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 [9] - Adjusted diluted EPS grew by 15% in dollar terms, marking the strongest growth since 2011, excluding the pandemic recovery year of 2021 [7] - Organic top-line growth was reported at 6.5%, with adjusted operating income growth at 10.6%, reflecting a 140 basis points organic margin expansion [12][19] - Adjusted diluted EPS reached $7.54, at the high end of guidance, with currency-neutral adjusted diluted EPS growth of 14.2% [14] Business Line Data and Key Metrics Changes - Smoke-free product volumes grew by 12.8%, with IQOS shipments increasing by 11% [4][15] - The nicotine pouch category, particularly ZYN, saw a 37% increase in shipments in the U.S., contributing significantly to growth [7][24] - Combustibles delivered low single-digit growth, with Marlboro achieving a historic high market share [7][36] Market Data and Key Metrics Changes - The international business generated the majority of total PMI organic net revenue growth, with smoke-free products leading the way [7] - In Japan, the heat-not-burn category surpassed 50% of total industry volumes, driven by IQOS [10][28] - The U.S. market for nicotine pouches is rapidly growing, with ZYN capturing around 50% of category growth [32] Company Strategy and Development Direction - PMI is focused on leading the transition to smoke-free products, with a multi-category strategy enhancing consumer offerings [5][10] - The company aims to achieve a leverage ratio close to 2x by the end of 2026, supporting strong returns to shareholders [8] - Continued investment in innovation and digitalization is planned to sustain growth and market leadership [10][44] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving strong growth despite transitory headwinds, with a forecast of 5%-7% organic net revenue growth for 2026 [38] - The competitive landscape is evolving, particularly in Japan, but IQOS is expected to maintain its strong market position [62] - The company anticipates significant growth opportunities in the U.S. and other international markets, supported by new product launches [31][43] Other Important Information - PMI's smoke-free gross profit contribution has doubled in five years to 43% of total PMI [9] - The company has delivered around $1.5 billion in gross cost savings since 2024, on track to achieve a $2 billion objective for 2024-2026 [20] - The number of legal-age consumers of PMI's smoke-free products reached approximately 43.5 million, an increase of around 10 million users in two years [22] 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 portfolio adjustments in the U.S. [51][52] 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 the overall outlook for IQOS [60][63] Question: What are the key growth drivers for the upcoming year? - Management highlighted the importance of FDA approvals for new products like ZYN Ultra and the ongoing growth of IQOS and VEEV in international markets [75]