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01/10 23:50
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call reveals strong growth in the smoke-free business and ZYN shipments, alongside raised guidance for revenue, operating income, and EBITA. Despite some uncertainties in EU regulations and FDA approvals, the company's strategic initiatives and cost savings bolster a positive outlook. The Q&A session highlights robust growth drivers and confidence in achieving targets, with potential short-term boosts from resumed promotions. Overall, the positive sentiment outweighs the risks, suggesting a likely 2% to 8% stock price increase.
Net Revenues $10 billion in Q2 2025, a year-over-year growth of +6.8% organically (+7.1% in dollar terms). Excluding the Indonesia technical impact, organic net revenues grew by more than +8%. This growth was driven by strong performance in smoke-free products and robust pricing in combustibles.
Adjusted Operating Income (OI) Grew by +14.9% organically in Q2 2025, driven by growing profitability in all categories, positive smoke-free margin mix, and ongoing cost efficiencies.
Adjusted Diluted EPS $1.91 in Q2 2025, reflecting a growth of +20% year-over-year. This includes a favorable currency variance of $0.02. The growth was driven by strong top-line momentum, positive margin evolution in smoke-free products, and robust combustible pricing.
Shipment Volumes Grew by +1.2% in Q2 2025 and +2.5% for H1 2025. Smoke-free business volumes grew by more than +13%, while cigarette volumes declined modestly due to supply chain issues in Turkey and contraction in Indonesia.
Smoke-Free Net Revenue Grew organically by +17.3% in H1 2025 to $8.1 billion. Gross profit grew by +27% to $5.6 billion, with a gross margin expansion of +530 basis points to over 70%. This growth was driven by margin expansion across all three smoke-free categories and positive mix impact from ZYN.
Combustible Net Revenue Increased by +2.9% in H1 2025 (or more than +5% excluding the Indonesia technical impact). Gross profit grew by +5%, with a margin expansion of +140 basis points. This was supported by robust pricing and efficiencies despite volume declines.
Operating Income Margin Expanded by +250 basis points organically in H1 2025 to surpass 41%, driven by strong smoke-free momentum and resilient combustible performance.
Gross Margin Expanded by +300 basis points organically in H1 2025. Pricing contributed +160 basis points, while smoke-free growth added +190 basis points. Cost inflation had a -60 basis point impact, net of productivity and other cost items.
ZYN U.S. Consumer Offtake Growth +26% in Q2 2025 and +36% in June 2025, driven by improved in-store availability. International nicotine pouch volumes increased by +65% in Q2 2025.
IQOS Heated Tobacco Unit (HTU) Sales Growth +11.4% in Q2 2025, driven by broad-based growth globally and in Europe, particularly in Italy as the impact of the flavor ban receded.
VEEV Shipments More than doubled year-over-year in H1 2025, contributing to gross margin expansion.
Smoke-free portfolio: Achieved a record $4 billion in net revenues in Q2 2025, driven by IQOS, ZYN, and VEEV. IQOS showed 11.4% growth in heated tobacco unit sales, ZYN saw a 26% increase in U.S. consumer offtake, and VEEV shipments more than doubled year-on-year.
New product launches: Introduced ZYN in Ireland and Cambodia, and expanded the ILUMA I technology to over 30 markets. Launched VEEV inPRIME in the Czech Republic with upgraded features.
Market expansion: Smoke-free products are now available in 97 markets, with multi-category offerings in 20 markets. ZYN expanded to 44 markets globally, including strong growth in Mexico, South Africa, and Global Travel Retail.
Regional performance: Strong growth in Europe, Japan, and the U.S. for smoke-free products. Notable progress in Indonesia with the rollout of BONDS tailored to local preferences.
Operational efficiencies: Achieved over $500 million in gross cost savings year-to-date, with a target of $2 billion by 2026. Adjusted operating income grew by 15.4% in H1 2025, driven by cost efficiencies and margin improvements.
Profitability: Smoke-free gross margin expanded to over 70%, with significant contributions from IQOS, ZYN, and VEEV. Combustible gross profit also grew by 5% in H1 2025.
