Skip to content
    PM
    Earnings call· Sep 2025(Q3 FY25)

    Philip Morris International Inc. PM

    Oct 21, 2025 Source

    Executive summary

    Philip Morris International Q3 FY25 — Record Smoke-Free Profitability & Raised EPS Outlook

    Philip Morris International delivered a very strong Q3 FY25, driven by outstanding performance in its global smoke-free business, which achieved record profitability and outgrew the industry. Strategic investments in the U.S. ZYN market, despite impacting Q3 revenues, are aimed at long-term category growth. The company raised its full-year adjusted EPS guidance, reflecting confidence in its financial model and the resilience of its combustible business, while navigating expected inventory adjustments and higher Q4 tax rates.

    Highlights

    5

    • Adjusted diluted EPS grew +17.3% to a record $2.24.

    • Smoke-free gross profit exceeded $3 billion for the first time.

    • Adjusted group operating income margin reached over 43%, the highest in almost 4 years.

    • Organic net revenue growth was +5.9% (or +7.3% excluding Indonesia technical impact).

    • Full-year adjusted diluted EPS forecast raised to +12% to +13.5% currency-neutral growth.

    Concerns

    4

    • Q3 ZYN U.S. promotional costs and relaunch activities resulted in approximately $100 million of reduced revenues.

    • Cigarette volumes declined by 3.2% in Q3.

    • Q4 is anticipated to be a slower quarter with single-digit organic operating income growth and up to 6% currency-neutral adjusted diluted EPS growth due to timing factors and a higher tax rate.

    • An inventory reduction of 20 million to 30 million ZYN cans is anticipated in the coming months.

    Guidance & targets

    18
    CategoryTargetConfidence
    Full-year total PMI shipment growth
    around +1%
    high materiality
    High
    Full-year smoke-free volume growth
    lower half of +12% to +14%
    high materiality
    High
    Full-year IQOS HTU shipments
    close to 38 billion units in Q4
    medium materiality
    High
    Full-year organic net revenue growth
    lower half of +6% to +8%
    high materiality
    High
    Full-year organic operating income progression
    +10% to +11.5%
    high materiality
    High
    Full-year adjusted OI margin
    firmly back above 40%
    high materiality
    High
    Full-year adjusted diluted EPS growth (currency-neutral)
    +12% to +13.5%
    high materiality
    High
    Estimated 2025 currency tailwind
    $0.10
    medium materiality
    High
    Full-year adjusted effective tax rate
    around 22%
    medium materiality
    High
    Q4 currency-neutral adjusted diluted EPS growth
    up to 6%
    medium materiality
    High
    Full-year operating cash flow
    more than $11.5 billion
    high materiality
    High
    Net debt to EBITDA target
    around 2x
    high materiality
    High
    IQOS adjusted IMS growth
    double-digit growth in H2
    medium materiality
    High
    IQOS adjusted IMS growth
    +10% to +12%
    medium materiality
    High
    Combustible gross margin expansion
    organically and in dollar terms
    medium materiality
    High
    Full-year pricing
    a little above +7%
    medium materiality
    High
    ZYN inventory reduction
    20 million to 30 million cans
    medium materiality
    High
    TPSAC hearing for ZYN's MRTP application
    Q1 2026
    medium materiality
    High

