Philip Morris International Inc. (PM) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the Philip Morris International 2026 Second Quarter Results. [Operator Instructions] Please be advised that today's call is being recorded. I would now like to hand it over to our first speaker, James Bushnell, Vice President of Investor Relations and Financial Communications. Please go ahead.

Welcome. Thank you for joining us. Earlier today, we issued a press release containing detailed information on our 2026 2nd 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 Exhibit 99.2 to the company's Form 8-K 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 in today's presentation and press release for a review of the various factors that could cause actual results to differ materially from projections or forward-looking statements. I'm joined today by Emmanuel Babeau, Chief -- Group Chief Financial Officer; and Massimo Andolina, currently Regional President for Europe, who will succeed Emmanuel as Group CFO in August. Emmanuel, over to you. .

Thank you, James, and welcome, everyone. I am pleased to report a very strong Q2 as we generated plus 8% organic growth in net revenue and plus 11% in operating income, driving plus 14% currency-neutral progression in adjusted dated earnings per share to $2.20 or plus 15% in dollar terms. This better-than-expected delivery contributed to very robust H1 growth despite the tough comparison of the first quarter. Our Q2 results were once again powered by excellent performance as expected, from our international smoke-free business with high single-digit volume growth, double-digit top line growth and impressive gross margin expansion. IQOS adjusted in-market sales volume increased by plus 5%, including expected transitory headwinds from the April excise increase in Japan and the characterizing flavor ban in Poland. Excluding these 2 markets, double-digit growth continued, reflecting the broad-based strength of our smoke-free business across markets. Our multi-category commercial approach continues to gain momentum supported by ZYN and VEEV. Our combustible performance was above our expectation in an especially strong quarter with growing volumes, very good pricing stable category share and gross profit growth. While we do not expect this delivery to be repeated to the same magnitude for the full year, such results demonstrate the robustness of our portfolio as we leverage our leadership in cigarettes to support the switching of legal ed smokers to better alternatives. In the U.S., we posted a significant sequential improvement in net revenues gross profit and operating company income compared to a challenging Q1. While the U.S. nicotine pouch category continued to grow SYN offtake volumes were broadly stable to slightly growing versus the prior year, reflecting the uneven competitive landscape described in recent quarters. ZYN shipments increased by plus 2% to 2.9 billion pouches despite an inventory tailwind in the prior year, broadly reflecting offtake trends and the initial shipments of new variants including ZYN Ultra. We are excited about this first phase of portfolio expansion with additional initiatives planned in the coming months to enhance and enrich our offering to legge American nicotine consumers, supported by a rich product pipeline and improving regulatory clarity, we believe it is the right moment to accelerate U.S. investment in the second half of the year to support ZYBn brand equity and portfolio expansion and to prepare for the future launch of IQOS ILUMA. Overall, our strong first half performance reinforces our confidence in our ability to consistently invest behind smoke-free growth opportunities while delivering another year of best-in-class top and bottom line growth. Looking now at our Q2 financials, we delivered very good shipment volume growth of plus 2.5% and underpinned by continued momentum in IQOS and favorable combustible dynamics. Organic net revenues grew plus 7.6% or more than 10% in dollar terms to reach over $11 billion in quarterly net revenues for the first time. This strong top line performance translated into robust profitability. Adjusted gross profit grew by plus 8.7% organically or plus 11.5% in dollar terms, driven by pricing, volume leverage and favorable smoke-free mix. Adjusted operating income grew close to plus 11% organically and plus 12% in dollar terms to reach $4.8 billion reflecting the same underlying business drivers and continued growth investments. Adjusted diluted earnings per share grew by an impressive plus 15% to reach $2.20. This includes a $0.03 favorable currency impact, which was notably better than our previous forecast despite ongoing dollar strength. This was primarily due to a positive impact from unrealized transactional effect from deferred tax liability associated with a weaker Russian ruble. This currency impact represents around 1/3 of the EPS outperformance compared to our prior forecast. The remaining 2/3 reflect a combination of SG&A phasing as certain commercial investment previously anticipated in Q2 are not expected to occur in Q3 and the strong performance of our combustible business, which I'll come back to. Combining our Q2 and first quarter performance, we delivered a very robust first half despite the comparison headwinds of Q1. Total shipment volumes increased plus 0.4% and as smoke-free growth outweighed combustible declines. Organic net revenues grew by plus 5.3%, while adjusted operating income increased by plus 6.1% organically or plus 11% in dollar terms to reach $8.9 billion. Adjusted diluted EPS grew by plus 9.4%, excluding currency and by plus 15.6% in dollar terms, reaching