Philip Morris Sees Momentum Continuing Into 2019, CFO Says

(Bloomberg) -- Philip Morris International should keep seeing good news into 2019 thanks to its reduced-risk product portfolio -- i.e., not your grandfather’s Marlboro Light.

Third-quarter results and the year-to-date progress show that the company’s focus on converting smokers to RRPs like smoke-free electronic devices is working as volume gains on heated products are offsetting the decline in combustibles, Chief Financial Officer Martin King told Bloomberg in an interview.

"We are very pleased with the momentum," King said. He expects the positive trends to continue and pricing to remain "intact."

Philip Morris shares rose as much as 5.7 percent, the highest intraday in six months and the biggest advance since April 2015, after posting quarterly results that topped estimates and holding an upbeat call with analysts.

Morgan Stanley analyst Pamela Kaufman (rates overweight) tied the EPS beat to better-than-expected combustibles results, with the 1.7 percent volume decline besting her target of negative 2.1 percent. The favorable result is consistent with her view for improving cigarette fundamentals in the second half of this year, according to a research note. Heated tobacco shipment volume of 8.7 billion units also topped her estimate of 8.2 billion units.

Cigarette volume has improved in markets like Saudi Arabia, Turkey and the Philippines, while the combustible pricing variance of approximately 8 percent was "driven notably by the EU region, Indonesia, the Philippines, and Russia," King said on the call. Philip Morris’ cigarette market "shares within the cigarette category alone were stable."

As for heated tobacco products, King highlighted the performance of iQOS, particularly in the EU. The iQOS product has been a success across the region and is gaining market share "in every single EU market where we launched." iQOS is also doing well in Russia, and Philip Morris is especially encouraged by the strong performance there.

King also expressed optimism for its 2019 RRP plans in South Korea and Japan, Philip Morris’ largest iQOS market. The upcoming launch of iQOS 3 and iQOS 3 Multi should have "a meaningful impact" on market share beginning next year.

©2018 Bloomberg L.P.