The paragraph is an introductory part of a conference call for Philip Morris International Inc.'s 2024 Third Quarter Results. The operator begins by welcoming participants and informing them about a question-and-answer session following the presentations. James Bushnell, the Vice President of Investor Relations and Financial Communications, then proceeds with the call, mentioning that a press release containing detailed quarterly results is available on their website. He explains that forward-looking statements are included in today’s remarks and directs attention to cautionary disclosures. Emmanuel Babeau, the Chief Financial Officer, then reports that the company had another excellent performance in the third quarter, with strong growth in both top and bottom lines, improved margins, and accelerated growth in adjusted diluted earnings per share.

In the third quarter, IQOS and ZYN experienced significant sequential growth, with IQOS showing a 15% increase in adjusted volumes and strong performance in Japan and Europe. ZYN expanded its U.S. production to meet high demand, resulting in over 40% year-on-year growth in U.S. volumes despite capacity constraints. Additionally, nicotine pouch volumes outside the U.S. rose by nearly 70%. The combustibles business saw high single-digit growth in revenue and profit due to strong pricing and cost actions. Overall, the company achieved double-digit growth in operating income and earnings per share, leading to raised full-year guidance, with organic revenue and operating income growth of 11.6% and 13.8%, respectively.

The company experienced significant growth in Q3 despite unfavorable currency impacts, primarily due to weakness in certain currencies. Adjusted operating income and earnings per share both saw double-digit growth, driven by strong performances from IQOS and ZYN shipments, and high combustibles sales. Additionally, lower net financing costs contributed to this success. Year-to-date, there was a 17.2% growth in earnings per share on a currency-neutral basis, highlighting robust organic growth and margin expansion. Including currency effects, earnings per share grew by nearly 8%. The smoke-free segment achieved notable organic revenue and profit growth, with IQOS and ZYN contributing significantly, while combustibles also saw accelerated revenue and profit growth. Smoke-free gross margins were notably higher than those of combustibles.

The article discusses the improvement in combustible gross margins, citing a 10 basis point organic increase and 20 basis point increase in dollar terms in the second quarter, with goals for further expansion despite cost pressures from regulations like the EU's single-use plastics directive. The company reports ongoing volume growth for the fourth consecutive year, with a 3% increase in total shipments across all categories and regions in Q3 and year-to-date. The HTU (heat-not-burn) category saw nearly 15% sales growth, driven by strong results in Japan and Europe. The oral smoke-free business, especially ZYN, saw significant growth in the U.S. and internationally. The VEEV e-vapor business showed positive volume momentum. Cigarette shipments also increased by 1.3%, outperforming the international market, due to growth in countries not permitting smoke-free products and reduced illicit trade. The company's growth was supported by contributions from Turkey, India, and Italy, and strong category share performance despite pricing challenges.

The paragraph outlines the company's strong Q3 revenue performance, attributed to growth in volumes, pricing, and a shift towards smoke-free products. Notable contributions came from price increases in combustibles and IQOS HTUs, as well as a positive impact from products like ZYN. Despite geographic mix challenges, there was significant revenue and margin growth driven by higher-margin smoke-free products and cost efficiencies. The company achieved organic margin expansions in both operating and gross margins. Cost efficiency efforts resulted in substantial savings, with a year-to-date total of $490 million, as the company progresses towards its 2024-2026 savings target of $2 billion.

The paragraph discusses the strong performance and future potential of the IQOS smoke-free product. The company achieved significant growth in operating income margins and anticipates meeting its full-year targets. Celebrating its tenth anniversary, IQOS continues to expand, with over $10 billion in annual net revenues. The brand experienced robust growth in Q3, achieving a 14.8% year-on-year increase in HTU adjusted IMS and significant growth across global markets, especially in Europe and Japan. The success is attributed to technology, commercial strategies, brand-building, and innovation. Following its launch in Japan, the IQOS ILUMA i device is expanding to additional markets. In Q3, Europe's adjusted IMS growth reaccelerated to 11.3%, overcoming previous slower growth due to flavor restrictions. Continued strong growth is expected in Q4.

The paragraph highlights the growth and dynamics of the Heated Tobacco Unit (HTU) market in the EU and Japan. The EU has seen a resurgence in markets like Greece, Romania, and Portugal, with new product launches like DELIA and LEVIA contributing to growth in Italy. There's robust progress in other European markets including Germany, Spain, and the UK, with a regional Q3 adjusted HTU share increase to 9.5%, despite some seasonal impacts. Key cities are experiencing significant offtake share growth. In Japan, there has been eight consecutive quarters of double-digit HTU growth, with a substantial market share increase to 29.8% in Q3, aided by the launch of the IQOS ILUMA i device.

