Financial Performance:

• Revenue: Total smoke-free net revenues reached approximately $15 billion in 2024; overall organic net revenue growth of +9.8%.
• Net Income: Adjusted net earnings surpassed $10 billion for the first time.
• Earnings Per Share (EPS): Adjusted diluted EPS grew by +9.3% to $7.04 to $7.17 for FY 2025, with Q4 adjusted diluted EPS at $1.55.
• Operating Income: Organic operating income growth of +14.9%.
• Gross Margin: Adjusted gross margins for smoke-free products were +490 basis points higher than combustibles in Q4 and +270 basis points higher for the year overall at 66.6%.
• Operating Margin: Full-year organic margin expansion of +180 basis points; Q4 organic OI margin growth of +140 basis points.
• Cash Flow from Operations: Record operating cash flow of $12.2 billion for FY 2024, significantly above forecasts.
• Capital Expenditures: Planned capital expenditures of around $1.5 billion for FY 2025, primarily for ZYN.
• Debt and Liquidity Position: Reduced net debt to adjusted EBITDA ratio by 0.5 times to 2.66; on track for a target ratio of around 2 times by the end of 2026.
• Other Key Financial Metrics: Strong performance across categories, with a focus on smoke-free products leading to increased profitability.

Business Updates & Strategic Developments:

• Product or Service Launches: Continued rollout of IQOS ILUMA and new consumable variants such as DELIA and LEVIA.
• Market Expansions: Increased global presence in nicotine pouches to 37 markets; launched nicotine pouches in six new markets during Q4.
• Partnerships & Collaborations: Collaboration with FDA for marketing authorization of ZYN nicotine pouches; recognized for responsible marketing practices.
• Regulatory Approvals or Updates: ZYN became the first and only authorized nicotine pouch brand in the U.S.
• Legal or Compliance Issues: Ongoing efforts to combat illicit tobacco trade; focus on under-21 prevention initiatives.

Industry Outlook:

• Sector-Wide Trends: Shift toward smoke-free products; ongoing tobacco harm reduction policies gaining traction in various governments.
• Macroeconomic Factors Affecting the Industry: Inflation and foreign exchange rates impacting operations; supply chain normalization expected in 2025.
• Competitive Landscape: Strong performance against industry peers, maintaining leadership in smoke-free category; emphasis on multi-category strategy.
• Insights from Competitor Earnings Calls: No direct comparisons provided, but industry trends indicate a growing focus on smoke-free innovations.

Export Business & International Operations:

• Export Revenue & Growth: Robust growth in international nicotine pouch shipments (+75%).
• International Market Expansions & Challenges: Strong growth in key international markets despite regulatory challenges.
• Foreign Exchange Impact: Currency fluctuations impacted revenue; significant headwind from the Russian ruble and Egyptian pound.
• Regulatory or Trade Policy Impacts: Ongoing regulatory changes across various regions affecting market dynamics.
• Export Outlook: Positive outlook for continued growth in smoke-free products internationally.

Domestic & International Business Risks:

• Domestic Market Risks: Regulatory challenges, competition in smoke-free products; consumer trends shifting towards non-combustible options.
• International Market Risks: Currency volatility, potential political instability in key markets, and regulatory changes.
• Operational Risks: Supply chain disruptions; inflationary pressures on input costs expected to ease in 2025.
• Economic & Macroeconomic Risks: Global economic slowdown concerns; rising interest rates impacting consumer spending.

Forward Guidance & Future Targets:

• Revenue & EPS Projections: FY 2025 organic net revenue growth forecast of +6% to +8%; adjusted diluted EPS growth expected between +10.5% to +12.5%.
• Other Key Metrics Forecasts: Continued strong growth in smoke-free products, targeting +12% to +14% growth; HTU adjusted IMS volume growth of +10% to +12%.
• Management's Confidence Level on Meeting Targets: Management expressed strong confidence in meeting or exceeding growth targets for 2024-2026.

Promises & Commitments Tracking

New Commitments Made in this Call:

• Specific Goals or Targets with Timelines: Expand smoke-free business with expectations of continued strong momentum in 2025; target to normalize supply for ZYN by mid-2025.
• New Cost-Saving or Growth Initiatives: Continued focus on cost efficiencies targeting $2 billion in gross cost efficiencies by 2026.

Status of Previous Promises:

• Completed/Fulfilled Commitments: Surpassed $10 billion in adjusted net earnings; achieved several key milestones in smoke-free journey.
• Ongoing Commitments (In Progress): Continued investment in smoke-free portfolio and market expansions; ongoing expansion of nicotine pouches internationally.
• Delayed or Missed Commitments: No significant delays reported; however, supply normalization for ZYN is expected in H2 2025.

Capital Expenditure & Investment Plans:

• Planned vs. Actual Execution: CapEx is on track for FY 2025; significant investments planned for ZYN to support growth.
• Major Investment Areas: Focus on smoke-free products and expanding production capacity.
• CapEx Trends Compared to Prior Periods: CapEx plans consistent with prior years, with an emphasis on smoke-free portfolio growth.

Profitability & Margin Analysis:

• Margin Expansion or Contraction: Strong gross profit growth in smoke-free products (+23%); ongoing margin expansion expected in combustibles.
• Cost Management Measures: Delivery of over $750 million in gross cost efficiencies; focus on productivity improvements.
• Operational Efficiency Trends: Significant operating leverage achieved, with costs expected to stabilize moving forward.

Shareholder Returns & Capital Allocation:

• Dividend Announcements: Annual dividend increased for the 17th consecutive year; commitment to returning cash to shareholders.
• Stock Buybacks & Other Shareholder Incentives: No new share buybacks announced; focus on debt management and reinvestment in growth.
• Debt Repayment & Capital Management: Continued focus on reducing debt levels; improved leverage ratio supports financial stability.

Q&A Session Insights:

• Key Questions Asked by Analysts: Inquiry about ZYN growth projections, margin contributions from ILUMA, and market dynamics in Italy and Poland.
• Management's Responses & Clarifications: Emphasized confidence in smoke-free product growth; addressed supply constraints and pricing dynamics.
• Unanswered or Avoided Questions (If Any): No significant unanswered questions noted; management provided comprehensive answers to analyst inquiries.