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    Earnings call· Dec 2024(Q4 FY24)

    Philip Morris International Q4 FY24 earnings call PM

    Feb 6, 2025 Source

    Executive summary

    Philip Morris International Q4 FY24 — Strong Smoke-Free Growth and Margin Expansion

    Philip Morris International delivered an outstanding Q4 and full-year 2024, driven by robust growth in its smoke-free portfolio, particularly IQOS and ZYN, alongside a resilient combustible business. The company achieved significant organic top and bottom-line expansion, record operating cash flow, and substantial margin improvement, despite ongoing currency headwinds and ZYN supply constraints. Management is confident in exceeding its 2024-2026 growth targets, focusing on continued smoke-free expansion and shareholder returns.

    Highlights

    5

    • Organic net revenue growth of +9.8% for FY24, driven by strong smoke-free product performance.

    • Adjusted diluted EPS grew +9.3% in dollar terms for FY24, mitigating substantial currency headwinds.

    • Smoke-free net revenues reached almost $15 billion in FY24, representing 40% of total PMI net revenues in Q4.

    • ZYN U.S. shipment volume grew +51% to 581 million cans in FY24, with FDA authorization for all variants.

    • Operating cash flow reached a record $12.2 billion in FY24, significantly above forecasts.

    Concerns

    5

    • ZYN U.S. experienced short-term supply challenges in 2024, with full normalization targeted for H2 2025.

    • IQOS ILUMA U.S. FDA authorization is still pending, hoped for H2 2025, after a long review process.

    • EU characterizing flavor ban impacted IQOS HTU adjusted IMS volume by approximately 2 billion units in 2024, with an expected 1 billion unit impact in 2025.

    • Unfavorable forecast currency impact of $0.22 on adjusted diluted EPS for FY25, primarily from the Russian ruble and yen.

    • Italy's IQOS recovery post-flavor ban was slower than expected in Q4.

    Guidance & targets

    20
    CategoryTargetConfidence
    Organic Net Revenue Growth
    +6% to +8%
    high materiality
    High
    Total Volume Growth
    up to +2%
    medium materiality
    High
    Smoke-Free Product Volume Growth
    around +12% to +14%
    high materiality
    High
    IQOS HTU Adjusted IMS Volume Growth
    +10% to +12%
    high materiality
    High
    IQOS HTU Shipment Growth
    broadly in line with double-digit trajectory
    medium materiality
    Medium
    U.S. ZYN Volume Shipment
    780 million to 820 million cans
    high materiality
    High
    Organic Operating Income Growth
    +10.5% to +12.5%
    high materiality
    High
    Currency-Neutral Adjusted Diluted EPS Growth
    +10.5% to +12.5%
    high materiality
    High
    Adjusted Diluted EPS
    $7.04 to $7.17
    high materiality
    High
    Effective Corporate Tax Rate
    approximately 22.5% to 23.5%
    medium materiality
    High
    Operating Cash Flow
    around $11 billion
    high materiality
    High
    Capital Expenditure
    around $1.5 billion
    medium materiality
    High
    Q1 FY25 HTU Adjusted IMS Growth
    around +10%
    medium materiality
    High
    Q1 FY25 HTU Shipment Volume
    35 billion to 36 billion
    medium materiality
    High
    Q1 FY25 U.S. ZYN Shipment Volume
    170 million to 180 million cans
    medium materiality
    High
    Q1 FY25 Adjusted Diluted EPS
    $1.58 to $1.63
    high materiality
    High
    Net Debt to Adjusted EBITDA Ratio
    around 2x
    high materiality
    High
    IQOS ILUMA U.S. FDA Authorization
    H2 2025
    high materiality
    Medium
    Combustible Pricing Growth
    +5% to +6%
    medium materiality
    High
    Adjusted Diluted EPS Growth (Dollar Terms)
    high single-digit
    high materiality
    High

