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Philip Morris International (PM)

Participants
Nicholas Rolli Vice President of Investor Relations & Financial Communications
Emmanuel Babeau Chief Financial Officer
Vivien Azer Cowen & Company
Owen Bennett Jefferies
Bonnie Herzog Goldman Sachs Group
Adam Spielman Citigroup
Michael Lavery Piper Sandler & Co.
Chris Growe Stifel
Pamela Kaufman Morgan Stanley
Gaurav Jain Barclays
Call transcript
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Operator

Good day, and welcome to the Philip Morris International First Quarter 2021 Year-End 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] Media representatives on the call will also be invited to ask questions at the conclusion of questions from the investment community. 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. press detailed for and Earlier joining we first Welcome, information on

remarks that basis slides, on the growth results. presentation for a app. It's introduce direct www.pmi.com your various presented which currency-neutral Chief tobacco attention the to underlying access end comparable webcast to heated press for Officer. and definition IQOS market US differ most statements additional calculations or future of my Emmanuel? in of release I forward-looking Products Unless contain cautionary rates statements well note results. an forward-looking to and the references website. reflect release disclosure and may as Risk projections from of on GAAP are also RRPs, also are adjustments You share IQOS factors organic and and All statements. RRPs. and to of smoke-free projections to our to PMI references posted today's including cause measures, to the our actual Please materially related at COVID-XX. the are statements pleasure forward-looking the additional Reduced that cautionary Emmanuel otherwise IR unit data note forward-looking to Babeau, results could now review directly Financial as Today's heat-not-burn all A the products. Please or the our products to reconciliations glossary today's terms, the stated, are or other to

Emmanuel Babeau

call is hope I and the Nick, safe to Thank ladies you, and listening gentlemen. welcome and well. everyone

impressive first expectations, prior XX% was growth of Most strong in year $X.XX, compared our a a the quarterly diluted record reaching ahead our the XXXX and net of of challenges which volumes delivered made well to of XX% strong quarter XX.X% quarter. up Our EPS the continued of performance global continued high adjusted revenues in IQOS, pandemic. the of despite the business of

good compared pace continued switched and of total We which shipment XX.X of to converting million XX% and shares key have record million adult overall estimated HTU share smoking. XX in an reached of markets in national grew at geographies, volumes stopped and very IQOS a users quarter year IQOS double-digit smokers market prior XX with with to the the excluding IQOS plus the share X.X% US. markets

flattered combination net margins the operating raise somewhat portfolio reflect significantly standpoint, above prior diluted leads the revenue and saw organic EPS consumable to broaden Our bulk offerings growth us year. From this and our our to continue markets. the strong also of adjusted from new by strong smoke-free year and factors, device resulting product and progress outlook The were across multiple encouraging for performance. quarter, we of improvement a timing while underlying

We expect from innovation the benefit XXXX. through to further course of

Turning numbers. headline to the

drove net by better plus IMS which plus an QX growth prior net and pre-COVID XX% the grew context in an This comparison than year essentially revenues was organic shipment and an RRP Our performance basis. incorporates in HTU, excellent expected of organic X.X% revenue. volumes, on

solid increasing many partially pricing pricing was ban. pull higher-than-expected in on the the some mix X.X% our EU pricing forward sales plus Easter growth in Russia and the combustible of revenues, weight IQOS in saw shipments, reflecting revenue predominantly also X ahead ahead Region, We cigarettes of combustible prior of of RRPs. plus in April the and period and discount per net unit Combustible organic saw of markets, year of in net both by driven Indonesia. strong offset our We tobacco by X.X%

was pricing combustible plus X%. Indonesia, Excluding over

pricing, profitability of productivity income organic with an savings, basis. We increasing $X.XX as the the impact of the tax very organic on operating This the Combined XX.X% of factors. strong comparison commercial to device certain weight the had earlier a a the cost timing points reflects lower around impact Europe $X.XX. effective in pandemic, in basis growth, the Eastern estimate lower mentioned margin adjusted spend favorable of increased diluted timing and plus rate, adjusted factors including resulting other performance. and phasing quarter, cost, plus and a represent lower positive Our positive by due our XXX such shipment EPS IQOS,

now $X.XX increase. factors one-time guidance estimated an for Although me to XXXX. for This accounted plus further brings

first underlying the the to outlook. and from business notably recovery While uncertain, business of us from the the quarter, our speed of IQOS our remains momentum and global shape lead strong results pandemic the raise

continue account level EPS. and return organic or restriction, outcomes event range even that revenue growth in will a of our for of This not consumption of net renewed for prolonged in a the We depressed to to assume we XXXX. in see the range, outlook QX

semiconductor, the supply to guidance the consumer. on While thus devices limited global a current other we we we been new accordingly are the have who which manage a may smokers of not any where assumes of and situation and far affected to are monitoring This to category. the shortage is prioritize impact inventories fluid intend by our device constraint closely electronic arise, sales to

improvement is in the mobility. rebound global to Regarding in-country duty-free, travel of likely a lag

or X% to and X% duty-free in between representing to growth this previously XXXX. the expect units of now this of organic to XX% net volume deliver diluted year. and growth continue targeted in communicated XX% plus X% previously to meaningful IQOS plus XX% for plus plus range terms. shipment XX% revenue HTU organic to no plus of adjusted range in versus billion of driver our XXX for half EPS X% guidance We upper to We billion plus XX The assume reported main the strength Our expect of recovery plus is revision. the now plus

