PM Q3 '26

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1. 109:19 ETprepared▼ -2.05%

   “remained around plus 10% in the quarter and almost plus 11% year-to-date consistent with the strong underlying trajectory of the business and the durability of demand across our geographic footprint key European geographies including Italy Greece and Spain all delivered double-digit adjusted IMS growth year-to-date complemented by excellent performance in markets such as Indonesia Mexico the Philippines Saudi Arabia and Taiwan as well as global travel retail highlighting the increasing geographic”

   Management, 4.1x volume, adj. next 5 min: -2.15% raw vs -0.10% sector

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   high confidence

2. 209:52 ETQ&A▲ +0.84%

   “If you go to markets where the category has been present for longer, you're actually seeing more high single digit daily consumption.”

3. 309:09 ETprepared▼ -0.25%

   “We now expect HTU shipment growth to be slightly below adjusted IMS.”

4. 409:36 ETprepared▼ -0.40%

   “At the operating income level, we continue to expect organic growth of 7% to 9%, reflecting strong inherent margin expansion from our top-line performance and productivities, and despite our strong year-to-date delivery, we expect to see a strong year-to-date delivery substantial ongoing investment in SFP internationally and in the US.”

5. 509:37 ETprepared +0.06%

   “However, considering the significant H2 step-up in US investments and the cost impact of ongoing geopolitical tensions, we see the full-year delivery more likely to be at the midpoint or lower half of both brackets.”

1. +0.27%0:00OperatorGood day and thank you for standing by. Welcome to the Philip Morris International 2026 third quarter results. At this time, all participants on the listen-only mode after the speaker's presentation will open up for questions with a limit of two questions per person before joining the queue. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's call is being recorded. I want to hand it over to our first speaker, James Bushnell, Vice President of Investor Relations and Financial Communications. Please go ahead.
2. +0.27%0:42ManagementWelcome. Thank you for joining us. Earlier today, we issued a press release containing detailed information on our 2026 third quarter results. The press release is available on our website at PMI.com. A glossary of terms, including the definition, for smoke-free products, as well as adjustments, other calculations, and reconciliations to the most directly comparable U.S. GAAP measures for non-GAAP financial measures cited in this presentation are available in the exhibit to our Form 8K 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
3. +0.30%1:25Managementin today's presentation and press release for a review of the various statements, including factors that could cause actual results to differ materially from projections or forward-looking statements. I'm joined today by Massimo Andolina, Group Chief Financial Officer. Massimo, over to you. Thank you, James, and welcome, everyone. We delivered excellent performance in the third quarter. We continued volume momentum, putting us firmly on track for a sixth consecutive year of total shipment growth and yet another year of best-in-class performance. We were able to achieve the highest results in 2026. The strong underlying momentum of our smoke-free business continued,
4. +0.07%2:05Managementwith ICOS HTU shipments at the high end of our expectations and accelerated growth fundamentals across all three of our flagship brands. Coupled with standout combustibles performance, we achieved plus 7% organic growth in Q3 net revenues and more than 10% in Q3 net revenues. This is a significant growth in operating income, despite challenging comparisons on smoke-free shipments and incremental cost pressures, notably due to the ongoing conflicts in the Middle East and Ukraine. Q3 adjusted OI exceeded $5 billion for the first time,
5. +0.07%2:48Managementwhile our adjusted OI margin reached close to 45%. Our strong operational performance supported better-than-expected adjusted diluted EPS growth, and we are committed to improving our performance. The growth of Q3 led to a record quarterly level of $2.36. ICOS continued to deliver strong and broad-based progress, with adjusted IMS volume growth increasing to plus 7.1% in the Q1 or plus 10% excluding Japan and Poland, where we faced specific headwinds from the impact of excise-driven pricing driven pricing and the characterizing flavor ban, respectively.
6. +0.07%3:33ManagementIn nicotine pouches, Zin's Q3 shipment growth accelerated in international markets and reached plus 4% in the US or plus 13%, excluding the special promotional activity of September 2025. This performance was supported by the ongoing rollout of new variants as we invest significantly in the accelerated expansion of our product offer and align the portfolio value proposition over the second half of this year. We are pleased with the initial consumer reaction and sequential increase in category share, even as we have yet to reach full commercial deployment of the first wave of expansion.
7. +0.07%4:17ManagementWe remain focused on further strengthening the brand, building consumer awareness of the expanded portfolio, and continuing to invest behind the security of the market. We are also pleased with the growth of our product, which has been a significant growth opportunity ahead. In eVapor, Veve continued its outstanding progress with a step-up in shipment growth to plus 62%. We delivered strong performance across key markets and continued to build our leading position in Europe, the primary international profit pool. Our combustible business delivered a standout Q3 performance, exceeding our expectations, through a combination of high-end and high-end products. For example, the sales of our products, during the last five years, were more than 40% higher than the previous five years. The last three years, we have been in the same position, while we have been growing in terms of sales and sales growth. As a result of our short-term growth, we have been able to compete in the market for the
8. -0.31%5:02Managementfirst time in a decade. We have also been able to make incremental improvements to our product portfolio. We have been able to improve our market performance, through a combination of stable volumes, high single-digit pricing, and a specific benefit from the restructuring of distribution terms in certain markets. Volumes were especially resilient in markets where smoke-free alternatives remain unavailable or have limited presence, while the continued strength of our brand portfolio, led by Marlboro, supported category share gains and further margin expansion. This is in line with our objective of maximizing combustible sales. combustible value over time to support the growth of our smoke-free business. Our overall year-to-date performance further demonstrates the sustainability of our growth model. We continue to expect another year of high quality, best-in-class volume, sales and profit
9. -0.31%5:44Managementgrowth as we continue to invest behind our leading smoke-free platforms to drive long-term value. Turning now to our headline financials for the third quarter, we delivered shipment growth of plus 0.6 percent, outperforming a broadly stable industry despite unfavorable comparisons on HDUs. Together with robust pricing and favorable category mix, this drove organic net revenue growth of plus 7.1 percent or plus 5.5 percent in dollar terms to reach 11.5 percent of the global market. We have a growth of over 5.5 percent in dollar terms and a growth of over 5.5 percent in dollar terms. We have a growth of over 5.5 percent in dollar terms and an growth of over 5.5 percent in dollar terms. We have a growth of over 5.5 percent in dollar terms
10. -0.02%6:23ManagementGross profit grew organically by more than plus 8 percent, and adjusted operating income increased plus 10.5 percent organically and plus 9.6 percent in dollar terms. This reflects strong top-line growth and effective cost management, even as we accelerated our growth investments, notably in the U.S. Adjusted diluted EPS increased plus 5.4% to a new quarterly high of $2.36. This includes an unfavorable currency impact of $0.01 due to dollar strength and lower
11. -0.25%7:06Managementpositive transactional impacts than previously expected, mainly due to the strengthening of the Russian ruble. As flagged last quarter, this growth also includes an unfavorable comparison against a low tax rate in the prior year period, which reduced Q3 EPS growth by approximately 4 percentage points. Our outstanding year-to-date results further demonstrate the strength and quality of our business fundamentals, with shipment volume growth of plus 0.5%, strong pricing, and favorable category mix. This drove organic net revenue growth to plus 5.9%, or plus.
