Philip Morris International (PM -0.21%) has gone through plenty of challenges in its history. The secular decline in smoking hasn't been limited to the U.S., and increasingly, the foreign jurisdictions in which Philip Morris does business have clamped down on tobacco in the same way U.S. consumers have been used to seeing for decades. At the same time, despite strong efforts to go beyond traditional cigarettes, sluggish performance for its IQOS heated-tobacco system has suggested that the upside of the company's transformative strategic vision might not be as large as initially hoped.

Coming into Thursday's fourth-quarter financial report, Philip Morris investors were prepared for hits to the company's top and bottom lines. Things weren't quite as bad for Philip Morris as many had feared, though, and prospects for 2019 look more favorable than what the tobacco giant has seen lately.

Two people talking in a field with plants growing nearby

Image source: Philip Morris.

What's holding Philip Morris back

Philip Morris International's fourth-quarter results showed continued pressure on the tobacco industry. Revenue net of excise taxes came in at $7.50 billion, falling by almost 10% from year-ago levels, which was only a bit better than the 11% drop that most of those following the stock were looking to see. Net income of $1.91 billion was more than double what Philip Morris brought in during the same period in 2017, but after accounting for extraordinary items like tax reform, adjusted earnings of $1.25 per share were down from year-earlier levels -- although not to as large of an extent as the consensus forecast for $1.17 per share would have implied.

A mix of factors affected the company. Total shipment volume fell 4.6% during the quarter to 202.4 billion units, and unfortunately for Philip Morris, cigarettes weren't the only casualty of those numbers. Cigarette volume was down 3.1% worldwide to 190.2 billion, but IQOS heated tobacco unit volume was down as well, plunging 23% to 12.17 billion units. From a regional standpoint, the East Asia & Australia segment was once again the worst performer, with weakness in the IQOS realm proving to have a particularly harsh impact on overall performance. Modest gains in the Middle East & Africa segment as well as the South & Southeast Asia segment weren't nearly enough to offset the damage done in Japan and surrounding markets.

Once again, Philip Morris tried to explain that the poor results from its IQOS business were due in large part to distributor inventory movements. Yet even taking out the total 7.8 billion unit swing those impacts introduced, total shipment volume was still down 0.9% from year-ago levels. The strong dollar also continued to hurt Philip Morris, with $454 million in sales and $0.09 per share in earnings getting taken away as a result of currency movements.

CEO Andre Calantzopoulos tried to put a positive spin on the results. "We closed out a challenging year with a robust financial and strategic performance across the business," Calantzopoulos said, continuing:

Excluding inventory movements largely associated with heated tobacco unit volume in Japan, our total volume variance was flat -- our best annual performance since 2012 -- underpinned by a near-doubling of global in-market sales of heated tobacco units.

Check out the latest Philip Morrisearnings call transcript.

What's ahead for Philip Morris?

Philip Morris sees a brighter future ahead. In the CEO's words, "The underlying strength of our combustible tobacco business remains intact, and our reduced-risk products are the catalysts to accelerate our business growth and secure the long-term future of our company."

Philip Morris International's guidance for 2019 included some reasonable expectations about the future. The company believes that total cigarette and heated tobacco unit shipment volume is likely to fall 1.5% to 2%, which would still help it build market share due to expectations of even weaker performance across the industry in 2019. Earnings should come in at $5.37 per share or higher, representing a minimum growth rate of roughly 6%. With the belief that the U.S. dollar will cost Philip Morris another $0.14 per share in 2019, Philip Morris' projections work out to gains of about 8% on a currency-adjusted basis. All in all, Philip Morris thinks it's on track to deliver 8% bottom-line growth consistently in future years and reach heated tobacco unit volume of 90 billion to 100 billion units by 2021.

Philip Morris shareholders seemed content with the news, and the stock picked up 1% at midday following the earnings release. The current industry environment is far from ideal for Philip Morris, but the company has a lot going on right now, and bullish investors hope some of those things will produce long-term wins for the tobacco giant in 2019 and future years.