there called we you how going a out trading well headline anticipate? forward Can just

Martin King

about volume Yes, the and cigarillos in the there not using things that the considered overall segment. it's are couple is cigarette One HTUs of basis. to to cigarettes as we've know been

distortions So we'll as in we'll coming cigarillos going that and you. break have out to grow, some we that that quarters explain for forward, have may from

The this be because will if a will. still tax, will and eventually, the example, close market don't government benefits margins. Likely, you from of the We below cigarillo situation, last. for cigarettes can category this know I preferential cigarillos, think have whether higher the at bottom priced

out, it product that Now, transferred C some Class initially when into tax JT, and over brands category a actually the cigarillos. separate opened was D they Class phased was category the of

guesstimate year by end to we would total $X the that, probably could be billion cigarillos. of year, for So $X this number billion it

at So order starting enough all should on market. and get in an to going some we to have have to total situation the to this to would we have it have disadvantage. we'll at a tax in decide monitor point impact But think compete forward. not big this preferential ourselves Obviously, category it's be

our right overall, on tobacco now. positive Japan I are and the the a heated those focus with gains coming real our think categories, in from and benefits being But net IQOS, situation in

Michael Lavery

last one. quick One

Clearly, in Can your You potentially some what free people mentioned status you may with venture, joint what or that launch country. an market. in in some enforcement give to negotiations China, of sort something had are with interest on in from you little China? to consumer if CNTC any change headwinds bit allowed in update have in there's more bring duty a having some particular, that on to

Martin King

regards I to don't with cooperations news have with any really our CNTC.

on additional in RRPs that. don't potential particular We is continue to an any that we progress IQOS for hope have cooperation, and but the area

strictly travellers the affected allowed the free tourists amount what been been And duty fact well. a is very that not allowances, from individual China travellers having has bring robust HTU, was You're and enforced. are the reduced that by or a other business countries free of product to just right. into to of more but Duty back have impact on that China, numbers as

the Middle for duty HTU last the that we is free this ramping inventory to comparison It's with the where some that were whereas of year, we're sales. numbers East, in up the see in with Africa, traveller the building down higher some for partly quarter. year because you And reverse and of deal bringing limits. situation we're a situation This order volume down account in new the

said it's the were pretty not around world of the units but the So and swing the big our shipments things, scheme And I equal -- for in for sales it's major. quarter. as heated total it's grand before, tobacco

Operator

comes the Fargo. from of of Our Bonnie next line question Wells Herzog

Bonnie Herzog

I have a question on your guidance for QX.

EPS You will mentioned year-to-date growth be trend. below

And growth EPS year this you're of X% of really might full sense your drive business? Martin. from expecting So a stronger mentioned, momentum that for shouldn't be, to guidance X your I'm margin point your you're lower? get So especially to trying trying guess a how seeing I conservative offset given in you talked wondering just by factors to a sense get QX if much the or the about, how think, But You expectations closer I be below? just expansion?

Martin King

of year up and operating be quarter, the positive income and catching where news below or We with to steep, driven operating from The primarily were share the for answer is have we have expect U.S. this year-to-date. fourth corporate the year one we the to off rate. drop the act, quarter. full line in would tax in revenues are is by been IT be where difference per we in quite on we in number, year-to-date. big expect interpretations we income and EPS benefits But Last below earnings hitting tax to well the the

So last we had tax the relatively corporate in fourth year. rate a low quarter

we're XX% so the for different slightly projection that through year, bit This our the a of year story little full behind year. it's far

difference So make in we expect would the back tax fourth and the that us to rate quarter, XX%. to bring up

is then in as gap already being points, as but it, is that, even interest non-controlling it's this QX on And QX. top even more between X it's two which the So is line, of big in percentage the impact. pronounced years effective you pretty you which see have

out to was pricing put pricing, in The it In it over XX% was the perspective. in just we two Turkey, at just XX% markets Philippines, below called with and significant XX%.

