Financial Data and Key Metrics Changes - The company reaffirmed guidance for a 13% to 15% growth in EPS for the year, marking the strongest growth since 2011, excluding post-pandemic recovery [1][2] - The company reported continuous positive volume growth for five consecutive years, indicating strong revenue quality supported by robust pricing in combustible cigarettes [2][3] Business Line Data and Key Metrics Changes - Smoke-free products, including heat-not-burn and oral nicotine pouches, are contributing positively to both top-line growth and gross margins, with significant growth in IQOS and ZYN volumes [3][4] - ZYN is now available in 47 markets, with ongoing geographical expansion and strong international volume growth [3][4] Market Data and Key Metrics Changes - The company noted intensified competition in the U.S. market for ZYN, with a price premium of over 65% compared to competitors, indicating strong brand positioning [6][7] - The company is observing a normalization of inventory levels after a period of supply constraints, which is expected to stabilize in Q3 [5][6] Company Strategy and Development Direction - The company is focused on a smoke-free transformation, aiming to leverage its strong brand presence in the nicotine pouch market while addressing competitive pricing dynamics [6][39] - The company is committed to multi-category strategies, recognizing the importance of maintaining a presence across various product categories, including heat-not-burn, e-vapor, and oral nicotine pouches [41][42] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the smoke-free product category's growth potential, emphasizing the need to follow consumer trends and preferences [34][39] - The company anticipates that regulatory developments in markets like Taiwan and the EU will create opportunities for smoke-free products, although challenges remain [10][50] Other Important Information - The company is preparing for potential share repurchases once leverage is below 2X, supported by favorable currency trends and strong cash flow generation [68][69] - The company is not currently seeking M&A opportunities, feeling self-sufficient in product development capabilities [70][71] Q&A Session Summary Question: How should investors think about ZYN shipment numbers for 2H 2025? - Management indicated that shipment numbers should be calculated based on current inventory levels and expected marketing activities, with a focus on retail off-take [12][15] Question: What is the pricing strategy for ZYN compared to competitors? - Management confirmed that ZYN maintains a significant price premium over competitors, which reflects strong brand equity and market positioning [17][19] Question: What is the outlook for IQOS growth in light of the flavor ban in Europe? - Management noted that while the flavor ban has impacted growth, IQOS is expected to return to its growth trajectory as markets adjust [43][44] Question: How does the company view the competitive landscape for smoke-free products? - Management acknowledged the competitive dynamics but expressed confidence in ZYN's first-mover advantage and the company's ability to navigate challenges [39][40] Question: What are the implications of the EU Tobacco Excise Directive? - Management highlighted that while the directive may increase taxation on cigarettes, it also recognizes smoke-free products, which could be beneficial in the long term [49][50] Question: What is the timeline for the PMTA for IQOS in the U.S.? - Management indicated that the timeline for the PMTA remains uncertain, with expectations leaning towards a 2026 event rather than 2025 [52][53]

Financial Performance & Guidance - PMI confirms its 2025 adjusted diluted EPS guidance, projecting a growth of 13-15% driven by smoke-free products[3] - This growth represents the strongest performance since 2011, excluding the pandemic recovery period[3] - The forecast for reported diluted EPS in 2025 is $7.24 - $7.37, compared to $4.52 in 2024[6] - Adjusted diluted EPS for 2025 is projected to be $7.43 - $7.56, up from $6.57 in 2024[6] - Excluding currency effects, the adjusted diluted EPS growth is expected to be 11.5% - 13.5%, with EPS ranging from $7.33 - $7.46 compared to $6.57 in 2024[6] Business Momentum - PMI experienced strong momentum over the summer months, driven by IQOS growth and international expansion of ZYN and VEEV[3] - Combustible product sales performed better than expected in Turkey and Egypt[3] - The company is intensifying commercial activities in the U S due to increasing competition in the ZYN market, with some inventory normalization expected in Q3[3] - New smoke-free product markets are opening, including Taiwan[3] Factors Affecting Performance - Restructuring charges are estimated at $0.13 per share in 2025, compared to $0.10 in 2024[6] - Amortization of intangibles is projected at $0.50 per share in 2025, up from $0.40 in 2024[6]