consumable, the we preparation of be different need IMS uses expect maintain to for our to the the ahead duration our ILUMA full-year momentum strong across IQOS of shipment our continued volumes. Given that inventory rollout market, slightly and

organic the our as assumption our expansion margin XXX innovation for greater activities the and around raised adjusted commercial points. half OI basis includes plus This second to investment step also up. expectation of We in

in As press include assumptions estimated adjusted not rates plus an This morning's This repurchases. $X share currency prevailing plus EPS to including remain guidance assume organic previously impact diluted of unchanged. $X.XX main favorable growth, at $X.XX EPS this into range raised versus approximately of release, other impact our or any $X. $X.XX detailed of a does translate projected

repurchases on half the we track remain to Board subject However, to the of in year approval. second resume

against margin partial improvement now year prior $X.XX, certain reversal weak QX continued and to of Looking EPS timing expect diluted forward reflecting comparison, of second to a quarter, $X.XX adjusted we topline the growth strong benefit. a

COVID second restriction, gross expect our many expansion, This assuming half, compared the continued emerged in the half. largely will margin to of For include have result topline contribution will growth. which higher the less market we first that of expected shipments, key robust device from

launches, the role. New in a phasing also and product investments will distribution of productivities play

future be around will to our strong investment compared basis lower investment a of expansion, our OI expansion of expect such overall, expansion deliver step in and first the million in but plus We organic to commercial anticipate for XXX of point portfolio ILUMA. consequently incremental to half and margin to plus the the HX, $XXX year. geographic RRP growth up $XXX including also around We plus through commercial million launches as IQOS product

highlight Uruguay agenda. want product in depth, positive harm import tobacco of of traction. in regulatory on a Before discussing control gain the Example, a continues of to Recognition smoke-free of and the reduction to so few harm reduction our quarter. in Lithuania's the results long-standing the more far potential the I product this heated ban principle year includes tobacco the integration of reversal in developments

continue In strict UK, practices the area. the principle while of to the rather to to WHO note from report paper recent recognizes content for good role to the of all-party tobacco published We states member and of the in in time, harm taking access. of of will innovative and reviewing the In relevant which into calling parliamentary in we the gained FCTC, also than week. that harms hopeful the at New Zealand, the be The the account last smoke-free to the founding excise experience are prohibitionist detail group current we consultation includes product, policy return reduction prevent an same stance. in amortization revision greater to product by the the youth this reduction, ensuring the lead EU, directive control the effort MPs

we the fiscal Here the and world, risk and on regulatory based relative continue to health. to around support differentiated framework

XX% by now the billion total be an the X.X% or guide continued positive to launched incorporate IMS from the line of strong driven occasion Middle units, encouraging PMI Well, and turning not market and objectives, that were changes we QX the for and to recently from actions proposals XX.X to over volumes will science there Ukraine quarter. results, will volumes facts that This shipment business. HTUs region, see do broadly geographies. in shipment reach EU growth by HTU declined continue back start we and reflects time East. Japan, on believe in our harm on many Russia, policy in While reduction plus

in relatively industry benign of total XX%. we declines X.X% growth less QX specific continue category back of than certain which restriction share plus come tobacco share in the were our volume in the to heated around over markets, pandemic-related persisted incorporating headwind to. declines have volume reflect over Though a While severe world, where XXXX, cigarette I'll XX%

units, the shipment XXXX. second strong to XX% heated IQOS year We in tobacco the in expect volume XXXX quarter, the trends better X% of year in volume our the and in comprising led QX XXXX, year. prior quarter total combustible of X% half and performance as in second XX% compared from of in share X.X% and The to both

We positive IQOS continue momentum and margin driver as on time a providing this to of proportion growth. powerful expect a grow continues, to revenue over

XX% engine XX.X% The compared IQOS of net changing track twin rapidly, revenue of for our us becoming on on in certain to $X.X due Our achieve replacement company XXXX. of the putting time is in smoke-free XXXX. QX lives price IQOS X% by sales products driving net growth decline QX topline. RRP in Smoke-free revenue, a of organic up markets revenue accounted ILUMA. improving quarter devices and reflect of total net we users mix aim billion battery in lower majority X.X% plus existing volume our and device to reflecting preparing for X.X% shipment the are reliability, made the our to for approximately as longer

and of device in mentioned. First is on combustible on just net HTU pricing certain I pricing market the lower

HTUs in driver as powerful our mix our Investor growth. substantial unit higher increasing Day, deliver explained revenue as accelerates. an business at transformation And the increasingly to at Second, per continue is of net this

by expanded Let basis quarter margin driven XXX which of This first starting me now this levers basis. in our an IQOS significant QX. gross go combustible into multiple mix with is are savings on impact, including the more by the efficiency our as driver delivered slide, and of points on shown expansion, green of margin, effect the manufacturing with declines, in within around million chain efforts productivity on supply effect than $XXX particular, HTU of organic offsetting bearing in gross fruit, volume

