Transcript: Philip Morris Intl Q2 2026 Earnings Conference Call

Philip Morris Intl (NYSE: PM ) released second-quarter financial results and hosted an earnings call on Wednesday. Read the complete transcript below. This transcript is brought to you APIs. For real-time access to our entire catalog, please visit for a consultation.

20. The company's international smoke-free business showed high single-digit volume growth and double-digit top-line growth, driven by products like IQOS, ZYN, and VEEV. S. market is planned for H2, focusing on ZYN's brand equity and portfolio expansion, supported by improving regulatory clarity.

5% shipment volume growth, fueled by IQOS momentum and favorable combustible dynamics, resulting in over $11 billion in quarterly net revenues for the first time. S. and a robust smoke-free product pipeline. The company anticipates stable to slightly positive total shipment volume for the year, with smoke-free products offsetting cigarette volume declines.

Management expressed confidence in the long-term growth trajectory, supported by strong financials and strategic investments in smoke-free products. Full Transcript OPERATOR (Operator) Good day and thank you for standing by. Welcome to the Philip Morris Intl 2026 second quarter results. At this time all participants are on a listen-only mode.

After the speaker's presentation, we'll open up for questions with a limit of two questions per person. Before rejoining the queue to ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again.

Please be advised that today's call is being recorded. I would now like to hand it over to our first speaker, James Bushnell, Vice President Investor Relations and Financial Communications. Please go ahead. James Bushnell, Vice President Investor Relations and Financial Communications Welcome.

Thank you for joining us. Earlier today we issued a press release containing detailed information on our 2026 second quarter results. com. S.

2 to the company's Form 8-K dated today and on our investor relations website. Today's remarks contain forward-looking statements and projections of future results. I direct your attention to the forward-looking and cautionary statements disclosure in today's presentation and press release for a review of the various factors that could cause actual results to differ materially from projections or forward-looking statements. I'm joined today by Emmanuel Babeau, Group Chief Financial Officer, and Massimo Andolina, currently Regional President for Europe, who will succeed Emmanuel as Group CFO in August.

Emmanuel, over to you. Emmanuel Babeau, Group Chief Financial Officer Thank you, James, and welcome everyone. 20, or plus 15% in dollar terms. This better than expected delivery contributed to very robust H1 growth.

Despite the tough comparison of the first quarter, our Q2 results were once again powered by excellent performance, as expected, from our international smoke-free business, with high single digit volume growth, double digit top line growth, and impressive gross margin expansion. IQOS adjusted in-market sales volume increased by plus 5%, including expected transitory headwinds from the April excise increase in Japan and the characterizing flavor ban in Poland. Excluding these two markets, double digit growth continued, reflecting the broad-based strength of our smoke-free business across markets.

Our multi-category commercial approach continues to gain momentum, supported by ZYN and VEEV. Our combustible performance was above our expectation in an especially strong quarter, with growing volumes, very good pricing, stable category share, and gross profit growth. While we do not expect this delivery to be repeated to the same magnitude for the full year, such results demonstrate the robustness of our portfolio as we leverage our leadership in cigarettes to support the switching of legal-age smokers to better alternatives. S.

we posted a significant sequential improvement in net revenues, gross profit, and operating company income compared to a challenging Q1. S. nicotine pouch category continued to grow, ZYN offtake volumes were broadly stable to slightly growing versus the prior year, reflecting the uneven competitive landscape described in recent quarters. 9 billion pouches despite an inventory tailwind in the prior year, broadly reflecting offtake trends and the initial shipments of new variants, including ZYN Ultra.

We are excited about this first phase of portfolio expansion, with additional initiatives planned in the coming months to enhance and enrich our offering to legal-age American nicotine consumers. S. investment in the second half of the year to support ZYN's brand equity and portfolio expansion and to prepare for the future launch of IQOS ILUMA. Overall, our strong first half performance reinforces our confidence in our ability to consistently invest behind smoke-free growth opportunities while delivering another year of best-in-class top and bottom line growth.

5%, underpinned by continued momentum in IQOS and favorable combustible dynamics. 6%, or more than 10% in dollar terms, to reach over $11 billion in quarterly net revenues for the first time. This strong top line performance translated into robust profitability. 5% in dollar terms, driven by pricing, volume leverage, and favorable smoke-free mix.

8 billion, reflecting the same underlying business drivers and continued growth investment. 20. 03 favorable currency impact, which was notably better than our previous forecast despite ongoing dollar strength. This was primarily due to a positive impact from unrealized transactional effect from deferred tax liability associated with a weaker Russian ruble.

This currency impact represents around one-third of the EPS outperformance compared to our prior forecast. The remaining two-thirds reflect a combination of SG&A phasing, as certain commercial investments previously anticipated in Q2 are now expected to occur in Q3, and the strong performance of our combustible business, which I'll come back to, Combining our Q2 and first quarter performance, we delivered a very robust first half despite the comparison headwinds of Q1. 4% as smoke-free growth outweighed combustible declines. 9 billion.

16. The strength of our international business, which made up 93% of H1 group net revenues, was naturally at the core of this remarkable performance. 9% in gross profit, driving gross margin expansion of 190 basis points to reach 70%. This primarily reflects continued IQOS growth with further enhancement from our oral smoke-free category.

Especially combustible also performed very well, exceeding our midterm trajectory of low single-digit organic top line growth and low to mid single-digit gross profit growth. 8%. 7%, including the benefit of effective cost management. 6%.

7%, all on an organic basis. 4% growth for the first half. 3% in H1, mainly fueled by IQOS HTUs with notable contribution from Taiwan, Global Travel Retail, and Italy. E-vapor shipments increased by a remarkable 55% in Q2 and 72% in H1, with Romania, Greece, and Germany among the main drivers.