a first half record of $4.16. The strength of our International business, which made up 93% of H1 group net revenues was naturally at the core of this remarkable performance. International smoke-free was again outstanding with H1 organic growth of plus 13.7% in net revenue and plus 16.9% in gross profit. driving gross margin expansion of plus 190 basis points to reach 70%. This primarily reflects continued IQOS growth with further enhancement from our other more category, especially VEEV. Combustible also performed very well, exceeding our midterm trajectory of low single-digit organic top line growth and low to mid-single-digit gross profit growth, an excellent Q2 with organic growth of plus 6.4% in net revenue and plus 8% in gross profit driven by resilient volume and strong pricing enabled us to realize H1 organic net revenue growth of plus 3.8% despite negative geographic mix. gross profit increased by plus 6.1% with margin expansion of plus 150 basis points to 67.7%, and including the benefit of effective cost management. As a result, total H1 international net revenue grew by plus 7.4% and gross profit by plus 10.1% and with gross margin expansion of plus 160 basis points to 68.6%. In turn, adjusted OCI increased plus 11.7%, all on an organic basis. Turning now to volumes, where total shipment growth returned to a positive trajectory in the second quarter with an increase of plus 2.5% and resulting in plus 0.4% growth for the first half. Smokefree shipments grew by plus 7.5% in Q2 and plus 8.3% in H1 and mainly fueled by IQOS HTUs with notable contribution from Taiwan, Global Travel Retail and Italy. E-vapor shipments increased by a remarkable plus 55% in Q2 and plus 72% in H1 with Romania, Greece and Germany among the main drivers. Oral smoke-free volumes declined by 1.2% in the quarter, primarily reflecting industry declines and inventory impact for snus in the Nordics despite a stable category share performance. This was partly offset by continued rapid nicotine port growth in international markets, excluding the Nordics and the return to shipment volume growth for ZYN in the U.S. Q2 cigarette shipments increased by plus 1.1% ahead of expectation. This reflects a combination of good category share performance, certain timing or comparison factors and more favorable industry dynamic in certain large markets, predominantly where smoke-free products are banned or very small. Notable call-outs include Indonesia, Turkey, Egypt, and relative resilience in India and Mexico. However, with industry volumes declining low to mid-single digit in more developed smoke-free market where the average unit economic of cigarette are more favorable. This generated an unfavorable mix impact on net revenue. For H1 overall, cigarette volumes declined by 1.9%. Given our Q2 performance and the latest industry dynamics, we now expect a more moderate full year decline in our cigarette volumes of around 2% to 3% versus 3% previously which remain consistent with the structural evolution of the category. Taken together, we now expect total shipment volume to be around stable to slightly positive for the full year. With high single-digit growth in smoke-free product, broadly offsetting the decline in cigarettes. Turning to our H1 top line growth drivers. Pricing was the largest contributor, adding plus 5.9 points of growth, reflecting strong combustible pricing of plus 9.2% with low single-digit monthly pricing, including around plus 3% and from IQOS. The positive mix impact from international smokefree growth contributed a further plus 2 points as the increasing weight of SSPs continues to enhance our revenue profile. These drivers were partly offset by the U.S., which had a negative impact of 1 point, mainly due to Q1 comparison as well as international combustible geographic mix and other factors, which reduced growth by 2 points. As a result, H1 organic net revenue growth reached plus 5.3% and while currency provided a tailwind of plus 4.5 points, bringing reported net revenue growth to plus 9.8%. The composition of our growth, once again, highlight the consistency and sustainability of our model with stable to growing volumes, durable pricing power and superior smoke-free economics continuing to be the primary drivers of our performance. Moving down to H1 adjusted operating income margin, which expanded by plus 40 basis points organically or plus 60 basis points in dollar terms to reach close to 42%. Gross margin expansion remained a key driver, contributing plus 70 basis points, supported by strong pricing, favorable smokefree mix, scale benefit and manufacturing productivity. While SG&A costs were lower than expected in Q2 due to phasing, increased year-on-year investment in commercial initiatives, innovation and scale, nonetheless reduced H1 margin by 30 basis points. We now expect higher SG&A costs in the second half than previously anticipated as we made the strategic decision to step up our U.S. growth investments. As we invest in our top line, we also delivered over $300 million of gross cost savings across COGS and SG&A in H1, keeping us firmly on track to achieve our $2 billion target for the 2024, 2026 period with a cumulative total above $1.8 billion to date. This margin performance underscores the strength of our model as we continue to invest behind our smokefree transformation while expanding profitability. As implied in our full year forecast, we expect to deliver organic operating income margin expansion for the full year. Focusing now on IQOS the driving force of our smokefree and overall PMI growth trajectory. We continue to generate strong underlying growth despite transitory headwinds