Key takeaways
View morePhilip Morris International appears overvalued primarily due to its high EV/EBITDA and EV/Sales ratios compared to industry averages, suggesting the market is pricing in an optimistic growth scenario. While the company shows strong profit margins and growth potential in smoke-free products, significant risks such as regulatory challenges, liquidity concerns, and high debt levels are not adequately reflected in the current valuation.
- Philip Morris International is successfully transitioning to smoke-free products, with this segment now contributing 44% of total gross profit, driving revenue and margin expansion.
- The company's liquidity position is a concern, with a current ratio of 0.79 and negative working capital of $5.891 billion as of Q1 2025, indicating potential difficulties in meeting short-term obligations.
- Despite a net loss in Q4 2024, PMI's net income rebounded strongly in Q1 2025 to $2.682 billion, demonstrating volatile earnings influenced by non-recurring items.
- PMI's valuation metrics, such as EV/EBITDA (18.45) and EV/Sales (7.71), are above industry averages, suggesting a premium valuation that may not be justified by its financial health.
- The company faces significant regulatory risks, as highlighted in SEC filings, which could impact its ability to commercialize and grow its smoke-free product portfolio.
- PMI has outperformed its peers, Altria and British American Tobacco, and the Consumer Staples Select Sector SPDR Fund (XLP) over the past year, but this outperformance comes with higher volatility and larger drawdowns.
- Management has reconfirmed its currency-neutral growth outlook for 2025 and raised its adjusted diluted EPS forecast, reflecting strong momentum from its smoke-free business and a positive future outlook.
- ZYN's supply constraints present both a challenge and an opportunity, with the company increasing production capacity to meet strong demand and drive future growth.
- The company's negative equity position raises concerns about its long-term financial stability and its ability to withstand economic downturns.
Evaluation summary
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Company Overview:
- Philip Morris International, Inc. (PM) is a global consumer goods company focused on manufacturing and selling cigarettes and smoke-free products. Key cigarette brands include Marlboro. Smoke-free products include IQOS heat-not-burn devices, ZYN nicotine pouches, and VEEV e-vapor products. The company operates in approximately 175 markets worldwide.
- The company is transitioning its business towards smoke-free products, investing over $12.5 billion to develop and commercialize innovative alternatives. The smoke-free business now accounts for 44% of total gross profit, according to the Q1 2025 earnings call.
- The benchmarks used for comparative analysis include the Consumer Staples Select Sector SPDR Fund (XLP). The peers used for comparative analysis include Altria Group, Inc. (MO) and British American Tobacco plc (BATS).
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Financial Performance:
- In Q1 2025, PM reported revenue of $9.249 billion, compared to $9.653 billion in Q4 2024, $9.868 billion in Q3 2024, and $9.407 billion in Q2 2024. Net income for Q1 2025 was $2.682 billion, a significant improvement from the net loss of $580 million in Q4 2024, and comparable to $3.073 billion in Q3 2024 and $2.399 billion in Q2 2024.
- Gross profit margin was 64.53% in Q1 2025, compared to 62.03% in Q4 2024, 63.44% in Q3 2024, and 62.36% in Q2 2024, indicating an upward trend. Net profit margin was 29.00% in Q1 2025, a substantial increase from -6.01% in Q4 2024, and comparable to 31.14% in Q3 2024 and 25.50% in Q2 2024.
- The Return on Average Assets (ROA) for Q1 2025 was 11.62%, compared to an industry average of 16.24%. The Return on Average Total Capital was 34.07%, compared to an industry average of 38.56%. The Return on Average Invested Capital was 24.33%, compared to an industry average of 27.69%.
- The Q1 2025 earnings call highlighted that the company delivered double-digit growth in organic net revenue, operating income, and adjusted diluted EPS, driven by the smoke-free business.
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Operational Efficiency:
- Total current assets were $22.196 billion as of March 31, 2025, compared to $20.170 billion as of December 31, 2024, $20.796 billion as of September 30, 2024, and $21.028 billion as of June 30, 2024. Total current liabilities were $28.087 billion as of March 31, 2025, compared to $22.915 billion as of December 31, 2024, $23.366 billion as of September 30, 2024, and $22.416 billion as of June 30, 2024.
