TLDR:
- Philip Morris beats Q3 estimates with revenue of $9.91B, up 8.4% YoY
- ZYN nicotine pouch shipments grew 41.4% in US market
- Smoke-free products now account for 38% of total revenue
- Company raises 2024 adjusted EPS forecast to $6.85-$6.91
- Facing $23.6B settlement in Canadian lawsuit with industry peers
Philip Morris International (PMI) reported strong third-quarter results Tuesday, beating market expectations and raising its annual profit forecast, driven by robust demand for its smoke-free products and successful pricing strategies. The tobacco giant posted revenue of $9.91 billion, an 8.4% increase year-over-year, surpassing analyst estimates of $9.69 billion.
The company’s performance was particularly notable in its smoke-free segment, with ZYN nicotine pouches experiencing substantial growth. U.S. ZYN shipments increased by 41.4% compared to the previous year, benefiting from improved supply-chain conditions. This growth demonstrates the increasing consumer shift toward smokeless alternatives to traditional cigarettes.
The smoke-free division has become an increasingly significant part of PMI’s business, now representing 38% of total net revenues and 40% of gross profit.
Net revenues in this segment grew by 14.2% (16.8% on an organic basis), while gross profit increased by 15.9% (20.2% organically). Quarterly shipments of smoke-free products reached almost 40 billion units, marking a new milestone for the company.
CEO Jacek Olczak highlighted the company’s performance, stating,
“In the third quarter, we delivered exceptionally strong performance, with record quarterly net revenues and earnings per share. This reflects excellent momentum across all regions and categories, with a reacceleration in IQOS adjusted in-market sales growth, strong ZYN volumes, and resilient combustible performance.”
The company’s traditional cigarette business also showed resilience, with consolidated shipment volumes rising 1.3% in the quarter, improving from a 0.4% increase in the previous quarter. Total cigarette and Heated Tobacco Unit (HTU) shipment volume grew by 2.6% year-over-year to 198.59 billion units, with HTU shipments increasing by 8.9%.
IQOS, the company’s flagship heated tobacco device, continued to perform well in key markets including Japan, Europe, and Indonesia. The oral product category saw significant growth, with total shipment volume in cans increasing by 24.7%, primarily due to the success of nicotine pouches.
On the earnings front, adjusted earnings per share reached $1.91, up 14.4% and exceeding both the consensus estimate of $1.82 and management’s guidance range of $1.77-$1.82. Excluding currency effects, adjusted EPS was $1.97, representing an 18% increase.
Looking ahead, Philip Morris raised its fiscal year 2024 adjusted earnings per share outlook to between $6.85 and $6.91, up from its previous range of $6.67 to $6.79. The company projects organic net revenue growth of 7.5% to 9% and expects total cigarette, HTU, and oral smoke-free product shipment volume growth of 2% to 3%, primarily driven by smoke-free products.
The optimistic forecast includes expectations for U.S. nicotine pouch shipment volume to reach between 570 and 580 million cans. The company also anticipates organic operating income growth of 14% to 14.5% for the year.
However, PMI faces some challenges, including a significant legal settlement in Canada. The company, along with British American Tobacco and Japan Tobacco, agreed to pay C$32.5 billion ($23.6 billion) to settle a long-running lawsuit involving approximately 100,000 smokers and ex-smokers who claimed inadequate warning about cancer risks.
The market responded positively to the earnings report, with PMI shares rising more than 7% in morning trading Tuesday, reaching $127.50 per share.
The strong performance across both traditional and smoke-free segments, combined with successful pricing strategies and growing consumer acceptance of alternative tobacco products, positions Philip Morris International well for continued growth in the evolving tobacco market.
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