Faham Baig

Faham Baig inquired about future innovation for IQOS ILUMA, particularly technical or functional attributes that could improve consumer conversion in emerging markets. He also asked about the observed absence of ZYN promotions in the U.S. over the past two months, questioning if it's a deliberate shift awaiting ZYN Ultra or a change in trial strategy.

Answer

Jacek Olczak (Group CEO, Philip Morris International) acknowledged the five-year mark for IQOS ILUMA but declined to disclose future innovation for competitive reasons. Regarding ZYN promotions, he noted differences in Q3/Q4 deployment and specific schemes not repeated. He outlined three key aspects for long-term U.S. pouch business success: brand-building, a portfolio that meets current trends (like higher nicotine strength ZYN Ultra, pending FDA), and maintaining a price premium. Emmanuel Babeau (CFO, Philip Morris International) clarified that the 2026 currency guidance benefits from the non-recurrence of significant negative transactional impacts from 2025 and some hedging benefits, particularly for the yen.

Faham Baig inquired about future innovation for IQOS ILUMA, specifically technical or functional attributes that could improve consumer conversion in emerging markets. He also asked about the recent absence of ZYN promotions in the U.S., questioning if it's a deliberate shift awaiting ZYN Ultra or a change in strategy. Additionally, he requested clarification on the better-than-expected currency guidance for the year and key hedge rates.

Answer

Group CEO Jacek Olczak declined to disclose specific innovation details for competitive reasons. Regarding ZYN promotions, he clarified that certain Q3/Q4 schemes were not repeated, but promotional intensity remains part of the plan, emphasizing brand building, portfolio expansion (like ZYN Ultra for higher nicotine strengths pending FDA approval), and premium pricing for long-term success. CFO Emmanuel Babeau explained that the favorable currency guidance for 2026 is largely due to non-recurring negative transactional impacts from 2025, with some hedging (notably on the yen) still providing a slight benefit.

Faham Baig from UBS asked about intensifying competitive activity in heated tobacco, particularly in Japan with recent product launches and heavy promotions. He questioned if this would have a limited impact on IQOS, similar to historical trends, and if IQOS could maintain its high single-digit growth in Japan. In a follow-up, he inquired about the potential launch of ZYN Ultra in the U.S., asking about the FDA review timeline, the possibility of launching ahead of approval, and if the product corresponds to the 2021 PMTA application for 6mg/9mg strengths and 10 flavors.

Answer

Emmanuel Babeau, CFO, acknowledged the increased intensity of competition in heated tobacco, viewing it positively for the category's overall growth. He highlighted IQOS's stable 75%+ market share in Japan over the past 5-6 years despite competitive offerings and discounts, expressing confidence in IQOS's continued strong leadership and growth in the market. Regarding ZYN Ultra, he declined to speculate on FDA timelines but emphasized the hope for a level playing field. He confirmed that ZYN Ultra products would offer differentiation from the existing ZYN dry PMTA-authorized products.

Faham Baig from UBS asked about intensifying competitive activity in Japan's heated tobacco market, questioning if IQOS could maintain high single-digit growth despite this. He also inquired about the potential launch of ZYN Ultra in the U.S., asking when the FDA review might conclude, if PMI would consider launching ahead of approval, and if the product corresponds to the 2021 application covering specific strengths and flavors.

Answer

Emmanuel Babeau, Chief Financial Officer, acknowledged intensifying competition in Japan's heated tobacco market but expressed confidence in IQOS's ability to maintain strong leadership and growth, citing its stable 75%+ category share. He welcomed increased industry investment in smoke-free products as beneficial for the category leader. Regarding ZYN Ultra, Babeau stated he would not speculate on FDA review timelines but hoped for a level playing field, confirming PMI is monitoring competitors' actions and considering all options, noting ZYN Ultra products would offer differentiation.

Faham Baig from UBS asked for an explanation of the narrowing gross margin gap between smoke-free and combustible products in Q2 and for a reminder of the company's foreign exchange hedge rates for the year.

Answer

CFO Emmanuel Babeau explained that the smoke-free gross margin was stable around 70%, and the gap narrowed because combustible margins improved on price and mix. He expects smoke-free margins to remain high in H2, though year-over-year gains will lessen due to tougher comps. He declined to provide specific FX hedge rates, stating it is not a regular disclosure.