- Working capital was negative $5.891 billion as of March 31, 2025, negative $2.745 billion as of December 31, 2024, negative $2.570 billion as of September 30, 2024, and negative $1.388 billion as of June 30, 2024, indicating a worsening trend.
- Net operating cash flow was negative $350 million in Q1 2025, compared to $4.002 billion in Q4 2024, $3.342 billion in Q3 2024, and $4.632 billion in Q2 2024. Total capital expenditure was $404 million in Q1 2025, $278 million in Q4 2024, $379 million in Q3 2024, and $370 million in Q2 2024.
- Free cash flow margin was negative 0.08% in Q1 2025, 0.39% in Q4 2024, 0.30% in Q3 2024, and 0.45% in Q2 2024.
- Cash dividends paid were $2.116 billion in Q1 2025, $2.106 billion in Q4 2024, $2.027 billion in Q3 2024, and $2.027 billion in Q2 2024.
- The current ratio was 0.79 in Q1 2025, 0.88 in Q4 2024, 0.89 in Q3 2024, and 0.94 in Q2 2024, all below the industry average of 1.72. The quick ratio was 0.43 in Q1 2025, 0.47 in Q4 2024, 0.49 in Q3 2024, and 0.52 in Q2 2024, all below the industry average of 1.07.
- Total debt to total equity ratio is not calculable due to negative equity. Debt/EBITDA was 3.11 in Q1 2025, 3.1 in Q4 2024, 3.01 in Q3 2024, and 3.22 in Q2 2024, slightly above the industry average of 3.08.
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Growth Opportunities:
- PMI is focused on expanding its smoke-free product portfolio, particularly IQOS and ZYN. The company is leveraging its multi-category strategy to accelerate growth from ZYN and VEEV in international markets, using the IQOS brand and infrastructure.
- The company is investing in IQOS innovation, with a rich pipeline to enhance the user experience.
- PMI is rolling out ZYN internationally, leveraging its presence with IQOS to drive awareness and trial among legalized nicotine users. ZYN is now in 38 markets. The company raised its forecast for US ZYN shipment to 800-840 million cans for 2025.
- The company commenced direct sales of IQOS 3 devices and HTUs in Austin, Texas, as a pilot program, preparing for the upscale launch of IQOS ILUMA.
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Recent Developments and Market Sentiment:
- The Q1 2025 earnings call highlighted strong performance driven by smoke-free products, particularly IQOS and ZYN. ZYN's supply constraints were noted as a challenge, but the company is increasing production capacity.
- Management reconfirmed its currency-neutral growth outlook for 2025 and raised its adjusted diluted EPS forecast, reflecting strong momentum from its smoke-free business.
- Analysts focused on ZYN out-of-stock issues, margin expansion drivers, and the full-year guidance outlook.
- The SEC filings indicate that PMI is actively transitioning its business towards smoke-free products, which now account for over a third of its net revenues.
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Risks and Threats:
- Regulatory challenges, including restrictions on marketing and sales of smoke-free products, pose significant risks. The SEC filings mention that governments are imposing higher excise taxes and discriminatory tax structures on tobacco products.
- The company's financial performance remains highly dependent on the unpredictable growth trajectory of its smoke-free portfolio.
- PMI faces ongoing legal and governmental scrutiny, including litigation related to tobacco and nicotine products.
- Macroeconomic factors, such as currency volatility and inflationary pressures, could negatively impact the company's financial performance.
- The SEC filings highlight the risk of failure to successfully commercialize and grow smoke-free products, or regulatory restrictions on these products.
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Valuation Analysis:
- The Enterprise Value to EBITDA ratio for Q1 2025 is 18.45, compared to an industry average of 10.27. The Enterprise Value to Sales ratio is 7.71, compared to an industry average of 3.98. These metrics suggest that PM is trading at a premium compared to its industry peers.
- Potential catalysts include the successful launch of IQOS ILUMA in the US and continued growth of ZYN in international markets.
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Price Performance:
- From March 17, 2025, to May 14, 2025, the stock price has fluctuated. The closing price on March 17, 2025, was $154.347575, and the closing price on May 14, 2025, was $164.03.
- PM has significantly outperformed the Consumer Staples Select Sector SPDR Fund (XLP) across most time periods. For the year-to-date period, PM has an overperformance of 34.66%. Over a 1-year period, PM's return was 70.42% compared to XLP's 5.53%, resulting in an overperformance of 64.89%.
