dbAccess Global Consumer Conference June 3, 2025 Emmanuel Babeau Chief Financial Officer Introduction • A glossary of terms as well as adjustments, other calculations and reconciliations to the most directly comparable U.S. GAAP measures for non-GAAP financial measures cited in this presentation are available in Exhibit 99.2 to the company's Form 8-K dated February 6, 2025 and April 23, 2025 and on our Investor Relations website 2 Forward-Looking and Cautionary Statements Strong Growth Outlook Driven by Smo ...

Company Overview - Philip Morris International is on track for another year of strong growth in revenue, operating income, and adjusted EPS before foreign exchange impacts, primarily driven by the robust growth of its smoke-free portfolio [5]. Performance Highlights - The company reported nearly a 10% adjusted in-market sales progression in Q1, with Japan showing close to 10% growth and Europe experiencing a bit above 7% growth despite challenges [6]. - The flavor ban in Europe is expected to impact sales by around 1 billion sticks in 2025, but the company anticipates a gradual recovery in the European market as it progresses through 2025 [6].

Summary of Philip Morris International (PM) 2025 Conference Call Company Overview - **Company**: Philip Morris International (PM) - **Date**: June 03, 2025 - **Key Speaker**: Emmanuel Babeau, CFO Core Industry Insights - **Industry**: Tobacco and Smoke-Free Products - **Market Trends**: Strong growth in smoke-free product categories, particularly IQOS and ZYN, with expectations for continued expansion in various global markets. Key Points and Arguments Financial Performance - PM is on track for strong growth in revenue, operating income, and adjusted EPS before foreign exchange (Forex) impacts, primarily driven by the smoke-free portfolio [5][18] - In Q1 2025, PM reported nearly 10% adjusted market sales growth in Japan and over 7% in Europe, despite challenges such as flavor bans [6] - The company anticipates a significant impact from the flavor ban in Europe, estimating a loss of approximately 1 billion sticks in 2025 [6] Product Performance - **IQOS**: Continued strong growth, with a focus on expanding market share in various regions, including the Gulf countries, Indonesia, and Mexico [6][10] - **ZYN**: Exceptional performance in Q1 2025, with growth exceeding 50% in the US. The company expects to resolve out-of-stock issues by Q3 2025, leading to further consumer uptake [7][8][49] - **Vive**: The vaping product is being developed more tactically, with a focus on profitability and market presence in key EU markets [12][13] Multi-Category Strategy - PM is adopting a multi-category approach, integrating IQOS, ZYN, and Vive to enhance brand loyalty and consumer experience. This strategy is showing positive results in markets like Poland, Greece, and Romania [14][26] - The company emphasizes that these products do not cannibalize each other but rather strengthen the overall brand portfolio [14] Market Outlook - PM targets organic revenue growth of 6% to 8% and adjusted EPS growth of 10.5% to 12.5% for 2025, with a strong focus on smoke-free products [18][19] - The company aims for two-thirds of its revenue to come from smoke-free products by 2030, supported by ongoing market expansion and product innovation [20][22] Regulatory Environment - PM acknowledges the challenges posed by varying regulations across markets, with some countries still imposing bans on smoke-free products. However, there is optimism regarding tobacco harm reduction policies in the US and several European countries [66][68] - The new head of the FDA's Center for Tobacco Products (CTP) is expected to support tobacco harm reduction initiatives, which could positively impact PM's market strategies [70] Competitive Landscape - The US market for nicotine pouches is becoming increasingly competitive, with many brands aggressively discounting prices. PM maintains a premium positioning for ZYN, which is currently priced higher than many competitors [51][52] - Despite competition, PM remains the only brand with Premarket Tobacco Product Applications (PMTAs) approved for its full range of ZYN products, reinforcing its market leadership [54][55] Consumer Insights - The company notes a shift in consumer perception of nicotine, particularly with ZYN being viewed as a lifestyle product rather than just a nicotine source. This change is expected to facilitate broader acceptance of nicotine pouches in new markets [32][33][57] Additional Important Insights - PM's smoke-free products are associated with superior financial metrics, including higher revenue per unit and gross margin rates compared to combustible products [15][16] - The company is focused on long-term profit growth, with a commitment to progressive dividend policies and potential share buybacks once debt targets are met [63][64] This summary encapsulates the key insights and strategic directions discussed during the conference call, highlighting PM's robust growth trajectory and commitment to innovation in the tobacco industry.

