Philip Morris International Inc (PM)

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Financial statements

data from SEC XBRL filings. Values are as-reported; restatements supersede originals.

From 10-Q filed 2026-04-24 (period ending 2026-03-31).

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Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Description of Our Company

We are a leading international consumer goods company, actively delivering a smoke-free future. We are evolving our portfolio for the long term to include products outside of the tobacco and nicotine sector. Our current product portfolio primarily consists of cigarettes and smoke-free products, including heat-not-burn, nicotine pouch and e-vapor products. Since 2008, we have invested over $16 billion to develop, scientifically substantiate and commercialize innovative smoke-free products for adults who would otherwise continue to smoke, with the goal of completely ending the sale of cigarettes. This investment includes the building of world-class scientific assessment capabilities, notably in the areas of pre-clinical systems toxicology, clinical and behavioral research, as well as post-market studies. In November 2022, we acquired Swedish Match AB ("Swedish Match") – a leader in oral nicotine delivery – creating a global smoke-free combination led by the companies’ IQOS and ZYN brands. As of April 30, 2024, we hold the full rights to commercialize IQOS in the U.S. after reaching an agreement to end our U.S. commercial relationship covering IQOS with Altria Group, Inc. in 2022. Following a robust science-based review, the U.S. Food and Drug Administration (the "FDA") has authorized the marketing of Swedish Match’s General snus and ZYN nicotine pouches and versions of PMI’s IQOS devices and consumables - the first-ever such authorizations in their respective categories. Versions of IQOS devices and consumables and General snus also obtained the first-ever Modified Risk Tobacco Product ("MRTP") authorizations from the FDA. We describe the MRTP orders in more detail in the "Business Environment" section of this Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A").

With our smoke-free business now operating at scale across our regions, including growth from our U.S. business, PMI has implemented an evolved organizational model with two primary business units: International and U.S. This change was implemented effective January 1, 2026, and as a result PMI realigned its reportable segments accordingly. The four geographic segments have been replaced with the following three new reportable segments:

•International Smoke-Free;

•International Combustibles; and

•U.S. (including our wellness business unit, Aspeya).

Our cigarettes are sold in approximately 170 markets, and in many of these markets they hold the number one or number two market share position. We have a wide range of premium, mid-price and low-price brands. Our portfolio is comprised of both international and local brands.

Smoke-Free Business ("SFB”) is the term PMI uses to refer to all of its smoke-free products. SFB also includes wellness products, as well as consumer accessories, such as lighters and matches.

Smoke-free products (also referred to herein as "SFPs") is the term PMI uses to refer to all of its products that provide nicotine without combusting tobacco, such as heat-not-burn, e-vapor, and oral smokeless, and that therefore generate far lower levels of harmful chemicals. As such, these products have the potential to present less risk of harm versus continued smoking.

IQOS, ZYN and VEEV are the leading brands in our SFPs portfolio. As of March 31, 2026, our smoke-free products were available for sale in 108 markets.

With a strong foundation and significant expertise in life sciences, PMI has a long-term ambition to expand into wellness areas. The business strategy of our wellness unit, Aspeya, currently focuses on developing and commercializing primarily oral consumer wellness offerings. This includes medical and non-recreational cannabinoid products (including CBD), in line with applicable regulatory requirements, though any revenue related to cannabinoids is expected to be negligible in the near to medium term.

We use the term net revenues to refer to our operating revenues from the sale of our products, including shipping and handling charges billed to customers, net of sales and promotion incentives, and excise taxes. Our net revenues and operating income are affected by various factors, including the volume and mix of products we sell, the price of our products and changes in currency exchange rates. Mix is a term used to refer to the proportionate value of premium-price brands to mid-price or low-

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price brands in any given market (product mix). "Mix" can also refer to the proportion of shipment volume in more profitable markets versus shipment volume in less profitable markets (geographic mix). "Other” also includes the currency-neutral net revenue variance attributable to the restructuring of distribution terms in certain markets.