in Japan and the final EU flavor band market implementation. Adjusted in-market sales volume grew by plus 8% in the first half despite these dynamics reflecting broad-based global momentum. The moderation in Q2 growth to plus 5.1% primarily reflect expected volatility in Japan as Q1 pantry loading reversed and consumers adjusted to the excise-driven price increase on April 1. Excluding Japan and Poland, Q2 growth was strong at plus 10.2% or over plus 11% for H1, consistent with recent history. Strong Q2 performance in more established IQOS markets, such as Italy, Greece and Romania was complemented by continued momentum in newer markets, including Saudi Arabia, the Philippines, Mexico and in Taiwan, which maintained its impressive trajectory with offtake volume growth growing double digit on a sequential basis as we progressively expand distribution. Global Travel Retail also delivered double-digit adjusted IMS growth. In tandem, we are driving strong commercial execution and ongoing innovation across our device and consumable portfolio with the remix special edition shown on this slide as one example. We also continue to expand our alternative heating technology bonds by IQOS which was launched in Poland, Czech Republic and Morocco this quarter with encouraging early results. The fundamental of IQOS remains strong. We continue to benefit from formidable brand equity deep consumer connection unparalleled commercial presence across a broad and diversified geographic footprint. And we maintain our global share of the fast-growing heat-not-burn category at approximately 76% in H1. This was further illustrated by the recognition of IQOS for the first time among the top 100 most valuable global brands according to Kantar. Looking at IQOS offtake share performance, we continue to drive impressive progress across key cities globally, an important lead indicator of broader national adoption. In Q2, we recorded further strong share gains across established IQOS markets, including Greece, Italy, Romania and the U.K. alongside Global Travel Retail. We are also seeing very good momentum in emerging IQOS markets, notably Mexico, Indonesia and Taiwan, with type share of around 8% in a seasonally higher total market for cigarettes. These results reflect our strong commercial execution as well as the increasing presence and scale of IQOS in more established markets, combined with excellent early adoption in newer markets reinforcing our confidence in the long-term growth trajectory. In e-vapor, VEEV continued to deliver excellent results with H1 shipment growth of plus 72% in and very good progression on financial metrics, including profitability. This reflects robust growth across the European market, reinforcing VEEV leadership position. VEEV is now the clear #1 brand in Europe, both within close pod and for pads and disposable combined. And the estimated #1 Closeobrand in Global Travel Retail, where VEEV is present all ahead of long established players. This is supported by the structural evolution of the category with close pots now representing the predominant format internationally. -- excluding illicit and open system. High levels of consumer retention and brand loyalty underpin our performance, supported by responsible innovation and continued portfolio enhancement. This includes the progressive rollout of our latest technology, VEEV 1 plus, which offers an elevated consumer experience through a compact premium design, a swap and store functionality enabling 2 pods in 1 device and a longer-lasting replaceable battery. For ZYN, international shipment volume grew plus 6% in the first half or plus 32%, excluding the Nordics. ZYN continued to gain share in this small but fast-growing category, reaching more than 17% of the International segment excluding the Nordics in Q2. We are seeing encouraging progress across a broad set of geographies, supported by portfolio expansion and consumer adoption as awareness and availability improve. This includes markets such as the U.K., Pakistan, Poland and Greece and the Philippines with further footprint and portfolio expansion plan in the second half. Zooming in on Europe, where we are now present in every market with more products following the Q2 launch of IQOS in Malta, which recently established a new regulatory framework for smoke-free product. Our multi-category portfolio drove strong growth with combined IMS up plus 8% in H1 and as ZYN and the strength and complement IQOS, supporting growth, consumer acquisition and long-term value creation. IQOS remains the core engine of our performance with adjusted IMS volume up by plus 5.1% in Q2 and plus 5.4% for the first half. We achieved this despite ongoing disruption in Ukraine and the impact of recent flavor ban in markets such as Poland and Hungary. Excluding markets where the bank took effect in the prior 12 months, underlying IQOS adjusted IMS growth remained robust at around plus 8% for both Q2 and H1 and reflecting momentum across the region. This includes excellent growth across a broad set of markets, including Italy, Germany, Romania, Bulgaria, Greece and Spain supported by our innovation and commercial initiatives such as the broader rollout of Dalia, new variants of both Terra and Livia, Special Edition devices and consumables and collaboration with partners that share our commitment to innovation, reinvention and transformation. While VEEV is a global success, its biggest impact is in Europe where the e-vapor category is highly penetrated. H1 shipments grew plus 81%, and including impressive results in Romania, Greece and Germany. Similar to its total international progression, ZYN displayed dynamic