While target the our towards a billion XXXX, context represents journey XXXX-XXXX. start somewhat this of front-loaded strong over of in $X on the

in points these and expansion part This strong As ongoing million. with the due of These by the profit research level in also impact certain device accompanied and net administration later quarter more The target savings $XX plus processes, IQOS and business reflects commercial and costs around latter around of as million marketing engine organic lower boosted delivered and and was our a absorption our timing costs reinvestments. our inflation manufacturing the We the an of ongoing increase around including reduced the lower SG&A with of to costs $X in our SG&A percentage organic factors high on our towards basis basis. of overhead by through costs better margin Gross before costs impacted gross quarter gross for of $XX of of improvement. of digitalization 'XX-'XX efficient restrictions. $XXX given also billion and of commercial combined XXX savings, production a projects working. simplification efficiencies ways revenue million adjusted SG&A was pandemic accounted

at combustible, other also as brand formidable maintain now hold to with expertise via to continue commercial pricing platform to permitted. our is therefore industry our through leading growth through It Focusing gives by and infrastructure, of accelerate and covered communicate ability smokers a drive investment international This the selective returns leadership efficiency. as imperative where we we Day. market IQOS and by the to on strengths us share Investor portfolio

competition share on cigarette overindexes; the and travel; and and certain occasion, in QX in the cigarettes, where factors. maintain objective combination Philippines reduced be not our of the This of EU segments closures This of border instances to in downtrading underperformance share the the mid part and social performance such markets low-price reflect Our net cannibalization. impact does of can and as Marlboro several includes attributed region. COVID of to our

to be impact next the remainder and enduring expect Marlboro pandemic of from share supporting We growth PMI the turn a Indeed, here XXXX. improving of the now gains on now headwinds share After initiatives for double-digit this. segment. In with are the in the recovering, HTUs growth Share Indonesia, months, are cigarette in I a recovery the hand-rolled year come XXXX, kreteks, will as Asia Pricing the will share sequential of headwind targeting stable portfolio trends industry notably X market Indonesia, on by strength target to in cigarette about we through our main Accordingly, are strong especially ease. for are restrictions year-over-year in Southeast stable basis cannibalization. the supported we business despite moderating. of Tier where in nine volume and Indonesia. top leader remain we volume the South with volume difficult Region. the

X on significant continues performed which excise remains there been have while issue slow. taken major for revenues, grow. and this recent force has Tier The to the Tier progress not over and that hopeful New consequences government address the to Philippines below level players in X the negative rates some between government has remain We X, segment, came February Despite duty will a into field playing yet move pricing, the nonetheless time. years. well all

For to and this a in rise HX quarter, pandemic-linked restriction recovery slow gave double-digit XXXX, economic market decline. further industry a pricing

these to segment, plans share volume organic stable have the share. which I'm share premium-priced reflects address off full an XXXX almost IQOS an to is are XXXX. of growing exit with despite up in loss in challenges, Our this for encouraging Manila, region delivered pleased revenue mid the targeting pre-COVID. QX start downtrading in Marlboro the say to make Notwithstanding with strong after market net over our low-price of from to Overall, to weakness. Metro two-third total share launch that and decline we also growth X% HEETS close

growth While next XXXX, be organic drag driver it far on XXXX. at least of may we a months. not group be expect a the over to meaningful target compared in result less We regional nine to net stable revenue

IQOS Moving the as building adult the second since This on million XXXX. now estimate of we addition step-up of there were X.X in to XX.X represents December performance, users million March of XX. IQOS around half users the

balance combined DUO, the paying that Strong of remote for offers rates Our the increased of accelerated smokers conversion previous engagement pandemic, which with estimate the XX brand various pivot prevalence X notably experience XX% and reflect during superior smoking, of this million is strong and stages stopped to adult IQOS IQOS digital versions. the We further user total device to have momentum with IQOS to in conversion. a switched of off.

first segmentation EU Japan our and industry region, new as the and enrichment sequential the Day, for HTU of the IMS inventory of As EU border above and in selling volume. which such period. the growth widespread fewer I reflects trade HEETS share Adjusted X.X% seek innovation, reached situations as for restrictions. IQOS ILUMA. even seasonality closure year-over-year. sequential price the all and total social with mentioned IMS key at other also can conversion quarter with reflects product XX% momentum be we region, would This below a accounting XX% geographies, and Russia. also the to combustible rate including days distorted cigarette in IQOS this over and remind growth higher reflects estimated around of points, of offering. movements, addition initial and you pandemic-related of by user introduction offer Investor the we HTU the across share record dynamic, to our the quarterly of growth achieve again market for time such It In both more category

of product region reach to the in expect added market, further for broadly increasing continuation strong coming large we XXX,XXX recent of likely EU in strong line contributors. reopen underlying but and With to the its and prominence to total user excellent the quarter growth be HTU own acquisition Germany growth, the IQOS in awareness share, performance. surpassing QX increase This strong a QX. strong somewhat share momentum. includes with organically the majority further in Italy, X.X We the performance and with as were users a of region Poland build million, also XX%

region, this key in of We approaching reached in Rome progress London number cities Munich Warsaw continue X%. slide. across see with share X%, Lisbon the phenomenal to EU XX%. on a and examples XX%, and is now HTU

at city, in standout. a XX% While the a Vilnius is also share smaller progress global