    Segment performance

    2
    SegmentRevenueYoYQoQMargin
    Smoke-Free Business
    Accelerated net revenue and gross profit growth, driving significant organic gross margin expansion. The business is increasingly profitable, with ZYN contributing impressive accretion.
    Net Revenues as % of Total PMI Net Revenues (Q4): 40%Adjusted Gross Profit as % of Total PMI Adjusted Gross Profit: 42%Organic Gross Margin Expansion: +330 basis pointsAdjusted Gross Margin (FY24): 66.6%Adjusted Gross Margin (Q4): 490 basis points higher than combustibleTotal Estimated Adult Users (as of Dec 31): 38.6 millionActive IQOS Users: 32.3 millionOral Users: 5.7 millionZYN Users: 1 millionTotal Smoke-Free Volume Growth (incl. VEEV): +13.5%Total Smoke-Free Volume (incl. VEEV): 19 billion unit equivalentsInternational Nicotine Pouch Shipment Growth: +75%International Nicotine Pouch Shipments: 27 million cans
    		$15 billion+17%—$10 billion (gross profit)
    Combustible Business
    Performed well with strong pricing and cost actions, contributing positively to gross profit growth and margin expansion, compensating for input cost headwinds.
    Gross Profit Growth (Q4): double-digitOrganic Gross Margin Expansion: +60 basis pointsCigarette Shipments Growth (FY24): +0.6%Cigarette Shipments Growth (Q4): +1.1%Full Year Pricing: +8.7%Category Share (Q4): flatCategory Share (FY24): +0.1 points
    		—+6% (organic net revenue)+6.2% (Q4 organic net revenue)+7% (organic gross profit)

    Operational metrics

    35
    Adjusted Diluted EPS Growth (Currency Neutral)
    +15.6%
    FY24

    Exceeded expectations.

    Adjusted Diluted EPS Growth (Dollar Terms)
    +9.3%
    FY24

    Mitigated substantial currency headwinds.

    Leverage Ratio (Net Debt to Adjusted EBITDA)
    2.66xreduced by 0.5x
    end of FY24

    Ahead of expectations, representing a dramatic acceleration of deleveraging.

    Organic Net Revenue Growth
    +9.8%
    FY24

    Strong, consistent delivery since the pandemic, further accelerated.

    Organic Operating Income Growth
    +14.9%
    FY24

    Led by accelerated cost efficiencies.

    Adjusted Operating Income Growth (Dollar Terms)
    +15%
    Q4 FY24

    Includes positive currency impact of $0.06.

    Adjusted Diluted EPS Growth (Currency Neutral)
    +10%
    Q4 FY24
    Adjusted Diluted EPS Growth (Dollar Terms)
    +14%
    Q4 FY24

    To $1.55, includes positive currency impact of $0.06.

    Organic Gross Margin Expansion
    +160 basis points
    FY24
    Gross Margin Expansion (Dollar Terms)
    +120 basis points
    FY24
    Organic Operating Margin Expansion
    +180 basis points
    FY24

    Comfortably achieved objective.

    Operating Margin Expansion (Dollar Terms)
    +100 basis points
    FY24

    Comfortably achieved objective.

    Organic Operating Margin Expansion
    +140 basis points
    Q4 FY24

    Gross margin expansion outweighed SG&A investment.

    Gross Cost Efficiency
    $750 million
    FY24

    Across smoke-free and combustible, and continued back-office savings. On track for $3 billion 2024-2026 target.

    IQOS User Growth
    +3.4 millionversus prior year
    FY24

    Broad-based and consistent with recent years.

    IQOS User Growth
    +1.5 million
    H2 FY24

    Broad-based and consistent with recent years.

    ZYN User Growth
    +1.5 millionyear-on-year
    FY24

    Driven by ZYN's strong traction despite supply constraints.

    HTU Adjusted IMS Volume Growth
    +13%
    Q4 FY24

    Supported by continuous share growth of TEREA and SENTIA.

    HTU Adjusted IMS Volume Growth
    +13%
    FY24

    Supported by continuous share growth of TEREA and SENTIA.

    Heat-Not-Burn Offtake Share
    52.8%
    December

    For the overall heat-not-burn category.

