Release Date: April 23, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Philip Morris International Inc (PM, Financial) reported a strong start to 2025 with double-digit increases in organic net revenue, operating income, and adjusted diluted EPS.
- The smoke-free business performed exceptionally well, with shipment volumes up 14.4% year on year and organic net revenue growth of 20%.
- ZYN shipments in the US increased by 53%, exceeding initial expectations, and international nicotine pouch can volumes grew by 53%.
- IQOS delivered close to 10% HTU-adjusted IMS growth, with strong performance in Japan and Europe.
- The company achieved a 16% organic operating income growth and a 250 basis points expansion in adjusted operating income margins to 40.7%.
Negative Points
- Currency volatility led to a $0.07 unfavorable currency variance, impacting adjusted diluted EPS.
- There was a notably negative geographic mix in combustibles due to increased volumes in lower-margin markets like Turkey and Egypt.
- The annualization impact of the EU characterizing flavor ban affected IQOS growth in Europe.
- The company faces uncertainties in the global economic outlook, which could impact future performance.
- ZYN experienced out-of-stock issues in the US, affecting retailer inventories and potentially slowing growth.
Q & A Highlights
Q: Could you provide more details on the out-of-stock issues with ZYN in the US and the timeline for inventory replenishment? Also, why does the shipment guidance imply a deceleration in growth for the rest of the year?
A: We are experiencing a unique year with ZYN in the US, marked by strong consumer demand and the need for inventory replenishment. Last year, consumer offtake was much stronger than shipments, leading to empty shelves. We are gradually replenishing inventories, expecting normalization by Q3 2025. The shipment growth profile reflects both consumer demand and replenishment, which may mask underlying consumer offtake growth.
Q: How should we think about the drivers of continued margin expansion for the rest of the year, especially considering SG&A growth and investments?
A: Our margin expansion is primarily driven by our smoke-free products, which saw a 670 basis points organic expansion in Q1. Smoke-free products now have a gross margin rate above 70%, 5 percentage points higher than combustibles. We expect continued positive mix evolution, with ZYN's high margins in the US and scale impacts on IQOS contributing to further margin improvements.
Q: With strong first-quarter results, why does the full-year guidance imply slower growth in the second half?
A: The difference between H1 and H2 growth is due to factors like comparison bases and SG&A phasing. We expect strong momentum throughout the year, with an acceleration in IQOS IMS growth in H2. However, combustible volumes may decline more in the second half, aligning with our full-year expectations.
Q: Can you discuss the expected reacceleration of IQOS IMS growth for the rest of 2025?
A: We expect IQOS IMS growth to accelerate in H2, particularly in Europe, as the impact of the flavor ban diminishes. We anticipate continued double-digit growth in Europe and Japan, supported by promising growth in other markets.
Q: Why did you maintain the constant currency EPS guidance despite raising ZYN shipment volumes?
A: While ZYN is a high-margin product, the increase in shipment volumes is not significant enough to dramatically change the full-year outlook. Given the uncertain macroeconomic environment, we are cautious but confident in delivering strong growth for 2025.
Q: What is the unconstrained growth potential for ZYN, and how do you see it evolving?
A: We cannot precisely estimate unconstrained demand due to current constraints. However, as we resolve out-of-stock issues, we expect consumer offtake to accelerate. The category's strong appeal and our planned marketing activities will further drive growth.
Q: Are there any diverging trends in ZYN's growth across different sales channels?
A: While Nielsen data provides insights, it covers only a small sample of stores. We observe strong underlying demand for ZYN, with MSA data showing an acceleration in sales from wholesalers to retailers. However, we lack additional reliable data to share.
Q: How does the recent CTP movement impact the timing of IQOS ILUMA's launch in the US?
A: It's too early to determine the impact of CTP changes on IQOS ILUMA's launch timing. We hope for an efficient process from the FDA but have no new updates at this stage.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
