Philip Morris International NYSE: PM reported what Chief Financial Officer Emmanuel Babeau described as a “strong start to the year,” driven by growth in its international smoke-free business and “very robust pricing.” On the company’s 2026 first-quarter results call, Babeau said organic net revenue and operating income growth exceeded management’s expectations, resulting in 10% adjusted operating income growth and 16% adjusted diluted earnings per share (EPS) growth to $1.96.
Babeau said the quarter’s performance came despite a “particularly strong prior comparison” in the U.S. and in combustibles. International smoke-free results were led by IQOS, with “close to +11% adjusted in-market sales growth,” and additional contributions from nicotine pouch brand ZYN and e-vapor brand VEEV, which he said reached an estimated joint No. 1 position in Europe based on Nielsen offtake data.
Quarterly financial performance
PMI posted more than $10 billion in net revenues, up 9% reported and up 2.7% organically. Babeau said this exceeded the company’s expectation for “a broadly flat delivery.” Adjusted gross profit rose 10% to $6.9 billion, reflecting 3.8% organic growth and 70 basis points of organic gross margin expansion. Adjusted operating income increased 10% to $4.2 billion, with “close to +1% organic growth,” partly offset by “increased growth reinvestment.”
Adjusted diluted EPS grew to $1.96, including an $0.18 currency tailwind. Babeau said the currency benefit reflected a weaker U.S. dollar and a positive transactional impact. He also noted the company’s effective tax rate was “slightly better than expected” in the quarter compared to the forecast full-year rate.
For PMI overall, Babeau said adjusted operating income margin expanded 40 basis points to “over 41%,” including a positive currency impact. He added that the quarter included “approximately $150 million of gross cost efficiency realized in Q1,” and that management remains on track for full-year organic margin expansion in 2026.
Smoke-free growth led by IQOS, with ZYN and VEEV momentum
International smoke-free was a focal point of the call. Babeau said the segment delivered 11.9% volume growth, 15.8% organic net revenue growth, and 19.4% organic gross profit growth, driving 210 basis points of gross margin expansion to 70%.
In volumes, total smoke-free shipments increased 9.1% year over year. Heated tobacco units (HTUs) grew 11% to 41.3 billion units, including a modest net phasing benefit of about 0.5 billion units across several markets. E-vapor shipments rose 95%, which Babeau said “largely offset” a 16% decline in oral smoke-free volume tied to U.S. shipment and inventory headwinds and timing dynamics in the Nordics. Total smoke-free in-market sales volume increased 11%.
IQOS posted adjusted in-market sales growth of 10.9% in the quarter, with Babeau pointing to broad-based momentum in Europe and Japan, and 19% adjusted growth in markets outside those regions. He highlighted Taiwan as the “most successful major IQOS launch market to date,” saying national IQOS share reached “almost 6% in March” and that Taipei exited March “at close to 8%.” Babeau also said IQOS in-market sales in Japan included a consumer pantry-loading benefit of approximately 0.5 billion sticks ahead of an April 1 excise-driven price increase; excluding that effect, growth was 9.4%.
In Europe, Babeau said IQOS adjusted in-market sales volume increased 5.4%, with disruption in Ukraine and the initial impact of the EU characterizing flavor ban in Poland weighing on results. Excluding markets where the ban took effect in January 2025, he said adjusted in-market sales volumes grew “around +8%.”
During the Q&A session, Babeau described IQOS as the company’s “biggest driver” globally within smoke-free. He attributed its performance to product differentiation, brand strength, and continued innovation, citing offerings such as TEREA, DELIA, and LEVIA.
ZYN and VEEV were described as increasingly important to PMI’s multi-category strategy. Babeau said modern oral shipment volumes increased 7% on a comparable basis, or 42% excluding “more mature Nordic markets,” and estimated offtake volumes grew “well over 50%” in international markets outside the Nordics. He also pointed to the rollout of a lower-strength product, ZYN X-Low 1.5 mg, across a “large majority” of PMI’s 58 international ZYN markets.
On e-vapor, Babeau said Vuse became the joint No. 1 closed pod brand in Europe in the fourth quarter of 2025 based on Nielsen estimates across 19 markets, and that quarterly shipments exceeded 1 billion equivalent units for the first time as in-market sales volumes “almost doubled.”
U.S. ZYN: offtake growth, shipment headwinds, and innovation focus
In the U.S., Babeau said ZYN offtake volumes grew 10% in the first quarter, based on Nielsen estimates, despite an “uneven competitive landscape.” However, shipments declined to 155 million cans due to inventory dynamics. Babeau said the company had estimated about 25 million cans of surplus inventory in the downstream supply chain at the end of 2025, which “largely normalized” in the first quarter of 2026, pressuring shipments relative to consumer offtake.
He provided context for comparisons, noting that first-quarter 2025 included around 40 million cans of inventory rebuild as supply constraints eased, and said the underlying shipment base tied to consumer offtake was around 160 million cans. Based on that, he said the underlying volume for the current quarter was around 10% higher, at approximately 175 million cans.