Core Insights - Philip Morris International (PM) has shown significant growth, with shares increasing over 100% since the second quarter of 2024, driven by new nicotine brands replacing traditional cigarettes [1] - The company is well-positioned for dividend growth over the next decade, supported by strong cash flow from its legacy cigarette business and expanding smoke-free product lines [2][8] Group 1: Company Overview - Philip Morris International operates as a leading tobacco company focused on international markets, distinct from Altria Group, which sells domestically [3] - The company benefits from international diversification, with revenue primarily generated outside the U.S., providing a hedge against dollar devaluation [4] Group 2: Product Innovation and Revenue Growth - Major investments in non-cigarette products have led to substantial growth, particularly with the nicotine pouch brand Zyn, which has grown to over 200 million cans sold per quarter in the U.S. [5] - The Iqos heat-not-burn device is a market leader in Europe and Japan, contributing significantly to revenue, with 42% of total revenue now coming from smoke-free products, totaling $38.4 billion over the last 12 months [6] Group 3: Dividend Strategy - Philip Morris pays a dividend of $5.35 per share, supported by free cash flow of $6.55 per share, despite current cash flow being impacted by investments in growth [10] - The company anticipates a rise in free cash flow per share to $10 or higher over the next five years, allowing for a projected 10% annual dividend growth, potentially increasing the payout to $8.61 [11] Group 4: Investment Potential - Despite a 100% increase in stock price over the past year, Philip Morris International remains an attractive investment, with a forward P/E ratio of 24, indicating it is not overly expensive for a consistent earnings grower [13][14] - The company holds a dominant position in the growing nicotine market without tobacco, positioning it favorably against competitors [14][15]

Core Viewpoint - Philip Morris International has achieved a 50% total return in 2025, significantly outperforming the S&P 500 index, which remains flat this year [1]. Group 1: Business Transformation - The company has successfully pivoted from traditional cigarettes to alternative nicotine products, recognizing the global decline in cigarette usage [4]. - Philip Morris holds a dominant position in the heat-not-burn category with its Iqos brand, capturing a 77% volume share in its operating markets [4]. - In the nicotine pouch segment, the company leads with its Zyn brand, exhibiting similar market share characteristics [4]. Group 2: Financial Performance - In the last quarter, 42% of the company's revenue and 44% of gross profit were derived from smoke-free products, indicating a significant shift in its revenue composition [5]. - Overall revenue has increased to $38 billion over the last 12 months, reflecting the successful transition to alternative nicotine products [5]. Group 3: Market Conditions - The depreciation of the U.S. dollar, which has fallen from around 110 to under 100, is expected to enhance revenue in U.S. dollar terms for Philip Morris, as it primarily operates outside the U.S. [6]. - The company is positioned to benefit from this currency trend, which has contributed to the stock price increase at the start of 2025 [6]. Group 4: Traditional Tobacco Outlook - Despite the decline in cigarette usage globally, traditional tobacco products are still expected to generate cash flow for the company, particularly outside of China and the U.S. [9]. - In the last quarter, gross profit from combustibles grew by 5.3% year over year, demonstrating the continued viability of traditional tobacco in international markets [9][10]. Group 5: Valuation and Future Prospects - The stock's forward price-to-earnings (P/E) ratio has increased to 24 from 14 a year ago, and the dividend yield has decreased to 3% from nearly 6% [13]. - This rising valuation suggests that the extraordinary 50% returns may not be sustainable, but the stock remains a viable investment due to its solid dividend yield and growth potential [14]. - The combination of Iqos and Zyn growth, along with pricing power in traditional cigarettes, positions the company for potential double-digit revenue and earnings growth in the coming years [14][15].

Core Insights - Philip Morris International is focusing on creating a smoke-free future while facing challenges such as declining volumes, public resistance, and increasing regulation in the tobacco sector [1] Company Strategy - The company is known for its iconic Marlboro brand and is actively pursuing a strategy to transition towards smoke-free products [1] Market Challenges - The tobacco industry is experiencing significant challenges, including declining sales volumes and heightened regulatory scrutiny [1]

Core Viewpoint - Philip Morris shares have increased by approximately 3% over the past month, underperforming the S&P 500, raising questions about the sustainability of this trend leading up to the next earnings release [1] Estimates Movement - Estimates for Philip Morris have trended upward over the past month, indicating a positive outlook for the stock [2] VGM Scores - Philip Morris has a subpar Growth Score of D and a Momentum Score of F, with an overall aggregate VGM Score of F, placing it in the bottom 40% for investment strategies [3] Outlook - The upward trend in estimates suggests a promising outlook, and Philip Morris holds a Zacks Rank 1 (Strong Buy), indicating expectations for above-average returns in the coming months [4]