Nordics growth of around plus 33% on as the category continues to gain traction. In Japan, IQOS fundamentals remain strong despite expected volatility from pricing and timing effects. First half performance was in line with expectations with adjusted IMS growth of plus 3.4%. Following an exceptionally strong first quarter, adjusted IMS declined by 3.4%, reflecting the reversal of consumer pantry loading ahead of the April 1 excise-driven price increase. Excluding this impact, underlying growth was around plus 1%. While this represented a moderation from recent quarters, the initial impact of consumer adjustment to the price increase was in line with our expectation. The April excise change requires the largest HTU price increase to date in Japan to pass on the tax, while there was no excise change for cigarettes. Despite implementing the largest increase in the market, IQOS adjusted category share held in the high 60s and adjusted IMS recovered nicely through the quarter to essentially match Q1 monthly volume, excluding inventory loading, a further testament to IQOS resilience. Despite these factors, IQOS adjusted HTU share was stable at 31.8% in Q2 or up plus 0.9 percentage points, excluding pantry loading, supported by our tier portfolio with Cynthia playing an important role in capturing more price-sensitive area consumers. Importantly, underlying demand remained robust. The Inaba category continued to represent more than half of total nicotine offtake, and we expect this to continue growing over time. While the biggest step is behind us, we expect further category volatility in H2, notably around the excise change in October and would expect similar consumer behavior patterns, including pantry loading and subsequent normalization. We continue to target growth in IQOS adjusted IMS volume for the year overall. Moving to the U.S., where we delivered a sequential improvement of plus 38% in net revenue and plus 46% in adjusted gross profit compared to a challenging Q1. This largely reflects the plus 25% sequential growth in ZYN shipment and reduced sales promotion as we prepared for new product launches. On a year-on-year basis, segment net revenue declined by close to 1%, reflecting a decline in cigars and unfavorable phasing dynamic in the wellness business, while ZYN net revenue were broadly flat. Gross profit was impacted by higher manufacturing costs mainly related to the ramp-up of new ZYN capacity in Colorado, where full-scale commercial production began this month reflecting our continued investment to support future growth. ZYN shipments returned to growth with an increase of plus 2% year-on-year to 2.9 billion pouches despite an inventory restocking tailwind of around 150 million pouches in the prior year. This growth is broadly in line with stable to slightly growing offtake volume and include some initial shipments of new variants in June, including the ZYN range, which contains 20 pouches per can. Looking to the second half, we expect the dynamism of ZYN to be enhanced by our expanding portfolio and increased commercial activity, which I'll come back to shortly. However, it is important to note that volume comparison in Q3 will be impacted by the one-off promotional activity in September of last year, which accounted for around 250 million pouches. Importantly, ZYN remains the clear premium leader of the nicotine pouch category with a retail value share of around 57%. As discussed in prior disclosures, recent category recent share performance has been impacted by both competitive gaps in the growing higher strength segment, including most product and in certain flavor segment as well as an elevated price premium. With improving regulatory clarity and operational readiness, we have now taken the first step to address this with additional variants. This started with the launch of ZYN Ultra in 9 and 11-milligram most variance at a lower per pouch price than the ZYN flaxsip range of dry pouches, reducing the price premium to the closest competitor while maintaining a clear premium position alongside targeted addition to our flagship flavor range. These new variants are rapidly building distribution. And while early days, we are pleased by promising initial offtake trends and positive consumer feedback. As a related side, I would note that while cannot data typically provide a good directional indication of volume trend, it does not always fully capture the effective consumer price. We plan further extension in the coming months, including the introduction of 1.5 milligram and 8-milligram dry format in Q3. Together, these launches will broaden our offering with an expanded range of strength and test profile, enabling us to better address the spectrum of legal edge consumer preferences and further strengthen our competitive positioning across segments. With such an exciting lineup of new products to complement the existing portfolio, we plan to accelerate our U.S. investment in the second half. This includes a comprehensive commercial program across marketing, distribution and in-store execution with the rollout of our major new brand campaign when it clicks starting this month to support brand engagement and consumer relevance. We are also implementing commercial initiatives to optimize ZYN's premium positioning and enhanced consumer value perception. In addition, our U.S. investment include preparation for the future launch of subject to FDA action. We also believe ZYN is well positioned from a regulatory standpoint, notably following the modified risk tobacco product authorization of 20 SKUs making it the only nicotine pouch product with the designation and allowing us to market the