Philip Morris International Inc. Q1 FY2025 earnings call

• The company delivered a strong start to 2025 with double-digit organic net revenue, operating income, and adjusted diluted EPS growth in both constant currency and dollar terms. - Smoke-free business performance was exceptional: shipment volumes up 14.4% y-o-y, organic net revenue +20%, gross profit +33%. IQOS had close to +10% HTU-adjusted IMS growth. ZYN shipments +53%, e-vapor shipments doubled. - Margin expansion: organic gross margin expanded 340 basis points, adjusted operating income margin up 250 basis points. - Manufacturing efficiency: over $180 million in gross cost savings in Q1, targeting $2 billion over 2024-2026. - Implemented a multi-category strategy: smoke-free business now 44% of gross profit, with 46 markets having multiple smoke-free offerings and 16 with all three PMI categories.

In Q1, the smoke-free business was a key driver. It had organic net revenue growth of +20.4% and gross profit growth of +33.1%, with shipments up 14.4% year-on-year. IQOS saw close to +10% HTU-adjusted IMS growth. ZYN had shipment volumes up +53%, reaching 202 million cans. E-vapor shipments doubled year-on-year. Combustible had organic net revenue growth of +3.8%. The smoke-free business now accounts for 44% of total gross profit.

• Reaffirmed currency-neutral growth outlook, with adjusted diluted EPS forecast raised to $7.36 to $7.49 for 2025, reflecting 12%-14% growth in dollar terms. - Q2 EPS forecast is $1.80 to $1.85. - Expect strong H1 with organic net revenue growth around mid-range of full-year target and organic OI growth slightly above. - Target further balance sheet reduction, aiming for around 2 times net debt to EBITDA ratio by end of 2026.

• Macroeconomic volatility that could impact actual results differing from projections. - Currency fluctuations, including non-recurring transactional losses linked to currency volatility. - Regulatory changes such as flavor bans and other policies affecting smoke-free products.

Q: Bonnie Herzog asked about ZYN out-of-stock issues and margin expansion drivers.

A: Emmanuel Babeau discussed ZYN replenishment phasing, noting a gradual process of restocking wholesalers/distributors and the expected normalization of supply in Q3. He also highlighted margin drivers from smoke-free mix, scale, pricing, and ZYN performance.

Q: Matt Smith inquired about the guidance outlook shape.

A: Emmanuel Babeau explained that differences between H1 and H2 in constant currency EPS growth are due to comparison basis and SG&A phasing, with no change in the underlying business.

Q: Eric Serotta asked about ZYN unconstrained growth and Nielsen vs MSA data.

A: Emmanuel Babeau discussed expected acceleration in ZYN offtake and noted that MSA data showed sales acceleration from wholesalers/distributors to retailers.

Q: Faham Baig asked about ZYN growth, IQOS launch timing, and net interest guidance.

A: Emmanuel Babeau discussed MSA data on ZYN growth, stated no update on IQOS launch timing due to ongoing regulatory processes, and provided no specific net interest guidance for the year.