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    Earnings call· Dec 2025(Q4 FY25)

    Philip Morris International Q4 FY25 earnings call PM

    Feb 6, 2026 Source

    Executive summary

    Philip Morris International Q4 FY25 — Strong Smoke-Free Growth and Renewed Mid-Term Targets

    Philip Morris International delivered an outstanding Q4 FY25, driven by robust smoke-free product growth and strong pricing power in combustibles, leading to double-digit adjusted diluted EPS growth. The company renewed its ambitious mid-term growth targets for 2026-2028, reflecting confidence in its smoke-free transformation and multi-category strategy, despite facing transitory headwinds from excise tax increases in Japan, India, and Mexico, and U.S. ZYN inventory dynamics in the near term.

    Highlights

    5

    • Smoke-free products volumes grew by an excellent 12.8% in FY25, with organic smoke-free gross profit growth of 18.7%.

    • Adjusted diluted EPS grew 15% in dollar terms for FY25, the strongest growth since 2011 (excluding 2021).

    • Organic net revenue grew 6.5% (7.9% excluding Indonesia impact) in FY25, positioning at the high end of the 6-8% midterm CAGR target.

    • Adjusted operating margin returned to above 40% in FY25, reaching 40.4%.

    • Renewed 2026-2028 mid-term targets include organic net revenue growth of 6-8%, organic operating income growth of 8-10%, and adjusted diluted EPS growth of 9-11% at constant currency.

    Concerns

    4

    • Japan's heat-not-burn category faces excise tax increases in April and October 2026, expected to impact category growth and volume by JPY 50 to JPY 100 per pack (20% of current retail prices).

    • Q1 2026 is expected to be the softest quarter, with combustible volumes declining up to 5% and broadly flat organic net revenue and operating income due to demanding comparisons and investment phasing.

    • U.S. ZYN shipments in Q4 2025 saw a lower-than-expected destocking of 5 million cans, with an estimated 25 million cans of surplus inventory remaining in the downstream supply chain.

    • Cigarette volumes are forecast to decline around 3% in 2026, impacted by weaker industry volumes in India and Mexico following recent excise tax increases (e.g., 40%+ price increase in India).

    Guidance & targets

    20
    CategoryTargetConfidence
    Smoke-free products shipment and adjusted IMS volumes growth
    High single digits
    high materiality
    High
    Cigarette volume decline
    Around 3%
    high materiality
    High
    Total shipment growth
    Broadly stable
    medium materiality
    High
    Organic net revenue growth
    5% to 7%
    high materiality
    High
    Organic operating income growth
    7% to 9%
    high materiality
    High
    Currency-neutral adjusted diluted EPS growth
    7.5% to 9.5%
    high materiality
    High
    Adjusted diluted EPS (dollar terms)
    $8.39 to $8.54 (11.3% to 13.3% growth)
    high materiality
    High
    Operating cash flow
    Around $13.5 billion
    high materiality
    High
    Adjusted leverage ratio
    Close to 2x
    high materiality
    High
    Q1 FY26 Organic net revenue
    Broadly flat year-on-year
    medium materiality
    High
    Q1 FY26 Organic operating income
    Broadly flat year-on-year
    medium materiality
    High
    Q1 FY26 Adjusted diluted EPS
    $1.80 to $1.85
    high materiality
    High
    Total shipment volumes
    Positive
    high materiality
    High
    Organic net revenues CAGR
    6% to 8%
    high materiality
    High
    Organic operating income CAGR
    8% to 10%
    high materiality
    High
    Adjusted diluted EPS CAGR (constant currency)
    9% to 11%
    high materiality
    High
    Smoke-free product shipment and adjusted IMS volume growth
    High single digits to low teens
    high materiality
    High
    Aggregate operating cash flow
    Around $45 billion
    high materiality
    High
    Capital expenditures
    Approximately $1.3 billion to $1.5 billion per annum on average
    high materiality
    High
    Dividend growth
    Closer to the level of earnings growth
    high materiality
    High