    Smoke-Free Industry Share
    47%
    national offtake basis

    Of the total industry.

    Adult Smokers on Waitlist
    over 4,000
    current

    For IQOS 3 'Be The First' campaign.

    U.S. ZYN Shipment Volume Growth
    +42%year-on-year
    Q4 FY24

    Despite ongoing production limitation, reflects acceleration to a near record sequential increase of +60 million cans vs. Q2.

    U.S. ZYN Shipment Volume Increase
    +196 million cansversus 2023
    FY24

    Highlighting magnitude of growth and efforts to maximize production capacity.

    ZYN Category Share
    65.9%incrementally improved
    Q4 FY24

    As production increased, supported category growth.

    ZYN Capacity Target
    around 900 million cans
    FY25

    For the full year.

    Nicotine Pouch Market Footprint
    37+6 new markets in Q4
    end of FY24

    Including Italy, Romania, and Thailand.

    VEEV Top 3 Position
    13
    current

    VEEV ONE holds top 3 forceful position.

    VEEV #1 Position
    5
    current

    Including Italy.

    Currency Impact on FY25 Adjusted Diluted EPS
    -$0.22unfavorable
    FY25

    Primarily driven by broad strength of the dollar, mitigated by hedging.

    Currency Impact on Q1 FY25 Adjusted Diluted EPS
    -$0.04negative
    Q1 FY25

    At prevailing rates.

    German Tax Surcharge Payment
    $0.8 billion
    FY25

    Decided to make payment while appealing the case.

    Hedging Coverage (Yen)
    60%
    FY25

    Not impacted by possible deterioration of yen for this part of exposure.

    Hedging Coverage (Euro)
    25%
    FY25

    Limiting impact on P&L when euro is going down.

    Debt in Euro
    more than 60%
    current

    Natural hedging in balance sheet; weakness in euro vs. dollar leads to decrease in debt in dollar terms and lower interest cost.

    Industry KPIs

    12
    MetricValueDetails
    Net price realization+6.2%%
    Cigarette category share+0.1 pointspoints
    Cigarette shipment volume+0.6%%
    Illicit trade enforcement—
    Smoke free market footprint37markets
    Smoke free consumer user count38.6 millionusers
    Productivity cost savings program$750 millionUSD
    Regulatory authorization pipelineauthorized
    Smoke free revenue and profitability$15 billionUSD
    New category contribution margin payback—
    Smoke free reduced risk shipment volumes19 billionunit equivalents
    Nicotine pouch oral tobacco category dynamics581 million canscans

    Capital programs

    2
    ZYN Capacity Expansion (Kent City)underway

    Benefit: around 900 million cans (FY25)

    We continue to target around 900 million cans of capacity for the full year from our Kent City facility.

    ZYN Capacity Expansion (Colorado Greenfield Site)underway

    Our greenfield site in Colorado is due to come online in early 2026, and we believe we are well positioned to capture this potential over the coming years.

    Risks & headwinds

    5
    ZYN U.S. Supply ConstraintsH2 2025

    full normalization sometime in the second half of 2025

    Mitigation: Increased production capacity (Kent City 900M cans target, Colorado greenfield site online early 2026).

    EU Characterizing Flavor Ban Impact on HTU Volumes2024, 2025

    around 2 billion units in 2024, around 1 billion on both segments and IMS in 2025

    Mitigation: Expectation of return to pre-ban growth trajectory after short-term disruption; multi-category strategy (VEEV traction in Italy).

    Currency HeadwindsFY25

    -$0.22 impact on FY25 adjusted diluted EPS; Russian ruble >60% of negative variance, yen ~$0.04.

    Mitigation: Natural balance sheet hedging (euro debt), specific hedging positions (60% of yen exposure at JPY 138/$, 25% of euro exposure at EUR 1.12/$).

    Regulatory Resistance to Smoke-Free Productsongoing

    resistance in many places, often driven by ideology not facts and science

    Mitigation: Continued efforts to increase understanding of smoke-free products and advance tobacco harm reduction among consumers and regulators; leveraging FDA authorizations for ZYN as encouragement for other governments.