12. -0.25%7:50ManagementPlus 8.2% in dollar terms, bringing year-to-date net revenues to nearly $33 billion. Adjusted gross profit increased by plus 7.1% organically, while adjusted OI grew by 7.7% organically and plus 10.6% in dollar terms, reaching more than $14 billion. In other words, we are in a situation where we are in a situation where we are in a situation where we are in a situation where we are in a situation where we are in a situation where we get bid. We delivered adjusted diluted EPS of $6.52, representing a growth of plus 8.4% excluding
13. -0.25%8:30Managementcurrency and plus 11.8% in dollar terms. Turning to shipment volumes, we achieved solid growth in both the third quarter and year-to-date. Consistent with recent years, the structural growth of our smoke-free portfolio more than offset. set declines in combustibles, and we are firmly on track to achieve our sixth consecutive year of growth. Smoke-free shipments increased by plus 2.7% in the quarter, despite the strong prior year comparison, and by plus 6.4% year-to-date, driven by ICOS.
14. -0.25%9:13ManagementWe continue to expect high single-digit growth in smoke-free adjusted IMS volumes and shipments for the year, with the latter subject to year-end inventory movements. ICOS HTU shipments reached 41.5 billion units in Q3, with year-to-date growth of plus 6.7%. We now expect HTU shipment growth to be slightly below adjusted IMS. We now expect HTU shipment growth to be slightly below adjusted IMS. We now expect HTU shipment growth to be slightly below adjusted IMS. We now expect HTU shipment growth to be slightly below adjusted IMS. We now expect HTU shipment growth to be slightly below adjusted IMS. We now expect HTU shipment growth to be slightly below adjusted IMS. We now expect HTU shipment growth to be slightly below adjusted IMS. With the Q3 dynamic of adjusted IMS growing faster than shipments to continue in Q4, notably
15. -0.25%9:52Managementdue to the in-year-facing impact of price changes in Japan, Q3 shipment growth was supported by a wide range of markets, including Germany, Greece, Spain, Indonesia, the United Kingdom, the Netherlands, and global travel retail, all of which delivered strong double-digit progression. Oral smoke-free volumes increased by plus 1.8% in the quarter, supported by our readiness and ability to introduce new product variants in the U.S., alongside an acceleration in international ZIN growth and share gains in Swedish snus.
16. +0.08%10:31ManagementE-vapor shipments grew by a remarkable plus 62%, demonstrating the increasing scale and importance of our multi-category portfolio and Viv's role within it. Cigarette shipments were flat in the quarter, despite strong pricing, outperforming an industry decline of 1.1%. This reflects both the strength of our brands and the resilience of the category. In markets where smoke-free products are banned or have limited presence, such as Turkey, Indonesia, and Egypt. On a year-to-date basis, cigarette volumes declined by 1.2%.
17. -0.24%11:13ManagementWhile the markets driving this better-than-expected performance generate an unfavorable geographic mix, the continued resilience of our combustible portfolio means we now expect full-year cigarette volumes to decline by a similar level, subject to year-end inventory movements. We continue to generate strong top-line growth from the fundamental pillars of our business model, namely volume growth, pricing power, and the mixed benefits of smoke-free unit economics. Year-to-date, pricing remained the largest contributor, adding plus 6.2 points of growth.
18. -0.24%11:56ManagementThis reflects continued combustible strength, with pricing of plus 9.1%, together with a positive growth of 1.2%. This is a positive contribution from our smoke-free portfolio, including low single-digit pricing on IQOS HTUs. The increasing contribution of smoke-free products in our international business provided a further plus 1.5 points of growth, notwithstanding a lower impact in Q3 due to timing factors. This was partly offset by a 0.6 point growth. This was partly offset by a 0.6 point growth. This was partly offset by a 0.6 point growth.
19. -0.05%12:36ManagementWe also saw a 6.6 point headwind from the US, driven predominantly by the impact of lowered ZIN shipment volumes and challenging comparisons earlier in the year, with these headwinds moderating significantly in the third quarter. Combustible geographic mix and other factors reduced growth by 1.7 points. These headwinds were partially mitigated in Q3 by the impact of restructuring of certain distribution terms I mentioned earlier, which we do not expect to be significant in the fourth quarter. As a result, year-to-date organic net revenue growth reached plus 5.9% and plus 7.1% for Q3.
20. -0.05%13:17ManagementCurrency contributed a further plus 2.3 percentage points year-to-date, bringing reported net revenue growth to plus 8.2%. Moving further down the P&L, our adjusted operating margin organically expanded by plus 60 basis points year-to-date and plus 130 basis points in Q3, reaching a very strong level of almost 45% in the quarter. Gross margin expansion remained the primary driver, contributing plus 80 basis points in both Q3 and year-to-date, bolstered by strong price increases.