The paragraph highlights the growth of the heat-not-burn category in various global markets, with Tokyo and several other Japanese cities achieving a 50% offtake share. Globally, cities in Saudi Arabia, Mexico, Egypt, and Indonesia are showing strong growth. The travel recovery is boosting duty-free sales, and products like ZYN and VEEV are seeing dynamic growth alongside IQOS. In the U.S., ZYN maintains strong momentum, reaching 149 million cans shipped in Q3 despite supply constraints and a price increase. The company aims to meet consumer demand by the fourth quarter, focusing on existing consumer needs and production volume increases.

The paragraph discusses the company's strategy to increase its production capacity to approximately 900 million cans by 2025, with further expansion planned beyond that through a new facility in Colorado. It highlights the company's commitment to preventing underage access to its products by enforcing strict marketing codes, utilizing age verification technology, and partnering with WeCard and TruAge for retail sales checks. The company is also actively combating illicit trade in tobacco and nicotine products and maintaining strong governance and supply chain controls, including monitoring imports to prevent patent infringement. Additionally, the company's multicategory approach, focusing on expanding its smoke-free portfolio and increasing the presence of its nicotine pouch brand, ZYN, in international markets, is gaining momentum. ZYN is now available in 30 markets, including the Philippines, Mexico, Europe, and duty-free outlets.

The paragraph discusses the continued strong performance and expansion of the company's products in various markets, including Mexico, Pakistan, South Africa, and Europe, particularly Scandinavia. It highlights the profitability reached in the e-vapor segment in Q3 and the leadership in the closed-pod system category with the VEEV ONE in Europe. Efforts to build distribution and brand awareness are ongoing, with future investments outside Europe. In the U.S., consumer pilots for IQOS 3 have begun, focusing on consumer engagement and education, with insights to inform a larger launch in 2025, pending FDA authorization. The company is also selling the Vectura Group to advance its inhaled therapeutics pipeline, expecting the transaction to complete by year-end.

The paragraph discusses the recent developments and future plans for Vectura, emphasizing the positive impact of its new ownership following challenges related to its previous association with PMI. It also mentions the establishment of service agreements for developing inhaled therapeutics and highlights the continuation of the Wellness & Healthcare strategy. The narrative then shifts to the performance of the combustibles segment, noting a strong financial outcome with net revenue growth, largely driven by effective pricing strategies in markets like Egypt, Turkey, and Germany. Cigarette volumes remained stable, benefiting from limited competition from smoke-free products and efforts to curb illicit trade. The cigarette category share saw a slight increase, with Marlboro and other global brands achieving their highest market share since 2008. Additionally, progress is noted in resolving longstanding cigarette-related litigation in Canada, with the deconsolidation of its Canadian affiliate, RBH, mentioned.

The paragraph outlines the mediator's plan for a $23.5 billion industry settlement in Canada, funded by cash and future profits, with potential financial benefits for PMI upon reconsolidation. It shifts focus to the company's progress in expanding smoke-free products, currently available in 92 markets, with a goal of reaching 100 by 2025. The text highlights efforts to make these products accessible in low and middle-income countries and stresses the importance of preventing underage nicotine use. It also notes low youth usage of nicotine pouches in the U.S. and emphasizes the company's commitment to sustainability and reducing environmental impacts.

The company is progressing towards carbon neutrality in its operations, with 52% of manufacturing sites certified and plans to achieve 100% by 2025. They are also advancing in water stewardship, reaching 86% of their target. In light of stronger-than-expected performance, the company is raising its full-year forecasts for volume, organic sales growth, and other financial metrics. They anticipate record organic growth with a volume increase of 2-3%, despite challenges like the EU flavor ban and regulatory delays in Taiwan. U.S. ZYN shipment volumes are expected at the higher end of 570-580 million cans, and overall, they foresee organic net revenue growth of around 9.5%.

The paragraph outlines a strong financial performance forecast for the year, highlighting significant organic growth in smoke-free net revenue, leading to nearly $15 billion in total revenue. It mentions adjusted organic operating income (OI) growth forecasted at 14% to 14.5%, with improved gross and operating margins. Currency-neutral adjusted diluted EPS growth is projected at 14% to 15%, resulting in a range of $6.45 to $6.51, despite a $0.40 currency impact. The forecast indicates robust growth of 7% to 8% in U.S. dollar terms, with another strong Q4 expected and increased investment in smoke-free brands. Operating cash flow is expected to be around $11 billion, and a slight improvement in the net debt to adjusted EBITDA ratio is anticipated for 2024.

The paragraph discusses the company's strong quarterly performance and strategic goals. It highlights their progress towards achieving a target financial ratio by 2026, with buybacks being considered upon nearing this goal. The company reports strong metrics, including volume, pricing, margin expansion, and earnings growth, leading to an optimistic growth outlook for 2024. They emphasize the structural and sustainable drivers, particularly in smoke-free product growth, with brands like IQOS, ZYN, and VEEV dominating this category. The company is expanding opportunities both in the U.S. and internationally and has raised dividends for the 17th consecutive year, indicating strong cash generation allowing for reinvestment and shareholder returns. The paragraph ends with an invitation for questions from Bonnie Herzog of Goldman Sachs, who asks about the growth trajectory for IQOS, noting a slowdown in shipment volume growth.