markets very are So et increases bigger these markets two pricing other bringing than in cetera. with income operating obviously significant

they called non-controlling out with We interest. XX% non-controlling However, have interest. Philippines

big last you're with percentage $X.XX step that therefore, of call increase your drag sharing number basis. we the non-controlling And that of and some the versus the as the X So partners. interest, year, which down two, point those the forma tax a was on adjusted pro

the EPS number, the between Bonnie. gap large OI very a it's and So

Bonnie Herzog

compelled seek like given a feel timing to U.S. you Altria, was I then last And changed fact they've ask to half. I'd ended. when made merging deal. market, and hear the a and with you to that with? talks the of then amount from deal month, how I if about was talks were And started, you I why the you wanted be you curious I'd to may. guess begin But considered thinking And actually talks know And I about the There right? were with Altria you your in that then talking something hear investors month of course, some maybe business then over the fair have how that maybe seeing of maybe the of ended? with to just concern terms in in the why

I on just that think be would could touch So if really Thank that, you you. helpful.

Martin King

in that fact a The outgrowth. the U.S., had were PMTA launching natural approval. discussions Altria So we were IQOS we

the whenever other having profitability example, right range case, products. two obviously, primarily large, in around at I profitable, natural, the best wider very our at portfolios And arrangement future first to XX opportunity for combined mix a that's alternatives, in were We look whether time. company it start to product between our it's strategic synergies a of that and being you having you're So market companies the looking looking of better benefits, over a with And for the merger profitability for for down whether or U.S. was was growing billion are merger. the RRP revenue. with sit there discuss and potentially, the very a think, about two companies market, thing

although, world. setting pretty has synergies, the cost at our in market then regulatory look big the the wasn't you because really from here. driver key regulatory role perspective a Obviously, And synergies, for that framework U.S.

categories these at and was the developing these approach one we in the larger different big from the discussions news all as it environment then also things regulatory all the FDA, around and rather rapidly et we e-vapor So into looked cetera. were And with of we was context. put the

pretty also feedback got from our shareholders. We clear

lot they of to, wanted whether shareholders U.S. do And have to need make feeling would questions be We didn't this they exposed the market separately, sense. they by to if about that Altria could, that. PMI

from would feedback, overcoming then we management distraction, a So so forth. heard come shareholder that you obviously course, the the shareholders. and environment, of And the have with quite bit the

that market became more incidentally focus the PMTA path decided So as because it's IQOS on the FDA, to since environments the tobacco chance in opportunity, more was this in authorization. success heated developing that even felt U.S., the of end, even gave both with best only was an for we collectively which a management teams us IQOS of the

chosen And so this we've path.

is chosen down with. the We've the very working off going we're a discussions. Altria The very path happy which of on merger promising and we're merger is with done definitively And table. with are IQOS. We path,

some Now as as results. whether concerns was far way offset this about to

on some numbers we've I back think mean, people very full that. picture, got our you quarter's I give this positive think a in if should picture big for the the step from confidence I year situation.

total were the the long-term -- total China. better have X.X%, We that at of the predicting industry, which ex-U.S. is industry, for tobacco down end they the we've and range seen

between predicting X%. we're pricing we're about X.X, volume, gaining and at to in share, Our X come meaning

our managing margins RRPs two. nice EU investments. on the seeing We're Revenues, ex-currency HTUs, and there's So with markets the at from a costs healthy mix good adjusted. seeing X% growth high we're and particularly and like coming between least

the And EPS X% so full estimating So our at expanding you the then you for XXX issue, forth. see the year. interest guidance despite points margin non-controlling see least basis we're and

think I business very P&L shaped good and positive pretty of good a that's indication a momentum. well overall So a

people that the base a merit take Altria true as realize business. the do situation, hope of there and was I to our idea with with no that So picture discussion anything to that had the

Operator

question comes UBS. next Our Rampton Robert from of

Robert Rampton

Three me, may. questions if for I

you've in competitive on is what launches I coming. see to versus I I'm and first particular share the and can has over mean, same cap more period Japan. the know are your The that there improved had rate, XQ. interested

So be some the on color overall category great. will

Martin King

Okay, do at take you a want one time, to or…?

