Damian McNeela

Damian McNeela asked about the continuation of cost savings beyond the $2 billion target for the end of the current year, inquiring if a similar level of savings should be expected for the medium-term guidance through 2028, and the potential role of AI in accelerating these savings.

Answer

Emmanuel Babeau (CFO, Philip Morris International) stated that while not part of the current guidance, PMI aims for continued cost efficiency, with roughly 60% of savings from COGS and the remainder from back-office costs and G&A. He confirmed that AI is expected to be a significant engine for future efficiency and cost performance.

Damian McNeela inquired about the continuation of cost savings beyond the targeted $2 billion by the end of the current year, asking if a similar level of savings is expected for the medium-term guidance through 2028 and the potential role of AI in accelerating these savings.

Answer

CFO Emmanuel Babeau stated that while specific cost savings targets for the 2026-2028 period are not part of the current guidance, Philip Morris International aims to continue driving efficiency. He noted that roughly 60% of current savings come from COGS, with the remainder from back-office and G&A. He confirmed that AI is expected to be a significant engine for future efficiency and cost performance.

Damian McNeela from Deutsche Numis asked about the visibility and confidence behind the expected Q4 inventory adjustments for both IQOS and ZYN. He also inquired about the long-term sustainable price premium for ZYN in the U.S.

Answer

Emmanuel Babeau, Chief Financial Officer, explained that for IQOS, Q4 shipments are expected to align with accelerating in-market sales, with a potential modest reduction in channel inventory, leading to an estimated $2 billion adjustment. For ZYN, he noted an expected 20-30 million can inventory reduction at wholesaler/distributor levels, delayed from Q3 but still anticipated in Q4, though with slightly less certainty. Regarding ZYN's sustainable price premium, Babeau stated that while he couldn't provide a specific number, ZYN's growth and unique consumer connection in the U.S. justify and will maintain a 'very nice premium.'

Damian McNeela with Deutsche Numis asked about the degree of visibility and confidence regarding the expected Q4 inventory adjustments for both IQOS and ZYN. He also inquired about the long-term sustainable price premium for ZYN in the U.S.

Answer

Emmanuel Babeau, CFO, stated that for IQOS, he expects shipments to align broadly with IMS in Q4, potentially slightly below IMS for the full year, with an estimated $2 billion adjustment for Q4. For ZYN, he anticipates a 20-30 million can inventory reduction in the coming months, delayed from Q3, but noted that September's high promotional activity made the Q4 timing less certain. Regarding ZYN's long-term price premium, he declined to provide a specific number but affirmed that ZYN's growth, brand strength, and consumer connection justify and will maintain a 'very nice premium' in the U.S. market.

Damian McNeela asked if the 30,000 stores targeted for Altria's Basic strategy represent a ceiling or if there's potential for expansion in 2026. He also inquired about the payback time for the investments made in manufacturing facilities to support import/export activities. Finally, he asked if the step-up in costs observed in Q4 2025 is expected to repeat in Q1 and Q2 2026, or if these costs are now complete, leading to an improvement in the second half due to increased import/export volumes.

Answer

CEO Billy Gifford stated that while Altria will monitor the situation and make adjustments around the fringes, they feel they are in the right group of slightly over 30,000 stores for Basic. CFO Sal Mancuso confirmed that the return on investment for the import/export facilities is very strong, with a payback period of less than a year. He also explained that some elevated incremental costs will continue in Q1 and Q2 2026 before revenue is fully realized, especially when entering new markets or partnership arrangements, aligning with the second-half weighted EPS growth guidance.

Damian McNeela asked if the 30,000 targeted stores for Basic cigarettes represent a ceiling or if Altria plans to expand further in 2026. He also inquired about the payback time for investments in manufacturing facilities for import/export and whether the Q4 step-up in costs would repeat in Q1/Q2 or if improvements are expected in the second half.

Answer

CEO Billy Gifford stated that Altria will monitor the Basic strategy in slightly over 30,000 stores, making adjustments around the fringes, as it effectively serves consumers under economic pressure. CFO Sal Mancuso confirmed a very strong return on investment for import/export, with a payback of less than a year. He added that some elevated upfront investments will continue as more volume comes through the import/export process, contributing to the second-half weighted EPS growth.

Damian McNeela asked for details on Altria's second-half plans for the ON! nicotine pouch brand, including marketing activation and current U.S. distribution levels. He also requested an explanation for the strong performance of the Middleton cigar brand.

Answer

CEO Billy Gifford expressed confidence in sustaining ON!'s momentum through brand equity-building activations but did not detail future plans or distribution metrics. CFO Sal Mancuso explained that Middleton's volume increase reflects its dominant position in the large mass machine-made cigar category, though quarterly results can be affected by inventory movements.

Damian McNeela of Deutsche Numis asked for more detail on the vape business performance in the AME region, particularly in Canada and the UK, and inquired about the expected on-the-ground impact of the 40% reduction in illicit U.S. vape shipments.

Answer

CEO Tadeu Marroco explained that AME's vape performance was heavily impacted by Canada's flavor ban and lack of enforcement, which fueled the illicit market. He noted a positive trend in Europe of consumers shifting to closed systems, where BAT has a stronger share. Regarding the U.S., he stated it's difficult to predict the timing of on-the-ground impact from reduced illicit shipments due to long supply chains, but noted the new administration's focus on enforcement is an encouraging sign.