Our cost of sales consists primarily of: tobacco leaf, non-tobacco raw materials, labor and manufacturing costs; shipping and handling costs; and the cost of devices produced by third-party electronics manufacturing service providers. Estimated costs associated with device warranty programs are generally provided for in cost of sales in the period the related revenues are recognized.

Our marketing, administration and research costs include the costs of marketing and selling our products, other costs generally not related to the manufacture of our products (excluding corporate expenses and other), and costs incurred to develop new products. The most significant components of our marketing, administration and research costs are marketing and sales expenses and general and administrative expenses.

Corporate expenses and other include certain other expenses related to foreign currency gains/losses and compensation expense related to restricted share units and performance share units awards, which were reclassified from cost of sales and marketing, administration and research costs.

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Executive Summary

The following executive summary provides the business update and significant highlights from the "Discussion and Analysis" that follows.

Consolidated Operating Results for the Three Months Ended March 31, 2026

•Net Revenues - Net revenues of $10.1 billion for the three months ended March 31, 2026, increased by $0.8 billion, or 9.1%, from the comparable 2025 amount. The change in our net revenues from the comparable 2025 amount was driven by the following (variances not to scale with quarterly results):

During the quarter, net revenues increased by 9.1%. Net revenues, excluding currency, increased by 2.7%, mainly reflecting: a favorable pricing variance mainly driven by International Combustibles; partly offset by an unfavorable volume/mix/other, mainly driven by lower International Combustibles and U.S. volumes, notwithstanding higher International Smoke-Free volumes.

Net revenues by product category for the three months ended March 31, 2026 and 2025, are shown below:

Note: Sum of product categories might not foot to total PMI due to rounding

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•Diluted Earnings Per Share - The changes in our diluted earnings per share (“diluted EPS”) for the three months ended March 31, 2026, from the comparable 2025 amounts, were as follows:

	Diluted EPS		% Change
For the three months ended March 31, 2025	$	1.72
2025 Amortization of intangibles	0.12
2025 Fair value adjustment for equity security investments	(0.09)
2025 Income tax impact associated with Swedish Match AB financing	(0.06)
Subtotal of 2025 items	(0.03)
2026 Amortization of intangibles	(0.12)
2026 Fair value adjustment for equity security investments	(0.22)
2026 Restructuring charges	(0.01)
2026 Income tax impact associated with Swedish Match AB financing	(0.05)
Subtotal of 2026 items	(0.40)
Currency	0.18
Interest	—
Change in tax rate	0.06
Operations	0.03
For the three months ended March 31, 2026	$	1.56	(9.3)	%

Amortization of intangibles – During the first quarter of 2025 and 2026, we recorded amortization of intangible expense of $246 million (representing $191 million net of income tax or $0.12 per share decrease in diluted EPS) and $251 million (representing $196 million net of income tax or $0.12 per share decrease in diluted EPS), respectively.

Fair value adjustment for equity security investments – During the first quarter of 2025 and 2026, we recorded fair value adjustments for our equity security investments in India and Sri Lanka of $143 million gain after tax (or $0.09 per share increase in diluted EPS) and $338 million loss after tax (or $0.22 per share decrease in diluted EPS), respectively. For further details, see Note 13. Related Parties - Equity Investments and Other.

Restructuring charges – During the first quarter of 2026, we recorded pre-tax restructuring charges of $24 million (representing $19 million net of income tax and a diluted EPS charge of $0.01 per share), related to a series of footprint optimization initiatives in the U.S. For further details, see Note 15. Restructuring Activities.

Income taxes – The income tax impact associated with the Swedish Match acquisition financing that increased our 2025 diluted EPS by $0.06 and decreased our 2026 diluted EPS by $0.05 in the table above was due to a deferred tax impact for unrealized foreign currency gains and losses on intercompany loans related to the Swedish Match acquisition financing reflected in the condensed consolidated statements of earnings, while the underlying pre-tax foreign currency movements fully offset in the condensed consolidated statements of earnings and were reflected as currency translation adjustments in the condensed consolidated statements of stockholders' (deficit) equity.