- PM has generally outperformed both Altria Group (MO) and British American Tobacco (BATS) across various time periods. For the year-to-date (YTD) period, PM's return is 36.65%, significantly higher than MO's 9.21% and BATS's 11.51%.
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Future Outlook:
- Management reconfirmed its currency-neutral growth outlook for 2025, expecting 6%-8% organic net revenue growth, 10.5%-12.5% organic operating income growth, and 10.5%-12.5% currency-neutral adjusted diluted EPS growth. The company raised its forecast for US ZYN shipment to 800-840 million cans.
- The company is well-positioned to capitalize on the growing demand for smoke-free products and expand its presence in key markets.
- Continued innovation and product development will be crucial for sustaining revenue growth and improving profitability.
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Summary:
- Philip Morris International is undergoing a strategic transformation, shifting its focus from traditional tobacco products to smoke-free alternatives. This transition is driving revenue growth and improved gross margins.
- The company's liquidity position is concerning, as indicated by the low current ratio and negative free cash flow margin. The company also has negative equity.
- Despite these challenges, PMI is committed to shareholder returns, as evidenced by its progressive dividend policy, and is investing in innovation and product development to sustain long-term growth.
- SWOT Analysis:
- Strengths: Strong brand recognition, growing smoke-free product portfolio, commitment to innovation.
- Weaknesses: Concerning liquidity position, negative working capital, high debt levels, negative equity.
- Opportunities: Expanding smoke-free product market, geographic expansion, strategic partnerships.
- Threats: Regulatory challenges, market dependence on smoke-free products, legal and governmental scrutiny, macroeconomic factors.
- Overall, PMI presents a mixed investment profile. The company has strong growth potential in the smoke-free market, but it faces financial and operational challenges that need to be addressed. The high valuation and regulatory risks should be carefully considered.
Price history
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Fundamentals
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Insights
- Philip Morris International is undergoing a strategic transformation, shifting its focus from traditional tobacco products to smoke-free alternatives, which is driving revenue growth and improved gross margins.
- The company's liquidity position is concerning, as indicated by the low current ratio and negative free cash flow margin, which could pose challenges in meeting short-term obligations.
- While operating profitability is improving, net income is volatile due to non-recurring items, making it difficult to assess the company's sustainable earnings potential.
- The company's capital structure is risky, with a heavy reliance on debt financing and negative equity, which could limit its financial flexibility and increase its vulnerability to economic downturns.
- Despite these challenges, PMI is committed to shareholder returns, as evidenced by its progressive dividend policy, and is investing in innovation and product development to sustain long-term growth.
Analysis
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Revenue - Revenue is trending upwards, driven by the increasing demand for smoke-free products and strategic pricing initiatives. - The company's ability to innovate and introduce new products, such as ZYN and IQOS ILUMA, is crucial for sustaining revenue growth. - Revenue growth is expected to continue as the company expands its presence in key markets and leverages its multi-category strategy.
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Profitability
- Gross profit margin is strong and trending upwards, reflecting the shift towards higher-margin smoke-free products.
- Operating profitability is improving due to effective expense control and cost-saving initiatives.
- Net profit margin is volatile due to non-recurring items, making it difficult to assess sustainable earnings.
- Profitability is expected to improve as smoke-free products become a larger part of the business and the company realizes further cost efficiencies.
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Liquidity
- The current ratio and quick ratio are below industry averages and trending downwards, indicating potential liquidity issues.
- The company may face challenges in meeting its short-term obligations if operating cash flow does not improve.
- Maintaining adequate liquidity is crucial for addressing short-term obligations and supporting future growth initiatives.
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Solvency
- The company relies heavily on debt financing, which, combined with negative equity, creates a risky capital structure.
- Long-term debt is decreasing, indicating efforts to reduce overall leverage.
- The debt/EBITDA ratio is slightly above the industry average, suggesting moderate leverage.
- Improving solvency will require generating consistent free cash flow and managing debt obligations effectively.
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Operational Efficiency
- Inventory levels are stable, suggesting efficient inventory management.
- Capital expenditures are focused on supporting the growth of smoke-free products, aligning with the company's strategic priorities.
- The company's ability to innovate and introduce new products is crucial for sustaining revenue growth and improving operational efficiency.