21. -0.05%14:02ManagementFavorable smoke-free mix, increasing scale benefits across our smoke-free business, and manufacturing productivity gains. At the same time, we continue to invest strongly behind future growth opportunities. While SG&A organically increased by less than net revenues in Q3, this reflects the ongoing benefits of our G&A productivity initiatives and the favorable comparison against the prior year period, which included... ...certain combustible-related items. Both international and U.S. smoke-free commercial investments continue to grow ahead of the top line, accelerating versus the second quarter.
22. -0.05%14:45ManagementFor the full year, we expect SG&A to grow broadly in line with net revenues, as we continue to work on our back-office costs, while strongly increasing commercial investments behind our growth platforms and consumer-facing initiatives across the board. This includes increased investments in the U.S. to support our ZIN portfolio expansion and competitiveness. Indeed, our productivity program continues to deliver strong results. We have now generated more than $2 billion of cumulative gross cost savings across both cost of goods sold and SG&A since 2024, achieving our three-year objective ahead of schedule. Fourth, we have developed...
23. -0.05%15:30ManagementFocusing now on our international business, which continues to be the primary engine of group performance and represents 93% of our year-to-date net revenues. International Smokefree delivered excellent year-to-date results, with organic growth of almost 10% in net revenues and plus 12% in gross profit, driving plus 120 basis points of gross margin expansion to 70%. This reflects the continued growth and increasing profitability of ICOS, with additional contributions from our expanding Smokefree portfolio, particularly DIV.
24. -0.72%16:12ManagementAs expected, Q3 growth was slower due to shipment timing comparisons and related category mix. Importantly, ICOS gross margins continued to expand meaningfully, despite additional cost disruption in Ukraine. Our international combustible business is growing at a rapid pace. Our international combustible business is growing at a rapid pace. We also今天基本的新年推幅太强了。 Our international combustible business is growing at a rapid pace. We alsoki Sean
25. -0.72%16:57ManagementS John T George net revenue growth and plus 9.1% gross profit growth, with plus 140 basis points of gross margin expansion to 68.8%. This performance supported international organic OCI growth of around plus 11% in both Q3 and year-to-date, comfortably exceeding the targeted OI growth rates for total PMI. Now, focusing on international smoke-free, we drove plus 8.6% growth in total adjusted
26. -0.99%17:42ManagementIMS year-to-date, including an acceleration to plus 8% in Q3, and despite the impacts from Japan and Poland. Excluding these two markets, growth was plus 11.8% year-to-date, consistent with the strong growth rates delivered over recent years. Importantly, our smoke-free portfolio continues to outgrow the comparable industry by approximately one percentage point, with our share increasing to 62%, reflecting the increasing strength of our multi-category strategy. I also note that our international market share of cigarettes and HDUs exceeded 30%
27. -1.57%18:26Managementin the quarter for the first time, underscoring the combined strength of our smoke-free and combustible portfolios. Thank you. Thank you. I would like to thank have to say thank you to the economic partners, partners involved in providing these experiences. Thank you very much. Thank you. Please go ahead. Go ahead. Thank you for the question. Thank you all. Great. Thanks for your question. Thanks for the question.
28. -2.05%19:06Managementremained around plus 10% in the quarter and almost plus 11% year-to-date consistent with the strong underlying trajectory of the business and the durability of demand across our geographic footprint key European geographies including Italy Greece and Spain all delivered double-digit adjusted IMS growth year-to-date complemented by excellent performance in markets such as Indonesia Mexico the Philippines Saudi Arabia and Taiwan as well as global travel retail highlighting the increasing geographic
29. -2.05%19:43Managementdiversification of our Icos business our device and consumables pipeline remains active supporting both legal age consumer acquisition and brand loyalty we continue to enrich our premium Terea and Levia HDU offerings with new taste experiences you
30. +0.77%32:37ManagementBut on Q4, we view the Q3 level of spend to be sufficient to support the brand. The transition to 20 pouch cans represents a significant investment in consumer value, which all else equal translates into approximately 25% less revenue per pouch. Combined with additional short-term support on the existing 15 pouch variants to manage the sellout at retail, this will impact Q4 net revenues. Indeed, taking the aggregate impact of these actions and the expansion of our manufacturing
31. +0.47%33:15Managementcapacity to support future growth, Q4 will be a unique quarter of investment. We expect an abnormally low level of U.S. profitability in the fourth quarter, with adjusted OCI around zero or slightly negative. Our leading global position and strong growth profile reflects continuous investment for mid- and long-term growth. We are excited to be implementing these significant improvements to our Zin consumer offer. With a fast-growing category and Zin's leading brand equity, we believe we are positioning the brand for strong and sustainable growth over the coming years.