Russia, trade IMS performance X.X%. at record this to Adjusted reach estimated X.X key with key As and indicator market a consumer growth share Investor year-over-year pantry also inventory you Day, refer in. covered by key of global and potential EU loading once would are and where factored estimated for reflect shares HTU show for national plus growth in up a Strong points we cities continued share cities. to around are the I movements, plus X%-XX% effects our XX% good appendix sequentially

in with device and SOLID the LIL majority time, same line sold bodes Fiit Russia to Fiit for well purchasing share may user adult smokers success the HEETS additional to volume in In LIL This HEETS SOLID LIL remains total to XXXX. plan while this on Moreover large level our first Ukraine, our basis, both purchasing the creation of reach consumer are our offer cigarillos power IQOS our the be following super-premium In lineup we and ability a tobacco price the prior smoke-free smoker With and Fiit we regular and including HTU remain grow for the both this by brands below segments for markets entering of HTU volume share given see later conversion for increased of consumable with total to compared for increase, on year traction our acquisition. quarter and Margins versus high base, good expect cigarettes midstream-priced attractive the grew the X.X small for points LIL user and price in growth market portfolio. Fiit supplement for further a such this with compared to whom in and as Marlboro and XX.X%. price, share in Japan, Ukraine, in Russia to to strength at Both October inventory HTUs barrier. category price-tiered movements, We IQOS. continue and adjusted medium variants. sequential highlighting points HEETS continue to a sequentially trade and HeatSticks of market the year. HEETS the by our X the

expect user remainder underpinned further year of by to over acquisition. ongoing see Japan We the in growth volume HTU the

robust quarter second sequential particular the we in For growth. expect IMS

in recovery also a substantial effect the market We elasticity as October price increase total consumer fade, the pantry-loading. expect on including tobacco of the

stable IQOS milestone an high share tobacco adjusted HTUs tobacco may QX still XX.X% also total heated on In is not category Tokyo, year-over-year while surpassing of in December. share over IQOS an basis overall may reached in Japanese be strong, this performance a share cigarillos. the up versus underlying segment. the of the to growth market growth XX% likely be such, QX, QX after adjusted broadly XX% share offtake of including maintaining with and sequential reflect As made

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support ILUMA, -- success intuitive legal-age XXXX generation Our technology. using heating will higher internal simple Day. Investor believe for for other induction of next IQOS, the easier DUO, market and is on of the and IQOS this Smartcore smokers launch major Building innovation X IQOS device at condition switching announced of the as we

We for the of the second continue half to the ILUMA year. of in launch plan

out announced the X external innovation growth, supply current HTU the recently a year that reflect factors confidence. tightness DUO to HTU significant of mentioned demonstrates revision our this years ongoing both both we have expected and IQOS and The I IQOS shipment demand, two our semiconductor such more for success roll previously. plan volume launch XXXX can manufacturing supply we and and manage after on our as of chain impact and that target, IQOS carefully than activities of target VEEV ILUMA, global positive this upward lasting As

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Operator

Thank you.

Our [Operator of from Instructions] question-and-answer question of comes will first conduct conference. We Cowen. now the Azer the portion Vivien

Vivien Azer

Good morning.

Emmanuel Babeau

Vivien. Good morning,

Vivien Azer

tax level-set IQOS's from some designation question, in of in might the be perspective. just helpful, could first my the the terms it Thanks. your on for given coming of yesterday, you tobacco the out please, if markets So US product international of headlines type of

Emmanuel Babeau

combustible and guess if geographies. our I heat-not-burn understand, is well, offer is, how Vivien, I Correct? So, non-US question in classified cigarette our your product versus

Vivien Azer

correct. That's please. Yes,

Emmanuel Babeau

Right.

that the would in from is to the give addressed element So answer probably a sure particular applied vast manner majority show country because one going IQOS able that differentiated, I'm the is it's the our that with say, can I'm the so classification markets on of today, I product combustible the be fact treatment to be different not is than already other. feature a duty different one a that product the the to product general the excise cigarettes. different that differentiated in recognizing distinct to

in course, regulation fact see welcoming some other, different taking certainly into clearly that and of and situation I expect going continue. we are be better country one and my combustible been are, take the we a see So to as we that clarify market account, that a these heat-not-burn during think that further previous progressing products I to nicely country mentioned, to the the speech different alternative have that the we after few a regulation can future are to will from to example

And we regulated risk and products to regulation between for So, differentiated heat-not-burn and well you calling as clarify distinction more two cigarettes more come we as with and know, expect different on have smokers can way this the reduced incentive and and their are the combustible alternatives approach to further we government the items, a other on we on certainly better health. and push better better these to taxation of sure cigarette. alternative course that also to product for combustible an communicate than on make

Vivien Azer

cap countries just could the And potentially Thank then you provide your you. combustible very implementing my helpful. nicotine Certainly. on risk, cigarettes. follow-up, you much. Thank a if assessment other of That's

Emmanuel Babeau

you and be in think rightly I that as its an not would certainly all is think that something dimension. that today, idea investigated anywhere Vivien, have to Well, is say, it's implemented I

dose in more impact. of combustible term in and have I of illicit kind trade, the of with negative people to a get to of therefore course, think product number of nicotine same actually term smoking, that impacts could

to satisfying should people an wanting have that if nice heat-not-burn is better could as and of early case, starting the perceived intent. coupled So quit alternative work, alternative with at with to that I this perceived smokers alternative product. were that frankly, be as be one availability be go to have that too and the or think to incentive better switch to awareness, strong smoking In whether any this to that could very better and it's certainly, something would certainly, and stage, right for first say a we to for being heat-not-burn for

loss it's table not all to don't the the as a in to quit so be on strong potential on and work of studied us, who don't gathered very to be believe for for done on present been be that that I would I And lot that want to would -- have new, consuming in but and have evidence already people the would think with work an availability and is much want idea have alternative the impact coupled that. think a keep idea to and We the done the FDA because that on scientific think nicotine. the I consequences. has XXXX. had of So, put case, far awareness, any that

Vivien Azer

Understood. very much. Thank you

Emmanuel Babeau

welcome. You're

Operator

Jefferies. next comes Owen of the of Our Bennett line question from

Owen Bennett

Hope you are Good well? afternoon, Emmanuel.