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Cash Flow Analysis - Operating cash flow has been volatile, impacted by changes in working capital and non-cash adjustments. - Free cash flow margin is negative, indicating that the company is not generating enough cash from its operations to cover its capital expenditures. - Cash dividends paid have steadily increased, demonstrating a commitment to shareholder returns. - Improving cash flow generation is essential for supporting future growth initiatives and maintaining a sustainable dividend policy.
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Risk Factors
- Regulatory challenges, including restrictions on marketing and sales of smoke-free products, pose significant risks to the company's ability to successfully commercialize these alternatives.
- The company's financial performance remains highly dependent on the unpredictable growth trajectory of its smoke-free portfolio.
- PMI faces ongoing legal and governmental scrutiny, including litigation related to tobacco and nicotine products.
- Macroeconomic factors, such as currency volatility and inflationary pressures, could negatively impact the company's financial performance.
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Future Outlook
- The company is well-positioned to capitalize on the growing demand for smoke-free products and expand its presence in key markets.
- Continued innovation and product development will be crucial for sustaining revenue growth and improving profitability.
- Effective cost management and capital allocation will be essential for maximizing shareholder returns.
- The company's ability to navigate regulatory challenges and mitigate risk factors will determine its long-term success.
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Financial statements
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Public filings
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- PMI is aggressively transitioning its business towards smoke-free products, which now account for over a third of its net revenues, as it seeks to replace cigarettes and reduce harm to adult smokers
- Regulatory challenges, including restrictions on marketing and sales of smoke-free products, as well as discriminatory tax structures, pose significant risks to PMI's ability to successfully commercialize these alternatives
- The company's financial performance remains highly dependent on the unpredictable growth trajectory of its smoke-free portfolio, which could be impacted by various market, competitive, and regulatory factors
- PMI faces ongoing legal and governmental scrutiny, including litigation related to tobacco and nicotine products as well as investigations into its business practices, which could result in material financial and reputational impacts
- Despite the headwinds, PMI has demonstrated strong financial performance in 2024 thus far, driven by the growth of its smoke-free business, though it remains exposed to currency volatility and inflationary pressures
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Core Business and Operations:
- Philip Morris International Inc. (PMI) is a leading international consumer goods company focused on manufacturing and selling cigarettes and smoke-free products
- Key products include cigarette brands like Marlboro, as well as smoke-free products like IQOS heat-not-burn devices, ZYN nicotine pouches, and e-vapor products
- PMI operates in approximately 175 markets globally and has a wide range of premium, mid-price and low-price brands
- PMI is actively transitioning its business towards smoke-free products, having invested over $12.5 billion to develop and commercialize innovative smoke-free alternatives
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Industry and Market Trends:
- The tobacco industry faces significant regulatory challenges, including restrictions on packaging, marketing, and sales of tobacco and nicotine-containing products
- Governments are imposing higher excise taxes and discriminatory tax structures on tobacco products, which can adversely impact PMI's profitability
- Illicit trade in cigarettes and other tobacco/nicotine products remains a persistent problem, undermining public health efforts and damaging legitimate businesses
- Regulators are increasingly focused on regulating smoke-free products, with varying approaches to their commercialization and communication of health claims
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Recent Events:
- PMI acquired Swedish Match AB in 2022, expanding its presence in the oral nicotine delivery market
- PMI reached an agreement with Altria Group to end their commercial relationship for IQOS in the U.S., giving PMI full rights to commercialize IQOS in the U.S. market
- PMI announced the sale of its Vectura Group subsidiary to Molex Asia Holdings Ltd. for approximately $400 million
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Risk Factors:
- Failure to successfully commercialize and grow smoke-free products, or regulatory restrictions on these products
- Unpredictable financial and business performance of smoke-free products compared to the mature cigarette business
- Inability to differentiate smoke-free products and cigarettes for favorable tax treatment
- Declining consumption of tax-paid cigarettes and increasing excise taxes
- Significant governmental action to reduce tobacco and nicotine use
- Disruptions to supply chain, manufacturing, and distribution capabilities
- Unfavorable currency exchange rates and economic/political instability in certain markets
- Litigation related to tobacco and nicotine products, and governmental investigations
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Legal Matters:
- Ongoing litigation related to tobacco and nicotine products, including class actions, health care cost recovery cases, and public civil actions
- Investigations by various government agencies into issues such as customs duties, excise taxes, and advertising/marketing practices
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Management's Discussion and Analysis:
- Net revenues increased 7.8% year-to-date, driven by favorable pricing and volume/mix in smoke-free products
- Operating income increased 17.0% year-to-date, benefiting from the smoke-free business performance and favorable comparisons to 2023
- Effective tax rate decreased to 23.1% year-to-date, impacted by various discrete tax items
- Cash flow from operations remained strong at $8.2 billion year-to-date, supported by working capital improvements
- Capital expenditures increased to support smoke-free product manufacturing capacity expansion
Earnings calls
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Earnings Report 2025Q1 (2025-04-23)
Key takeaways
- Smoke-free products are the primary growth engine: PMI's financial performance is increasingly reliant on its smoke-free portfolio, particularly IQOS and ZYN, which are driving revenue and margin expansion.