    Segment performance

    6
    SegmentRevenueYoYQoQMargin
    Smoke-Free Business
    Achieved over $3 billion in quarterly gross profit for the first time. Performance powered by IQOS, with strong volumes, pricing scale, and cost efficiency. YTD gross margin expanded by +360 bps.
    Gross margin: 70%Gross margin expansion: +60 bpsEstimated IMS volume growth YTD: >+12%Estimated volume share of smoke-free product: ~60%Share of category growth YTD: >10 points higher than volume share
    		—+13.9% organic—+14.8% gross profit
    Combustible Business
    Demonstrated resilience with strong pricing and efficiency, driving top and bottom line performance. On track to deliver gross margin expansion organically and in dollar terms for the year.
    Volume decline: 3.2%
    		+1% organic——+4.8% gross profit
    Europe
    Most developed multicategory region, with excellent growth across all three smoke-free categories. IQOS growth driven by Italy and innovation. ZYN showed excellent early traction and share gains.
    IQOS adjusted IMS growth Q3: +7.3%PMI HTU share of combined cigarette and HTU industry: 10.7%PMI HTU share increase: +1.2 pointsVEEV volumes: doubledVEEV #1 closed pod position: 7 markets
    		————
    Japan
    IQOS continues to grow robustly, primarily reflecting category growth rate. Segment share remains stable despite intensifying competition. Multicategory deployment initiated with ZYN introduction.
    IQOS adjusted IMS growth Q3: +6%IQOS adjusted IMS growth YTD: +7.6%12-month segment share (HTU): ~70% (stable)IQOS HTU share Q3: 31.7%IQOS HTU share increase YoY: +1.8 points
    		————
    U.S. ZYN
    Remarkable volume performance with accelerated offtake growth. Significant investment in marketing and promotional support following return to full availability. Fastest-growing brand by dollar retail value in U.S. convenience channel.
    Q3 can shipment: 205 million cansOfftake growth Q3 (Nielsen): +39%Offtake growth September (Nielsen): +58%Market share (volume): >60%Market share (value): 2/3
    		—+37% can shipment——
    Other Markets (ex-U.S., Japan, Europe)
    All three smoke-free categories delivering dynamic growth. Includes strong IQOS performance in South Korea, rapid ZYN growth in Pakistan and South Africa, and dynamic multicategory growth in Global Travel Retail and Indonesia.
    Q3 shipments: >12 billion units
    		—+23% shipments——

    Operational metrics

    36
    Adjusted diluted EPS
    $2.24+17.3%
    Q3 FY25

    Includes around $0.03 of favorable transactional impact in the quarter.

    Adjusted net income
    $3.5 billion+17.3%
    Q3 FY25

    Drove adjusted diluted EPS growth.

    Adjusted operating income
    $4.7 billion+7.5% organic, +12.4% dollar terms
    Q3 FY25

    Enabled good adjusted OI margin expansion.

    Adjusted operating income margin
    43.1%+120 bps
    Q3 FY25

    Highest in almost 4 years.

    Gross margin
    67.9%+170 bps
    Q3 FY25

    A record quarterly level since the pandemic recovery of 2021.

    Organic net revenue growth
    +5.9%
    Q3 FY25

    Within the high end of the +6% to +8% midterm growth algorithm.

    Pricing contribution
    +3.1 points
    Q3 FY25

    Partly offset by the impact of ZYN relaunch promotion in the U.S.

    Smoke-free mix impact
    +4.7 points
    Q3 FY25

    Driven by smoke-free growth.

    Combustible geographic mix and other factors impact
    -1.2 points
    Q3 FY25

    Unfavorable impact.

    SG&A costs
    increase slightly more than underlying net revenue
    FY25

    Reflecting strong reinvestment in international markets and U.S. ZYN.

    Smoke-free product commercialized markets
    100
    Q3 FY25

    Includes the launch of IQOS in Taiwan this month.

    Multicategory strategy markets
    25
    Q3 FY25

    All smoke-free brands commercialized together to enhance growth.

    IQOS net revenue
    >$11 billion
    last year

    Generated last year.

    ZYN global markets
    47
    Q3 FY25

    Includes Q3 launch in Spain and small-scale pilot in Japan.

    VEEV #1 closed pod brand
    8
    Q3 FY25

    With notably strong performances in Germany, Romania, and Greece.

    Dividend per share
    $5.88+8.9%
    FY25

    Largest increase since 2013, reflecting strong performance and outlook.

    Q3 ZYN U.S. investment
    ~$100 million
    Q3 FY25

    Q3-specific investment and reduced revenues linked to restarting commercial engine; considered exceptional.

    U.S. nicotine pouch category growth
    >40%
    last 18 months

    Represents a high single-digit percentage of the nicotine market by volume.

    ZYN free can promotion to smokers/vapers
    ~80%
    Q3 FY25

    The vast majority of those accessing the offer were smokers or vapers with improved brand perception and promising level of repurchase intent.

    HTU shipment growth
    +12%
    YTD FY25

    On a year-to-date basis.