    Slower-than-expected IQOS Recovery in ItalyQ4 FY24, ongoing

    slightly slower pace than expected in Q4

    Mitigation: Multi-category strategy (VEEV proposition advanced in Italy); expecting stabilization over time.

    What to watch in Q1 FY25

    5

    ZYN U.S. Supply Normalization

    H2 2025
    Currentongoing production limitation
    Targetfull normalization

    Why it matters

    Critical for unlocking ZYN's full growth potential and reducing out-of-stock situations, directly impacting volume and market share.

    We continue to experience some out of stock at retail. And while production capacity continues to increase, we now target full normalization sometime in the second half of 2025.

    Q&A highlights

    7

    Analyst asked about the geographical composition of HTU growth in the 2025 outlook and if new markets are expected to contribute significantly to the 2026 goals.

    Management expects continued strong growth in Japan and parts of Europe, with Italy and Czech Republic showing signs of recovery. No significant volume from new market openings is assumed in the guidance, as the company focuses on organic growth in existing markets. Management expressed hope that FDA authorizations for ZYN would encourage other governments to adopt harm reduction policies.

    “in the guidance, we have not put any significant volume coming from the new geographies. So this is all organic growth.”

    asked by Matt Smith · answered by Jacek Olczak

    2 min read6 chapters

    Detailed Narrative

    01

    Smoke-Free Portfolio Momentum and Profitability

    Philip Morris International achieved significant milestones in its smoke-free transformation, with total smoke-free net revenues reaching almost $15 billion in 2024. The smoke-free business contributed 40% of total PMI net revenues in Q4 and 42% of adjusted gross profit, indicating its increasing profitability. The company closed the year with over 38.5 million estimated adult users across heat-not-burn, oral, and e-vapor products, driven by robust IQOS user growth of 3.4 million and ZYN's strong traction.

    02

    ZYN's U.S. Performance and Regulatory Authorization

    ZYN continued its strong growth in the U.S., with Q4 shipment volume up 42% year-on-year to 165 million cans, and full-year volumes growing by 196 million cans versus 2023. The brand reached a 65.9% category share in Q4. The FDA authorized all currently commercialized U.S. ZYN variants, making it the first and only authorized nicotine pouch brand in the U.S., which management believes provides stability and visibility to the market.

    03

    IQOS Global Expansion and European Dynamics

    IQOS demonstrated strong underlying momentum, with HTU adjusted in-market sales growth of nearly 13% for the full year 2024. Europe saw accelerated HTU adjusted IMS growth of almost 11% in H2, despite the EU characterizing flavor ban, with strong performance in markets like Bulgaria, Greece, Germany, Romania, and Spain. Japan delivered outstanding results with HTU adjusted IMS growth of nearly 13% and an adjusted Q4 share of 30.6%.

    04

    Combustible Business Resilience and Strategic Role

    The combustible business performed well, delivering double-digit gross profit growth in Q4 and approximately 7% organically for the full year, supported by strong pricing and cost actions. Cigarette shipments grew by 0.6% for the full year, approximately in line with the international industry. Management emphasizes maximizing value from combustibles to support the smoke-free transition, with pricing and cost efficiency being key levers.

    05

    Margin Expansion and Cost Efficiencies

    The company achieved significant margin expansion, with full-year organic operating margin expanding by 180 basis points and 100 basis points in dollar terms. This was driven by a 160 basis point organic gross margin increase, fueled by smoke-free operating leverage, favorable unit economics, and pricing efficiency. Over $750 million in gross cost efficiencies were realized in 2024, putting the company on track for its $3 billion target for 2024-2026.

    06

    Capital Allocation and Deleveraging Progress

    Philip Morris reported record operating cash flow of $12.2 billion in 2024, enabling a significant improvement in its leverage ratio to 2.66x net debt to adjusted EBITDA, ahead of expectations. The company aims for a target ratio of around 2x by the end of 2026. This strong cash generation supports continued reinvestment in the smoke-free transformation and consistent shareholder returns, including the 17th consecutive annual dividend increase.

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