- ZYN's supply constraints present both a challenge and an opportunity: While out-of-stock issues have temporarily limited ZYN's market share, the company's efforts to increase production capacity and replenish inventories position it for accelerated growth in the coming quarters.
- Margin expansion is a key focus: PMI is actively managing costs and leveraging the higher margins of its smoke-free products to drive overall profitability, despite increased investments in growth initiatives.
- Geopolitical and macroeconomic uncertainties remain a concern: Despite a strong start to the year, PMI is maintaining a cautious outlook, acknowledging the potential impact of external factors on its business.
- The multi-category strategy is gaining traction: PMI's efforts to offer a range of smoke-free products in key markets are yielding positive results, enhancing its position as a global smoke-free champion.
Focus of management’s prepared remarks
- Strong Q1 Performance: PMI delivered double-digit growth in organic net revenue, operating income, and adjusted diluted EPS, driven by the smoke-free business.
- Smoke-Free Business Growth: The smoke-free business performed exceptionally well, with significant growth in shipment volumes, net revenue, and gross profit, fueled by ZYN and IQOS. It now accounts for 44% of total gross profit.
- IQOS Performance: IQOS delivered strong HTU-adjusted IMS growth, with continued performance in Japan and Europe, despite the EU characterizing flavor ban.
- ZYN Growth in the US: ZYN experienced substantial growth in the US, with shipments increasing significantly, exceeding initial expectations due to strong demand and increased production capacity.
- Multi-Category Strategy: PMI is leveraging its multi-category strategy for smoke-free products, using the IQOS brand and infrastructure to accelerate growth from ZYN and VEEV in international markets.
- Combustible Business Resilience: The combustible business showed robust performance, driven by volume growth, strong pricing, and cost initiatives, despite negative geographic mix.
- Margin Expansion: The company delivered strong gross margin expansion, driven by smoke-free growth, pricing, and cost efficiencies.
- Cost Savings Initiatives: PMI is driving manufacturing and back-office efficiency, delivering significant cost savings and remaining on track to achieve its $2 billion target.
- IQOS Innovation: The company continues to invest in IQOS innovation, with a rich pipeline to enhance the user experience.
- European Market Strategy: PMI is building on the strengths of its IQOS business in Europe to create an integrated multi-category portfolio, accelerating consumer switching and value creation.
- US Market Entry with IQOS: PMI commenced direct sales of IQOS 3 devices and HTUs in Austin, Texas, as a pilot program, preparing for the upscale launch of IQOS ILUMA.
- ZYN International Expansion: PMI is rolling out ZYN internationally, leveraging its presence with IQOS to drive awareness and trial among legalized nicotine users.
- Combustible Business Performance: The combustible business performed robustly, driven by strong pricing, with notable contributions from various markets.
- 2025 Outlook: PMI reconfirmed its currency-neutral growth outlook for 2025 and raised its adjusted diluted EPS forecast, reflecting strong momentum from its smoke-free business.
- Capital Allocation Priorities: Delivery remains a key priority, and the company continues to target further debt reduction, aiming for a target ratio of around two times by the end of 2026.
Focus of the analyst Q&A
- ZYN Out-of-Stock Issues and Inventory Replenishment:
- How long will it take for retailers to rebuild ZYN inventories?
- What is the phasing of ZYN shipment growth throughout the year?
- Margin Expansion Drivers:
- What are the drivers of continued margin expansion for the remainder of the year, considering SG&A growth and investments?
- How should we think about the margin gap between combustible and smoke-free products and the drivers of further expansion?
