Release Date: April 23, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Q & A Highlights
Q: If we start the first quarter, it was a strong start to the year. You noted a better revenue and margin performance supporting your ability to raise the outlook for both organic revenue and constant currency EPS. From a high level, on a constant currency basis, the first quarter EPS was about $0.20 ahead of your 1Q guidance. And you raised the full year outlook somewhat below that. Can you talk about unique benefits in the first quarter that may have changed the timing through the year? Or how are you viewing the rest of the year different now in terms of the fundamental environment or investment level?
A: (Emmanuel Babeau - CFO) Sure, Matt. Happy to explain why some of the bits, but only part of it, of course, because we started as I explained in my prepared remarks, the year in a very strong manner in an underlying manner. But in addition to the very strong momentum that we are experiencing, indeed, there was around an additional 1 billion HTU stick because of Red Sea. So that has been a plus in Q1, and we expect that to reverse later in the year for the time being. So that's 1 element that is important.
Q: All right. Emmanuel, I wanted to maybe ask for a little bit of more color on a point you made about or at the end of your script regarding currency headwinds and how you're hoping to mitigate these headwinds. You highlighted pricing and productivity savings, et cetera. So maybe just provide a little bit more color on those, I guess, levers if you can pull them in maybe why you're more optimistic going forward given the never-ending currency headwinds since it continues to impact your business, I think that would be helpful.
A: (Emmanuel Babeau - CFO) Sure, Bonnie. Happy to share our view and what we're doing on that one. So we said it at the beginning of the year, and then we're at CAGNY, we want to deliver performance in dollar terms. And therefore, that means that even when we have another significant ForEx headwind and some of that, I mean, we have in Q1, actually $0.06 coming from the Egyptian pound that won't be there next year. So that's not something that's going to stay with us. So it's a kind of one-off negative impact, but we want to deliver robust growth in the large term.
Q: Okay. First question on heated. Can you maybe talk a bit more about the contribution from newer market? Is this trending in line with expectations? Or do you see potential for upside here because some of the trends you called out sound very encouraging, also love an update on bonds and the latest with this, if possible.
A: (Emmanuel Babeau - CFO) Yes, with pleasure, Owen. So I think we see -- and you said it, I've been elaborating on a number of markets where we see very interesting trajectory for new market. We've been speaking about Indonesia, we could have been speaking in addition to what the market has been covering speaking about Mexico, where we have also a nice acceleration, and we are just launching ILUMA now. So the good thing is that we're not relying on 1 or 2 names but we start to have a growing team of new markets where we see clearly, IQOS is getting traction and increasing its stake first, as always, in the big cities that's where in many of these countries, we have the biggest potential.
Q: Two questions from me. So 1 is just conceptually so let's take a city like Tokyo, where the heated tobacco category share is now 50% plus. So one can argue that by increasing the premium cigarette prices, which haven't increased now in 2 years, you can accelerate the down trading to IQOS, this will accelerate IQOS volume growth. This will also accelerate your dollar EPS growth out of Japan. So why wouldn't you do something like this in cities and countries where heated tobacco and IQOS becomes the dominant form factor?
A: (Emmanuel Babeau - CFO) Thank you for your question, Gaurav. Look, I'm always very cautious, of course, as you can imagine, I'm commenting any kind of price strategy. So don't expect me to enter into any kind of detail. But conceptually, it is clear that as we build leadership in the category as there is a growing addition from the nicotine user to heat-not-burn, there is a capacity for ongoing premiumization and more price increase without any doubt. But as I said and as I explained with the previous question, we believe that today, still, it's very much about maximizing the volumes.
Q: So my question is a following up on Bonnie's question on dollar growth. And in 2013, I think your dollar EPS, Emmanuel was $5.40 per share. So you've compounded dollar EPS growth of about 1.5% over the subsequent 10, 11 years. So best-in-class organic growth and probably worst-in-class dollar EPS growth over that 10-year period, which is really striking given that, that 10 years captures the whole of the creation of this IQOS business that has been quite remarkable.
A: (Emmanuel Babeau - CFO) Thank you for your question. Well, first of all, I guess you are assuming that the ForEx headwind will persist in the coming years, which I think nobody can really say, we know that currency can be facing cycle, and that is true that the last 10 years have been about strengthening of the dollar. We've been knowing other cycle where the dollar was more weakening versus at least other hard currency. So nobody knows what's going to happen.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
