Marlboro parent Philip Morris International Inc. ( PM ) saw its stock dip on Tuesday following the release of its second-quarter fiscal year 2025 earnings report.

While the tobacco giant’s revenue increased by 7.1% year-over-year (+6.8% organic) to $10.14 billion, it slightly missed the analyst consensus estimate of $10.32 billion.

However, Philip Morris ( PM ) delivered adjusted earnings of $1.91 per share, surpassing both the consensus of $1.86 and the management guidance of $1.80-$1.85.

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A key highlight of the report was the continued robust performance of its smoke-free business, which now accounts for a significant portion of the company’s financials.

Smoke-free products contributed 41% of total net revenues (up by 2.9 percentage points versus last year) and over 42% of total gross profit (up by 3.8 percentage points).

Shipment volumes of these products increased by 11.8%, with net revenues growing by 15.2% (14.5% organically), and gross profit increasing by 23.3% (21.5% organically).

This underscores the company’s strategic shift towards a smoke-free future, as articulated by CEO Jacek Olczak, who noted these results “reflect excellent momentum in our multicategory smoke-free business.”

Within the smoke-free portfolio, inhalable smoke-free products, primarily centered on IQOS, exceeded $3 billion in quarterly net revenues.

The company reported a reacceleration of HTU (Heated Tobacco Unit) adjusted in-market sales (IMS) volume, which excludes distributor and wholesaler inventory movements, back to double-digit growth of 11.4%.

This was driven by commercial initiatives and a notable improvement in Europe as the impact of the characterizing flavor ban subsides in affected markets.

The e-vapor category, particularly the VEEV brand, continued its increasingly profitable growth, with shipment volumes more than doubling, primarily fueled by strong performance in Europe.

In a significant statement on the potential of its next-generation products, Reuters cited Philip Morris International CFO Emmanuel Babeau as saying, “We think vape brand VEEV can have a similar level of profitability as cigarettes.”

This indicates the company’s strong belief in the financial viability and long-term potential of its e-vapor offerings to contribute substantially to overall profitability, mirroring the margins traditionally associated with its legacy combustible products.

In the oral smoke-free products segment, shipment volumes increased by 23.8% in pouches or pouch equivalents (26.5% in cans), primarily driven by nicotine pouches. These more than doubled outside the U.S. and Nordics and grew by over 40% to 190 million cans in the U.S., further diversifying the company’s smoke-free revenue streams.

Despite the focus on smoke-free alternatives, the combustibles business also demonstrated resilience. Combustibles net revenues grew by 2.1% (up 2.0% organically), driven by strong pricing, partly offset by negative mix dynamics.

Gross profit for this segment grew by 5.0% (4.8% organically), and Marlboro continued to gain market share, achieving its highest quarterly market share since the 2008 spin-off. Overall, the cigarette category share remained broadly stable.

Outlook

Looking ahead, Philip Morris ( PM ) raised its fiscal year 2025 adjusted earnings per share outlook from $7.36-$7.49 to $7.43-$7.56, aligning with the $7.46 consensus estimate.

The company projects fiscal 2025 net revenue growth of approximately 6% to 8% on an organic basis and organic operating income growth of 11% to 12.5% (up from prior guidance of 10.5% to 12.5%). Capital expenditures for fiscal year 2025 are estimated at around $1.6 billion.

The company anticipates a total international industry volume decline of around 1% for cigarettes and HTUs in 2025, excluding China and the U.S. For PMI specifically, total cigarette and smoke-free product shipment volume growth is expected to be around 1%, with smoke-free product volume growth of 12% to 14%, partly offset by a forecasted cigarette volume decline of approximately 2%.

For the third quarter, Philip Morris ( PM ) expects adjusted earnings per share of $2.08-$2.13, compared to the consensus of $2.12.

Adding another layer to its future strategy, Reuters also cited Babeau saying that the U.S. FDA response to the IQOS ILUMA application may not come until 2026.

This indicates that while the company is heavily investing in its next-generation products, the regulatory approval process in key markets like the U.S. can introduce delays, impacting the speed of market penetration for advanced heated tobacco systems like IQOS ILUMA.

Price Action: PM stock is trading lower by 7.21% to $167.47 at last check Tuesday.

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