    Segment performance

    6
    SegmentRevenueYoYQoQMargin
    Smoke-Free Products (Total PMI)
    Strong growth across all categories (IQOS, ZYN, VEEV), driving significant top-line progress and margin expansion. Multi-category strategy and global presence are key accelerators.
    Volumes: 12.8% growthAdjusted IMS volume growth: >12%Total net revenues: 41.5% of total PMIAdjusted gross margin: 270 bps increaseNumber of markets: 106Markets with multi-category strategy: 52Markets exceeding 50% net revenue from SFPs: 27Legal age consumers: 43.5 million (as of Dec 31)Global share of heat-not-burn category: 76% (IQOS)Share of smoke-free products volume: ~60%Share of category growth: >70%
    		$17 billion14.1%—43% (gross profit contribution), 69.5% (adjusted gross margin)
    Combustibles (Total PMI)
    Robust performance with strong pricing offsetting volume declines and unfavorable mix. Disciplined cost management supported margin expansion.
    Cigarette shipments: 1.5% declinePricing: 7.6% (FY25), 6.8% (Q4)Marlboro share: 11% (Q4 international, ex-China)Gross margin: 160 bps expansion
    		low single-digit growth——low to mid-single-digit gross profit growth, 65.5% (gross margin)
    Europe (Smoke-Free Products)
    Smoke-free products now represent over 50% of regional net revenue. Strong performance in Italy, Bulgaria, Germany, Greece, Spain, and Romania.
    Regional net revenue from smoke-free products: >50%Total IQOS, ZYN, VEEV volume: 13% growthIQOS adjusted IMS growth: 10.3% (accelerated)ZYN pouch shipment volumes: 9% growthVEEV shipment growth: 110%
    		————
    Japan (Smoke-Free Products)
    Heat-not-burn category surpassed 50% of total industry, driven by IQOS. Category growth moderated in 2025. Upcoming excise tax increases in 2026 are expected to create headwinds.
    Heat-not-burn category share of total industry offtake: >50% (as of Dec)IQOS HTU adjusted IMS growth: 7% (FY25), 5.8% (Q4)IQOS Q4 adjusted share: 32.6% (+2 pts YoY)
    		————
    U.S. (Total PMI)
    Nicotine pouches remain the fastest-growing U.S. segment. ZYN leads the category despite supply constraints and commercial normalization. Significant growth potential with planned innovation.
    ZYN shipments: 37% growthZYN can volume share: 61.5%ZYN value share: >67%ZYN offtake volume: 25% growthZYN underlying shipment base (FY25): 740 million to 750 million cansZYN Q4 destocking: 5 million cans (lower than expected)Surplus inventory in downstream supply chain: ~25 million cans
    		~7% of global net revenues——~8% of adjusted operating income
    Outside of U.S., Japan and Europe (Smoke-Free Products)
    Strong broad-based growth across all three smoke-free categories. Notable momentum in Taiwan, South Korea, Malaysia, Philippines, Pakistan, and Mexico.
    Full year shipment: 17% growthIQOS Taiwan offtake share: ~4% (exited year)ZYN international volume growth (ex-Nordics): 112%
    		————

    Operational metrics

    48
    Adjusted diluted EPS growth
    15%strongest growth since 2011, excluding the pandemic recovery year of 2021
    FY25

    Together, these factors enabled us to deliver 15% adjusted diluted EPS growth in dollar terms, the strongest growth since 2011, excluding the pandemic recovery year of 2021.

    Currency-neutral adjusted diluted EPS growth
    14%
    FY25

    This reflects currency-neutral growth of 14%, well above our expectations at the start of the year and the second year of mid-teens progress.

    Total net revenues
    $40 billion
    FY25

    Our total net revenues reached over $40 billion in 2025

    Adjusted operating margin
    40%returned to above 40%
    FY25

    Our adjusted operating margin also returned to above 40% this year as our transformation expands profitably.

    Organic top line growth
    6.5%
    FY25

    Organic top line and operating income growth were in line with our forecast ranges set at the start of 2025... Organic top line growth of plus 6.5% or plus 7.9% excluding the technical Indonesia impact

    Organic top line growth (ex-Indonesia)
    7.9%
    FY25

    Organic top line growth of plus 6.5% or plus 7.9% excluding the technical Indonesia impact

    Organic operating income growth
    10.6%
    FY25

    We delivered another year of double-digit organic operating income growth at plus 10.6%

    Adjusted operating income
    $16.4 billionplus 11.8% growth
    FY25

    In dollar terms, adjusted operating income grew by plus 11.8% to $16.4 billion.