Robert Rampton

be that great. Yes, would

Martin King

last From percentage X to continues about at So heat-not-burn most Japan the about We've of now, We're for points. end category the XX% for up grow. overall category. gained it's till year of total that.

It beginning little up look continues coming from step There in additional various our as the at So But not in so from grow. share. to overall you a can year, smooth. of QX. segments course, bigger I competitors. you we're fact, the product was the with mentioned, sequentially, launches a improving other maintaining, you if see it think But picture bit more it's quite of

the growth grow by gratified is within as we're So category and intact ability the to our category well.

C-stores is for you shares this XX% share at segments over from quarter. and that Our from see exit solid our

But as, solid given now. a its which It's Japan. substantial good we're share, steady size in think trend I and a very growing are already So Japan category spectacularly Russia, growth the grow. of our of is our the to on say not as total right continuing on fast

gratified the And by also DUO. we're

waiting, come positive the it at consumer or the worry Those think very consumer tubes And a charging, launcher we're the very It nice or it, It's device. using point view experience. charging forward it DUO that the have to fast first that the of product experience. can of don't as overall and been made, from want underestimated. have really I as surprised far about anytime have to being to how very as experience. the back a experience step just is be you you seamless. the makes time of you the This much difference

high focus first in and of DUO, we up Japan will So we where particularly Korea, production. the we for have as ramp volumes hopes

Robert Rampton

year-on-year. broadly, more you run Australia revenue right and price the understand per to the is of a what's of inventory and downs, market? Asia kind -- there rate You driven that in downs On kind Trying have right East so sequentially been specifically for lot Asia pack declined flagged that? region some what and it’s and

Martin King

a adjustments was used we three plus. in Well, multi to less quarter. more we and or did have ladder. for X.X ¥X,XXX,XXX Japan, the some There have In pricing price device

buy pricing Now well in out in Japan, there. few and then Plus in essentially almost fill three from But ladder the down markets. now DUO multi multi we coming and very doing Japan, XX,XXX It's in other at very, is have X.X it. people gone

And did of Plus the little pricing have to the the yes, three and and of in Japan. inventories of X.X inventories of bit for revalue one consequences a the is existing we multi reducing

the one that hitting So you time quarter. see effect

as probably it's So you're just the pricing, and of disproportionate revaluing that taking because actually inventory sense? it sales with happening the you Does in to effect an opposed having made that really to the make quarter. what's

Robert Rampton

It give if -- us does, you And can number? quantify you just that yes. could

Martin King

line pick that mean and you I in I the it to there the see No, can pricing you line out if think in effect. try

individual haven't given we So type revaluation numbers. inventory

Robert Rampton

And last my question.

of a anecdotally. prices. also around is we've a lot get London? use we where can high just very and the e-cigarette Just I obviously, UK it share cut I've market color in the specifically and and seen market mean,

So I'm how curious in market? to IQOS doing hear this is

Martin King

from London the and doing IQOS base. is relatively admittedly a UK, Yes, small in better

itself before. It's seeing on But London, rate in was up And last we're much few in better. city, over it you than right? doing a X% grown depending the pickup in UK at in encouraged London, how define and in months it's it's the much particular. faster But the by the we're that

the it small it's Now much obviously good to very higher. base But and we coming see better have results is markets share it's many where a other forward. from moving and anticipate we

Operator

comes line Pamela of of next Stanley. Kaufman Our question the from Morgan

Pamela Kaufman

invest question on each of follow that the incentive interests? from a there have closely your agreement discussions and to your your is to push IQOS I Altria. Altria more with behind there emerged align sufficient discussions And product? any the merger on changes with Were that for up Altria

Martin King

IQOS merger we alignment, align I of both we I one better U.S. et we continuing how that out understanding the we're The understanding other benefits agreement we with mean, going for the current Yes. out before with the one and we push discussions had think But under. this would regulatory is would each whole came about better cetera. alignment, in and discussions cetera, better about the go of period did et of to thing think and of through how better come all commercialize the that this better IQOS I is of

clear the IQOS, opportunity any the I They interest the the both and opportunity and focused think U.S., given news more And we think bigger are flow even in so the few on that there it. it's and of more were an doubts even very were now behind might they in given we if e-vapor news I around e-vapor. whole the think everything alignment situation Altria's flow for perhaps months ago. but a has else, about IQOS understood And have even around agree IQOS before fully there that than I is U.S.

