“As previously flagged, cost increases in leaf, wages and certain other inputs carried over into 2024, and these should ease next year.”

In context

“OS, including manufacturing productivities. This strong underlying acceleration was amplified by only a few percentage points due to HTU shipment phasing. Gross margins expanded substantially for both heat-not-burn and oral nicotine, and by a striking plus 600 basis points organically for smoke-free overall, which made up close to 39% of total gross profit, an increase of plus 6 percentage points versus prior year. Combustible organic gross profit growth was notably improved and exceeded our expectation at plus 2.3%. Gross margins were also better-than-anticipated, leading to an improved full year outlook. Resilient volumes, strong pricing and manufacturing productivities more than offset the continued cost pressures in the category, geographic mix, and the impact of IQOS cannibalization. As previously flagged, cost increases in leaf, wages and certain other inputs carried over into 2024, and these should ease next year. We were also impacted by around $30 million of costs from implementation of the EU Single-Use Plastics Directive, primarily on cigarettes. A key feature of Q1 was strong operating income margin expansion. Gross margins increased organically by 150 basis points and by 80 basis points including currency. This reflects excellent expansion within smoke-free products, their growing weight within our business at higher margins, and the better-than-expected evolution of combustibles. These factors, combined with productivity savings, significantly outweighed the unfavorable technical dilutive impact of third-party manufacturing in Indonesia, which equated to 30 basis points in the quarter. For SG&A costs, currency-neutral growth of only plus 1.4% drove 220 basis points of organic margin expansio”