    Currency-neutral adjusted diluted EPS growth
    14.2%
    FY25

    Excellent currency-neutral adjusted diluted EPS growth of plus 14.2% was ahead of our expectation.

    Adjusted diluted EPS
    $7.54
    FY25

    In dollar terms, adjusted diluted EPS of $7.54 was at the high end of our last guidance range

    Currency tailwind on adjusted diluted EPS
    $0.04lower-than-expected
    FY25

    despite a lower-than-expected currency tailwind of $0.04 due to nonrecurring transactional losses in Q4 largely related to the Russian ruble and the Swiss franc.

    Adjusted diluted EPS growth
    plus 10%
    Q4 FY25

    This enabled us to deliver almost plus 10% in adjusted diluted earnings per share growth to $1.70

    Adjusted diluted EPS
    $1.70
    Q4 FY25

    to $1.70 or plus 9%, excluding a $0.01 currency tailwind.

    Currency tailwind on adjusted diluted EPS
    $0.01
    Q4 FY25

    or plus 9%, excluding a $0.01 currency tailwind.

    Total shipment growth
    1.4%
    FY25

    we delivered our fifth consecutive year of positive volumes with total shipment growth of plus 1.4%.

    Smoke-free shipments growth
    12.8%
    FY25

    In 2025, smoke-free shipments grew plus 12.8% or plus 20 billion units to 179 billion

    Cigarette shipments decline
    1.5%
    FY25

    more than offsetting the 1.5% decline in cigarette shipments.

    IQOS HTU shipment growth
    11%
    FY25

    IQOS HTU shipment growth of plus 11% to 155 billion units.

    VEEV shipment growth
    102%
    FY25

    VEEV, plus 102% to 3.3 billion equivalent units

    Oral smoke-free product shipment growth
    18.5%
    FY25

    and oral smoke-free product, plus 18.5% to 20.7 billion units.

    U.S. ZYN shipment growth
    37%
    FY25

    Notably, this includes plus 37% growth from U.S. ZYN to 11.9 billion pouches, making up close to 7% of total smoke-free product volumes.

    IQOS HTU adjusted IMS growth
    12%accelerated
    Q4 FY25

    As expected, adjusted IMS growth for IQOS HTU accelerated in Q4 to plus 12%

    IQOS HTU shipment growth
    7.5%
    Q4 FY25

    while shipment volumes were impacted by the dynamic flagged last quarter and grew by plus 7.5%.

    Total Q4 smoke-free product volume increase
    8.5%
    Q4 FY25

    Notwithstanding this impact, total Q4 smoke-free product volume increased by a healthy plus 8.5%.

    Cigarette volume decline
    1.5%slightly better than our expectation of around 2%
    FY25

    The full year cigarette volume decline of 1.5% was slightly better than our expectation of around 2%

    Total international cigarette industry decline (ex-China)
    1.1%
    FY25

    The total international cigarette industry, excluding China, declined by an estimated 1.1%

    International cigarette industry decline (markets with SFPs)
    3%
    FY25

    between markets where smoke-free products are available, which declined by around 3%

    Pricing contribution to growth
    4.1 points
    FY25

    The second is pricing, which contributed plus 4.1 points.

    Combustible pricing
    7.6%
    FY25

    The 2025 impact reflect plus 7.6% pricing from combustible

    IQOS pricing
    low single-digit
    FY25

    and low single-digit pricing on IQOS

    Smoke-free mix contribution to growth
    3.5 points
    FY25

    The third pillar of growth is smoke-free mix, which contributed plus 3.5 points in 2025.

    Combustible geographic mix and other factors impact
    1.1 pointsunfavorable impact
    FY25

    Combustible geographic mix and other factors had an unfavorable impact of 1.1 points

    Currency and scope effect contribution to growth
    0.8 points
    FY25

    whereas currency and scope effect added plus 0.8 points.