The change in the tax rate that increased our diluted EPS by $0.06 per share in the table above was primarily driven by a reduction in tax costs associated with global intangible low-taxed income and discrete tax benefits recognized during the period.

Currency – The favorable impact of $0.18 per share from currency over the comparable 2025 period primarily results from the fluctuations of the U.S. dollar, especially against the Euro and Russian ruble, partly offset by the Japanese yen and Swiss franc. This favorable currency movement has impacted our profitability across our primary revenue markets and local currency cost bases.

Operations – The increase in diluted EPS of $0.03 from our operations in the table above was due primarily to the following:

•International Smoke-Free segment: Favorable volume/mix/other and favorable pricing;

•International Combustibles segment: Favorable pricing, partly offset by unfavorable volume/mix/other, including the favorable impact related to the restructuring of distribution terms in certain markets this quarter;

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•U.S. segment: Unfavorable volume/mix/other, unfavorable pricing (mainly driven by increased consumer promotions) and higher manufacturing costs; and

•Higher marketing, administration and research costs.

Discussion and Analysis

Critical Accounting Estimates

For information on our critical accounting estimates, see "Critical Accounting Estimates" in the MD&A included in Item 7 of the Annual Report on Form 10-K for the fiscal year ended December 31, 2025.

Consolidated Operating Results

See pages 70 - 82 for a discussion of our "Cautionary Factors That May Affect Future Results." Net revenues, cost of sales and gross profit by segment, as well as total significant expenses and operating income were as follows:

(in millions)	International Smoke-Free		International Combustibles		U.S.		Total
For the Three Months Ended March 31, 2026
Net revenues	$	3,836	$	5,688	$	622	$	10,146
Cost of sales	1,152		1,847		242		3,241
Gross profit	2,684		3,842		380		6,905
Marketing, administration and research costs							2,857
Corporate expenses and other							155
Operating income							$	3,893
For the Three Months Ended March 31, 2025
Net revenues	$	3,076	$	5,326	$	899	$	9,301
Cost of sales	990		1,827		215		3,031
Gross profit	2,087		3,499		685		6,270
Marketing, administration and research costs							2,428
Corporate expenses and other							298
Operating income							$	3,544

Note: Amounts may not foot due to rounding

Items affecting the comparability of results from operations were as follows:

•Restructuring charges – See Note 15. Restructuring Activities for details of the $24 million pre-tax charges included in marketing, administration and research costs for the three months ended March 31, 2026.

Marketing, administration and research costs, including restructuring charges, as well as corporate expenses and other are not allocated to segments to determine the primary measure of segment profitability.

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Our net revenues by product category are shown in the table below:

(in millions)	For the Three Months Ended March 31,
		2026		2025		Change
Smoke-free:
International Smoke-Free		$	3,836	$	3,076	24.7	%
U.S.		543		818		(33.6)	%
of which, Wellness		62		51		20.4	%
Total Smoke-free		4,379		3,895		12.4	%
Combustible tobacco:
International Combustibles		5,688		5,326		6.8	%
U.S.		79		81		(2.5)	%
Total Combustible tobacco		5,767		5,407		6.7	%
Total PMI net revenues		$	10,146	$	9,301	9.1	%

Note: Sum of product categories might not foot to total PMI due to rounding

Net revenues related to smoke-free, excluding wellness, refer to the operating revenues generated from the sale of these products, including shipping and handling charges billed to customers, net of sales and promotion incentives, and excise taxes, if applicable. These net revenue amounts consist of the sale of our products that are not combustible tobacco products, such as heat-not-burn, e-vapor, and oral products, as well as consumer accessories. Net revenues related to wellness refer to the operating revenues generated from the sale of product, primarily associated with oral and intra-oral delivery systems.