    Organic net revenue growth
    +7.5%
    YTD FY25

    Driven by volumes, pricing, and mix.

    Adjusted operating income
    $12.7 billion+12.5% organic, ~+14% dollar terms
    YTD FY25

    Enabling EPS growth of +16% (including and excluding currency impact).

    Adjusted effective tax rate
    1% lower than forecast
    YTD FY25

    With a higher rate expected in Q4.

    Total PMI shipment growth
    +1.8%
    YTD FY25

    On a year-to-date basis.

    Smoke-free volume growth
    +16.6%
    Q3 FY25

    Underpinned by strong fundamentals of IQOS, ZYN, and VEEV.

    HTU shipments
    41 billion units+15.5%
    Q3 FY25

    Above prior expectation even when excluding a shipment timing benefit.

    ZYN U.S. shipments
    205 million cans+37%
    Q3 FY25

    Ahead of expectation, driven by strong performance in the nicotine pouch category.

    ZYN International can volumes
    +27%
    Q3 FY25

    With rapid growth from the U.K., Pakistan, Poland, and South Africa.

    VEEV total shipments
    more than doubling
    YTD FY25

    Strong momentum continued.

    IQOS adjusted IMS growth
    +10%
    YTD FY25

    Against a strong prior year comparison.

    ZYN U.S. offtake growth
    +39%
    Q3 FY25

    Fastest growth in the last 5 quarters, amplified in September to +58%.

    ZYN U.S. promotional volume
    ~20%
    H1 2025

    Compared to competitors closer to 50%.

    VEEV volume growth
    +91%
    Q3 FY25

    Despite unfavorable regulatory development in Poland.

    U.S. net revenues share
    ~7%
    YTD FY25

    Of global net revenues.

    U.S. adjusted operating income share
    ~9%
    YTD FY25

    Of global adjusted operating income.

    Other markets smoke-free shipments
    >12 billion units+23%
    Q3 FY25

    Includes continued strong IQOS performance in South Korea, rapid ZYN growth in Pakistan and South Africa and very dynamic multicategory growth in Global Travel Retail and Indonesia.

    Industry KPIs

    11
    MetricValueDetails
    Net price realization+8.3%%
    Cigarette category share10.9%%
    Cigarette shipment volume-3.2%%
    Smoke free market footprint100markets
    Smoke free consumer user count—
    Productivity cost savings program$2 billionUSD
    Regulatory authorization pipeline—
    Smoke free revenue and profitability+13.9%%
    New category contribution margin payback—
    Smoke free reduced risk shipment volumes+15.5%%
    Nicotine pouch oral tobacco category dynamics>60%%

    Product announcements

    5
    ProductTypeDetails
    IQOSlaunch
    ZYNlaunch
    ZYN by IQOSlaunch
    Limited edition Seletti devicelaunch
    IQOS 3expansion

    Risks & headwinds

    6
    Elevated commercial spending for U.S. ZYN relaunchQ3 FY25

    Approximately $100 million of Q3-specific investment and reduced revenues.

    Mitigation: Considered a one-off exceptional investment to restart commercial engine and drive category awareness. Future promotional activity will be at a more normal, but still premium, level.

    Unfavorable regulatory developmentQ3 FY25

    Impacted VEEV volume growth.

    Intensifying competition in heated tobacco categoryQ3 FY25

    Noted in Japan, with significant step-up in competitive commercial investment and intensity.

    Mitigation: Continuous innovation on devices and consumables, high focus on brand engagement, multicategory deployment, and leveraging IQOS's stable >75% market share.

    Supply chain disruptionsQ3 FY25

    International category share declined in Q3, largely driven by Turkey.

    Mitigation: Share is recovering well sequentially and was essentially stable year-to-date.

    Potential ZYN inventory adjustmentcoming months (likely Q4 FY25)

    20 million to 30 million can inventory reduction.

    Mitigation: Expected to happen, though delayed from Q3 due to strong September promotional activity. Management expects to align shipments with offtake growth.

    Higher tax rateQ4 FY25

    Significantly higher in Q4 to land at ~22% for the year.