    Gross margin expansion (organic)
    220 basis points
    FY25

    with gross margin expanding organically by plus 220 basis points to over 67%.

    Adjusted gross margin (smoke-free)
    69.5%increased by 270 basis points
    FY25

    As a result, adjusted gross margin increased by 270 basis points to reach 69.5%

    Gross margin (combustible)
    65.5%expansion of plus 160 basis points
    FY25

    supporting gross margin expansion of plus 160 basis points to reach 65.5%.

    Organic operating margin expansion
    140 basis points
    FY25

    We delivered full year organic expansion of plus 140 basis points

    Adjusted operating income margin
    40.4%plus 160 basis points in dollar terms
    FY25

    and plus 160 basis points in dollar terms to reach an adjusted operating income margin of 40.4%.

    Gross cost savings
    $1.5 billion
    Since 2024

    We have delivered around $1.5 billion in gross cost savings since 2024, placing us firmly on track to achieve our $2 billion objective for the '24-'26 period.

    ZYN market expansion
    19 markets
    FY25

    We made excellent progress this year expanding ZYN's presence by plus 19 markets to 56

    ZYN shipment growth
    36%
    FY25

    and delivering plus 36% shipment growth to 13.6 billion pouches or 880 million cans, achieving our 2026 target 1 year early.

    U.S. ZYN shipment growth
    37%
    FY25

    U.S. shipments grew plus 37%

    International ZYN volume growth
    31%
    FY25

    while international volume grew plus 31% or plus 112% excluding the more mature Nordics market

    Combustible pricing variance
    around plus 6%
    FY26

    For 2026, we forecast a comfortable pricing variance of around plus 6%, reflecting continued dynamic performance.

    Effective corporate tax rate
    around 21.5%approximately in line with 2025
    FY26

    an effective corporate tax rate approximately in line with 2025 at around 21.5%.

    Adjusted leverage ratio
    2.5x
    End of 2025

    We closed 2025 with an adjusted leverage ratio of 2.5x, reflecting solid progress despite the unfavorable impact of year-end currency movements and our net debt.

    Dividend payout ratio
    around 75%essentially reached our target
    Ongoing

    Having essentially reached our target dividend payout ratio of around 75% of adjusted diluted EPS

    Dividend increase
    8.9%
    September last year

    as demonstrated by the 8.9% increase announced in September last year.

    Industry KPIs

    10
    MetricValueDetails
    Net price realization7.6%%
    Cigarette category share25.3%%
    Cigarette shipment volume1.5%%
    Smoke free market footprint106markets
    Smoke free consumer user count43.5 millionconsumers
    Productivity cost savings program$2 billionUSD
    Regulatory authorization pipelineZYN Ultra
    Smoke free revenue and profitability41.5%%
    Smoke free reduced risk shipment volumes179 billionunits
    Nicotine pouch oral tobacco category dynamicshigh single-digit percentage%

    Product announcements

    2
    ProductTypeDetails
    ZYN Ultraroadmap
    IQOS ILUMAroadmap

    Deals & partnerships

    1
    FerrariGlobal partnership

    Global partnership between ZYN and Ferrari, leveraging Formula 1's adult audience to engage consumers responsibly and reinforce ZYN's premium equity.

    Capital programs

    1
    Cost savings programon track$2 billion
    Spent to date: $1.5 billion
    Start: 2024

    Benefit: cost savings

    We have delivered around $1.5 billion in gross cost savings since 2024, placing us firmly on track to achieve our $2 billion objective for the '24-'26 period.

    Risks & headwinds

    6
    Japan excise tax increases on heat-not-burn productsApril and October 2026

    JPY 50 to JPY 100 per pack, which translates to 20% of current retail prices

    Mitigation: Application to increase prices

    Weaker industry volumes in India and Mexico due to excise tax increasesFY26

    40% plus price increase for the consumers (India)

    Mitigation: Resilient business model targeting low single-digit revenue growth and low to mid-single-digit gross profit growth for combustibles.

    U.S. ZYN channel inventory surplusMost likely Q1 2026

    around 25 million cans of surplus inventory

    Mitigation: Expected to normalize in due course.