PMI's heat-not-burn products include licensed KT&G heat-not-burn products.

Net revenues related to combustible tobacco refer to the operating revenues generated from the sale of these products, including shipping and handling charges billed to customers, net of sales and promotion incentives, and excise taxes. These net revenue amounts consist of the sale of our cigarettes and other tobacco products that are combusted. Other tobacco products primarily include roll-your-own and make-your-own cigarettes, pipe tobacco, cigars and cigarillos and do not include smoke-free products.

References to "Cost" in the Consolidated Financial Summary table of total PMI and the three reportable segments throughout this "Discussion and Analysis" reflects the currency-neutral variances of: cost of sales (excluding the volume/mix cost component); and where applicable, marketing, administration and research costs (including restructuring charges); corporate expenses and other, and amortization and impairment of intangibles.

Following the deconsolidation of our Canadian subsidiary, we continue to report the volume and corresponding royalty revenues of brands sold by RBH for which other PMI subsidiaries are the trademark owners. These include Next, TEREA and VEEV. The volume and corresponding royalty revenues of these brands sold by RBH were not material to PMI for all periods presented.

Total shipment volume is defined as the combined total of cigarette, heated tobacco, oral smoke-free products (excluding snuff, snuff leaf and U.S. chew) and e-vapor shipment volume in equivalent units, unless otherwise stated.

Heated tobacco units ("HTUs") is the term we use to refer to heated tobacco consumables, which include our BLENDS, DELIA, HEETS and HEETS Creations (defined collectively as HEETS), SENTIA, TEREA, TEREA CRAFTED and TEREA Dimensions, as well as the KT&G-licensed brands, Fiit and Miix (outside of South Korea). HTUs also include zero tobacco heat-not-burn consumables (LEVIA).

Oral smoke-free product volume excludes snuff, snuff leaf and U.S. chew and is measured in cans or, for the purposes of total shipment volumes, in pouches or pouch equivalents.

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In-market sales ("IMS") is defined as sales to the trade channels, which serve the end legal age nicotine users. Depending on the market and distribution model, IMS may represent an estimate. Consequently, past reported periods may be updated to ensure comparability and to incorporate the most current information.

Adjusted market share for HTUs is defined as the total in-market sales volume for PMI HTUs as a percentage of the total estimated sales volume for cigarettes and HTUs, excluding the impact of estimated distributor and wholesaler inventory movements.

Unless otherwise stated, market share for HTUs is defined as the IMS volume for HTUs as a percentage of the total estimated industry sales volume for cigarettes and HTUs.

References to total industry and our market share performance reflect cigarettes and heated tobacco units, unless otherwise stated.

Consumer offtake or offtake is the term PMI uses to refer to an approximation of purchases by consumers based on various market specific sources.

Total industry volume, PMI in-market sales volume and PMI market share for the the total international market, and Japanese domestic market include the cigarillo category in Japan.

References to total international market, defined as worldwide cigarette and heated tobacco unit volume excluding the United States, total industry (or total market) and market shares throughout this "Discussion and Analysis" are our estimates for tax-paid and Global Travel Retail products based on data from a number of internal and external sources and may, in defined instances, exclude China. Past reported periods may be updated to ensure comparability and to incorporate the most current information for industry and market share reporting.

From time to time, PMI’s shipment volumes and IMS are subject to the impact of distributor inventory movements (or wholesaler inventory movements in certain markets where PMI does not sell to distributors), and estimated total industry/market volumes are subject to the impact of inventory movements in various trade channels that include estimated trade inventory movements of PMI’s competitors arising from market-specific factors that significantly distort reported volume disclosures. Such factors may include changes to the manufacturing supply chain, shipment methods, consumer demand, timing of excise tax increases or other influences that may affect the timing of sales to customers. In such instances, in addition to reviewing PMI shipment volumes, IMS, certain estimated total industry/market volumes and estimated market shares on a reported basis, management reviews these measures on an adjusted basis that excludes the impact of distributor and/or estimated trade inventory movements. Management also believes that disclosing PMI's shipment volumes, IMS, and estimated total industry/market volumes and estimated market shares in such circumstances on a basis that excludes the impact of distributor and/or estimated trade inventory movements improves the comparability of performance and trends for these measures over different reporting periods.