In the paragraph, Emmanuel Babeau provides an update on the performance of IQOS, focusing on adjusted in-market sales, which reflect consumer off-take. He reports a reacceleration of IQOS sales in the third quarter, with nearly 15% growth. Babeau highlights strong performance in Japan and South Korea, particularly noting Japan's 14% growth in adjusted in-market sales despite a high market share of nearly 30%. He also mentions a reacceleration in Europe following a transition phase due to a flavor ban, indicating an exit from market disruption.

The paragraph discusses the positive growth momentum of IQOS, particularly highlighting Italy's strong performance in the third quarter and mentioning other promising markets like Indonesia, Saudi Arabia, Mexico, and Egypt. It notes that despite initial strong shipment growth in the first half of the year, shipments in the third quarter were lower due to factors like the Red Sea disruption and preparations for the flavor ban in Europe. The company expects shipments to align more closely with consumer demand in the fourth quarter, despite potential negative impacts from the reversal of the Red Sea disruption and high comparisons from last year's inventory build-up.

The paragraph discusses the supply and market dynamics of ZYN. Emmanuel Babeau explains that while supply constraints are easing, fully restoring inventory levels might extend into next year. By Q4, supply should meet consumer demand but replenishing inventory will likely continue gradually through 2025. The company aims to have an overall capacity of around 900 million units by the end of 2025. Bonnie Herzog acknowledges this information and queries about the impact of promotions on regaining lost market share.

The paragraph discusses the gradual rebuilding of capacity for a product, ZYN, which is expected to return to full normalcy by 2025. The lack of availability previously led to a slowdown in the market as customers did not switch to alternative products. However, there have been some improvements in market share during the latter part of Q3. The paragraph then transitions to a conversation between an analyst, Gaurav Jain, and Emmanuel Babeau. Gaurav Jain asks about the strong international cigarette market performance despite price increases, attributing it to reduced issues like smuggling in specific regions. He inquires whether this trend will continue into FY 2025 and raises a question about potential disruptive excise tax hikes.

Emmanuel Babeau discusses the company's outlook, noting uncertainty about market trajectories beyond 2024, especially regarding smoke-free product regulations in certain markets like India. Despite challenges, the company has experienced growth in volume, market share, and pricing for combustible products, with a notable 9.7% price increase in Q3. They aim to optimize combustible product performance to support a transition to smoke-free options. Babeau cautions against assuming the same price increase in Q4, emphasizing that future pricing will likely continue, albeit at a more moderate rate. In 2025, they anticipate cost improvements for combustible cigarettes.

The paragraph discusses various aspects of e-cigarette and combustible cigarette markets, with a focus on revenue and conversion metrics. Gaurav Jain inquires about the volume and financial metrics of e-cigarette shipments, suggesting that the e-cigarette revenue run rate is between $300 million to $400 million. Emmanuel Babeau confirms the equivalence of 1 milliliter to 10 cigarettes but does not comment on the revenue specifics. Later, Faham Baig from UBS asks about the greater success of vapor products over heated tobacco in Europe and seeks insights into the market adoption of VEEV and the situation regarding nicotine pouches in the U.S.

The paragraph is a response by Emmanuel Babeau addressing concerns about illicit products in the market that may infringe on patents and discussing the measures being taken against them. He notes that the success of heat-not-burn products like IQOS is more significant compared to vaping products, which face regulatory challenges and issues with underage consumption due to certain marketing practices, particularly in the disposable category. Babeau emphasizes that PMI is actively combatting illicit trade globally, including in the U.S., and does not see substantial growth in the vaping market among legal-age users.

In the paragraph, Emmanuel Babeau discusses the company's commitment to fighting illicit trade, emphasizing their proactive actions such as informing and working with distributors, sending cease and desist letters, and collaborating with regulators in the U.S. and globally. Priya Ohri-Gupta from Barclays then asks Emmanuel about the company's recent modest reduction in the top end of their potential deleveraging for the year and their plans for refinancing the sizable maturities due in 2025, considering current market conditions. Emmanuel responds that he will address these questions.

The paragraph discusses the impact of the euro's strength against the dollar on deleveraging guidance, as a significant portion of the debt is in euros. EBIT is calculated on an average annual rate, while debt is calculated on the spot rate at year-end. The company generated $8.2 billion in cash flow by the end of Q3 2023, $2.3 billion more than the previous year, indicating strong business momentum. The company is exploring refinancing options for the coming months but did not elaborate further. In response to a question about a Canadian litigation settlement, it was noted that it is still too early to determine if the payments will be tax-deductible.

In the paragraph, a discussion takes place regarding a proposed solution that involves mediators, with certain elements still requiring finalization. Once completed, further details and impacts on PMI will be shared. Participants, including Gaurav Jain and Emmanuel Babeau, engage in a brief exchange of thanks. James Bushnell provides closing remarks, invites further questions through Investor Relations, and concludes the conference call.

This summary was generated with AI and may contain some inaccuracies.