- Full Year Guidance Outlook:
- What factors should be considered in the second half of the year that cause the constant currency EPS growth outlook to be below the full year average?
- IQOS IMS Growth:
- What are the underlying benefits to IMS growth re-accelerating across the rest of 2025?
- Impact of ZYN Volume Increase on Guidance:
- Why was the constant currency EPS guidance kept the same despite raising the ZYN shipment volume forecast?
- Unconstrained Offtake Growth for ZYN:
- How is the company thinking about the unconstrained offtake growth for ZYN as supply constraints ease?
- ZYN Trends in Non-Tracked Channels:
- Are there different trends in ZYN sales when looking at non-tracked channels compared to Nielsen data?
- MSA Data for ZYN Growth:
- What does the MSA data highlight as the growth rate for ZYN, and how does it compare to the overall category growth?
- Impact of CTP Movements on IQOS ILUMA Launch:
- How do recent movements at the CTP impact the timing of the IQOS ILUMA launch in the US?
- Net Interest Cost Guidance:
- What is the net interest cost guidance for the year?
Summary
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Financial Performance
Philip Morris International (PMI) reported a strong start to 2025 with double-digit increases in organic net revenue, operating income, and adjusted diluted EPS in both constant currency and dollar terms. Q1 adjusted diluted EPS grew by 17.3% in constant currency and 12.7% in dollar terms, reaching $1.69, including a $0.07 unfavorable currency variance. The company raised its 2025 adjusted diluted EPS forecast to $7.36-$7.49, reflecting 12%-14% growth in dollar terms.
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Revenue Drivers
The primary revenue driver was the smoke-free business, with shipment volumes up 14.4% year-on-year and organic net revenue growth of 20%. IQOS delivered close to 10% HTU-adjusted IMS growth, with strong performance in Japan and Europe. ZYN shipments increased by 53% in the US. Combustible volumes were also positive, contributing to overall growth. Pricing contributed positively, with over 8% combustible pricing and around 3% for smoke-free products (excluding devices).
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Profit Margins and Cost Management
The company delivered strong gross margin expansion of 340 basis points organically. Smoke-free products drove margin expansion, surpassing 70% gross margin, more than five percentage points above combustibles. Adjusted operating income margin expanded by 250 basis points to 40.7%. The company is driving manufacturing and back-office efficiency, delivering over $180 million in gross cost savings in Q1. They are on track to achieve their $2 billion cost savings target over 2024-2026.
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Guidance and Outlook
PMI reconfirmed its currency-neutral growth outlook for 2025, expecting 6%-8% organic net revenue growth, 10.5%-12.5% organic operating income growth, and 10.5%-12.5% currency-neutral adjusted diluted EPS growth. The company raised its forecast for US ZYN shipment to 800-840 million cans. For Q2, they expect HTU shipment volume of 37.5-38.5 billion and adjusted diluted EPS of $1.80-$1.85.
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Strategic Initiatives
PMI is focused on its multi-category strategy for smoke-free products, leveraging the IQOS brand and commercial infrastructure to accelerate growth from ZYN and VEEV. They have 46 markets with multiple smoke-free offerings, including 16 with all three PMI categories. The company commenced direct sales of IQOS 3 devices and HTUs in Austin, Texas, and is preparing for the upscale launch of IQOS ILUMA. They are expanding ZYN internationally, now in 38 markets.
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Management Commentary
Management expressed confidence in achieving another year of superior growth, highlighting the strength of their smoke-free business and proactive measures on pricing and cost. They emphasized their commitment to a progressive dividend policy and rewarding shareholders. They believe they are well-positioned to navigate external dynamics and mitigate potential supply chain challenges.
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Industry and Market Conditions
The cigarette industry declined by 1.3% in Q1, but PMI grew share in a modestly declining industry. They expect this divergence to continue in markets where smoke-free products are not permitted. The total international nicotine pouch category is nascent, standing at around half the size of the US in volume terms.
Comparative analysis
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Benchmarks (as of 2025-05-14)
Consumer Staples Select Sector SPDR Fund (XLP)
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Performance Comparison:
- Philip Morris International, Inc. (PM) has significantly outperformed the Consumer Staples Select Sector SPDR Fund (XLP) across most time periods. For the year-to-date period, PM has an overperformance of 34.66%. Over a 1-year period, PM's return was 70.42% compared to XLP's 5.53%, resulting in an overperformance of 64.89%. This trend continues over 2-year and 3-year periods, with PM showing substantial overperformance. However, in the most recent week, PM underperformed XLP by -2.33%.
