Net revenues of $11.40 billion beat the API Ninjas estimate of $11.32 billion by 0.7%, and adjusted diluted EPS of $2.36 beat the $2.30 estimate by 2.6%.
Reported diluted EPS fell 4.9% to $2.12 while adjusted diluted EPS grew 5.4%; organic net revenue growth was 7.1% and organic operating income growth 10.5%.
Full-year adjusted diluted EPS guidance of $8.29 to $8.44 was revised for currency only, with the currency benefit trimmed to $0.18 from $0.24, and the volume assumption raised to growing from broadly stable to slightly growing.
Combustibles, not smoke-free, drove the quarter: combustibles net revenues grew 7.8% organically on 8.9% pricing, against 3.4% organic growth in international smoke-free.
The one thing that matters: the upside came from the combustible business, on 8.9% pricing plus a restructuring of distribution terms the release says will not recur at this level, while international smoke-free net revenues grew 3.4% organically and organic operating income growth was steered to the lower half of the 7% to 9% range.
The record reported operating income is partly an adjustments effect. Reported operating income grew 14.1% to $4,866 million, but adjusted operating income grew 9.6% to $5,117 million, because adjusting charges fell to $251 million from $407 million.
The $0.24 gap between $2.36 adjusted and $2.12 reported EPS is mostly non-cash and mostly a comparison swing: $0.13 of intangible amortization plus a $0.06 fair-value adjustment on equity security investments that was a $0.07 benefit a year ago.
Part of the combustibles strength does not repeat. Combustibles net revenues grew 7.8% organically on 8.9% pricing and a restructuring of distribution terms in certain markets that the release says is not expected to recur at the same level in future quarters.
Gotchas & watch items
The smoke-free engine decelerated: international smoke-free net revenues grew 3.4% organically and gross profit 3.3%, against 9.9% and 11.8% year-to-date, with HTU shipments up 1.5% to 41.5 billion units.
U.S. profit is going backwards while revenue climbs: segment net revenues grew 22.7% but operating companies income fell 3.3%, with a further step-up in ZYN investment planned for the fourth quarter alongside the move of the flagship range to 20-pouch cans.
Organic operating income growth of 7% to 9% was steered to the middle or lower half on energy-related input costs and U.S. growth investment, even as revenue growth of 5% to 7% was steered to the middle or upper half.
Japan HTU adjusted in-market sales growth of 3.4% falls to 1.3% excluding pantry-loading ahead of the October 1 excise-driven price increase of JPY20 per pack.