Group 1 - Consumer staples companies, including PepsiCo, are generally resilient but can fall out of favor, as seen with PepsiCo's recent performance [1][8] - PepsiCo ranks as the 7th largest consumer staple company with a market cap of approximately $200 billion, and it is one of the most diversified companies in the sector, with strong positions in beverages, snacks, and packaged foods [2][3][5] - PepsiCo has a strong brand recognition and competes effectively in distribution, marketing, and product development, positioning itself as an industry consolidator [6] Group 2 - PepsiCo is a Dividend King, having increased its dividend for 53 consecutive years, indicating a robust business model [7] - Despite being a Dividend King, PepsiCo has lagged behind peers like Coca-Cola, with only 2.1% organic sales growth compared to Coca-Cola's 5% [8] - PepsiCo's stock has declined over 20% from its 2023 highs, marking it as the worst performer among Dividend Kings [9] Group 3 - The current market negativity towards PepsiCo may present a long-term investment opportunity, as the company has a history of overcoming challenges [10] - Recent strategic moves, including acquisitions, and a rising dividend yield of 3.8% suggest that PepsiCo stock is currently undervalued [10][11] - Over the past three months, PepsiCo has been the best-performing stock among the top 10 consumer staples, indicating a potential recovery [12]

Investment Rating - Industry rating is maintained as "Outperform the Market" [6] Core Viewpoints - The global oral tobacco market is experiencing rapid growth, with a projected market size of USD 11.232 billion in 2024, reflecting a year-on-year increase of 57.57%, and expected to reach USD 25.148 billion by 2028, with a CAGR of 22.32% from 2024 to 2028 [1] - The North American market is expected to reach USD 8.775 billion in 2024, with a year-on-year growth of 58.30%, and projected to grow to USD 19.449 billion by 2028, with a CAGR of 22.01% [1] - The European market is projected to reach USD 2.415 billion in 2024, with a year-on-year increase of 56.12%, and expected to grow to USD 5.608 billion by 2028, with a CAGR of 23.45% [1] - The top three companies in the oral tobacco retail market in 2024 are Philip Morris International, British American Tobacco, and Altria Group, holding market shares of 41.1%, 24.6%, and 13.8% respectively, totaling 79.5% of the market [1] Summary by Sections Market Growth - The oral tobacco market is expected to see significant growth in both established and emerging markets, with North America and Europe leading in growth rates [1] - Emerging markets in Asia and Africa are in the early stages but are anticipated to realize their market potential rapidly as the oral tobacco market develops [1] Company Performance - Philip Morris International's ZYN nicotine pouch sales are projected to reach 644 million boxes in 2024, a year-on-year increase of 52.93%, with U.S. sales at 581 million boxes, up 51.49% [2] - British American Tobacco's oral tobacco sales are expected to reach 8.3 billion pouches in 2024, with U.S. sales significantly increasing by 234% [2] Regulatory Developments - The FDA has authorized the sale of 20 ZYN nicotine pouch products, which are expected to catalyze market growth due to their lower harmful component levels compared to traditional tobacco products [3] - The approval of flavored products by the FDA is anticipated to further enhance market growth and expand the overall market potential [3] Industry Supply Chain - Jincheng Pharmaceutical is positioned as a key supplier in the nicotine market, with an increase in production capacity to 200 tons per year, which is expected to positively impact sales and market positioning [4] - The report suggests focusing on companies within the oral tobacco supply chain, including Jincheng Pharmaceutical and others in the vaping and tobacco supply sectors [4]

Core Insights - Philip Morris' Zyn US volumes for Q2 fell slightly below expectations, leading to a decline in stock price and presenting a potential buying opportunity [1] Company Performance - The underperformance of Zyn volumes in the US has been a significant factor affecting Philip Morris' stock [1] Investment Opportunity - The decline in stock price due to the Q2 results is viewed as an opportunity for investors to buy into Philip Morris [1]