Faham Baig asked for the ZYN growth rate indicated by MSA data, PMI's perspective on how recent movements at the CTP might impact the timing of the IQOS ILUMA launch in the U.S., and for the company's net interest cost guidance for the year.

Answer

Chief Financial Officer Emmanuel Babeau estimated that MSA data showed ZYN's share growth was close to 30% in March. Regarding the CTP and the IQOS ILUMA launch, he stated that it was too early to comment on any potential impact. On net interest costs, Babeau declined to provide specific full-year guidance but noted that the strong Q1 result was partly due to positive mark-to-market impacts on hedging instruments.

Faham Baig asked if the significant increase in controllable costs in Q4, compared to the nine-month run rate, was solely due to import/export investments and if it was a one-off. He also sought clarification on the national rollout timeline for on! PLUS in the first half of 2026, potential supply chain issues, and any early in-state market share data for on! PLUS.

Answer

CFO Sal Mancuso confirmed that the elevated controllable costs were predominantly due to manufacturing investments for import/export, which precede volume and revenue. CEO Billy Gifford confirmed the national rollout of on! PLUS will occur through the first half of 2026, with no significant Q4 benefit. He noted positive anecdotal consumer feedback on the product's differentiation but could not share specific early market share data due to the initial messy launch.

Faham Baig questioned the significant increase in controllable costs in Q4 2025 (up 14.5%) compared to the nine-month run rate (9.5%), asking if the import/export investment was the sole reason and if it's a one-off. He also sought clarification on the national rollout of ON! PLUS in the first half of 2026, including potential supply chain issues, and asked for any early in-state market share data or momentum readings for ON! PLUS.

Answer

CFO Sal Mancuso confirmed that the increase in controllable costs was predominantly due to investments in manufacturing processes for import/export, such as different pack configurations and track and trace capabilities, which precede volume and revenue. CEO Billy Gifford confirmed the national rollout of ON! PLUS in the first half of 2026, without mentioning supply chain issues. He noted that early market data for ON! PLUS was 'messy' due to initial launch, halt, and resumption of shipments, but shared anecdotal positive consumer feedback regarding its mouthfeel, softness, and flavor differentiation.

Faham Baig from UBS inquired about the potential financial benefits of duty drawbacks, specifically whether the ~$3 billion in federal excise tax payments represents the scale of the benefit, and if this would be a primary driver for accelerating EPS growth to high single digits to achieve the mid-single-digit EPS CAGR by 2028. He also asked if the FDA's pilot program for nicotine pouches would influence the national launch decision for on! PLUS, and why such acceleration is possible for pouches but not for the larger e-vapor category.

Answer

CEO Billy Gifford cautioned against premature conclusions on the duty drawback's exact financial impact, emphasizing its role in international relationships and production, with drawback as an additional benefit. He reaffirmed Altria's commitment to its previously stated mid-single-digit EPS CAGR goal. Regarding the FDA pilot, Gifford stated Altria's decisions prioritize a functioning regulatory system and long-term company interests. He explained the pilot's focus on nicotine pouches as a more established category for initial learning, hoping its success would lead to broader application across smoke-free platforms, including the more complex e-vapor market.

Faham Baig asked whether the crackdown on illicit vapes is having a net positive impact on cigarette volumes. He also inquired about a lower-than-normal Federal Excise Tax (FET) per pack, seeking an explanation for the "drawback" policy and its future implications.

Answer

CEO Billy Gifford stated it is too soon to call the enforcement momentum a trend but noted it is encouraging. He explained that the FET issue relates to a "drawback" policy that disadvantages domestic manufacturers. He asserted that Altria views this as bad policy but will seek partnerships to avoid being at a competitive disadvantage.

Faham Baig from UBS Group questioned why EBIT guidance was not raised despite two increases to the top-line outlook, asking where incremental investments are being spent. He also requested an update on the divestment process for the ITC hotels stake.

Answer

CFO Soraya Benchikh explained that EBIT guidance was maintained to preserve flexibility for increased investment in new product rollouts like VUSE Ultra, GloHilo, and VeloPlus, which will fuel growth into 2026. CEO Tadeu Marroco reiterated the strategic intent to divest the ITC hotels stake to aid deleveraging but noted the process is subject to bureaucratic steps and approvals in India.