claim using ZYN instead of cigarettes, puts you at a lower risk of mouth cancer, a disease lung cancer, stroke emphysema and chronic bronchitis. This further reinforces its differentiated and sustainable positioning supporting consumer trust and long-term growth potential. Overall, we remain confident in the long-term trajectory of ZYN and the U.S. nicotine pouch category, supported by strong legal edge consumer demand and the investment we are making in responsibly commercializing a significantly enhanced product range for long-term leadership. Finally, moving to combustible, where our business delivered a particularly strong Q2 performance. In addition to the favorable volume trajectory I described earlier, this was driven by a pricing variance of plus 9.2% on in the first half or almost plus 10% in Q2 with notable contribution from markets, including Turkey, Indonesia, the Philippines and Mexico. While we expect some moderation in H2 due to planning factors and annualization, we now forecast a pricing variance of more than 7% for the full year, although we expect this additional benefit will be largely offset by a more adverse geographic mix as volumes skew more to market with lower per unit revenues. Despite such strong pricing, our portfolio maintained its international category share at 25.3% in Q2 with Marlboro, again, demonstrating the strength of its premium brand equity matching its record high of 11%. This combination of pricing power, brand leadership and disciplined execution translated into robust profitability with international convertible gross profit growing by plus 6.1% in organic terms and by an impressive plus 8% in Q2. Our combustible business continues to demonstrate the strength of its model, delivering solid top and bottom line growth while supporting the ongoing expansion and increasing profitability of our smoke-free portfolio. This brings me to our outlook for the full year. With our international smokefree business growing very strongly as expected and the combustible business outperforming our prior expectations, we have additional capacity to invest while maintaining a best-in-class growth performance. The success of PMI is built on investing in the short term for long-term growth, just as we have with IQOS and indicates past Marlboro. The defining characteristic of our company over the last 15 years is that as we invest, we also deliver strong growth and cash generation. For 2026, we continue to target organic net revenue growth of plus 5% to plus 7%. Organic operating income growth of plus 7% to plus 9%; and currency-neutral adjusted diluted EPS growth of plus 7.5% to plus 9.5%. In dollar terms, we now forecast a currency tailwind of around $0.15 at prevailing rates, translating into an adjusted diluted EPS range of $8.26 to $8.41, an increase of 9.5% to plus 11.5%. With an expectation of broadly stable to slightly growing volumes we are also aiming for our sixth consecutive year of total volume growth. For the second half, this implies a continued strong top line and an acceleration in organic operating income growth. Further robust international progression should be complemented by U.S. momentum, notwithstanding a fairly even phasing of international HTU shipments through the 4 quarters with shipment broadly in line with adjusted IMS for the full year. We also expect robust progress at the EPS level, while noting challenging H2 comparison on net finance costs and the effective tax rate. For Q3, specifically, we expect HTU shipment volume of around 41 billion units against a strong Q3 '25 when HTU shipment grew by 15.5%, we thus expect mid-single-digit international smokefree organic net revenue and gross profit growth. For PMI, overall, we forecast mid-single-digit Q3 organic top line growth with modest organic margin expansion. We target adjusted diluted EPS of $2.20 to $2.25, including an unfavorable currency impact of $0.08 at prevailing exchange rate. This also reflects the challenging tax rate comparison from Q3 last year. Finally, we continue to expect operating cash flow generation of around $13.5 billion providing further flexibility to support both investment and continued attractive shareholder return. I will now conclude today's presentation with a few key takeaways. We delivered an excellent first half, underscoring the quality of our business model and placing us firmly on track for another year of strong performance. Our results reflect the powerful combination of smoke-free growth and strong combustible execution with profitability of our smoke-free portfolio continuing to improve as IQOS, ZYN and VEEV gain scale and drive synergies across markets. This performance, together with effective cost management provide us with the flexibility to reinvest behind our smoke future while sustaining best-in-class growth. We also remain a highly cash-generative business with an unwavering commitment to our progressive dividend policy and to returning value to shareholders. Looking ahead, we approach the remainder of 2026 with confidence, well positioned to deliver superior and sustainable growth. On a more personal note, this is my last earnings call as Group CFO of PMI. And I would like to thank our shareholders and analysts for your support, engagement and constructive challenge over the past 6 years, a period of strong performance and shareholder returns. As I look at the business today, I am confident PMI will continue to represent a standout performer within CPG over the coming years. And I leave you in the very talented end of my successor, Massimo and Delina, who will transition from his current role as regional President for Europe in August.