that. that has in coming been agreement, to And agreement. And good Now, with does we're make the I so has happy we mean, success excellent. their the IQOS arrangement, we execution haven't disclose very look far good Atlanta, the incentives of Altria forward terms of to very out very some sure well. But the

Pamela Kaufman

you U.S, you from around among potential the for consumers? the And issue in towards want to confusion this Do view just impact Are U.S. see seeing our the consumer attitudes that. impact given healthcare IQOS's related to vaping performance? on any the creates on any outside of

Martin King

don't. We

working tobacco Although, we understood sure hard the sure record. the a making this not that make it's an IQOS to distinguished making is sure it's in issues is track are from is our heated e-cigarette, understood that U.S.; this product;

users have million plus We XX now.

focused have smokers. adult good very conversion to on sure We that practices we're make

adult We are markets, IQOS to sure former convert with of that XX that people experience have lots in over smokers. making the

is We also product. that the got this authorization. scientifically emphasize substantiated We've FDA

make that So IQOS sure heat-not-burn the different we're a in category. able really is to

unfortunate U.S. engaging properly At a when properly it close to same U.S. properly for very the the to in system not say we're manufactured, that coming be with regulated manufactured and other authentic hearing they're about that we're illnesses are from around the issues unfortunate e-cigarettes. do others, regulators that have unfortunate we'll clear time, In words, from e-cigarette We issue issue this would have e-cigarette, different done deaths have the like a been in but is reported that will the up properly have in better with MESH. versions and our or caught understand be we very of already, a

in is good issue, on smokers. stringent even focus when on to youth are the don't to practices mean sure sure regulated how discussion this we IQOS a be I heat-not-burn the But it and they so make from category our hard access very where U.S. comes make that issues properly and understand these and also that around different to the what conversion we truly they hearing e-cigarettes shouldn't focus the issues And they're make evolve. have worked and about it's are to both the adult sure be understood can are

Pamela Kaufman

And should MESH? any to IQOS PMTA file we expect applications maybe next you year, related to

Martin King

MESH, we With to IQOS device. improved as know you have the regard

We are production. working our up ramp very hard to

a are next We are year. able capacity to to production be markets on we year. so in launch can number we on focused very this much track a satisfy expanding And that international and of market

Obviously, with in the focus markets. in the we're Altria. So with focused and IQOS agreement MESH U.S. on our full international heat-not-burn is

needs a to future are with MESH, in we of different regard to work a package Now, regardless. happen with could scientific use number putting that together and which the substantiation, we regulators of

into but our really is year the as internationally starting, many So up. that's year plan this end of MESH At ramp next as it can. is get to markets we for big the

Operator

Citi. from Our comes Spielman next Adam of question

Adam Spielman

to ask of these is more I results. about sort not understand want I general because you didn't this question,

much very be certainly The you you more of margin You market the in but was RRP, And the at the substantially was same first you'd yourself, through, specifically that thing well you growth margin said just growth better didn't markets I EU, high little was two EU. that time, first I you've investing also heavily said the key was said to why? results in done was was disappointing. the than part bit that actually said come for in share the wondering expecting. the reason that quarter as seem good the Are for that and the margin yet a

bring of frankly, EU you. can for those you more about you think bit When sort share a can such you market what a probably give would the margin together. the if of be all And things wouldn't thing XQ. is the it That you the said in underlying if wanting little for I'm in strong? sort question. first be color So IQOS? Why was Thank so