Core Insights - Philip Morris International Inc. (PM) is experiencing significant growth in smoke-free products, which are becoming a crucial part of its long-term transformation strategy, potentially offsetting declines in traditional cigarette sales [1][3][4] Smoke-Free Product Performance - Smoke-free products, including IQOS, ZYN, and VEEV, saw a shipment volume increase of 11.8%, resulting in a 15.2% rise in net revenues and a 23.3% increase in gross profit year over year [1][8] - Smoke-free products now account for 41% of total revenues and 42% of gross profit, indicating a strong shift in the company's revenue structure [1][3] - Management anticipates smoke-free volumes to grow by 12-14% for the full year, while cigarette volumes are expected to decline by approximately 2% [2] Cigarette Sales Overview - Cigarette shipments decreased by 1.5% to 155.2 billion units, primarily due to weaknesses in markets like Turkey and Indonesia [2][8] - Despite the decline in shipment volumes, combustibles still generated $6 billion in quarterly revenues, reflecting a 2.1% year-over-year increase [2][8] Competitive Landscape - Altria Group, Inc. (MO) is focusing on its on! nicotine pouch brand, which saw a 26.5% increase in shipments to 52.1 million cans, capturing an 8.7% retail share in the U.S. oral tobacco market [5] - Turning Point Brands, Inc. (TPB) reported a nearly eightfold increase in Modern Oral sales to $30.1 million, raising its revenue target for 2025 to $100-$110 million [6] Financial Metrics - Philip Morris shares have increased by 6.1% over the past month, compared to an industry growth of 11.3% [7] - The company is trading at a forward price-to-earnings ratio of 20.7X, higher than the industry average of 15.69X [9] - The Zacks Consensus Estimate projects year-over-year earnings growth of 14.2% for 2025 and 11.9% for 2026 [10]

Company Overview - Philip Morris International (PM) is an American company with operational headquarters in Switzerland, originally founded in 1847 in London as a tobacco shop [1] Investment Philosophy - The company focuses on identifying undervalued and promising stocks, emphasizing a balance between risk and reward [1] - It is believed that the best investment ideas are often the simplest, with a contrarian approach being favored [1]

Industry Overview - The tobacco industry is undergoing significant transformation due to declining cigarette volumes, rising health awareness, and evolving regulatory frameworks [2] - Companies are competing not only on brand strength but also on their ability to innovate with alternatives like heated tobacco and nicotine pouches [2] Altria Group, Inc. (MO) - Altria's adjusted earnings per share (EPS) rose 8.3% year over year to $1.44 in Q2 2025, supported by higher pricing, cost efficiencies, and share repurchases [5] - Revenues net of excise taxes were $5.29 billion, indicating portfolio stability [5] - Management raised the lower end of its 2025 adjusted EPS guidance to $5.35-$5.45, reflecting a growth rate of 3% to 5% [5] - Shipments of the on! nicotine pouch brand increased by 26.5% to 52.1 million cans, capturing an 8.7% retail share of the U.S. oral tobacco market [6] - The smokeable products segment showed resilience with adjusted operating income rising 4.2% and margins expanding 290 basis points to 64.5% [7] - Marlboro maintained a 59.5% share in the premium category, highlighting brand strength [7] Philip Morris International Inc. (PM) - Philip Morris' smoke-free products accounted for 41% of total net revenues in Q2 2025, growing 15.2% year over year [10] - The traditional cigarette business remains resilient, with combustible net revenues growing 2.1% in Q2, driven by price increases [11] - Management lifted its full-year adjusted EPS guidance to $7.43-$7.56, indicating 13-15% growth [13] - The company achieved over $500 million in gross cost savings in H1 2025, aiming for $2 billion in efficiencies by 2026 [12] - Cigarette shipment volumes declined 1.5% year over year to 155.2 billion units in Q2, with a forecasted 2% decrease for the full year [14] Comparative Analysis - The Zacks Consensus Estimate for Altria's 2025 EPS is $5.39, implying a year-over-year increase of 5.3% [15] - Philip Morris' consensus estimate remains at $7.50, indicating growth of 14.2% for 2025 [15] - Altria stock advanced 15.2% in the past month, outperforming Philip Morris' 8.9% gain [16] - Altria trades at a forward P/E multiple of 12.29, while Philip Morris carries a premium multiple of 21.25 [16] Investment Outlook - Philip Morris is viewed as the stronger long-term investment due to its global scale and leadership in smoke-free innovation [19] - Altria remains attractive for income-oriented investors but is seen as less favorable for sustained growth compared to Philip Morris [19]