Emmanuel Babeau

How are you?

Owen Bennett

Thank and realistically spend you markets just linked back the VEEV you. Thank are how be the Yes, the the rollout wondering targeting focused incremental And good. to be in you ILUMA? behind? I ILUMA you. of commercial maybe end was in year. just second VEEV And Will some of I on around to half. the be many this largely and focus this, to more specifics Could by then wanted for it give what on will

Emmanuel Babeau

Owen. Sure, Yes.

So with starting we're that summer, the positive on markets, on the going commercial here that will in in evolution switch vaccination a it's situation the everybody many gradual spending, gradually improve, believe so in believe many a improvement. see to COVID realistically, the to expecting, we of course, and markets

in say a I business. COVID, IQOS as but of significant of restricted across our on time, So, portfolio, starting we've commercial course, because limited would you during know, of somewhat period action, been the

that as awareness, is around the manner, product known, on general in in and IQOS absolutely again, will, of key to activity. be be communication, back on marketing obviously, top will our more business very building a trigger build making our it will launch and a we IQOS be period with of market VEEV. commercial and that, you're time IQOS opening So important right, that up, see absolutely ILUMA On

final to ILUMA, expect market we the on of we list number. to make for the sure be key second has a focus. in We see launch. with VEEV that We launched, the well want Although you markets the to expect first started is number the part can year. of right On priority exactly what been that do be

on second that but make will RRP becoming user in course, the more generating names, other shouldn't conversion, year. And and to our already understand key require smokers what DUO is greater list. first to investment part the even product the an that you loyalty I'm So for of very investment that nice disclose stage benefit of on at IQOS to product ILUMA, the market the not require why it we is the going that so X or than more IQOS of expect to specific us sure

that So this are behind really here. $XXX is million we that is million $XXX to mentioning what

Owen Bennett

Thanks helpful. very much. Very

Operator

Our Goldman of Herzog comes next from of Sachs. question Bonnie the line

Bonnie Herzog

maybe... Hi. to ask I wanted

Emmanuel Babeau

Hi, Bonnie.

Bonnie Herzog

on follow-up -- ILUMA. A A follow-up Hi.

you understand lot I'm of think be? since IQOS are internally, of broad the you're expecting of trying this device? coming level not current roll Are incremental see out, that expectation or trying to mean, how costs expectations Just to into a some about as this for new wondering I is your I dedicated related could lot a how should just or then this IQOS? this to can you? incremental introducing how guess And you ILUMA, margin we a to users what's therefore expecting assume and that necessarily with there upgrade of users from this to be accretive consumables -- of for drag view range you

Emmanuel Babeau

these to two points. sure, happy answer on Yes, Bonnie,

to use new manage convince make intuitive, of we and converting easier acquiring far. of to impact to smokers, first positive. on the and we so smokers, not did with on because course, all, be expect products broadly find ILUMA So to we of you're convince ILUMA that ILUMA, Well, on smokers more new going

element. the that's So first

practices going IQOS tobacco a and cigarettes, have the product of of really moving in role. fact product heat-not-burn consumer. that the course, or back loyalty Second, the to we're that number very term play other it's also going heat-not-burn it's a to not user adopting and to for benefit And with believe we because a of to people of because a fully better product ILUMA nice lastly, lot a severe also is switching user

to and impact easier to use, we be it's nice we cigarette experience on be to back because an much think it's switching again to it's a nicely to really one. lower and that having going abandoning have people overall So expect once better

we the as performance expect So can drivers you several behind see, further on globally. boost IQOS this ILUMA our innovation to

Regarding a like time in low; new product you I It's the new productivity. fully be optimized [ph], some are you fully to at consumable a it coming manufacturing volume a and would of a you've term launch, globally say made you launch some when always with not product, should optimized. as product; takes beginning, are the expect investment;

There will a a for new of So be new level margin the of there the up product. launching is be reason. of gross new margin guidance. and beginning be impact some on on beyond this taken our and in profitability this there at consumable will that ramp and on marketing into product product the And the course the cost at product because the will commercial it's account

Bonnie Herzog

out on some And a in then, Thank that the I levels Okay, that's back the you. very nicotine regarding of circle came cigarettes yesterday cap news potential on US. helpful. to to wanted

accelerate wondering would in is cap a IQOS can advantage. question of a the my as implemented, guess see is I would if US, there distinct I if anything you to I have do be ever nicotine rollout imagine the So since IQOS it,

latest might Wondering on possibility. a it entering that. so, you And love thoughts And you you if become So if or on the if that have a US VEEV. more of touch will Thanks. now market maybe submitted I'd PMTA? could potentially then, with your

Emmanuel Babeau

intention to PMTA. on one, second It certain the is on at certainly point a in just VEEV, our So time submit

do when certainly yet in at a it and that do to yes, I certain but don't not point yet, We done is intention it that, have our have the time. we timeline