Martin King

Turkey, as all, of two pricing, we which it's the First out regard to margin additional better, examples. called was why for Philippines, two with One things. is it

quarter. quarter third The other the piece fourth shifting lower is costs into were to

areas RRP of we are that additional million throughout the costs some right, there shifted. You're compares planned. also $XXX have But $XXX the company related the investment for million that and said to various

is impact total the and other $XX for about $XX costs the together. about million $XX million RRPs netted all million or probably for The

impact. it's just significant when this next, the the pretty a impact. that to fourth to one lower hence the So spending, would you has And primarily emphasize, move spending movement isn't from from quarter one quarter I quarter other, it

so margin far was to with talking margin, device in as out Now coming the as of modeling picture I total explaining about from of the the we year mean, help that in their were HTUs being called around forth. revenues when higher we and folks impact the XX% wait when volume a EU RRP more

sales the X%. market right. Now as for Sequentially, since was about up not share was might growth expect, which quarter, you EU, the growth as end we're you're X.X, during the much especially

seasonality the cigarette a And And where at X.X. to you from more the look very up have that X%. doubled impact was actually in higher the year-over-year, you that than obscured volume share sales if So were the up nicely fact summer. at are HTUs X.X

at always to rate a share, growth is very quarter. a particular, EU just the a you lumpy. be And we bit in said bit continuing little when obscured It's in So tends look sequentially the nice cliff.

at When in will where And in And very improvement sales, momentum look are the continued course in way. as we more volumes that the eventually significant user the margin the are we going. the leading in by market those acquisition, good. indicators lead it's EU of very direct solid, at very of look is to already EU

than units substantially shipped but If you elsewhere. average they're number they're And look of of at higher coming the with the pace. margins at growing very course, a nice

Adam Spielman

if it this is But asking cigarettes seasonality -- very in mean try are you it. I than XQ me? your follow well. look. waste minor mean, certainly, the I I appears But seems mean why my and A Russia EU, there's important give in questions can things going clearly very perhaps shouldn't the Russia, more it volatile. movements XX in and again, point it's does is color I or about affects time HTUs because even XX is more in quick the the some to up

and don't QX or in guess reporting? backwards went XX will of I about work sequentially don't I mean, I I but growth the very congratulate assume, you're have it just thought it had How average we think share and a think passing out how, market bps -- should Should in I shares in also this. of modeling you're in equally if Russia. even more volatility or And How growth about surprising, market excellent than the should know sequentially it quarter, we sharp in expansion given You think XX QX QX. should this? we EU. we

Martin King

cigarettes. And So the to seasonality is quickly people it it because different is the is does What indoors. because just one likely from seasonality use Russia. affect tobacco we're units' heated that seeing reasons topic, are first more also combustible of

it into et Europe, more bothering doesn't cigarette months. the the HTUs, because outdoors in have can use So people increases move as summer seem without others. to cetera people during it example, as for for time much, But more consumption their houses

is. their -- feel they about how so cigarette consumption much on depending less And their the weather constrained HTUs of

your And is Russia. this on also partly answer

you that flattered the the And the we was quarter, much in outside HTUs share that's by cold out use remember cigarettes first because during you the If was Russia in for one. called want go weather. of to super lower that the don't to consumption fact

we And right. so down we share And of and slightly in the it's the Russia, in on were different the in in exactly other we Russia second back way explain some came showed that quarter. share. first help and were quarter quarter, in and topped in where a to It difference in

impacts year. been probably And given looking seasonality in view up reason on in the the best warm of the are tends acquiring consumers, we the that fast number that opposite a a effect lumpy. our step have part of EU, Korea Again, seasonality way to how that it and to these on this the you and basis, that's quarter giving but an And of summer explaining also, broken the share because bit that's really over look elsewhere forward our on focus saw regions, we're we've way, this underlying casing having going our and coming And aggregate the by to and what's biggest why see come and forward on XX number. we here impact. months' you We've it million. have

Adam Spielman

sort of sort about -- so year talked Japan, essentially of give share underline flat. you market you us And was a can't of in underlying

that or the figure, Russia but just volatility the exclude like to practice? of You try talk it's some adjusted can't EU, somehow in but an in something about

Martin King

in it last need don't in temporary because inventories with mean, heightened transparency people and and shares so we concerns impacted a sort get of that of to mean, were on reporting that on we Japan, being competitor went because I we'd to the to to We've given into everywhere where basis issues year. about sort had done we hesitate down more situation, of the that by the path think Japan into try the I I world. I and give But go forth. of EU.

