Philip Morris International (PM) Q1 FY26 earnings call: guidance and Q&A

How much of a priority is optimizing international smoke-free margins given high levels and growth potential? Also, what is the strategy for US ZYN pricing given widened price gaps?

Management stated that maximizing volume is the primary objective for international smoke-free, as the dollar profit per unit is already significantly higher than combustibles. For US ZYN, the intention is to maintain its premium positioning as the market leader, continuously monitoring pricing parameters to optimize this objective.

“So maximizing volume, of course, is a big objective. But as we are building the portfolio, we are building a very attractive brand with IQOS very differentiated, but look at what we're doing with VEEV. So they are coming more like these brands, if you want, Viva in international. They are much smaller than IQOS at this stage, but we are also working on the profitability of these 2 brands.”

asked by Eric Serotta · answered by Jacek Olczak

What gives confidence in US ZYN performance improving in H2? How much short-term profitability is sacrificed for volume? Would innovation be rolled out without FDA approval?

Confidence in H2 improvement stems from normalizing comparisons, expected innovation launches, and the dynamic category. The company will not elaborate on innovation specifics but confirmed it follows FDA processes. Q2 will still face tough comparisons due to prior year's low promotional activity and inventory dynamics.

“But of course, when we say we expect to be able to launch innovation in the coming months, that means that we expect innovation to positively impact our second part of the year. We'll say exactly when this is going to add.”

asked by Bonnie Herzog · answered by Jacek Olczak

What are the key drivers behind IQOS's strength and better-than-expected Q1 results? Were there any timing benefits? What drives future IQOS profitability?

IQOS's success is attributed to its unique product, strong brand franchise, and consistent innovation (e.g., Terra, DELIA, bonds by IQOS). Profitability is driven by price increases on IQOS and consumables, coupled with supply chain efficiency and productivity improvements in device and consumable costs. A modest 0.5 billion unit pantry loading benefit in Japan was noted for Q1.

“On the margin improvement, it's price. So we are increasing price, not -- of course, it's a very different, as I explained, it's a very different story versus combustible, but we are increasing price on IQOS and on iQOS consumable in a number of markets.”

asked by Bonnie Herzog · answered by Jacek Olczak

Can you explain the excise tax environment for nicotine pouches in the U.S., given proposals for increases and recent pricing acceleration?

Management noted discussions in a few states about excise duties on nicotine pouches. They believe there should be differentiated, low taxation for reduced-risk products to encourage switching. They argued that high taxes would go against the FDA's intention to provide better alternatives to smokers.

“I believe that putting high taxes in that context is going against the intention and the vision of the FDA. So that -- I think that would be a PT and that we're not going in the right direction very clearly.”

asked by Pallav Mittal · answered by Jacek Olczak

What gives confidence that ZYN Ultra can reaccelerate growth, given moderating category trends? Is the timing of ZYN innovations dependent on the FDA PMTA process?

Management expects ZYN Ultra to bring renewed momentum by matching dynamic segments in the nicotine pouch market, particularly those with higher nicotine content. They confirmed that the timing of innovations and getting products to market follows the FDA PMTA process diligently.

“But obviously, our expectation is that ZYN Ultra is going to come with a proposal. We think it's a great product, and it's going to come with a proposal that will be matching areas of strong dynamism in the nicotine pouch market today in the U.S.”

asked by Pallav Mittal · answered by Jacek Olczak

What are the early trends in Japan after the April 1st excise tax increase? Is the discernible volume decline in Germany's combustible market share-driven or industry-wide?

It's too early to comment on Japan's trends post-excise tax, but initial observations do not contradict confidence in long-term growth. In Germany, the combustible decline is a combination of a weak market and industry, with consumers likely under pressure. Corporate expense decline was largely technical due to currency and transactional losses in Q1 2025.

“The only thing I'm going to share is the fact that there is nothing in what we see in the first days that would, I would say, contradict what I mentioned about our confidence in the continuation of -- on the long term of a strong growth of the category and of the success of IQOS in Japan.”

asked by Andrei Andon-Ionita · answered by Jacek Olczak