PMI(PM) - 2025 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - In 2025, total net revenues exceeded $40 billion, with 41.5% or nearly $17 billion generated from smoke-free products [8][12] - Adjusted diluted EPS grew by 15% in dollar terms, marking the strongest growth since 2011, excluding the pandemic recovery year of 2021 [6][12] - Organic top-line growth was reported at 6.5%, with a currency-neutral adjusted diluted EPS growth of 14.2% [11][12] - Adjusted operating income grew by 11.8% to $16.4 billion, with an organic operating income growth of 10.6% [11][12] Business Line Data and Key Metrics Changes - Smoke-free product volumes grew by 12.8%, with IQOS shipments increasing by 11% [3][14] - The nicotine pouch category, represented by ZYN, saw a shipment growth of 37% in the U.S. [5][14] - Combustibles delivered robust performance despite a 1.5% decline in cigarette shipments, with Marlboro reaching a historic high share [6][14] Market Data and Key Metrics Changes - The international business generated the majority of total PMI organic net revenue growth, particularly from smoke-free products [5][6] - In Japan, the heat-not-burn category surpassed 50% of total industry offtake volumes, driven by IQOS [25][26] - The U.S. market for nicotine pouches is rapidly growing, with ZYN capturing around 50% of category growth [29][30] Company Strategy and Development Direction - PMI continues to lead the shift towards smoke-free alternatives, with a multi-category strategy enhancing consumer adoption [3][9] - The company aims to achieve a leverage ratio close to 2x by the end of 2026, supporting strong returns to shareholders [7][42] - A focus on innovation and digitalization is expected to drive future growth, with a pipeline of initiatives planned for the next three years [9][41] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving strong growth despite transitory headwinds, with a forecast for 2026 organic net revenue growth of 5%-7% [36][39] - The competitive landscape in the U.S. and Japan is acknowledged, with expectations for continued strong performance in smoke-free products [35][36] - Management highlighted the importance of brand equity and innovation in driving future growth, particularly for ZYN and IQOS [31][32] Other Important Information - The company has achieved around $1.5 billion in gross cost savings since 2024, on track to meet a $2 billion objective for 2024-2026 [19][42] - The number of legal-age consumers of smoke-free products reached an estimated 43.5 million, reflecting broad-based growth across categories [20][21] - PMI's dividend payout ratio is now close to 75% of adjusted diluted EPS, allowing for potential dividend growth aligned with earnings growth [42][43] Q&A Session Summary Question: Can you expand on the reacceleration in smoke-free volume growth compared to the 2026 growth guidance? - Management indicated that the acceleration is expected due to tax changes in Japan and competitive dynamics in the U.S. [48][50] Question: How are you thinking in terms of IQOS, HTU shipments, and IMS for 2026? - Management noted that while Japan faces challenges, other markets like Italy and Germany are showing strong growth, contributing positively to IQOS's outlook [57][61] Question: What are the key growth drivers for the upcoming year? - Management highlighted the importance of ZYN's pending applications with the FDA and the overall growth of smoke-free products as key drivers for 2026 [72][74]