2% in the quarter, primarily reflecting industry declines and inventory impact for snus in the Nordics despite a stable category share performance. This was partly offset by continued rapid nicotine pod growth in international markets excluding the Nordics and the return to shipment volume growth for ZYN in the US. 1%, ahead of expectation. This reflects a combination of good category share performance, certain timing or comparison factors, and more favorable industry dynamics in certain large markets, predominantly where smoke-free products are banned or very small.

Notable callouts include Indonesia, Turkey, Egypt, and relative resilience in India and Mexico. However, with industry volumes declining low to mid single-digit in more developed smoke-free markets where the average unit economics of cigarettes are more favorable, this generated an unfavorable mix impact on net revenue. 9%. Given our Q2 performance and the latest industry dynamics, we now expect a more moderate full-year decline in our cigarette volumes of around 2 to 3% versus 3% previously, which remains consistent with the structural evolution of the category.

Taken together, we now expect total shipment volume to be around stable to slightly positive for the full year, with high single-digit growth in smoke-free products broadly offsetting the decline in cigarettes. 2% with low single-digit smoke-free pricing, including around plus 3% from IQOS. The positive mix impact from international smoke-free growth contributed a further 2 points, as the increasing weight of SFPs continues to enhance our revenue profile. These drivers were partly offset by the US, which had a negative impact of 1 point mainly due to Q1 comparison, as well as international combustible geographic mix and other factors, which reduced growth by 2 points.

8%. The composition of our growth once again highlights the consistency and sustainability of our model, with stable to growing volumes, durable pricing power, and superior smoke-free economics continuing to be the primary drivers of our performance. Moving down to H1 adjusted operating income margin, which expanded by 40 basis points organically or plus 60 basis points in dollar terms to reach close to 42%. Gross margin expansion remained a key driver, contributing plus 70 basis points, supported by strong pricing, favorable smoke-free mix, scale benefit, and manufacturing productivity.

While SG&A costs were lower than expected in Q2 due to phasing, increased year-on-year investment in commercial initiatives, innovation, and scale nonetheless reduced H1 margin by 30 basis points. We now expect higher SG&A costs in the second half than previously anticipated as we made the strategic decision to step up our US growth investment as we invest in our top line. 8 billion to date. This margin performance underscores the strength of our model as we continue to invest behind our smoke-free transformation while expanding profitability.

As implied in our full-year forecast, we expect to deliver organic operating income margin expansion for the full year. Focusing now on IQOS, the driving force of our smoke-free and overall PMI growth trajectory, we continue to generate strong underlying growth despite transitory headwinds in Japan and the final EU flavor ban market implementation. Adjusted in-market sales volume grew by plus 8% in the first half despite these dynamics, reflecting broad-based global momentum. 1% primarily reflects expected volatility in Japan as Q1 pantry loading reversed and consumers adjusted to the excise-driven price increase on April 1.

2%, or over 11% for H1. Consistent with recent history, strong Q2 performance in more established IQOS markets such as Italy, Greece, and Romania was complemented by continued momentum in newer markets including Saudi Arabia, the Philippines, Mexico, and in Taiwan, which maintained its impressive trajectory with offtake volume growth growing double digit on a sequential basis as we progressively expand distribution. Global Travel Retail also delivered double-digit adjusted IMS growth. In tandem, we are driving strong commercial execution and ongoing innovation across our device and consumable portfolio, with the Special Edition shown on this slide as one example.

We also continue to expand our alternative heating technology, BONDS by IQOS, which was launched in Poland, Czech Republic, and Morocco this quarter with encouraging early results. The fundamentals of IQOS remain strong. We continue to benefit from formidable brand equity, deep consumer connection, and an unparalleled commercial presence across a broad and diversified geographic footprint, and we maintain our global share of the fast-growing heat-not-burn category at approximately 76% in H1. This was further illustrated by the recognition of IQOS for the first time among the top hundred most valuable global brands, according to Kantar.

Looking at IQOS offtake share performance, we continue to drive impressive progress across key cities globally, an important lead indicator of broader national adoption. In Q2 we recorded further strong share gains across established IQOS markets including Greece, Italy, Romania, and the UK alongside Global Travel Retail. We are also seeing very good momentum in emerging IQOS markets, notably Mexico, Indonesia, and Taiwan, with Taipei share of around 8% in a seasonally higher total market for cigarettes.

These results reflect our strong commercial execution as well as the increasing presence and scale of IQOS in more established markets combined with excellent early adoption in newer markets and reinforcing our confidence in the long-term growth trajectory. In e-vapor, VEEV continued to deliver excellent results, with H1 shipment growth of 72% and very good progression on financial metrics including profitability. This reflects robust growth across key European markets, reinforcing VEEV's leadership position.

VEEV is now the clear number one brand in Europe both within closed pods and for pods and disposables combined, and the estimated number one closed-pod brand in Global Travel Retail where VEEV is present, all ahead of long-established players. This is supported by the structural evolution of the category, with closed pods now representing the predominant format internationally excluding illicit and open system. High levels of consumer retention and brand loyalty underpin our performance, supported by responsible innovation and continued portfolio enhancement.

This includes the progressive rollout of our latest technology, VEEV 1, which offers an elevated consumer experience through a compact premium design, a swap-and-store functionality enabling two pods in one device, and a longer-lasting replaceable battery. For ZYN, international shipment volume grew plus 6% in the first half, or 32% excluding the Nordics. ZYN continued to gain share in this small but fast-growing category, reaching more than 17% of the international segment excluding the Nordics. In Q2 we are seeing encouraging progress across a broad set of geographies supported by portfolio expansion and consumer adoption as awareness and availability improve.

This includes markets such as the UK, Pakistan, Poland, Greece, and the Philippines, with further footprint and portfolio expansion planned in the second half.