Management expects U.S. performance to improve as comparisons normalize and as the company prepares new launches. In response to questions from Goldman Sachs’ Bonnie Herzog, Babeau said the second half should benefit from a more favorable comparison in revenue per can and shipment baselines, the absence of a prior-year “free can” operation that affected third-quarter 2025 performance, and the expected introduction of innovation “in the coming months.”
On pricing and positioning, Morgan Stanley’s Eric Serotta asked about widening price gaps for ZYN versus competitors. Babeau said ZYN is intended to remain “the more premium brand in the market” and that the company will “permanently monitor” the appropriate premium versus competition while maintaining a “premium and profitable positioning.”
Barclays’ Pallav Mittal asked about nicotine pouch excise tax proposals in some states. Babeau said PMI believes smoke-free products should be taxed in a way that reflects a “continuum of risk,” with nicotine pouches receiving “a particularly well-treated” low level of excise duty, and argued that high taxes would run counter to the U.S. FDA’s intent to provide alternatives to cigarettes.
Several analysts asked about ZYN Ultra and regulatory timelines. Babeau said the authorization of ZYN Ultra via the FDA’s nicotine pouch pilot program “remains a priority,” and that the application is under active scientific review with continued dialogue with the FDA. He said the company is “optimistic” it will be able to launch in “the coming months,” and added that PMI has made additional ZYN submissions at various stages of the regulatory process.
Combustibles: pricing strength offsets volume declines; outlook reiterated
PMI’s combustible business delivered what Babeau described as results in line with its mid-term model, with low single-digit organic top-line growth and low-to-mid single-digit organic gross profit growth. International cigarette volumes declined 5.1%, while organic net revenues rose 1% and gross profit increased 3.9% as pricing and cost management outweighed volume and mix headwinds. Gross margins expanded 190 basis points organically.
Across PMI, total shipments fell 1.9%. Babeau said cigarette volume declines were at the more negative end of expectations, reflecting the lapping of “exceptional” volume growth in the prior-year quarter tied to inventory replenishment in markets including Indonesia, Russia, Italy, and Spain, as well as increased illicit consumption in certain markets and excise-driven industry declines in countries such as Mexico.
Pricing was the largest contributor to first-quarter net revenue growth, adding 5 points, driven by combustibles pricing of 8.5% and international smoke-free pricing of 2.9%. Babeau said the company now forecasts full-year combustibles pricing variance “of more than 6%,” while expecting some moderation in the second half due to timing and comparisons. He also said Marlboro reached a record first-quarter share of 10.7%, up 0.4 points year over year, while PMI’s cigarette category share declined 0.6 points to 24.8%.
Looking ahead, Babeau said the Middle East conflict had a “small impact” in the first quarter on global travel retail shipments and certain regional markets, and noted increased energy prices and some supply disruption in several markets. However, he said the company had not seen “a discernible shift in consumer behavior” and has factored in some increases in transport, energy, and other input costs.
PMI reconfirmed its currency-neutral 2026 outlook provided in February, calling for broadly stable shipment volumes, organic net revenue growth of 5% to 7%, organic operating income growth of 7% to 9%, and currency-neutral adjusted diluted EPS growth of 7.5% to 9.5%. At prevailing rates, the company now forecasts a currency tailwind of $0.25, resulting in an updated adjusted diluted EPS forecast of $8.36 to $8.51.
For the second quarter, Babeau forecast HTU shipment volume of 40 billion to 42 billion, slower HTU in-market sales growth due to Japan’s excise-driven pricing impact, and a low single-digit cigarette shipment decline. PMI expects mid-single-digit organic net revenue growth and “solid” operating income progression, with adjusted diluted EPS of $2.02 to $2.07.
About Philip Morris International NYSE: PM
Philip Morris International Inc NYSE: PM is a global tobacco company that manufactures and sells cigarettes, other nicotine-containing products and a growing portfolio of smoke-free alternatives for adult smokers. The firm traces its corporate roots to the 19th century Philip Morris enterprise and was established as an independent, publicly traded company following a 2008 separation from what is now Altria. Since the spin-off, the company has focused on serving international markets outside the United States.
PMI's product mix includes traditional combustible cigarettes as well as smoke-free offerings such as heated tobacco systems and other reduced-risk products.
Featured Stories
This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to contact@marketbeat.com.
Before you consider Philip Morris International, you'll want to hear this.
MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and Philip Morris International wasn't on the list.
While Philip Morris International currently has a Moderate Buy rating among analysts, top-rated analysts believe these five stocks are better buys.
View The Five Stocks Here
Enter your email address and we’ll send you MarketBeat’s list of ten stocks set to soar in Spring 2026, despite the threat of tariffs and other economic uncertainty. These ten stocks are incredibly resilient and are likely to thrive in any economic environment.
Get This Free Report