Market Overview - Wall Street experienced a strong bull run in 2023 and 2024, but 2025 has shown mixed results due to concerns over persistent inflation and the Federal Reserve's uncertain stance on interest rates after a 1% cut in the benchmark lending rate last year [1] - Severe volatility has affected Wall Street since early April, primarily due to the implementation of reciprocal tariff policies by the Trump administration, with baseline tariffs at 10% but actual rates exceeding 70% for several major trading partners [2] - Retaliatory tariffs from other countries have raised fears of a global trade war, although some trade negotiations have been settled and others are ongoing [3] Company Highlights Philip Morris International Inc. (PM) - Philip Morris has shown strong pricing power and is expanding its smoke-free product portfolio, aiming to become substantially smoke-free by 2030 [7] - The company anticipates robust growth in 2025, with a projected 2% increase in volume and smoke-free products expected to grow by 12-14% [8] - Expected revenue and earnings growth rates for the current year are 8.1% and 13.7%, respectively, with a stock price increase of 44.7% year to date [9] Sprouts Farmers Market Inc. (SFM) - Sprouts Farmers is focusing on product innovation, e-commerce, and private label offerings, which have contributed to better-than-expected fourth-quarter 2024 results [10] - The company expects net sales to rise between 10.5% and 12.5% in 2025, with comparable sales anticipated to increase by 4.5-6.5% [11] - Expected revenue and earnings growth rates for the current year are 13.7% and 35.5%, respectively, with a stock price surge of 32.2% year to date [12] Newmont Corp. (NEM) - Newmont is progressing with growth projects, including the Tanami expansion and the acquisition of Newcrest, which enhances its portfolio and synergies [13] - The Ahafo North project has received full funding approval, with commercial production expected to start in the second half of 2025, involving an investment of $950 million to $1,050 million [14] - Expected revenue and earnings growth rates for the current year are 2% and 12.6%, respectively, with a stock price increase of 40.5% year to date [15]

Core Insights - Sin stocks, representing companies in industries like alcohol, tobacco, cannabis, and gambling, have consistently outperformed broader markets due to strong cash flows and inelastic demand [2][4][11] Industry Overview - The U.S. alcoholic beverages market is projected to grow from $544.19 billion in 2024 to $709.13 billion by 2029, with a CAGR of 5.4% [8] - The global tobacco market is expected to increase from $921.4 billion in 2024 to $1,198.4 billion by 2035, reflecting a CAGR of 2.3% from 2025 to 2035 [9] - The global online gambling market was valued at $78.66 billion in 2024 and is projected to grow at a CAGR of 11.9% from 2025 to 2030 [10] Company Insights - Molson Coors (TAP) is focusing on market share growth through innovation and premiumization in the alcohol sector [7] - Boyd Gaming (BYD) is enhancing growth through property upgrades and strategic investments in the gambling industry [7] - Philip Morris International Inc. (PM) is transforming towards a smoke-free future, aiming for a majority of its revenue from reduced-risk products by 2030 [13][15] - MGM Resorts International (MGM) is well-positioned to capitalize on the recovery of the gaming and tourism industries, with a strong digital strategy through BetMGM [17][18] - Diageo Plc (DEO) is focusing on premiumization and innovation, with a strong portfolio of iconic brands and a strategy to enhance direct-to-consumer engagement [20][21][22]

Core Viewpoint - Philippe Laffont of Coatue Management has invested significantly in Philip Morris International, indicating the company's potential as a growth stock within the defensive tobacco industry [1][3][17] Investment Details - Laffont purchased over $220 million worth of Philip Morris stock in Q1, marking it as his fourth-largest purchase and second-largest new addition [3] - This investment is notable given Laffont's typical focus on technology stocks, which include major companies like Meta Platforms and Amazon [2] Growth Drivers - Philip Morris is experiencing growth through its smokeless products, particularly Zyn and Iqos, which are appealing alternatives to traditional tobacco [5][8] - Zyn's U.S. shipment volumes surged 53% to 202 million cans in Q1, prompting an increase in full-year shipment guidance to between 800 million and 840 million cans [7] - Iqos has also seen a nearly 12% increase in heated tobacco units (HTUs) to 37.1 billion units, with strong sales growth in Japan and Europe [9] Market Position - Philip Morris has successfully bought back Iqos' U.S. rights and is preparing for a broader rollout in the U.S. market, which could enhance growth without cannibalizing existing customers [10] - The company has managed to produce modest cigarette volume growth internationally, contrasting with the steep decline seen in the U.S. market [12][13] Financial Metrics - Zyn and Iqos have better unit economics compared to traditional cigarettes, with Zyn offering six times better product contribution levels and Iqos providing 2 to 2.5 times [11] - The stock is currently trading at a forward P/E ratio of under 23 and a PEG ratio of under 0.35, suggesting it is undervalued [15] Conclusion - Given its defensive nature, growth potential, and attractive valuation, Philip Morris is viewed as a favorable investment opportunity [14][17]