32. +0.47%33:57ManagementAnd finally, turning to combustibles, which posted an exceptional Q3 performance. Pricing remains the same. We are looking to increase our sales by a third of the year. Pricing remains a key driver, reaching plus 8.9% in the third quarter and plus 9.1% year-to-date, with broad-based contributions across markets including Turkey, the Philippines, Indonesia, and Poland. We now expect full-year pricing of above 8%, with the net revenue impact partially offset by a more unfavorable geographic mix. Despite this strong pricing, our portfolio increased key. We are looking to increase our sales by a third of the year, and with a fast-growing category and Zin's leading brand equity, we believe we are positioning the brand for strong and sustainable growth over the coming years. With a fast-growing category and Zin's leading brand equity, we expect full-year pricing
33. +0.27%34:41Managementacross markets including Turkey, the Philippines, Indonesia, and Poland. Pricing remains the same. We are looking to increase our sales by a third of the year, and with a fast-growing quantity, with a fast-growing population increase of about 33.2%. And finally, turning to zero-point-안off 아무리ㅠㅠ건 2025, we believe we are positioning our sales by a third will continue fixing the real-world accelerated growth of PBI for the 29.4%. And with own very solid inclusive key affordableシ ACLB trends $2.5B report. We are looking to increase our sales by a third of the year, and with non- wrapper pricing drove another quarter of excellent profitability, with international combustible gross profit increasing by plus 9.8% in Q3 and plus 7.4% year-to-date. And this brings me to our outlook for the full year, where we're targeting a second
34. -0.17%35:19Managementconsecutive year of double-digit adjusted diluted EPS growth in dollar terms. Indeed, following our strong first nine months, we're on track for another year of excellent performance as we continue to invest behind smoke-free growth. We now expect growing total shipment volumes for the year, making 2026 our sixth consecutive year of growth. For net revenues, we continue to forecast plus 5% to plus 7% organic growth. Moreover, given the strong year-to-date delivery and our expectation for a robust fourth quarter
35. -0.40%36:02Managementled by international smoke-free, we believe the business could deliver in the middle or upper half of this range. At the operating income level, we continue to expect organic growth of 7% to 9%, reflecting strong inherent margin expansion from our top-line performance and productivities, and despite our strong year-to-date delivery, we expect to see a strong year-to-date delivery substantial ongoing investment in SFP internationally and in the US. Our forecast range for currency neutral adjusted diluted EPS growth also remains at 7.5% to 9.5%. With a favorable currency impact
36. -0.40%36:41Managementat prevailing exchange rates of approximately 18 cents, notably including recent weakness in the euro, this results in an adjusted diluted EPS range of $8.29 to $8.44, representing growth of approximately plus 10% to plus 12% in dollar terms. However, considering the significant H2 step-up in US investments and the cost impact of ongoing geopolitical tensions, we see the full-year delivery more likely to be at the midpoint or lower half of both brackets. Although the inflationary outlook remains uncertain, most notably the persistence
37. +0.06%37:26Managementof energy-related inflation linked to the conflict in the Middle East, the prices of certain inputs have begun to reflect the increases in energy and shipping costs. While we are less exposed than many other areas of consumer goods, and this remains manageable overall, these factors were a headwind in the third quarter and are expected to evolve further internationally. In the second quarter, the price of energy will be at a higher level than the previous quarter, as a greater proportion of increased input prices flow through. Overall, we estimate the impact on full-year adjusted diluted EPS growth to be around half a percentage point, in addition to a similar-sized headwind from disruptions in Ukraine.
38. +0.54%38:08ManagementThis results in a combined impact of approximately one point of growth for the year. For Q4, more broadly, we anticipate a strong net revenue and OCI performance, including a re-acceleration in smoke-free performance. We expect continued robust adjusted IMS growth and HDU shipment volumes of 39.5 to 40.5 billion units, consistent with our comments on shipment phasing. In contrast, this will be a unique quarter of elevated investment and portfolio transition for the US, for the reason that the U.S. economy will be able to keep up with the U.S. economy in the future.
39. +0.54%38:51ManagementDespite this special quarter for the US, we expect a strong delivery for the group overall, as captured in our full-year outlook. We also expect to generate a record level of approximately $13.5 billion in operating cash flow, testament to our strong cash flow generation. This provides substantial flexibility to invest behind future growth, while also providing a strong leverage for the U.S. economy to continue to grow. We expect a strong return on the U.S. economy, while continuing to deleverage and deliver attractive shareholder returns. So let me now conclude with a few key takeaways.
40. +0.04%39:35ManagementOur year-to-date performance reflects the quality of our underlying fundamentals, positioning us for another year of superior top and bottom line growth, as we continue to invest substantially behind future opportunities. This reflects the durability of our U.S. economy, and the flexibility of our model, supported by category-leading brands, strong pricing power, disciplined cost management, and the increasing scale of ICOS, ZIN, and VIV. We remain a highly cash-generative business, with an unwavering commitment to our progressive dividend policy and to rewarding shareholders.
41. -0.02%40:17ManagementIn September, we raised our dividend for the 19th consecutive year, to $6.40 per share, with another increase of almost 9%. Looking ahead, we remain confident in our mid- and long-term trajectory, which reflects the unique strengths of PMI's growth model. Structural smoke-free momentum built on science, innovation, commercial strength, and brand building, allied to combustible resilience,
42. -0.02%40:53Managementand the growth of our industry. We are now happy to answer your questions.
43. +0.04%41:13OperatorThank you. At this time, we will conduct a question and answer session. As a reminder, to ask a question, you will need to press star 1-1 on your telephone, or you will be asked to answer a question. Thank you. Please press star 1-1 on your telephone, and wait for a name to be announced. To withdraw your question, please press star 1-1 again. Please limit yourself to two questions, and rejoin the queue again for further questions. Please send by while we compile the Q&A roster. One moment for our first question. Our first question will come from Vani Herzog from Goldman Sachs. Your line is open.
44. +0.04%41:47AnalystAll right. Thank you. Hi, how are you? I guess my first question is on your guidance. You know, your key to success. You know, your key to success. You know, your key to success. What do you give them. Our first question is on your telling on your guidance. Q3 came in better on both the top line and EPS, versus the guidance. Yet as you mentioned you are pointing to the middle or lower half of your full year organic up-income girls guidance. It sounds like on your EPS growth guidance as well. I know you called out the higher cost pressure, from, you know, the ongoing geopolitical tensions. I really do want to verify if you are also now planning in spending more on the U.S. for instance.
45. +0.39%42:23AnalystAre you finding that it's now costing you more to implement some of the, you know, strategic initiatives, you know, that you've called out, such as putting, you know, 20 pouches in all Zinc cans? And then how should we think about some of these higher costs and spending in the U.S. on your profitability and EPS growth next year?
46. +0.39%42:44ManagementThank you very much, Bonnie. Nice to hear from you. So you're right. So our guidance points for the OI and for the EPS for the full year towards the mid or lower half of the range. And as you could read, the predominant element that we have in there, there are two predominant elements fundamentally. One is the cost pressure that is coming from geopolitical elements. This cost pressure has been increasing over the year, and we start feeling more the impact of that during Q3 and Q4. Right. Right. Right. Right. Right. And we guided you to a full year impact of alpha point of EPS.
47. +0.28%43:25ManagementYou could read that, therefore, the flow in is mostly in H2. And we guided you to another alpha point that is coming from disruptions, which are kind of one-off things that have happened in Ukraine due to, sadly, three events of bombing of some of our supply chain facilities. Right. Right. Right. And we have, therefore, destruction of goods. Now, quite frankly, if you look at that and you look at our guidance, that constitutes one point. And it means that just that one, if we had not had those impacts, we would be mid to higher half of the range.