Now of in work there. Altria with on will partner, IQOS commercializing are course, Remember, business, not the we US. our growing IQOS we the

the We commercialization IQOS Altria. to have licensed

Let's it's to and should not [ph] overnight. believe press world overreact to article or not a what not news, a I we change is conclusion that run too the think fast yesterday the to going is even therefore

through is But objective, one clear and that I a based which just appropriate see the to policy article. convinced reduction scientific and it's signal harm go the promote supervise [ph] they IQOS and own X.X on innovation now, world, IQOS to that think it's will want a has contribution public health. MRTP on are evidence we their received according a promote FDA press to positive they to we for that as that, that that

is with we and that we'll our of we we we something that and to that a with and with foster So play this can can that can believe what make maximize role innovation to help FDA do IQOS the and course, have that there we Altria, we of with that means develop that vision sure try IQOS, accompany to

Bonnie Herzog

All right. Thank again. you,

Emmanuel Babeau

you. Thank

Operator

from comes question next Citi. Spielman Adam of line Our the of

Adam Spielman

afternoon. Hi, have I good two questions.

share. First one is IQOS market on

in growth XQ and in for share Japan Now XXXX? And no and growth storms, we growth stable markets. has in in little of or XQ, in should XQ EU in share can couple great you've see good your sort Russia. of expect and you the and sort couple a In versus XQ be then Slide there's growth seen in the will But XQ. very pretty example in of same QX. versus that and And other XX been that is growth question first words, market of market Slide XQ years, XX, you and for key the great [ph] have pattern in in the just the I then XQ, guess quarters the next a

Emmanuel Babeau

to again, the is some was overall that continue the of on COVID to tracked market that, business, border illicit and is in on that first impacting mind changing on the closure that the market in very impacting is been grow even addition share. and heat-not-burn in all, market that impacting was I element, the nicely if globally IQOS of impacts, And account is I'm many impact mainly and grow impacted that that has not that emerge Hi, markets denominator CC underlying impact an course, to the share. certainly you that there need sure CC the and Adam. think to seasonality you being have but is, that there take volume into denominator Well, continue therefore

believe COVID. to we this the XXXX seasonality specific to from So still it's linked the COVID going be mix of with the in impact a plus normal impact

growing progressive it's still one but could for a certain very in growth growth strong true stable that quarter, lower and growth. even growing all the at you potentially course have even market not It's stable. quarter that. sequentially it's the volume share pace. can be that have same target volume market acceleration -- reason, may the strong the [ph] very But as share either on that with year-on-year, the not overall, well we after we following a growing is of of appreciate the are mean this that with you Now, sequentially doesn't markets, course It

to a be market in longer should a So I be to salt taken share pinch period be over with time meaningful think say of appreciated has [ph]. of what and they

Adam Spielman

you're worried no guidance. thinks [ph] And And second beginning and That's people but really Thank way you longer helpful. of, well, consensus, the your under question the just market consensus about is control. to of around not EPS is the very my quarterly is your disregard are is you. it sort whether sort question that

out Are let two and or a [indiscernible] you think this longer you if guidance for fundamentally office probably massively. try bit of In a that on give the quarter three going EPS, more. no it's me you've I come to XX% it are started to least guidance take explain or past [ph] question or Massimo's years, quarter every the time XX% [ph] yet Now, given currently at shares but flat. in certain more, again a

a And quite it might disregarding guidance be the me, the but that, of to situation if for is market to sort quarter. EPS as seems for that on you. looks there your dangerous other reasons me Now,

actually to play was As think new bet quarter you how about and [ph] dynamic going think to you you right, going the more end didn't out and you're at is you're market, for of the wondering this you -- if if forward? ships worried it, going didn't tell I that's why the

Emmanuel Babeau

Yes, Adam.

-- two challenge guidance. deliver, and your for two guidance the taking we often for what identify sources beating reasons, I So and on would driver [ph] two

fact the first often The the surprised good think strength and are the one we business. a IQOS one, I that it's by of is

coming a So which of in we it's is and case beat. QX the this expect some stronger, even something for

can too a make we've we So assessment take to and things good we then way of cautious better, that what true, coming forecasting. when we've we news, the been fair trying in as a it's are expect, are but been

predict The do anticipated. and other be things going that it's well attitude things with in today's movement surprised a in can lot even well true, and and volatility, thought we environment, the customers. do been and the somewhat later in some that of that Again, or investment of year -- and anticipated from eventually one, because even market not which did some not anticipate, it's of creating lot frankly, roller understand, more the trade is -- I hope then in have nervousness, volatility, difficult March and a and were COVID by are coaster the pantry-loading everybody spending that we to do, in we of that we you that of did we've a impact a would term necessarily we not and in that to

we we're going I that few would And -- if we the we early of the occasion, say the to that that that beating So happened been that it [ph] mean with in to it very communication believe quarter, really you we're -- the think guidance. explaining it's at driver be why close when on end true see our beat, I clear the we've want. we share really know becomes the quarter we when stage to going at the where

I challenge don't it mean market your longer is is case. Now, the on think following question or your of, of -- does no a that Well, you. this

strength you and well. have view there anticipated on everybody IQOS, everybody of then know I things a the think I accept what we on specificity don't -- anticipate situation the can volatility be we and that COVID And can of think that understand this can deliver.

year XXX we the the billion. are to to [ph] on of towards I revising HeatSticks number for billion the today guidance think XX

QX our with that we at best assumption shareholder investors, and that's really sharing vision based possible make think the on can really all reflecting I stage. the analysts, that

Adam Spielman

you. thank Okay, was tough question. It Thanks. a

Emmanuel Babeau

you. Thank

Operator

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

Michael Lavery

you. Thank morning. Good

Emmanuel Babeau

Hi, Michael.