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Risk and Return Analysis:
- PM provides higher annualized returns compared to XLP. Over a 1-year period, PM's annualized return is 70.42% versus XLP's 5.53%. Over 3 years, PM's annualized return is 21.69% versus XLP's 3.68%.
- PM's annualized volatility has generally been higher than XLP's, indicating that PM's price experiences larger swings. For example, in Q4 2024, PM's volatility reached as high as 39.01%, while XLP's remained at 10.73%.
- PM experiences larger drawdowns than XLP. The maximum drawdown for PM was -22.78% on 2022-09-30, while the maximum drawdown for XLP was -16.3% on 2022-10-07. This suggests that PM carries a higher level of risk compared to XLP.
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Risk-Adjusted Performance:
- The Sharpe Ratio for PM has fluctuated, and is not consistently higher than XLP's, indicating that the risk-adjusted returns vary over time. As of Q2 2025, PM's Sharpe Ratio is 2.31, while XLP's is 0.48.
- PM's beta values are consistently below 1, indicating that it is less volatile than the overall market. Recently, PM's beta has decreased, indicating that it has become less sensitive to market movements. As of Q2 2025, PM's beta is 0.13, while XLP's beta is 0.25.
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Overall Assessment:
- Philip Morris International, Inc. (PM) has demonstrated strong historical performance, significantly outperforming Consumer Staples Select Sector SPDR Fund (XLP) over the past 1, 2, and 3-year periods, as well as year-to-date. However, this outperformance comes with higher volatility and larger drawdowns compared to XLP. While PM's Sharpe Ratio has fluctuated, it has recently been higher than XLP's, suggesting better risk-adjusted returns in the short term. PM's beta is below 1, indicating lower sensitivity to market movements, which may appeal to investors seeking stability.
Peers Price History(as of 2025-05-14)
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Performance Comparison:
- Philip Morris International (PM) has generally outperformed both Altria Group (MO) and British American Tobacco (BATS) across various time periods. For the year-to-date (YTD) period, PM's return is 36.65%, significantly higher than MO's 9.21% and BATS's 11.51%. Over longer periods, such as 1 year, 2 years, and 3 years, PM has consistently shown higher returns compared to its peers. For example, the 3-year annualized return for PM is 21.69%, compared to 10.39% for MO and 6.87% for BATS.
- PM's outperformance has been consistent, particularly over the medium to long term. While there are short-term fluctuations, PM has generally delivered superior returns compared to MO and BATS.
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Risk and Return Analysis:
- PM has provided higher annualized returns compared to its peers. The 1-year annualized return for PM is 70.42%, compared to 32.85% for MO and 41.17% for BATS. This indicates that PM has been more effective in generating returns for investors.
- The annualized volatility of PM has fluctuated but has generally been moderate. In recent periods, such as Q4 2024 and Q1 2025, PM's volatility increased, reaching levels comparable to or higher than its peers. For example, in Q4 2024, PM's volatility reached 38.81%, while MO's was 28.79% and BATS's was 32.25%.
- PM's maximum drawdown was -22.78% on 2022-09-30, which is less severe than MO's -25.83% and BATS's -30.25%. This suggests that PM has a relatively lower risk profile in terms of peak-to-trough declines.
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Risk-Adjusted Performance:
- PM's Sharpe Ratio has generally been higher than that of BATS, indicating better risk-adjusted returns. In recent periods, PM's Sharpe Ratio has shown a strong recovery, suggesting improved risk-adjusted performance.
- The beta value of PM has consistently been below 1, indicating that the stock is less volatile than the market. This suggests that PM is a relatively stable investment compared to the overall market.
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Overall Assessment:
- Based on the analysis, Philip Morris International (PM) has demonstrated superior performance compared to Altria Group (MO) and British American Tobacco (BATS). PM has provided higher returns, moderate volatility, and relatively lower drawdowns. The risk-adjusted performance, as indicated by the Sharpe Ratio, has generally been better for PM compared to its peers.
- A significant trend is the recent increase in PM's volatility, which could be a factor to monitor. However, the consistently lower beta values suggest that PM remains a relatively stable investment.