Strategic shifts: Focused on transitioning legal age nicotine users to smoke-free products through a multi-category strategy. Strengthened U.S. production capacity for ZYN and emphasized regulatory engagement to support smoke-free growth.
Financial outlook: Raised adjusted diluted EPS forecast for 2025 to 13%-15% growth in dollar terms, supported by strong smoke-free momentum and robust pricing strategies.
Supply Chain Issues in Turkey: Supply chain disruptions in Turkey due to regulatory changes led to temporary volume and market share losses, as well as inventory write-downs. Recovery is expected but will impact H2 comparisons.
Illicit Trade in Indonesia: A growing illicit cigarette market in Indonesia is negatively affecting legal industry volumes, including the company's performance in the region. This trend is expected to continue into H2.
EU Tobacco Excise Directive: The proposed EU Tobacco Excise Directive lacks measures to counter illicit trade, which accounted for 9.2% of EU cigarette consumption in 2024, potentially impacting tax revenues and market dynamics.
Cigarette Volume Declines: Cigarette volumes are expected to decline by around 2% for the year, with a sharper decline of 3%-4% in H2 due to high prior-year comparisons and market dynamics in regions like Turkey, Europe, and Japan.
Currency Volatility: Currency fluctuations, particularly involving the Swiss franc, have caused intercompany transactional impacts, affecting financial results.
Regulatory and Competitive Pressures: Increased competitive activity in the heat-not-burn category and regulatory changes in various markets pose challenges to maintaining market share and growth.
Economic Pressures in EU: Economic pressures in the EU, combined with the lack of measures against illicit trade, could impact market stability and the company's operations.
Adjusted Diluted EPS Growth: The company has raised its adjusted diluted EPS forecast for 2025 to a growth range of 13% to 15% in dollar terms, or 11.5% to 13.5% excluding currency impacts. This includes a slightly improved effective corporate tax rate of approximately 22% to 23%.
Organic Net Revenue Growth: The company expects very strong organic net revenue growth in the range of 6% to 8% for the full year 2025.
Operating Income Growth: The forecast for organic operating income growth has been raised to 11% to 12.5% for 2025.
Smoke-Free Product Momentum: Continued double-digit volume growth is anticipated for smoke-free products in the second half of 2025, with IQOS and ZYN expected to maintain strong momentum.
Cigarette Volume Decline: Cigarette volumes are expected to decline around 2% for the year, with a 3% to 4% decline forecasted for the second half of 2025.
Capital Expenditures: Capital expenditures are projected to be slightly above prior forecasts at around $1.6 billion, primarily due to further international ZYN capacity investment.
Operating Cash Flow: The company has raised its forecast for operating cash flow to around $11.5 billion at prevailing exchange rates, subject to year-end working capital requirements.
HTU Adjusted In-Market Sales Growth: The company continues to target 10% to 12% growth in HTU adjusted in-market sales for 2025.
U.S. ZYN Shipments: Full-year U.S. ZYN shipments are targeted at 800 million to 840 million cans, with a sequential step-up expected in Q4.
Global Smoke-Free Expansion: The company plans to continue expanding its smoke-free product portfolio, including the rollout of ILUMA I and BONDS in various markets.
Progressive Dividend Policy: The company remains committed to its progressive dividend policy, emphasizing its focus on rewarding shareholders as the business transformation continues to deliver growth.
The earnings call indicates strong performance in smoke-free products, gross margin expansion, and organic revenue growth. Despite cigarette volume decline, smoke-free products like IQOS and ZYN are driving growth. The Q&A session confirms strong ZYN growth and strategic investments in the U.S., though some uncertainties remain. Overall, positive guidance and strong financial metrics suggest a positive stock price reaction.
The earnings call reveals strong growth in the smoke-free business and ZYN shipments, alongside raised guidance for revenue, operating income, and EBITA. Despite some uncertainties in EU regulations and FDA approvals, the company's strategic initiatives and cost savings bolster a positive outlook. The Q&A session highlights robust growth drivers and confidence in achieving targets, with potential short-term boosts from resumed promotions. Overall, the positive sentiment outweighs the risks, suggesting a likely 2% to 8% stock price increase.
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