We no There's in year-over-year. slowdown see strong results. the delivering We're nicely. very the in EU. growing this momentum We're

even longer So stick in And needed. what no eventually we with will it's doing got. other I Japan places, once we extra we may and that stop think transparency

Operator

from Vivien comes Azer of question next Our Cowen. of line

Vivien Azer

markets. at that's So plus be able I price like the IQOS In that very it the Would promoted who on wanted device proposition funding please. the being comment sold, attractive all at carton to bundle than seen introductory you basis a consumer Because international what consumables implied for of looking for in on in $XX is seems it on touch U.S. is even seems the is like which promo? lower a to $XX, of I've it's advice. at far the

Martin King

the I to is for The IQOS think those it. answer sorts expenditures they Yes, commercializing I launch. funding the who to is mean, going questions in responsible of are I'm Altria the leave commercial around U.S.

their their to approach answer the it would how be, consumer in funding, U.S. program so would on their the And and be decision and the

questions them in. all continue their launched from share to with their answer experiences And it's I and to and what we've seen markets them and them it like many our those with shared around it. leave we've I'll we've specific of in the on program think to But world, that. Obviously, decision the

Vivien Azer

of in growing is Italy trial But have I us making. did, a Because South Japan, health also today, then And the the in certainly, point the five you're around expressing just you could that I confidence? at potential on the my in this than second can years question optimism and concerns so Switzerland call remind appreciate IQOS effects light on U.S., particular in certainly but to some yes, closer you were similar much you a to of was it a with of but Germany guys the in certainly running X.X% the I not even consumer it pre Korea. did in the other share, back why relative correctly, as U.S. clearly where like liquid e-vapor, work story, on but consumer reflect some that U.S. or marketing countries Thanks. success trials. looks recall conversion if in If Italy, you or

Martin King

reduced good. ability pre very smoking communicate we and I rules out said you need given the the countries consumers how openness switching the if at of But with FDA, to compared consumers that in the report look to is we consumer to see the risk do that around the actually in very to think it and a products There for receptivity. are around authorization. market communicate the good. of world, readiness U.S. to ability past we've We said with the with other is lot

far referring now, to, by products, talking at about more in you smoking, back the be if when Now, I would regard They studies old, or around now. to with imagine would about Vivien, receptivity people's any of understanding Italy by fee years they're as as et tremendous And you we five done the change you're might to old were reduce be risk studies and a very looking have cetera. issues U.S. Japan.

So

perform that we U.S. have So will the confidence high well.

a and Korea it's said taken as be probably ability us. energy, it of it always we've it to phenomenon because has the quick receptiveness Japan And and took the in was or started probably were say communicate. out, consumer time where -- as and somewhere won't the kind they EU on And of where between off

heightened see, the it's and U.S., But expectations considering early we'll to right, we you're a smoker have if that's alternatives. So happening days. news flow given

tobacco it's a to even maybe the couple very And this have than consideration, got high be and it's the in would very, and performance PMTA ago. space, with I of product I it well. months taste got your only very think heated authorization higher is mean, been

the that's are U.S. on think I where So we

Operator

next Barclays. comes the of line Our question Jain Gaurav from of

Gaurav Jain

million $XXX decline Is it to change CapEx growth this the because us to shifted on So year. is or 'XX, by of a for there expectations? it

Martin King

sharpened our We've pencils. Neither.

more of getting out assets, heated tobacco it to particularly the production capacity and We of are better units. at existing better comes when

improving. uptimes Our keep

declining. Our waste rates keep

initial ability our efficiently to produce beyond factories expectations. to of Our our improve continues

investments. And scale some back we've the able been so to of

at the near probably and as little beginning we is plans a can. closer And opportunities put year best and the a there year, usually down cleanup and the of end of estimates, number to the But sharpen pencil a capacity we our we're now. the come the to bit of

shifting and to the our to the able next billion. been is on estimate we're the billion line capacity that heated as and course we've not well and hit with If to not $XX focused well on revise an mentioned We're is in it as that's that nor -- our for the of earlier. refine number indication by XXXX. anything, of So it's tobacco track come units, have and e-cigarette preparing year to capacity. platform billion our But for numbers to needing for we $XXX I capacity for that ramp MESH up

Gaurav Jain

new Now that in have any a you category? categories, is plans coming around the lot so oral. to there of modern product Do discussion

Martin King

Around which category?