Consolidated Operating Results for the Three Months Ended March 31, 2026

The following discussion compares our consolidated operating results for the three months ended March 31, 2026, with the three months ended March 31, 2025.

Total Market

During the quarter, estimated industry volume (excluding China and the U.S.) for cigarettes and HTUs declined by 1.0%.

For the full year 2026, we currently expect an estimated industry volume decline of around 2% for cigarettes and HTUs, excluding China and the U.S.

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Total Shipment Volume

Our shipment volume for cigarettes and smoke-free products is shown in the table below:

Shipment Volume (equivalent units in billions)
	For the Three Months Ended March 31,
		2026	2025	Change
Total		184.3	187.8	(1.9)	%
Cigarettes		137.3	144.8	(5.1)	%
Smoke-Free Products (1)		47.0	43.0	9.1	%
HTU		41.3	37.1	11.3	%
Oral SFP		4.5	5.3	(16.1)	%
E-vapor		1.2	0.6	94.8	%

(1) Includes HTUs, e-vapor unit equivalents and oral SFP in pouch or pouch equivalents, excluding snuff, snuff leaf and U.S. chewing tobacco

Note: Amounts may not foot due to rounding

Oral smoke-free products conversion: (i) nicotine pouches: 15 pouches per can in the U.S. and approximately 20 pouches per can outside the U.S.; (ii) snus products: weighted average 21 pouches equivalent per can; (iii) moist snuff products: weighted average 17 pouches equivalent per can; (iv) tobacco bits products: weighted average 30 pouches equivalent per can; (v) chew bags products: weighted average 20 pouches per can.

E-vapor products conversion: one milliliter of e-vapor liquid equivalent to 10 units.

Our shipment volume, including cigarettes and smoke-free products (in equivalent units), decreased by 1.9% with cigarette volumes down by 5.1%, partly offset by smoke-free volumes, up by 9.1%, driven by HTU and E-vapor categories.

For the full year 2026, we currently expect a broadly stable total PMI cigarette and SFP shipment volume, with high-single digit SFP shipment volume growth, and a cigarette shipment volume decline of around 3%.

Financial Summary
					Change Fav./(Unfav.)				Variance Fav./(Unfav.)
Quarters Ended March 31,	2026		2025		Total		Excl. Curr.		Total		Cur- rency		Price		Vol/ Mix/Other		Cost
(in millions)
Net Revenues	$	10,146	$	9,301	9.1	%	2.7	%	$	845	$	590	$	461	$	(206)	$	—
Cost of Sales	(3,241)		(3,031)		(6.9)	%	(0.6)	%	(210)		(193)		—		11		(28)
Gross Profit	6,905		6,270		10.1	%	3.8	%	635		397		461

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holders ( registered funds via N-PORT, institutional investors via 13F). Showing top by dollar value.

Holder	Type	ETF	MF	Position ($)	% of holder	Δ % of holder	Holder AUM

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Recent SEC filings

2026-04-29 8-K Other Events; Financial Statements and Exhibits
2026-04-24 10-Q Quarterly Report
2026-04-22 8-K Earnings Release; Financial Statements and Exhibits
2026-02-06 10-K Annual Report
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2025-12-11 8-K Material Agreement Entered; Material Agreement Terminated; Material Financial Obligation; Financial Statements and Exhibits
2025-11-17 8-K Other Events
2025-11-04 8-K Officer/Director Change; Regulation FD Disclosure; Financial Statements and Exhibits
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2025-06-06 8-K Other Events; Financial Statements and Exhibits
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