Philip Morris International Inc. Q4 FY2025 earnings call

• The shift of adult smokers to better alternatives is a lasting trend, and PMI leads this movement, generating strong growth.
• Smoke-free products volumes grew by 12.8%, with IQOS as the core driver, seeing around 11% growth. The multi-category strategy with Bonsin, Viiv, ZYN, and VIVE is performing well.
• In 2025, total net revenues reached over $40 billion, with the smoke-free business contributing ~$17 billion (41.5% of total). Adjusted operating margin returned to above 40%. 27 markets had over 50% smoke-free net revenue.
• In Q4, diluted earnings per share grew almost 10% to $1.70. Smoke-free shipments increased by 12.8%, while cigarette shipments declined by 1.5%.

Smoke-free products: Grew volumes by 12.8%, with organic net revenue growth led by smoke-free products (SFPs). Smoke-free net revenue grew organically by 14.1%, and gross profit advanced by 18.7%. IQOS shipments grew around 11%, with a 12% acceleration in Q4. ZYN shipment grew 37% in the US despite supply constraints. VIVE, the e-vapor brand, is the fastest-growing in international closed pods. Combustibles: Delivered robust top and bottom-line performance though facing industry volume decline and supply chain issues in Turkey. Revenue contribution: Smoke-free business generated ~$17 billion, which is 41.5% of total net revenues.

• 2026 outlook: Expect strong and profitable growth despite headwinds. Organic net revenue growth projected at 5-7%, organic operating income growth at 7-9%, and currency-neutral adjusted diluted EPS growth at 7.5%-9.5%. Target leverage ratio close to 2x by 2026.
• Medium-term targets (2026-2028): Target 6-8% organic net revenue CAGR, 8-10% organic operating income CAGR, and 9-11% adjusted diluted EPS CAGR. Target smoke-free product shipment and adjusted IMS volume growth of high single digits to low teens.

• Geopolitical tensions, economic uncertainty, and evolving regulations pose challenges.
• Japan excise tax increases in 2026 are a headwind for IQOS growth.
• Regulatory challenges in The US, such as New York considering significant excise tax increases on nicotine pouches, which is seen as counterproductive to public health objectives.

Q: Expand on reacceleration in smoke-free volume growth compared to 2026 guidance.

A: Headwinds from Japan excise taxes, portfolio asymmetry in the US, and competitive environment in Japan are factors. Once tax changes and portfolio alignments in the US occur, growth is expected to resume.

Q: Elasticities expecting with Japan excise tax volumes.

A: Prices will be impacted, leading to IMS distortions, but margin expansion is expected over time.

Q: Currency guidance drivers.

A: Negative transactional impact in 2025 not repeating, hedging helping, but yen impact in 2026 is a factor.

Q: New York nicotine pouch excise tax impact.

A: Seen as counterproductive to public health, a shortsighted approach undermining real public health objectives.

Q: Cost savings quantification.

A: On track to deliver $2 billion of cost savings by end of 2026, with AI expected to accelerate future cost savings.