Gaurav Jain

oral Around modern category? the

Martin King

interested closely. and I yes, continue it to most reduced we risk mean role at think the because huge play But don't at we are the oral have category. monitor. oral very now But today, have don't and of modern it. looked right product, in we future. markets We is product now, may market. have look we in And it a on a category we that it right our But studied we product it certainly

Gaurav Jain

on question you price, stock Like just launch know change And is such it my do you share the is the XXXX. in so as trajectory? last where stock a Progressive. something Can buyback, was your to

There you your not escalation out you're balance be there. more obvious that any is doesn't M&A. to planning sheet under control, Now seem for

Martin King

see time or to for that. we that the and until get mid-single our rating, A, said the with mid-single to XX as board A and in A we with to we do last interim committed perhaps And a you then slowly underlying goes range into continue the so the us ratios Once our yet period, the be leverage aren't to that. the the range be would stock next to it buybacks. -- to program share go focus stock We've to to with into mid-single ratios buybacks. that you able stock the we'll able buyback leverage that Well, our is is with get but starting our buy, I'd ready are regard rating. good over start our credit to deleveraging that reconsider a feeling get we months

Operator

[Operator And ladies and gentlemen, we instructions]. have time one question for more

will Jefferies. Owen Our of from of final come Bennett question one line the

Owen Bennett

on for to also the you're growth? question provide a market the guidance are, which was here I Thank then, sort growth in of they seeing markets in terms called you one me Just more so out just the driving earnings hoping actually strong of specifics is you higher in what what growth operating sizable and could you. interest. bit income non-controlling

Martin King

pricing this the hit explanation from Philippines. and probably in quarter. the up we see is share has get out that it's we the from for Philippines called The with specific profitability. our non-controlling one the we But best Marlboro share, way up as now fact market is can given interest haven't the And this, and for XX% you Marlboro example, XX% trading.

see Philippines can sense with profitability you is Obviously, in that share the or we our with think, that substantially. you the XX%. up the in partners can I Philippines, So

to when the go not in go the P&L, being is it others, growth an interest another the in is obviously pronounced. But EPS, non-controlling believe Philippines the to overall growth there and your as see, interest. like Turkey not see non-controlling goes I is And that when line you through half there the whole I'm the boosted you the non-controlling you then you of income this affiliate line where operating going interest, example see So to been list. are and there can is a by growing.

their and substantial take in kick impact and fourth pretty as it's like in it of started it case In of was the only case well. August. partway as pricing since third mean, the the expect in the significant quarter Philippines pricing And quarter. to through the second like we end Turkey, of and countries full I quarter, was in the In August the on the Turkey another affiliates quarter up step Philippines, the third of it

So the fourth see in non-controlling will interest. up step quarter another

Operator

like to our for back was to would remarks. final additional closing that or And turn any management over I the floor now question.

Martin King

close adjusted I little very year-to-date. our just momentum. I be line that year showing good to I the that in Yes, thought think and expect our we neutral revenues a of quarter, fourth with We currency and is to growth mean, with operating pointed the income to like the overall net bit

tax interest rate us However, non-controlling differential leads about the the and EPS to impact the a drag of X% line. at the

stand strategy between look think have of a margin balance very with pricing, positive and higher locations momentum of We're company the heated if the free growth going at throughout success expansion good I tobacco and picture, units, as EU. tobacco units, Nevertheless, results and broad seeing you geographic nice the we margin coming volume, forward heated is some of well. from our back big off with like the paying year smoke future share, especially

I So all very for much And close you would think thank listening. that it.

Operator

Thank you, Morris ladies and gentlemen. This conclude call. conference does Philip quarter XXXX third earnings International's

wonderful now may day. a You disconnect. have And