    Q1 FY26 demanding year-on-year comparisons and investment phasingQ1 FY26

    Q1 combustible volumes to decline by up to 5%, broadly flat year-on-year first quarter organic net revenue and operating income

    Mitigation: Expected to be the softest quarter, with acceleration later in the year.

    Regulatory uncertainty in the U.S. nicotine pouch categoryOngoing

    null

    Mitigation: Developing and preparing to launch innovation (e.g., ZYN Ultra) to address broad consumer preferences, pending FDA action.

    Potential excise tax increase on nicotine pouches in New YorkProposed

    null

    Mitigation: PMI views this as counterproductive to public health objectives and a 'wrong idea.'

    Q&A highlights

    8

    What drives the expected acceleration in smoke-free volume growth beyond 2026, and how are new market opportunities factored in?

    The reacceleration is primarily due to the normalization of excise tax impacts in Japan (symmetry with cigarettes post-2027) and addressing the ZYN portfolio asymmetry in the U.S. with pending FDA authorizations for higher nicotine strength products. Other factors include innovation and the non-recurring nature of outsized excise increases in India and Mexico.

    “The acceleration in -- or beyond '26 is, at this stage, we mainly see coming from all the implementations of the tax changes, which are price -- or excise-driven price changes in Japan.”

    asked by Matt Smith · answered by Jacek Olczak

    2 min read6 chapters

    Detailed Narrative

    01

    Strong FY25 Performance and Mid-Term Targets

    Philip Morris International achieved an outstanding 2025, marked by a fifth consecutive year of positive volumes and significant margin expansion. The company delivered 15% adjusted diluted EPS growth in dollar terms, the strongest since 2011 (excluding 2021), and exceeded its 3-year CAGR targets for organic operating income and currency-neutral EPS in just two years. This strong performance underpins the renewal of ambitious 2026-2028 growth targets, validating PMI's best-in-class growth profile within the consumer packaged goods sector.

    02

    Smoke-Free Portfolio Dominance and Expansion

    The smoke-free business continues to be the core growth driver, with volumes growing 12.8% and contributing 41.5% ($17 billion) to total net revenues and 43% to gross profit in 2025. IQOS remains central, with shipments and adjusted IMS growing around 11%, while ZYN ex-Nordics and VEEV more than doubled shipment volumes internationally. PMI's multi-category strategy is deployed in 52 markets, and the company's smoke-free products are now available in 106 markets, with 27 markets exceeding 50% net revenue from SFPs.

    03

    U.S. Market Opportunity and ZYN Dynamics

    The U.S. represents a substantial growth opportunity, with ZYN growing shipments by 37% in 2025 despite supply constraints and competitive gaps. ZYN holds a 61.5% can volume share and over 67% value share in the U.S. nicotine pouch category. The company is preparing for the launch of ZYN Ultra, a higher strength product, pending FDA action, to address broader consumer preferences and capitalize on the category's growth.

    04

    Combustibles Resilience and Strategic Role

    The combustibles business delivered robust top and bottom-line performance in 2025, with strong pricing (7.6% pricing from combustibles) and disciplined execution, including Marlboro reaching a historic high share. This segment's resilience provides the necessary infrastructure, financial firepower, and consumer connection to boldly invest in and accelerate smoke-free growth, enabling the broader transformation of the company.

    05

    Operational Efficiency and Cash Generation

    PMI achieved significant operational efficiency, delivering $1.5 billion in gross cost savings since 2024, on track for a $2 billion objective for the 2024-2026 period. This focus on cost of goods sold and back-office efficiency contributed to a 140 basis point expansion in adjusted operating income margin to 40.4%. Robust cash generation resulted in $12.2 billion in operating cash flow, matching the record of 2024, supporting deleveraging and shareholder returns.

    06

    Japan Market Headwinds and Innovation

    Japan's heat-not-burn category surpassed 50% of total industry offtake in December, driven by IQOS. However, upcoming excise tax increases in April and October 2026 are expected to create headwinds for category growth and volume, particularly for lower-priced products. PMI has applied for price increases to mitigate this impact, while continuing to innovate with products like ILUMA i and piloting ZYN in Tokyo.

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