48. +0.23%44:08ManagementAnd the other important element that there is in the quarter, and especially in Q4, is the exceptional level of investment that we're making in the U.S. Right. Right. Right. Right. Right. Right. Right. Right. Right. Right. Right. Right. Right. Right. Right. I assume you will all acknowledge that the investment that we are making in the US over the course of Q3 and Q4 is exceptional by all means. And I would point you out to a couple of elements in that. First and foremost, the fact that we are moving our flagship portfolio to an optimized premium
49. +0.23%44:47Managementprice positioning, which de facto means a better value proposition for the consumers. And in practical terms, it means a 25% price reduction on a per pouch basis. So we are migrating our entire flagship portfolio from 15 to 20 count at the price of the 15 cans. That alone, as you can understand, has an impact on the revenue line of it. As we go forward, we will continue to move our flagship portfolio to a higher level of value proposition for the consumers. And in practical terms, it means a 25% price reduction on a per pouch basis. So we are migrating our entire flagship portfolio from 15 to 20 count at the price of the 15 cans. And in practical terms, it means a 25% price reduction on a per pouch basis. So we are migrating our entire flagship portfolio to a higher level of value proposition for the consumers. And in practical terms, it means a 20% price reduction on a per pouch basis. So we are migrating our entire flagship portfolio to a higher level of value proposition for
50. +0.29%45:30ManagementIn order to ease the sell-out of the remaining 15 count cans in the market. And the third step that we take is an exceptional investment that is already flowing in in Q3. And we guided to... to a potential increase over Q4 exceptionally by a 10% versus the Q3 impact. So we said about $370 million in Q3 and a 10% increase exceptionally in Q4. In order to continue to do a couple of things. The first one is continue to build Zinn into the strongest smoke-free brand in the US.
51. -0.02%46:11ManagementAnd the second element is we have practically tripled our portfolio of variants of nicotine pouches over the course of the year. And we're making this value optimization in terms of price adjustment. And therefore, we want to step up both branding communication when it clicks campaigns and continue to expand that. But at the same time, we want to do something very important that is continue to build the awareness. Of consumers around the existence of this new variants, but also the awareness on the new price of the product.
52. -0.02%46:49ManagementYou should interpret all these elements as elements that for Q4 are going to be even ramped up versus Q3. But as we said in the guidance, you could assume that the Q3 level of cost would be a good proxy for what the level of commercial investment is going to be over the course of next year. So when you put all of these things together, Bonnie, quite frankly, I see strength in the guidance that we are giving for the bottom line and for the EPS. In that we are moving it to the mid and bottom half of the range just for the correction of the cost that I detailed before.
53. +0.18%47:29ManagementAnd we are de facto, almost absorbing the strong investments that we're making in the US, supported by the strength in all the rest of the business. And that's what we're doing here, Bonnie. So when you put all of these things together, Bonnie, quite frankly, I see strength in the guidance that we are giving for the bottom line and for the EPS. the business. In other words, if it were not for those inflationary pressures, which we have felt to a much lower extent from what I'm seeing in the disclosures of other FMCG companies in the areas, we have felt to a much, much more manageable level than many other companies. If it were not for those, we would actually be in the mid to upper end of the range. I hope I addressed your questions.
54. +0.46%48:06AnalystNo, definitely. That was helpful. And just to confirm, Asima, that as I think about next year, the spend levels in the U.S. this year, I think about that continuing. Next year,
55. +0.46%48:18Managementdid I hear that correctly? I think what we guided towards is the fact that the spend level that you are seeing in Q3 is a good proxy for the run rate that we're going to have next year. In Q3, consider that there is another element, which is a higher cost. The fact that we have just started up our Colorado facility. So the level of loading in that facility is low and therefore the impact from the overheads there. So you're going to find yourself next year with kind of a cost level where Q3 is a good proxy. And obviously, we are banking on the future growth of the category next year. And we are bolstered by the share results that
56. +0.92%49:02Managementwe have seen from June until now. Okay.
57. +0.92%49:06AnalystYeah. Maybe just a couple of quick follow-ups on ZIN because you touched on it. So I'd be curious to hear from your perspective how some of the recent ZIN innovations that you've rolled out have been performing relative to your internal expectations and maybe ultimately how incremental do you think the innovations will be to flagship ZIN? And then second, on the move to 20 pouches in each of the ZIN can, I'm curious how you see this impact. I mean, do you see this impacting consumer behavior, if at all? For instance, do you see it, I don't know, as a headwind to volumes or could it be a possible tailwind if consumers now consume
58. +0.92%49:47Analystmore since they have more pouches in each can they buy? Just kind of trying to think through that. Thank you.
59. +0.92%49:52ManagementOkay. So we're very excited with the initial results of both the expansion of flavors on our flagship dry portfolio and the introduction, the higher nicotine levels of 9 and 11 in our ultra portfolio. I must tell you that the feedback that we have gotten from consumers, and I had the opportunity a couple of weeks ago to be in the US and do a deep dive on that, has been overwhelmingly positive. And this includes both existing Zin consumers that were really looking forward to having
60. +1.04%50:33Managementtheir flavor options at the three or six levels that they were used to, and the feedback on actually those flavors of dry have been really super positive. But also consumers that were wondering why Zin did not have a higher nicotine level proposition, and that might have otherwise considered going to competition. But frankly in data that we have seen from our consumer research, we see that there has been a lot of competition. We have seen high interest in what we have launched. We have seen an inflow both of legal age smokers that are coming to the category, but also
61. +1.42%51:14Managementof competitors, users, and people in the case of 9 and 11 that had left Zin to go to competitors' propositions in higher nicotine levels, and who have come back into Zin thanks to those launches. So we see all of that in the share. As you see, the share is positive since June and since we started these launches. And therefore, I can only imagine that with the adaptation at this point of the price premium, we should be seeing even more competitiveness and more strength going forward.
