Global tobacco company Philip Morris International (NYSE:PM) reported fourth-quarter and full-year 2024 earnings on Thursday, Feb. 6, that exceeded analysts' consensus expectations. Adjusted EPS of $1.55 came in just ahead of the estimated $1.50 and revenue of $9.71 billion surpassed the forecasted $9.44 billion. The smoke-free portion of the business now accounts for 40% of overall revenue and around 42% of gross profit.
Overall, the quarter highlighted Philip Morris's strategic shift towards smoke-free products, supporting a strong financial performance despite lingering reliance on traditional tobacco products.
| Metric | Q4 2024 | Analysts' Estimate | Q4 2023 | Change (YOY) |
|---|---|---|---|---|
| EPS | $1.55 | $1.50 | $1.36 | 14% |
| Revenue | $9.71 billion | $9.44 billion | $9.05 billion | 7.3% |
| Adjusted operating income | $3.52 billion | -- | $3.05 billion | 15.3% |
| Smoke-free revenue | $3.9 billion | -- | $3.6 billion | 9.2% |
| Combustibles revenue | $5.8 billion | -- | $5.4 billion | 6% |
Source: Philip Morris International. Note: Analyst consensus estimates for the quarter provided by FactSet. YOY = Year over year.
Philip Morris International: Legacy and Transformation
Philip Morris International is a leading global company in the tobacco sector, best known for its flagship brand, Marlboro. It is committed to shifting from conventional tobacco products to smoke-free alternatives. This transformation forms the crux of its strategy, aiming to significantly reduce smoking-related health risks.
The company’s recent focus on smoke-free growth is underscored by its investment in Swedish Match in November 2022, boosting its portfolio with the ZYN brand. This investment is part of a broader strategy to expand the availability of smoke-free products, now present in 95 markets worldwide.
Quarter Highlights and Developments
During Q4 2024, the company reported notable strides in its smoke-free product segment. Revenue from smoke-free products grew by 40%, demonstrating the company's successful push in this area. Heated Tobacco Units (HTUs) shipments rose by 5.1%, and cigarette shipments increased marginally by 1.1%. This aligns with the company's goal of transitioning consumers from traditional smoking to healthier alternatives.
Regulatory successes were crucial, as the U.S. FDA authorized ZYN nicotine pouches and IQOS devices as Modified Risk Tobacco Products. Such regulatory endorsements are critical in building credibility and legitimacy for smoke-free alternatives.
The geographic expansion also played a pivotal role. Notably, adjusted International Market Share (IMS) grew significantly in Japan and Europe, with smoke-free products gaining traction in key markets like Italy and Spain. This geographic focus underscores PMI's strategic segmentation to penetrate diverse markets and mitigate localized risks.
Philip Morris still faces challenges such as ongoing litigation and related impairment charges. For instance, a non-cash impairment charge of $2.3 billion was recorded related to the Canadian affiliate RBH. This reflects the complexity of navigating regulatory landscapes and managing tobacco-related claims. Despite these challenges, traditional products remain a significant revenue contributor, with Marlboro accounting for 39% of the cigarette shipment volume.
Looking Ahead
Philip Morris has set an optimistic outlook for 2025, projecting an adjusted EPS between $7.04 and $7.17, representing an increase of up to 9.1% in adjusted EPS from 2024. That comes in ahead of the FactSet consensus estimate of $6.99 a share. The company anticipates further growth in its smoke-free segment and continued geographic expansion as key drivers.
The company is investing in increasing the production capacity for ZYN products and expects its effective tax rate to stabilize between 22.5% and 23.5%. Investors are advised to watch the progress in smoke-free product marketing and regulatory developments. These factors will be critical for PMI’s growth trajectory as it continues its transformation to a smoke-free future.
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