    Mitigation: Factored into Q4 financial performance expectations, leading to slower EPS growth for the quarter.

    What to watch in Q4 FY25

    5

    ZYN U.S. inventory reduction

    coming months (likely Q4 FY25)
    Current20 million to 30 million cans anticipated
    TargetReduction realized

    Why it matters

    This adjustment could impact reported shipment volumes and revenue in the short term, affecting the U.S. ZYN segment's financial contribution.

    We anticipate a 20 million to 30 million can inventory reduction in the coming months⏳. This impact being effectively delayed from Q3 given strong September promotional activity.

    Q&A highlights

    7

    Clarify ZYN's goal to grow in line with the category, the impact of Q3 promos on October scanner data, and the mismatch between IQOS HTU shipments and in-market sales (IMS).

    ZYN's role as category leader is to drive overall category growth, benefiting from its dominant share. The Q3 promotional activity was a 'blast effect' to signal full availability, alongside a 'normalization' of promotional levels from an abnormally low base. The $100 million investment was a one-off. IQOS shipments were ahead of IMS in Q3, but Q4 will see alignment, potentially with shipments slightly below IMS to adjust inventory.

    “I think what we've seen during this Q3, and that's the way I would summarize things is, on one side, a normalization that I'm going to explain. And on the other side, let's be clear, I think we wanted to have a kind of blast effect because we were back with full availability. And when the leader is back in full force, you just want to let it know.”

    asked by Eric Serotta · answered by Emmanuel Babeau

    2 min read5 chapters

    Detailed Narrative

    01

    Smoke-Free Business Outperformance

    Philip Morris International's global smoke-free business demonstrated outstanding performance, with IQOS, ZYN, and VEEV collectively outgrowing the global smoke-free industry by a clear margin on a year-to-date IMS basis. The company achieved over $3 billion in quarterly smoke-free gross profit for the first time, driven by double-digit top-line momentum and enhanced scale and cost benefits. Smoke-free products are now commercialized in 100 markets, with a multicategory strategy deployed in 25 markets, contributing to an estimated 60% volume share of smoke-free products in these markets.

    02

    Strategic U.S. ZYN Investment and Market Dynamics

    The company made a significant Q3 investment of approximately $100 million in the U.S. ZYN market, primarily for promotional activities to mark its return to full availability. This led to a strong acceleration in U.S. ZYN offtake growth to +39% in Q3, with September seeing +58% growth. ZYN maintains over 60% volume share and two-thirds value share in the U.S. nicotine pouch category, which has been growing at over 40% in the last 18 months. Management expects ZYN to continue delivering best-in-class margins within PMI despite higher promotional activity compared to H1.

    03

    Combustible Business Resilience and Profitability

    Despite a 3.2% decline in cigarette volumes in Q3, the combustible business delivered robust performance with organic net revenue growth of +1% (or ~+3% excluding Indonesia technical impact) and gross profit growing +4.8%. This resilience is attributed to strong pricing, which contributed +3.1 points to total revenue growth, and efficiency measures. The company is on track to achieve combustible gross margin expansion organically and in dollar terms for the full year, maximizing value and supporting the smoke-free transition.

    04

    Overall Margin Expansion and Cost Efficiency

    PMI achieved a record quarterly gross margin of 67.9% since 2021, expanding by +170 basis points. Smoke-free gross margin expanded by +60 basis points to 70% in Q3, exceeding combustibles by 3.5 points. Adjusted operating income margin reached an excellent 43.1%, expanding by +120 basis points in dollar terms. These gains were partly offset by elevated SG&A costs due to planned commercial investments, but the company remains on track to deliver its $2 billion cost-saving objective over 2024-2026.

    05

    Capital Allocation and Shareholder Returns

    The company continues its focused capital allocation strategy, balancing reinvestment in its smoke-free portfolio with rewarding shareholders. In September, the dividend was raised for the 18th consecutive year to $5.88 per share, an +8.9% increase, marking the largest increase since 2013. PMI also reiterated its target of achieving a net debt to EBITDA ratio of approximately 2x by the end of 2026, demonstrating commitment to deleveraging.

    AI-generated summary of the company’s earnings call. Not investment advice.