62. +1.42%51:56ManagementRegarding your question on consumer behavior, well, Bonnie, let's wait and see. I can tell you my personal experience. When I have more in the pocket, I tend to consume more. I see it with my kids when they buy juices and other things. The more you have in the fridge, the more you take. So we can only assume that that's going to be the case. There is one thing that I will comment on, however, from my experience in international. As consumers come into the category and get used to it, and they stay with the category, we see two things happening. Consumers tend to trend up a little bit on the nicotine, but as they stay in the category,
63. +0.84%52:40Managementtheir average daily consumption tends to trend up. You may argue that in the US today, where the category is at its beginning, you are probably in the low single digit in terms of average daily consumption. If you go to markets where the category has been present for longer, you're actually seeing more high single digit daily consumption. So I think that's a good point. Thank you. Bye. Bye.
64. +0.34%53:34ManagementBye. We've got some quick questions for Matt. I think he mentioned that there's some impact in 3Q and higher in 4Q. So if you just isolate the fourth quarter, should we think of that as over a one-point drag on profit? And how do you view levers to offset the impact going forward? You realize your cost savings target ahead of schedule and pricing has run above historical levels. But how do you view both of those now going forward? Thank you. Thank you, Matt. Well, let's first of all say one thing. is coming from, because it's coming from a geopolitical conflict predominantly in the Middle East that is driving energy prices up and therefore a variety of inputs and services.
65. -0.11%54:16ManagementAnd as we have showed in the past, we have a certain resilience in our supply chain. In fact, despite the fact that the conflict has been lasting also for the first half of the year, we're only seeing these elements of costs flowing more meaningfully into our P&L in the second half of the year. I'm not going to guide you on the precise split of those elements across the various quarters, but the Q4 is probably the quarter in which we are feeling it the most, purely from a timely perspective, because those higher priced inputs are coming in now.
66. -0.11%54:59ManagementWhat I would tell you is we have been through this. You may remember at the times of the beginning of the war in Ukraine, and we have showed repeatedly the resilience of our model and our ability to mitigate those costs. Quite frankly, you're seeing it now again, because when you compare our half a point that we're guiding for this year to what is being guided by many of our other peer companies who operate in the area. You see significantly higher impacts from that, which is testament to the resilience
67. +0.19%55:40Managementof our supply chain and the fact that we have a broadly sourced set of materials that come from all over the world and also contracts which protect us over a period of time that will allow us to navigate this. Having said that, all of those protections cannot last forever. The situation is very volatile in the same way as it is impacting now. It may disappear the moment that the conditions on the ground go back to normal. And to your last point, look, we have demonstrated this year and also in previous years that
68. -0.30%56:16Managementwe have very strong pricing power and we are entering 2027 with probably a super strong P&L at this point and balance sheet, by the way, as well, with margins expanding at a very high level. We have expanded the margin at gross level, at operating income level. You've seen that here today we've expanded 80 points, the margin at gross level and 60 at operating level. So we're entering 2027 strong and therefore in an excellent position to be able to manage those impacts should that move forward. Thank you for that.
69. -0.30%56:56ManagementAnd if I could ask a follow up, you changed your guidance a bit for the heated tobacco ICO shipment versus in-market. I think now you expect shipments to slightly trail IMS. Can you talk about or give more detail on that gap and how do you view inventory levels as you're exiting 2026? Are those at a normal level or is this gap an opportunity to further catch up as you go forward? Thank you. Thank you for that question, Matt. Look, we have to take the fact that 2026 has been a very, very important year for us. It's been a bit of a peculiar year for Hidden of Burn in that there has been especially
70. +0.10%57:41Managementone event. There has been this taxation and therefore tax driven pricing in Japan, not once but twice. And therefore a variety of preparatory steps for that unprecedented event took place both last year when in the end of the year the shipments were higher, exactly for us to prepare for pantry loading. That happens from. That happens from consumers that are not used to that level of price change, both at retailer level and at consumer level. So you saw that there is a phasing of shipments where we have significantly higher shipments in the first half of the year in H1 and lower shipments in H2.
71. +0.13%58:24ManagementWhen you look at what we just showed, you saw that the trend in IMS also reflects the pantry loading in Japan. And given that our April pricing was of 40 yen, but our October pricing is of 20 yen, we're seeing obviously less pantry loading from the consumers given the smaller increase that is happening in the second half of the year as we're seeing in the, as we saw in the first half of the year, which means we entered into well equipped from a shipment level. And therefore with that phasing of shipments, IMS are going to run ahead slightly of, of the year. So we're seeing a lot of phasing of shipments and therefore you will see inventories coming
72. +0.09%59:07Managementdown, but always at a very healthy level. And therefore we also take the benefit on the working capital side. Thank you. I'll pass it on.
73. +0.09%59:17OperatorThank you, Matt. Thank you. One moment for our next question. Our next question comes from the line of Eric Sirota from Morgan Stanley. Your line is open.
74. +0.09%59:28AnalystGreat. Thanks for taking the question and thanks Massimo. First, could you tell us a little bit about your experience with the market? I mean, I've been in the market for a long time. I've been in the market for a long time. I've been in the market for a long time. I've been in the market for a long time. Could you talk a little bit about puts and takes for international smoke free growth next year. Realizing you're not going to give me a guide, give us guidance today. But, you know, clearly this was a 26 was an extraordinary year. You talked about some, you know, less unfavorable or a more normal tax environment in Japan next year. You'll be cycling the slavery ban in Poland.
75. -0.03%60:05AnalystAny other big considerations to keep in mind as we start to think about international smoke free next year? I know there's a tax changes in Germany much smaller than Japan, but I believe impacts H2Us, but anything more broadly in terms of puts and takes for next year for ICOS internationally? Thank you very much, Eric.
76. -0.03%60:35ManagementThank you very much, Massimo. Thank you very much, Eric. Thank you for the question. Well, look, I'm not going to provide guidance for next year. We're going to talk about that one in February. But as you said, puts and takes. So I'll give you my takes on this. So my first take that I would give is if you look at our ICOS performance over the course of the year, we have displayed that there is strong momentum in terms of IMS of ICOS. And the thing that I would remark. Here is that the geographical base over which that growth is spread is becoming wider and wider.