Michael Lavery

below if to to doing there. wanted what's to the Obviously, and I comment you Japan, both you've come you pricing now HeatSticks HEETS in begun how brands give you're little And if above what there you third seeing I it's doing how far second too, And that's too color point? you could right, a but on just I not and a price or and saw differentiate positioned been points said launch we had. have above you'd introduced, one? is more where early so or more how a your And additional little point the price you're with a just lower you're assume that? original price back have on about you bit heard new

Emmanuel Babeau

like lot to few do Sure, expect consumer for share, happening a in Japan, because of we a you -- a things not the bit. course little with I'm What few market it's double-digit markets word where and market young it's cautiousness but other bit. this very our is market a would in a what business that. is mature a little markets Mike. good still, on maturing instance, are of And a using where consumable start IQOS Happy to on typically market

personal purchasing want life her would he to and based life the his he customer based the lifestyle will consuming. to positioning say on -- on what around different on he have or I wants typically, what or about So him. what enjoy power, wants consumer expect his to We'll his say is

we segmenting HEETS keen an with the then market, that a category you you did there the even the the rapidly, the you very go experience. need have be see to innovation, what have for beginning. is And one at will when consumer for single reference So of consumable, severe

Marlboro overall Russia, an the HEETS premium you consumable want. then, with and a expenses at in So in but there Japan HeatSticks [ph] even to is point. same because category versus a And minimum inferior to better need of medium a and and other great we combustible what keen time, course, certain more so higher the keep have in hyper an to to have you point at the also if for creation below in future for ready a have consumers for medium get a still rewarding premium be experience positioning with lower that, what or they to used have will pay the to later price whether the probably that's of

satisfaction think all in become to I are So sure we the in make the happens just more relevant doing mature, and in it's job we're yet relevant that our market gradually, country. every future. a right more customers. But becoming as that marketing of country increasingly to more and more It the bit will commercial expectation give

Michael Lavery

some dynamics understand or grew year-over-year, the Okay. I I That's quote a mature points share where want to on sure of your of sort really helpful color. make And Japan market there. you three four just

X.X, have the that's which the bit adjusted has on you share beyond? then show, visibility Is trade course little don't in think of X.X, a gave just have modeling quarters or mind little also other that is XQ cigarillos. we the we an Unfortunately, it's moves but great gap about there You as driver in key The of X.X, segment, and it should then excludes like growth we bit also a the build inventory share. those X.X. five some between and and cigarillos X.X, widened over there

Emmanuel Babeau

remember concern is disappear inventory whatsoever, will a is very now, of Japan. is cigarillo, there still, advantage that until a but October category dynamic that in No, tax specific The bill Michael, no there of next fully level certainly the category.

following last and market Japan it. been HEETS, positive and at we therefore and are HeatSticks happy are nice two our the are, and excise XXXX been during gaining very Marlboro as and It increase. market seeing I quarters very very end QX. what IQOS has altogether in October increase we've the duty genuine nice QX the from we share So of price we in business reaction the share very said, with continued growth very, A disclosing year in both

Michael Lavery

so much. Okay, great. Thanks

Emmanuel Babeau

you. Thank

Operator

line Chris Stifel. comes from the of Our next question of Growe

Chris Growe

Hi, good morning.

Emmanuel Babeau

Chris. Hi,

Chris Growe

EU were EU. relation Questions quick for rough just the there you was product. your build it of share the in in potential approximation those were more continue a asked. strong availability IQOS you. of distribution Do had also get I ones really to I development IQOS, available where you've markets Is say of you how Those in in Russia? of have widely Russia more and curious consumers? the is, market front to have in markets just still two and to

Emmanuel Babeau

market in we of EU, -- a time can the years we key Investor with we the clearly, are and the a said backwards, Yatsik would we Russia, the good Well, market market, have few of a country road. look few I have big of a are indication have a say good In the full think cities I at that share we cities big the in highlighted it not lot are coverage that signal [ph], upstream the coverage, in of years countries Day, whole we the full yet. if the down in of where get yet important you cities, share where not an but with capillarity number a

want. market key are of globally things. road that's pretty the and at good time, that cities in the should in share improvement do looking key manage, have not a increasing continue So, for But of mean an the reach the ongoing end of so I I of kind that's an the to even market we course, we very kept country. country think in big share it's the we indicator cities the fact likely the same But if higher at way cities, overall think you it's done job because that you be the get same to the we course, share that if a fact that of and to good we

Chris Growe

you where I second an helpful. that. But in year, in when just of relation you're Okay, more that towards is that this to to the you've whatever word in to a need IQOS one decline? the up share combustible the I thinking money, kind question this think commercial at and combustibles. attention, any IQOS some know just half cigarettes to there try products, more area again that and share for was that's reasons investments seeing is curious in had of apply other Thank I change how just risk some curious right looking in shore reduced by And generated and some to quarter, you. the the pressure of is success but competitive of of relation you're about do I market combustibles was bit being dynamic little of in there's

Emmanuel Babeau

I because on them, combustible have many of they for seeing mean active little only are quite RRP. we presence certainly competition in

we we offering continue the bring in our impact to it financial Marlboro. with provide CC just that need customers be as in Marlboro social the in been an keep markets is so keep and to an social invest in absolute and for but make probably maintain we that protect defend should as [ph] we our second back some the see the as the be build business. link pressure sure some are and want this So to hitting COVID as to this growth back the there We And resources that of to the they especially are will to of CC talk the majority the we their Chris, are half CC think the the that trade to and example. investment business with that, to clear in everybody sometimes of a share. about strengthen time be further RRP, our trying it's to been that It to although we market to RRP in business where we've on more to convert because leadership we invest that leadership will order going you consumption hit reminding and is half world in order the is the there the by making has leadership maintain be under Well, the life priority. course, they maintaining that order expect hard on heat-not-burn second smoker on the we to on category. us sometimes not sure behind

Chris Growe

you helpful. color. Okay. the very for That's Thank

Emmanuel Babeau

Thank you.