Thank you, Emmanuel. Good morning and good afternoon to everyone. Emmanuel, I would first like to pay tribute to your significant contribution to the performance of our company over the last few years. And to the great collaboration, the T&I have personally enjoyed both in my previous roles and in the process of this transition. Emmanuel, I am fully aware that you leave behind big shoes to fill. And I will continue to count on your support in the coming months to do so effectively. Thank you. I am very much looking forward to serving as the group CFO of for the Mortgage International and continuing our relentless focus on delivering superior shareholder returns over the long term. We have a very robust business model built on investing for sustainable smoke-free growth and a strong and talented organization with an excellent track record of delivering for shareholders. I look forward to engaging with our investors, our analysts and all other stakeholders over the coming months and beyond.

Thank you, Massimo. Thank you, Emmanuel. The team are now happy to answer your questions.

[Operator Instructions] Our first question comes from the line of Bonnie Hero with Goldman.

All right. Emmanuel, it's been great working with you, and I do wish you all the best in the future. My first question is on your guidance. despite 2 quarters of better-than-expected performance and strength. You did maintain your full year underlying growth guidance. So I did just want to verify, this is primarily due to your strategic decision to step up investments in the U.S. in the second half? Or is there something else we should be mindful of? And then your guidance still does imply faster income growth in 2H versus 1H. So I wanted to understand how much flexibility you have with this greater spending? And then could you maybe just give us a little more color on these planned investments. For instance, should we anticipate a big step-up in promotional spend behind ZYN?

