Philip Morris International Inc. Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Delivered very strong Q3 results with smoke-free business outperforming the industry, achieving over $3B in smoke-free gross profit and an adjusted group operating income margin over 43%.
• Growth investments include geographic expansion (smoke-free products in 100 markets, launch of IQOS in Taiwan) and a multi-category strategy with smoke-free brands commercialized together in 25 markets.
• IQOS had excellent performance with 9% HTU adjusted in-market sales growth and 15.5% heated tobacco unit shipment growth, and U.S. offtake growth accelerated to +39%.
• ZYN U.S. shipments grew +37%, with Q3 volume performance remarkable and capturing majority of category growth.
• Combustibles SIGAI portfolio resilient, with Marlboro share at a historic high.

Segment Performance

• Smokefree Business: Delivered strong results in Q3. Global smoke-free business volume growth for IQOS, ZYN, and VIVE outgrew the industry. Q3 smoke-free gross profit exceeded $3 billion for the first time. Organic top-line growth was +5.9% (excluding Indonesia technical impact). Smoke-free net revenues grew organically by +13.9%, gross profit by +14.8%, and gross margin expanded to 70% in Q3. IQOS had 9% HTU adjusted in-market sales growth and 15.5% heated tobacco unit shipment growth. ZYN U.S. shipments grew +37% to 205 million cans. VIVE had total shipment more than doubling year-to-date.
• Combustibles: Delivered good Q3 with better-than-expected volumes in Turkey and Egypt, strong pricing. Organic net revenue growth was +1%, gross profit grew strongly by +4.8%. SIGAI portfolio resilient, Marlboro gained share to a historic high of 10.9%.

Guidance

• On track for double-digit adjusted operating income and earnings per share growth in currency neutral terms and stronger dollar growth.
• Raised adjusted diluted earnings per share forecast to the mid to upper end of the previous currency neutral growth range at +12 to +13.5%, translating to +13.5% to +15.1% in dollar terms.
• Upgraded full-year operating cash flow forecast to more than $11.5 billion at prevailing exchange rates.
• Target further deleveraging in 2025 and on track for 2x net debt to EBITDA by 2026.

Risks

• Intensifying competitive activity in the heated tobacco category could impact IQOS performance.
• Inventory adjustments in Q4 for ZYN and IQOS could affect financial performance.
• Regulatory uncertainties, such as FDA approval processes for nicotine pouch products.

Question and Answer

• Q: Clarify ZYN volume growth tracking and IQOS HTU shipment vs IMS mismatch.

A: ZYN consumer offtake still strong, IQOS expects IMS acceleration in Q4 with alignment of shipments and IMS.

• Q: Understand U.S. ZYN margin structure and investment sustainability.

A: $100M investment in Q3 was one-off, ZYN expected to maintain best-in-class margins with normalized investment.

• Q: Details on free can promo for ZYN and IQOS competitive activity.

A: Free can promo successful in creating awareness, IQOS maintains strong leadership in Japan despite competitive activity.

• Q: Inventory adjustment confidence and ZYN price premium.

A: Expect inventory adjustment in Q4, ZYN intends to maintain premium due to brand franchise.

• Q: FDA review process for nicotine pouch applications.

A: Hoping for FDA to create level playing field, monitoring situation but no specific timeline provided.