77. +0.28%61:17ManagementSo you saw that we presented year to date 7.7 adjusted IMS growth. If you take out the impact from Japan and Poland, we are at 10.8% IMS growth. You could compare that with 2025, which was at 10.7%. So that's a lot of growth. So that's a lot of growth. And then we have the growth in the US, which is at 10.6%, which means that you see that that momentum is there and is actually increasing. And this increase is also related to the fact that there are more and more markets that have double-digit growth in IMS and sizable markets. You have in double-digit at this point Italy, Greece, Spain, the Netherlands, the United Kingdom, Germany.
78. +0.28%61:59ManagementMany of these markets were not markets that were on the list previously, meaning these were markets where we started investing. And we have a lot of growth. We started investing a few years ago and where we're seeing the results coming. We're seeing Indonesia with excellent growth, Mexico, Saudi, Taiwan where we have captured more than 80% of the share in the category. GTR, global travel retail that continues to contribute positively. So you see that the momentum from an IMS perspective, when you take out those one-time events of Japan and Poland is there. And the geographic diversification of the market. So that's a lot of growth. Yeah. And the growth of the growth gives me confidence for the resilience of that growth.
79. -0.13%62:42ManagementNow the Japan event of this year, I would say that was a little bit atypical because you have asymmetrically only one category that takes a pretty important tax and price increase. If you look at the price increases that we had to pass on the high cost consumables alone, you're looking for the Japanese consumers. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. Yeah. So this already gives us the kind of perspective that is not used to seeing pricing increases over a 10% price increase over the course of one year with the cigarettes not moving.
80. -0.20%63:24ManagementSo now that we move into next year and you have a 12 yen increase across the board for HTU use and for cigarettes, you may argue that that is a more progressive increase and itself. And then the other thing that I would ask you to consider is that at this point, we have launched also our new proposition that is bonds and blends in a variety of markets, including, by the way, in some of the prefectures in Japan. And you remember that one of the elements that we wanted to really crack, especially in a place like Japan, where you have more than 50% penetration of the category among nicotine users, is for those that are still
81. -0.27%64:07Managemententrenched and haven't moved yet, what is a proposition that may actually encourage them to move? And we're at this point with bonds and blends in a number of markets. The proposition is actually doing, and we see that the consumer feedback tells us that the proposition does what we wanted it to do. That is, it's managing to convince entrenched smokers to actually move because they find the more similar experience to cigarettes in bonds and blends that they're looking for. And therefore, we're seeing less or fewer HTU users moving to bonds and blends. They actually tell us, hmm, too strong for me,
82. -0.27%64:52Managementbut more smokers moving there, meaning it's working exactly as we want. We're at the beginning of that journey. I cannot but be just encouraged by what I'm seeing. And then I will say one last thing. My answer has already been long, but we are starting to see also some new markets opening up. We saw Taiwan that opened up last year, and you see what a quick run we have had in Taiwan, where the business is growing strongly, and we have become absolutely the category leader in the category ahead of the traditional leading player in the HMBC business there. And more recently, you have seen regulatory changes in Argentina,
83. -0.29%65:34Managementwhich is a positive step towards the ability next year to be able to enter the market in Argentina as well, which means that there may be more markets that come on board. It's not a matter of whether they're going to come on board. It's more a matter of when. So our sentiment towards the trajectory for HMB remains extremely high. And I think that's a very important point. Thank you. Thank you. Thank you. Thank you. Eric.
84. -0.05%66:02AnalystGreat. Very thorough and very helpful. One quick follow-up. Realizing pricing has never been the primary lever for ITOS growth. It's really mostly about driving penetration. It does seem like the price mix or the implied price mix in international smoke-free was a little bit softer this quarter. I think it ran about three and a half percent in the first half. You know, closer to, I get like 70 basis points in the third quarter. Just wondering what's happening there. Is it simply the comparisons from last year? Is it some geographic mix?
85. -0.05%66:45AnalystIs it product mix with bonds by ICOs? Just wondering what happened in the quarter and how to think about price mix for international smoke free going forward.
86. -0.05%66:56ManagementExcellent question, Eric. So there are two things that I would mention when it comes to the revenue growth of ICOs in the quarter. Two things to keep in mind. The first one is it's obviously hit by the comparison on the shipments versus previous year. And you saw that our shipment volume in total SFP was at 2.7 gross. Which is a lower level of gross that you have seen in previous quarters. And obviously being ICOs such a large part of our smoke free portfolio. The comparison on ICO shipment volumes is the one that is actually holding that down.
87. +0.36%67:41ManagementBecause you have seen excellent gross in the other two categories. There is a second element to consider that is therefore category mix. Within that when you want to take that to revenues. And one third element. There have been certain pricing decisions. Timing of certain pricing decisions. Especially in ICOs that have been made and which have hit the quarter. And that's all. But nothing else on that that is of any concern to us.
88. -0.06%68:16AnalystGreat. Thanks so much. We'll pass it on.
89. -0.06%68:19ManagementThank you, Eric.
90. -0.06%68:21OperatorThank you. And our next question. I'm coming from the line of Pallav Mittal from Barclays. Your line is open.
91. -0.06%68:29ManagementHi. Good morning. Thanks for taking my question. So the first one is on Zin and Ultra. And clearly there have been some concerns around the pickup in volume over the last couple of months. The EBIT this quarter in the U.S. is growing only 1.5% on a very easy form. And for Q4 you were saying it would be slightly negative. Given that the investments will continue into next year. Is it fair to assume that the U.S. EBIT would decline next year? The U.S.? Can you repeat the last?
92. +0.20%69:11ManagementThe EBIT in the U.S. would decline next year? Pallav, sorry, your line is not very clear. But I think you're asking about U.S. EBIT for next year. For next year. Okay. Look, as I said before, I'm not going to provide guidance for next year here. I can. I can provide some considerations for you to make your own conclusions on it. You have seen that we have now nicotine pouch volumes that have grown quarter on quarter over the past three quarters. And we guided over the performance in Q4.