Thank you, Bonnie. So I mean H1, you've seen it is great. And the fact that after a great H1 indeed, with some very good news in Q2 globally and notably with the confirmation of a strong smoke-free business. CC that is doing better than expected. The reason why today we are not revising the guidance is indeed the fact that we also are facing a very exciting moment in the U.S. We have an alignment of planet that is of course, great. We have, as we've been explaining, now a much broader portfolio of variants. We are coming with more flavor on our dry offering, and you've seen that. We talk about pitch Dragon Berry and Black Cherry. We are coming with Non-ZYN Ultra. So with 9 and 11, we are announcing that we are coming with 1.5 and 8 milligrams. So we are really putting together now a portfolio that is really, I would say, nicely matching consumer demand and the evolution of the market. On top of that, we have our new marketing campaign, 1 click. I think we are very, very enthused by the potential of this campaign to build further the emotion around the ZYN brand and develop the brand franchise. I would say the MRTP is almost coming as a nice thing on the cake. We were confident this would come. We were confident about the quality of the product, but it's great that we are able now to have this authorization to market the product with reduce risk I mentioned and have been elaborating on that. So that's really a great moment in the U.S. to accelerate and I would say we're going to go 360. So it's going to be -- every lever we can pull to accelerate the growth of in and leveraging this new situation, and that's going to come, of course, with a lot of marketing, commercial activity at the point of sales that's going to be really important. I think you were questioning, okay, what does it mean in terms of promotional activity? Well, you've seen that Q2 has been more reduced in terms of promotional activity. That's why we are close to flat year-on-year in terms of revenue with volume slightly up. I think we'll see. I'm not going, of course, to comment in advance that would be anticompetitive, any kind of price action. There is one starting point, which is absolutely intangible. ZYN is a leading premium brand of the market and it's going to stay as the leading premium brand of the market. And then everything we will be doing in that respect will be to optimize volume growth and the bottom line growth. And once I've said that, I've said everything I can say in that respect. But it's illustrating how we are looking at things. But that's certainly, in the U.S., after several quarters of frustration, it's a great moment. And it's great that obviously, we have the capacity to deliver a very strong growth while accelerating our investment in the U.S.

Okay. That was super helpful. And just maybe a quick follow-up on ZYN. Just hoping for a little more color on the rollout of Ultra early feedback you've been hearing from retailers and consumers, space games, how incremental do you expect it to be? And then you mentioned this morning, that you have plans to rollout the lower nicotines ZYN. So I just love to hear how you expect to position that within broader ZYN portfolio and how incremental that can be?

Yes. So on the ZYN Ultra, I don't think we want to be overplaying the first 2 weeks. I mean, you have seen this first 2 weeks of Nissan as we did. It's very nice. We have sequential growth, we are growing our share. We are capturing, I think, a large part of the vision of the category over these 2 weeks period. We have a number of positive consumer feedback. I think here, we want to stay cautious because we talk about 2 weeks, a lot to come. But I would say the first data and first feedback are certainly encouraging. Let's have a bit more week and I'm not sure after the summer, we'll be able to have a much better understanding of what ZYN Ultra is bringing. On your question on the low nicotine, I think we've always said, and it's not specific to the U.S., generally on the nicotine pouch category that we see the 1.5 milligram as particularly relevant to convince smokers to switch to this better alternative. And we know that too high and nicotine content can actually create a bad experience and discourage some of them to be moving to this product. So we -- we hope that this 1.5 milligram is going to be helping really millions of American to really taste the category, I would say, in the most favorable possible condition and with the best possible experience. Now of course, I will stay silent on our plan in terms of rollout and what we want to do because that sensitive information. But that's really the philosophy that we have behind this 1.5 milligram.

Next question coming from the line of Matt Smith with Stifel.

I wanted to dig in a little bit further on the Japan dynamics during the quarter, and more importantly, the progression, both from a category growth standpoint in IMS as well as sorry, IQOS growth during the quarter. The overall IQOS HTU share was resilient, but any more detail on the share trends within IQOS, the mix between the IQOS consumable portfolio and expectations in the second half given another excise tax increase in October, whether you think that has another impact on the third quarter versus fourth quarter phasing?