Operator

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

Pamela Kaufman

the back implies strength So understanding half impacting the half, implies spend, quarter when moderation I notable for second half just any to wanted guidance outlook incremental added EPS in added to in in adjusting your the QX, but and XX% to a you come high-single-digit and are for second growth. growth first moderation this cadence your given there pointed the in it incremental the year for mid guidance factors Because about growth first and from outlook? obviously, a the to other the even investments, for

So just the trying understand fact to [ph]... what's considering

Emmanuel Babeau

So, Pamela...

Pamela Kaufman

Speakers] it conservative might how [Multiple be?

Emmanuel Babeau

Happy to that take one.

has So productivity deferral we're extra I'm the of element year. million here $XXX has on the a absolutely therefore we sure more we've performance mean, non-recurring that highlighted on that not of $XXX it's in gross the half -- margin million been improvements as that HX, and performance been much we first and signaled has helped is we the but to fact by a as versus flagged investment on strong fact we the the in going be also very to through margin active to deliver gross margin and and think by going well impressive the manufacturing I the moderation. fact been have course we'll that investment we're But reproduced, SG&A margin some on gross signaled boosted QX, that be QX QX rate to going the

it will also is second be manufacturing up will on ramp -- some have impact a launch ILUMA be will face was distribution of in the gross and on launch the question on previously, the of of and and to that the consumable going for coming gross the of We also Bonnie's where number we of because the investments productivity margin that time from ILUMA are -- there pressure the and margin half. some in

for for that level boost the So, at combine and half. the that is [ph] a fact QX be second few reasons if the negatively will impacting investment the that is margin element the exceptional outlook increase in that there you the gross plus margin QX, was some fact driving in

but keep that said, Although, as improvement we're noted sure you've I nice very margin already. I'm with going to a

Pamela Kaufman

platform in Thank leveraging about to just IQOS your you. learnings Also, understand your VEEV. and ask you're initial market. to VEEV I I IQOS existing wanted performance launch commercialize

the So products? consumers across how you are steering various

Emmanuel Babeau

Yes.

So as few at very market it's very stage, preliminary. stage, early Pamela,

that vaping versus good experience it's from reflecting most We have a feedback customers fact the very traditional experience. superior

these reviewing to we volume, collecting the have limited and are the feedback markets share, these from we'll small we when data element time number very information with and being are bit for we on we would do with are the the So more qualitative we that. first markets. I from a of that are markets coming say happy getting the

Pamela Kaufman

you. Thank Great.

Operator

have gentlemen, more and for ladies And one time we question.

the from Our question come line of will final Barclays. of Gaurav Jain

Gaurav Jain

Emmanuel. morning, Hi, thank Good you.

Emmanuel Babeau

Hi, Gaurav.

Gaurav Jain

which back of beat asked earnings your does earnings of timing impact ahead and the have to magnitude around share Coming repurchases? coming thought this repeated questions the and on been process guidance, how

Emmanuel Babeau

meaningful a think is Gaurav. having that don't impact, this I

we share Day. at I track, the buyback are announced not the year half absolutely that the stage, that at of in Investor I'm think based that. of provided receive course approval strategy time board we've that on signaled we previously the on sure are as second start to of building we that a

I I abating, headwind for we're hopeful in a that said, to going COVID better am be guidance. quarterly future with As our the the forecaster

don't stay. take to that as kind here of would that a element I So be

Gaurav Jain

IQOS second pack of and in of a of saying, [ph] maybe my tobacco. And incorrect of part but about tobacco, grams on is cigarettes Sure. is I'm I as what while Thank you. XX-gram has a -- question understand, I'm X

nicotine helps this you it has of of lower therefore pack that could something in around cigarettes, imply which caps? be versus nicotine does which IQOS a pack So a debate

Emmanuel Babeau

in an nicotine going not IQOS guide weight world, not the in some the combustible is excise because consumption. on country, to several excise you're in content weight inhale duty the versus on through of going No, directly has It not to tobacco countries is consumption necessarily. impact Gaurav, the of everywhere the some that duty time but tobacco on

Gaurav Jain

Okay. And a lot. Brilliant. thanks

Emmanuel Babeau

much. you Thank Thank you. very

Operator

floor question. for final the remarks. That was our additional I'd or turn like to closing back management over any to

Nicholas Rolli

very much. Well, thank you

Emmanuel Babeau

you. Thank

Nicholas Rolli

That call today. concludes our

Emmanuel, a unless you comment. had Sorry,

Emmanuel Babeau

no, was the forward everybody to we for soon. call attending today, to No, just and thank talk you look to I

Nicholas Rolli

Thank you.

If you have contact and the a again, team. questions, Investor have day. please Relations any you, great Thank follow-up

Emmanuel Babeau

Bye-bye. Bye, everybody.

Operator

ladies conference you, conclude today's This Thank does call. gentlemen. and

disconnect. now may You