Investment Rating - The report maintains a "Weaker than Market" rating for the U.S. stock market [1] Core Insights - After a pullback, the U.S. stock market has shown significant recovery, with small-cap stocks outperforming [3] - The S&P 500 index increased by 0.3%, while the Nasdaq decreased by 0.6% [3] - Among 18 sectors, 12 experienced gains, with notable increases in banking (+3.2%), automotive (+2.9%), and energy (+2.8%) sectors [3] Price Trends - Small-cap value stocks (Russell 2000 Value) rose by 4.1%, outperforming small-cap growth (Russell 2000 Growth +2.6%) and large-cap value (Russell 1000 Value +1.7%) [3] - The report highlights that 18 sectors saw price increases, while 6 sectors faced declines, with the largest declines in food and staples retailing (-2.0%) and software and services (-1.9%) [3] Fund Flows - The estimated fund flow for S&P 500 constituents was +1.7 billion USD this week, a significant decrease from +75.8 billion USD the previous week [4] - Notable inflows were observed in automotive (+11.0 million USD), diversified financials (+4.6 million USD), and banking (+3.8 million USD) sectors [4] - Conversely, significant outflows were recorded in software and services (-29.9 million USD) and semiconductor products and equipment (-7.7 million USD) [4] Earnings Forecast - The report indicates a 0.3% upward revision in the 12-month forward EPS expectations for S&P 500 constituents, following a 0.2% increase the previous week [5] - 21 sectors saw upward revisions in earnings expectations, with the semiconductor sector leading with a +1.2% increase [5]

Core Viewpoint - Philip Morris International reported strong second-quarter earnings for 2025, with adjusted earnings per share (EPS) beating estimates, while net sales fell short of expectations. The company raised its full-year EPS guidance, indicating positive growth prospects despite some challenges in revenue generation [2][11]. Financial Performance - Adjusted EPS for Q2 2025 was $1.91, reflecting a year-over-year increase of 20.1%, and beating the Zacks Consensus Estimate of $1.85 [2][3]. - Net revenues reached $10,140 million, a 7.1% increase on a reported basis and 6.8% on an organic basis, although it missed the consensus estimate of $10,255 million [3][4]. - The adjusted operating income rose 16.1% to $4,246 million, driven by improved pricing and volume/mix, despite increased costs in marketing and administration [5]. Segment Performance - Revenues from smoke-free products increased by 15.2%, accounting for 41% of total revenues, with strong performance from IQOS and ZYN products [5][7]. - In the European region, net revenues grew 8.7% to $4,234 million, while the Americas saw a 12.7% increase to $1,272 million, primarily driven by nicotine pouches [7][8]. Future Outlook - For 2025, adjusted EPS is projected to be in the range of $7.43-$7.56, indicating a growth of 13-15% compared to previous estimates [11]. - The company expects net revenues to increase by 6-8% on an organic basis, with operating income anticipated to rise by 11-12.5% [12]. - Philip Morris forecasts a decline of nearly 1% in total international industry volume for cigarettes and heated tobacco units in 2025, with a projected increase in smoke-free product volumes [12]. Cash and Debt Position - The company ended the quarter with cash and cash equivalents of $4,138 million and long-term debt of $42,431 million, alongside a total shareholder deficit of $10,012 million [10].