Yes, Matt. Happy to do that. So again, maybe let me start by repeating that what we've been experiencing in Japan is in line with our expectations. So we knew it would be a bit cart to read between Q1, pantry loading, Q2 with, of course, negative impact at the beginning and then a recovery. If you take a kind of macro approach on what has been happening in Japan, yes, the category has been slowing in terms of growth. But what else would you expect? I mean it's a significant increase for the consumer in a country where the consumer is not, I would say, used to have a very significant price increase. So there is a kind of cultural shock here that is happening. So that is, of course, something that is a disruption, but that's what we're expected to the category. So that has meant that the category has been slowing down, but it's still growing. And we -- as we see the data through Q2, we see things that are regularly improving and if -- now I focus on IQOS, we have been certainly more impacted on TEREA, which is the most expensive consumable brand. And there was a very nice SENTIA safety net, I would say, for the consumer. So without giving the precise number, what we've seen is that SENTIA is probably above where it was when Terry has not fully recovered yet because of this move from TEREA to SENTIA. But overall, I mean, we finished at 68%. We are 69% in the quarter before. So Frankly, I don't even know whether this is really significant. We have been the one, and I've been saying it again in my remarks with the biggest increase with our JPY 40, and we've gone through the work for us because this first increase was the worst. And the pass on -- I'm not going to say what we're going to do in H2, but the passion is lower. It's closer to JPY 20 in the second half. So -- we've been going through the worst. And we know that the competition, if they want to absorb their excise duty increase. They have to increase more than us or they will have to have significant adverse consequences. So that's really what we can say on Japan. So we're not totally with this adjustment behind us. As we flagged, there will be more disruption in H2. But I would say we're quite confident that we've been going through the most difficult moment. It reacted as expected and I think it's a tribute to the IQOS strength in the country. And now we go for H2, as I said, with a lower impact in terms of Pason. Now just let me say about what's going to happen next because it's important to have in mind, and this one, I think, is going to play positively. You know that in '26, there is no increase on combustible. In '27, there is already planned, and I think it's '27, '29, 3 years of excise duty increase at a much more limited level, of course, but both equally for CC and for Inetburn. And as we've been moving to fixed right, that is going to open the window probably for a favorable environment where -- as a leading brand in terms of price, we are less impacted proportionally than others. That is creating window to increase price, which was not always obvious in the past. The pattern, I think, is around JPY 12 for the coming years. And probably after what was a difficult moment to absorb in '26, I think that is going to translate into a much more favorable landscape '27 and beyond.

Our next question in queue coming from the line of Eric Serotta with Morgan Stanley.

First of all, thank you, Emmanuel. It's been a pleasure working with you. Looking forward to working with you ahead Massimo and best to look Emmanuel in your next

Thank you very much.

Turning to -- coming back to Japan, -- can you comment a bit about the competitive environment there? We definitely saw a pickup in promotional activity over the past year from some of your competitors. Starting to cycle the beginning of that? How are you seeing that? Or how have you seen that evolve in recent months? I know it's certainly noisy given the excise pass-through?

Yes, Eric. So in Japan, as you can imagine, I would say, it's probably all hands on deck for every player given this very strong pass on in 2 steps. So people are probably no longer playing with trying to make a promotion here. I'm going to try to play a kind of strange game here and there. I think everybody is saying, how do I absorb to the best possible of my capacity, what is a big increase. And when you don't have the best image in the market, it's more difficult for you to convince the consumer that your product deserves a significant price increase. So I believe everybody is a little bit in the middle of that. I think we've been flying in the fact that before this excise duty alignment or equalization happened, Japan Tobacco had been gaining share. I'm not going to comment on the trend on H1 and even sure that it's at that moment, easy to read what's going on. But the fact that we are maintaining our share broadly, I mean $68 million versus $69 million is just showing that, yes, you can have between competitor #2, competitor #3, you can have some move. But at the end of the day, we stay largely ahead of the competition. I think we will need to have the dust settling a little bit towards the end of the year to see what's going to be the -- and with a further price or exit increase I mentioned, what is the new game of the competitor. But I think today, everybody is trying to really work on absorbing this significant excise duty.