- Overall, PM's strong performance, coupled with its risk profile, makes it a potentially attractive investment option compared to MO and BATS.
Peers Fundamentals(as of 2025-03-31)
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Market Position and Size:
- Philip Morris International (PM) is the largest company in its peer group by market capitalization, with a market cap of $255,315.98 million, significantly exceeding Altria Group (MO) at $94,885.07 million and British American Tobacco (BATS) at $66,363.42 million.
- PM also leads in terms of revenue and EBITDA, reporting $38,177 million in revenue and $15,948 million in EBITDA for the most recent quarter. This indicates a strong market presence and substantial operational scale.
- Despite its size, PM's net income of $7,574 million is lower than Altria's $10,184 million, suggesting potential differences in profitability or accounting practices.
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Profitability and Efficiency:
- PM's Gross Profit Margin of 63.08% is competitive, slightly less than Altria's 70.81% but comparable to British American Tobacco's 63.13%, and above the industry average of 56.84%.
- Its EBITDA Margin of 41.77% is also strong, exceeding the industry average of 39.32%, but lower than Altria's 59.4%.
- However, PM's Net Profit Margin of 19.84% lags behind both Altria (50.3%) and the industry average (25.37%), indicating potential inefficiencies in managing operating costs or higher tax liabilities.
- PM's Return on Average Assets (11.62%), Return on Average Total Capital (34.07%), and Return on Average Invested Capital (24.33%) are all lower than Altria's and the industry average, suggesting less efficient utilization of assets and capital.
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Financial Health and Stability:
- PM's Current Ratio of 0.79 and Quick Ratio of 0.43 are below the industry averages of 1.72 and 1.07, respectively, raising concerns about short-term liquidity.
- Its Debt / EBITDA ratio of 3.11 is slightly above the industry average of 3.08, indicating a moderate level of leverage.
- PM's Net Operating Cash Flow of $11,626 million and Free Cash Flow of $10,195 million demonstrate strong cash generation capabilities.
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Valuation and Market Perception:
- PM's valuation metrics, including Enterprise Value To Sales (7.71), Enterprise Value To EBITDA (18.45), Price To Earnings (33.71), and Price To Sales Ratio (6.69), are significantly higher than its peers and the industry average.
- This suggests that the market may have priced in future growth expectations or other factors, potentially indicating overvaluation relative to its current earnings and sales.
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Cash Flow and Capital Management:
- PM generates strong cash flow from operations and free cash flow, with Net Operating Cash Flow at $11,626 million and Free Cash Flow at $10,195 million.
- However, its Total Capital Expenditure of $1,431 million is significantly higher than its peers, which may impact its free cash flow growth and capital allocation strategies.
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Growth and Future Prospect:
- PM demonstrates superior growth in sales/revenue and EBITDA compared to its peers, with average YoY growth rates of 4.95% and 5.23%, respectively.
- However, its free cash flow and free cash flow margin growth are more volatile and, on average, lower than its peers, suggesting potential challenges in cash management or investment strategies.
- PM's most recent year-over-year growth rates for sales/revenue (6.83%) and EBITDA (8.53%) are above their respective 5-year CAGRs (4.8% and 4.72%), indicating an acceleration in growth.
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Potential for Investment:
- Philip Morris International (PM) presents a mixed investment profile. Its dominant market position, strong revenue, and EBITDA generation are attractive.
- However, its lower net profit margin, returns on assets and capital, and higher valuation metrics compared to peers raise concerns.
- Investors should carefully weigh PM's growth potential against its current valuation and operational efficiency.
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Key Risks and Considerations:
- PM's lower net profit margin and returns on assets and capital compared to peers suggest potential inefficiencies in managing operating costs or utilizing assets and capital.
- Its higher valuation metrics may indicate overvaluation, increasing the risk of a potential correction.
- The high volatility in free cash flow and free cash flow margin could be a potential red flag, warranting further investigation into the company's capital expenditure and cash management practices.
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Overall Assessment:
- Philip Morris International (PM) is a market leader with strong revenue and EBITDA generation, but its financial health is tempered by lower net profit margins and returns on assets and capital compared to peers and industry averages.
- While PM maintains robust cash flow, its higher valuation metrics suggest that the market may have priced in future growth expectations.
- Investors should carefully consider PM's growth potential, valuation, and operational efficiency before making an investment decision.
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