93. +0.20%69:53ManagementYou know that we are bold about the category going forward. And we said that it's going to be in strong double digit growth going forward. And you have seen our share performance. Quite frankly, we also guided and I explained that in the question before from Bonnie on the cost level that you can expect for next year. And taking Q3 as a good proxy for the run rate for next year. And therefore, you can assume that with volume growth continuing from the category and from our ability to retain or even increase share, the absorption of those costs is going to be better. And you have seen our share performance. And you have seen our share performance. Including the investments that we have made in Colorado for the manufacturing facility.
94. -0.11%70:38ManagementAnd therefore, you can derive what the possible trajectory for the EBIT is going to be. And one thing to keep in mind is the fact that obviously the 25% price optimization that we are making in Q4 will have a lagging effect for three quarters on the revenue level. But on a growing volume. So that's what I would keep in mind. And then we can provide better guidance when we talk again in February. And Pallav, your line is very unclear. So I'm afraid we'll have to move to the next question. Please do contact us if you have a follow up to that.
95. -0.53%71:14OperatorThank you. And our next question will come from the line of Andre Anden from Jefferies. Your line is open.
96. -0.53%71:24AnalystHi, Massimo and James. It's Andre Anden from Jefferies here. Thank you very much for taking my questions. Two quick ones from me, please. First of all, in Germany, we've had this law that means excise taxes will increase the value of the property. And that's not true. And that's not true. And that's not true. But this rule applies to all properties much more sharply in the next four years. It was passed last week. How do you expect this to affect combustibles and heated tobacco in Germany in terms of volumes and pricing ability in 2027 and beyond? And then the second question. We've had this shipment growth for ZIN in the US, just over 4% year-on-year in Q3. It does seem like it's fairly ahead of third-party scanner data, which seems to suggest volumes down mid-single digit in Q3.
97. -0.71%72:04Analystrestocking benefits or are there any other factors that would help explain this difference? Thank you.
98. -0.71%72:11ManagementThank you very much, Andres. So I will start from the Germany question. I mean, as you know, we operate across a variety of countries around the world, and this is not the first time that we find ourselves confronted with higher than usual taxation passed in one time. I mean, if you look at the recent past, similar events of actually higher magnitude have happened past couple of years in Belgium, in the Netherlands, two years ago in Poland, more recently in India, in Mexico. So we are actually quite well versed to deal with events
99. -0.71%72:52Managementlike this one. Now, the German government came with a higher than usual tax pass on because now it's ranging between 83 and 88. Since I understand starting on January 1st. And I would point you, Andres, to certain positive elements of this, which are the following. First and foremost, the differential with HTU has been retained and therefore HTU retains a tax advantage versus the underlying tax,
100. -0.35%73:27Operatorcigarette tax.
101. -0.35%73:30ManagementThe second element, that I would bring you to is if there is a market where we are perfectly positioned to be super competitive even in an environment with higher tax that's Germany we have the strongest brand in the market which is Marlboro and Marlboro's equity in Germany is one of the highest that we have in the entire world accompanied by a few other brands second to it L&M that is accompanying it Marlboro and the entire portfolio has been well deployed across a variety of formats
102. -0.25%74:08Managementincluding very large stick counts packs but also banded with the launch last year of Marlboro crafted that has been extremely successful which means that it allows us to compete at all the various price segments and therefore to commit compete very powerfully so you have to tell you is it welcome that the German government comes with a tax increase of that magnitude no it's not because we know what that trajectory does we have seen that well in the UK we have seen that well in France in Belgium in the Netherlands fundamentally it moves more volume
103. -0.25%74:50Managementto illicit players and ultimately the government collects fewer taxes and sometimes the lawful industry collects fewer revenues but if there is one company in Germany that is well versed to compete in that environment that is us thanks to the portfolio that we have in the strengths of the brands that we have and at this point I would say with cigarette prices going up yes the HTUs are going to go up but by a lesser extent given the tax differential and we're going to continue to be focused on the growth of ICOS in Germany which as I said before is recording a double-digit IMS growth
104. +0.14%75:30Managementthis year and that is for us super important I'll come to your question on the ZIN growth Andre if I may ask you to clarify your question on the ZIN growth again please it's just that the
105. +0.14%75:46Analystreported shipment number the just over plus 4% in the US on volumes does seem to be ahead of the scanner data that we've seen which would have suggested around mid single-digit volume declining q3 I was just wondering if you could give us a little bit more detail on that and then we can get to the next question. if that Delta is explained by a degree of restocking or if there are other factors in play that would explain this difference
106. +0.39%76:10Managementwell what I can tell you is this is the shipment data that we have so we're growing 4.2% in the quarter and actually what you can consider is that if you consider the comparison to the fact that in September last year we had the nicotine power and actually what you can consider is that if you consider the comparison to the fact that in September last year we had the nicotine power promotion that hit the month of September we are actually removing that unfavorable comparison growing 13% in the quarter net of that comparison so that is maybe the element that you may want to keep in mind in order to to reconcile your figures the second thing that I would point out to you is that obviously in the quarter that is the rollout and pipelining and In order to to reconcile your figures.
107. +0.39%76:52Managementthe second thing that I would point out to you is that obviously in the quarter that is the rollout and pipelining and increase of distribution of our new variants and the flavors on the dry portfolio and the launch of the ultra variants. So over the course of the quarter, there was obviously increase of distribution. We believe that for those variants, we are now fully covered in terms of distribution. We're now building the one for 1.5 and eight, but those obviously have contributed to the growth of shipments for us in the quarter. Does that address your question, Andre?
108. +0.28%77:31AnalystYeah, thank you very much.
109. +0.28%77:33ManagementThank you.
110. +0.28%77:34OperatorThank you. That's all the time we have for Q&A today. I want to turn it back over to management for closing remarks.
111. +0.28%77:42ManagementThank you very much. Sorry, if we didn't manage to address everybody's question, please do follow up with the investor relations team. That concludes our call today. Thank you for joining us and have a great day. Thank you for your participation in today's conference. This does include
112. +0.28%77:59Operatorthe program. You may now disconnect. Everyone have a great day.